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Wal-Mart’s Challenges in Global Expansion Essay

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Updated: Aug 5th, 2021

Introduction

Wal-Mart is the leading global retailer. It started its operations with nine nations in South America, Asia, and Europe. Currently, the company is conducting its global trade across 27 countries. In fact, its revenue was in excess of USD$400 billion for the fiscal 2012.

The expansion has prepared the company for entry into other new markets. However, globalization is continually attracting an array of investors into the retail market industry. Surprisingly, many renowned retailers have failed in particular global markets sighting varied reasons. Usually, the reasons include legal, regulatory, cultural and competition.

The company has been experiencing significant challenges in expanding its operations in Asia, specifically in China and India. This attributed to part of the many business and cultural challenges a global company can face when attempting to expand operations into a foreign country.

This study explores Wal-Mart global expansion and the challenges it faces in this endeavor. The research also examines whether the company is likely to succeed to penetrate the Asian market with the retail model it uses in the United States market.

Expansion

Wal-Mart is the largest retail company in the United States. In fact, the financial endowment of the company is recognized globally. It is within the beliefs of the company that it will expand globally with revenues rising above that of the US market (Molin 2004, p.1). Armed with the belief, the company has been exploring different markets including the Asian retail market.

However, the company seems to have failed to appreciate that success in one country does not guarantee similar success in another. The reality forced the company to open the International Division within its organizational structure. The department was charged with managing the international growth opportunities.

Primarily, the division was founded to create a fallback position for the company in case the US market slowed down. The division has facilitated the global penetration by the company in the emerging and existing markets.

The division has ensured that the company acquires a share in prime markets such as China. The stores the company operates are not all newly established. Some are attained through joint ventures as well as acquisitions.

In Asia, the company opened its first store in China in 1996 by establishing Sam’s Club and a supercenter in Shenzhen (Spulber 2007, p.14). At this time, the company boasted that it had entered the hub of retail market referring to Shenzhen as “the forerunner of the country’s financial reform and top growing coastal metropolis.” The company has ever since expanded to other Asian cities.

The increase in the number of outlets in the Asian countries has been in the company’s strategic plan. The company top management has consistently informed the world on the importance of the company’s expansion plans in the international market.

They indicate that in the future, more than a third of the company’s growth shall originate from outside the saturating US market (Jones 1998, p.1). The international expansion by Wal-Mart is hence a long-term goal for developing the dominance in the global retail market.

Expansion Problems

There are many challenges that face the company in the expansion effort ranging from government regulations to culture and competition. The company faces external as well as internal problems. The external problems are amplified in the company’s expansion efforts. Internal problems entail the company viewing itself as unbeatable via competition hence ignore smaller competitors as was the case with Wal-Mart in India.

The company ignored small traders operating roadside stores. The management later realized that gaining market share held by the small traders was a huge challenge. The small traders enjoy the support of the local community who detest western companies.

Chances of Wal-Mart success in Asia

Wal-Mart uses the growth short cut of joint ventures as well as acquisition in Asia. The approach is employed since most government authorities are aware of the problems the company is likely to present when given express autonomy to operate in their countries.

The company has previously been accused of low wages, gender discrimination, being strict with suppliers, and destroying small local business due to its financial endowment. In this regard, countries such as India and South Korea ensure that they have strict regulations that discourage foreign investors such as Wal-Mart.

The perception regarding Wal-Mart is likely to affect its operations in Asia. The company is viewed as a representation of the western governments and ideologies seeking to modify the eastern culture. Unless the company reevaluates its international expansion strategy, it will not be easy for the company to succeed in the Asian market.

Cultural Differences

The international business arena is always plagued by cultural difference challenges. This is one of Wal-Mart’s biggest hurdles in its attempt to globalize. In the Asian market, the local communities meet the company with resistance. To start with, the company is seen as encroaching and grabbing the business opportunities for the local smaller traders (Basker 2005a, p. 176).

In some cases, the local business communities pressurize the authorities to deny the company the permit to operate. The communities seek to protect their interests by dragging in the community. The difference in culture is also a factor that the company has to contend with when attempting to open new stores in the Asian retail market.

Wal-Mart’s International Division is responsible for conducting research in the prospective markets. It has been successful in this front. However, it has failed to establish the consumer preferences that are driven by culture in some markets such as a majority of the Asian countries.

The company has various conflicts with clients forcing it to approve amendments that will not see it shut down its stores. In the Asian context, Wal-Mart faced challenges upon its entry into China. Small-scale traders with the owner as the attendant typically sell retail items similar to those stocked by Wal-Mart. The locals are familiar with the owner and interact freely.

These stores are usually packed, noisy, and dirty. However, they are operating at low prices. When Wal-Mart attempted to introduce the concept of hypermarket, offering clean outlets, well spaced, and sales for the people to attend to the customers, the consumers felt uneasy.

They were accustomed to doing their shopping in absolute privacy where they only dealt with the owner one person at a time. Wal-Mart’s approach required the consumers to alter the shopping and purchasing habits and anticipations when buying goods from the stores.

In India, social relationships play a central role in financial deals (Padmanabhan 2012, p. 1). Even with globalization, this aspect still holds in the India communities. However, Wal-Mart has gradually changed the attitude of the community towards westernization. It has managed to capture a significant customer base. Amazingly, the small traditional shops that mark India’s waysides still exist (Kalhan 2007, p. 2065).

They continue to control the retail market. In fact, it has been suggested by researchers that these roadside stores will continue dominating and control 85 percent of the domestic market (The Economist 2008, p. 1). The roadside shops may be a little larger than a cabinet but the local consumers prefer them. It is suggested that this occurred due to the poverty that pushes the locals.

The locals establish personal relationships with the storeowners so that they may obtain goods on credit when they do not have cash. Since the disposable income levels may not grow in the near future, Hanna (2004) suggests that the large retail companies should abandon their contemporary strategies. The chains should target at becoming the neighborhood store (Hanna 2004, p. 1).

The state set of laws

When conducting global trade, it becomes inevitable to take care of the state policies. In the US, Wal-Mart is a powerful investor. However, in other countries, it is just an overseas investor seeking to exploit the financial and human resources of the country. This challenge became apparent when the company entered China. The country is densely populated with a potentially large market with more than 170 metropolises.

The company sought to exploit the market (Jia 2008, p.1265). However, the stringent and restrictive regulations of the Communist government curtailed the company’s endeavors. The Chinese government boxed the company to certain counties to rein in competition. The company is yet to open an outlet in a thriving city (Groeber 2002, p.1).

The federal law of India prohibits global retailers from directly investing into the Indian economy. Wal-Mart has been a victim of the regulations forcing it to enter the huge market through joint ventures. The Indian government is relatively young in terms of policy infrastructure. The community norms are deeply embedded onto the society’s mindset.

The policymakers who are the investors possess substantial influence in the decision-making processes. They easily guide the creation of legislations. Since they are the owners of the small trade stores, they ensure that the perceived notion of encroachment on business by international companies seeps through the government structures.

Conclusion

This study has explored the internationalization of business in the increasingly competitive global economy. In order to explore the success and challenges in the global business arena, this study has examined the operations of Wal-Mart in different countries to establish the challenges that companies are likely to face while going abroad.

It is apparent that companies willing to go global must be prepared to deal with governments in terms of regulations, as well as communities in terms of culture and other players such as competitors in the local business industry. Besides, it is evident that foreign countries aiming to invest in Asia face stiffer challenges than those faced by companies aiming to invest in other global locations.

References

Basker, E 2005a, “Job creation or destruction? Labor market effects of Wal-Mart expansion”, Review of Economic Statistics, vol. 87 no. 1, pp. 174–183.

Groeber, J 2002, “A new frontier”, National Real Estate Investor, vol. 44 no. 11. Web.

Hanna, J 2004, Ground-floor opportunities for retail in India, Harvard Business School: Working Knowledge. Web.

Jia, P 2008, “What happens when Wal-Mart comes to town: an empirical analysis of the discount retailing industry”, Econometrica, vol.76 no.6, pp. 1263–1316.

Jones, Y 1998, “”, Forbes 500s Annual Directory. Web.

Kalhan, A 2007, “Impact of malls on small shops and hawkers”, Economic and Political Weekly, vol. 42 no. 22, pp. 2063–2066.

Molin, D 2004, A bullish Wal-Mart: targeting new countries, smaller formats. Web.

Padmanabhan, M 2012, . Web.

Spulber, D 2007, Global competitive strategy, Cambridge University Press, Cambridge.

The Economist 2008, . Web.

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