Introduction
Walmart is a private limited company that operates within the services sector. Since its establishment in 1962, Walmart has been focused on impacting the lives of consumers positively. It is estimated that the firm serves more than 200 million consumers every week through mobile devices, online and through retail outlets. In an effort to market its products to a large number of customers, the firm has adopted internationalization strategy.
Currently, Walmart operates in 27 different countries under 69 banners. Three quarters of its operations in the international market are under different banner other than Walmart. The firm has managed to develop a strong human resource base of 2.2 million worldwide. In 2012, the firm’s sales amounted to $444 (Walmart para. 1).
In an effort to attain its profit maximization objective, Walmart deals with a wide range of consumer products such as general merchandise. The firm also deals with provision of a wide range of services. In the international market, Walmart offers a wide range of generic products and household products. The firm has achieved this through incorporation of the concept of product diversification.
The wide range of products and services that the firm deals with have significantly contributed towards its financial success. The objective of this paper is to conduct a comprehensive analysis on Walmart’s operations in the international market. This is attained by identifying what motivated the firm to enter into the international market, the challenges faced and the degree of success it has attained. The paper also illustrates a number of recommendations on what the firm could have done differently in order to improve its performance.
International market entry
Entering the international market is one of the ways through which firms can achieve their profit maximization objective. However, firms face major challenges in their internationalization strategy. One of the major sources of these challenges is associated the business risk in the host country. Consequently, it is paramount for a firm to conduct a comprehensive country analysis in order to determine the degree of market risk. Additionally, the research will play an important role in determining the probability of succeeding.
Decision to enter the various international markets was motivated by a number of factors. The first reason that motivated the firm’s management team to consider entering the market is the intense competition in the domestic market. Over the years, the US retail sector has continued to experience an increment in the intensity of competition.
This has led to a decline in the sectors’ profitability potential. In an effort to attain its profit maximization objective, Walmart’s management team made a decision to venture into the international market. Walmart’s management team perceived that venturing into the international market would provide an opportunity for the firm to expand its operations (Walmart para. 2).
Modes of market entry
In an effort to succeed in the international market, Walmart has adopted an aggressive market entry strategy. The objective of adopting this strategy is to enable the firm attain a high economies of scale. Considering the size of Walmart’s operation, the firm has been able to attain higher economies of scale (Rocha & Luis 68). Walmart has entered different international markets such as Canada, Brazil and Japan.
It is paramount for a firm to determine the most appropriate mode of entry in order to succeed. There are different modes of entry that Walmart has adopted in its internalization effort. Some of these modes of entry include acquisition, mergers, partnership/joint ventures or starting green-field operations through foreign direct investment.
In 1994, Walmart’s management team identified Canada as a market with a high market potential. After conducting a comprehensive market analysis, the firm’s management team decided to adopt acquisition mode of market entry. The acquisition strategy targeted Woolco Discount Stores which are owned by Woolworth Corporation.
In its operation, Woolworth Corporation had managed to establish an effective network of Woolco stores in Canada. By 1994, the firm had a network of 142 discount stores. Walmart acquired 120 of Woolco stores. Over the past 18 years, Walmart has been very efficient in its Canadian market. Its success has arisen from establishment of new stores and remodeling the existing stores.
Walmart ventured into the Brazilian retail sector in 1995. The firm adopted joint-venture mode of market entry when venturing into the Brazilian market (Rocha & Luis 61). The firm’s management team identified Lojas Americanas as the potential joint-venture partners. Decision to select Lojas Americanas as its joint-venture partner arose from identification of the firm’s strength with regard to distribution and marketing.
In its operation, Lojas Americanas has managed to establish itself as the largest discount store in Brazil. The firm is owned by Garantia Group (Rocha & Luis 61). As a result of its strength with regard to retailing, Walmart has managed to be the dominant of the joint venture. It controls 60% of the total joint venture.
As a result of the competitive nature of the Brazilian retail industry, the firm is increasingly adopting acquisition mode of market entry. From 1995, the firm has undertaken two major acquisitions. The acquisitions entailed that of Bompreco’s and Sonaes. In 2004 Walmart purchased 116 stores that were owned by Bompreco. In 2005, the firm acquired Sonae’s Distribution Group.
Through these acquisitions, the firm has managed to improve its competitive advantage hence attaining a higher competitiveness. As a result of its aggressive expansion strategy, the firm has managed to grow from being a 2-brand firm to a 9-brand firm. Additionally, the firm has established multiple formats.
As a result of the competitive nature of the Brazilian market, the firm has incorporated organic growth as one of its market leadership strategy. This has been has been attained by building new retail outlets from scratch in all the 18 federal districts in Brazil (Walmart para. 1).
In line with its commitment to attaining its profit maximization objective, Walmart’s management team made a decision to enter the Asian market, the firm identified Japan as one of the Asian markets with the highest market potential. After a thorough market research, the firm entered the Japanese market in 2002. In its market entry, the firm adopted the concept of partnership.
On 15th March 2002, the firm entered into a partnership agreement with Seiyu Limited. Walmart purchased 6.1% of Seiyu Limited Share in an effort to gain foothold. Decision to adopt partnership market strategy arose from the fact that the Japanese market has been very challenging.
Most foreign firms which have ventured into the industry have failed. By partnering with Seiyu Limited, the firm was able to avoid possible challenges that would have caused it to fail. Partnering with Seiyu significantly increased Walmart’s change of success.
Business strategy and market strategy
Formulation and implementation of an effective business strategy is vital in the success of every organization. The business strategy adopted determines the success of the firm in its performance relative to other firms.
To effectively position itself in the Canadian market, Walmart adopted the low-cost strategy. This strategy entails offering goods and services to customers at the lowest cost possible relative to its competitors. The low cost may emanate from a number of factors such as improved operational efficiency.
Adoption of a low-cost strategy is a challenge to most firms. This arises from the fact that the firm should have a strong capital base in addition to providing a wide range of products so as to meet the customer’s needs.
The firm has implemented the low cost strategy by offering its products and services at a low cost relative to other firms in the supply chain. In its Canadian market, Walmart intends to be the price leader in the retail sector.
To increase its customer base, Walmart has adopted low cost strategy as its business strategy. Decision to adopt this strategy in Brazil was motivated by the need to attain a high level of international sales growth. The firm has implemented the low cost strategy by offering its products and services at a relatively low price level compared to its competitors. By adopting this strategy, it is the firm’s objective that it will sufficiently differentiate itself from its competitors.
Walmart has continuously adopted the low cost strategy as its business and marketing strategy. When entering the Japanese market, the firm adopted the same strategy. Over the years, the firm has continuously offered its products at a relatively low price point compared to its competitors. Some of the firm’s main competitors in Japan include 7-Eleven Japan Company Limited and Ito-Yokado Company Limited.
As a result of the intense competition in the Canadian retail industry, Walmart has incorporated the market leadership as its market strategy. Decision to adopt this strategy has emanated from the need to derive a high competitive advantage relative to its competitors by being a one-stop shopping destination. To achieve this, Walmart has focused on two main aspects which include physical expansion and gaining sufficient market share.
In 2012, Walmart has allocated $ 753 for its expansion purposes. The budgetary allocation has been effected prior to entry of Target Corporation, a US based company into Canada. In its expansion to the Canadian market, Target Corporation intends to establish approximately 135 stores. However, the rapid expansion being undertaken by Walmart will contribute towards the firm countering the competition that will emanate from Target’s entry.
The resultant effect is that Walmart will improve its competitive edge. In addition to establishing new stores in various locations in Canada, the firm will also undertake remodeling of its existing stores. Through this investment, Wamart will have increased its retail stores to more than 375 retail outlets by January 2013 (McKinnon para. 1). Currently, Walmart is ranked as the fastest growing firm in the retail sector with regard to general-merchandize and grocery sector (Walmart, 2020).
Similarly, Walmart has adopted market leadership strategy. The firm has attained this by adopting different formats such as establishment of supercenters and Sam’s Club sores. Upon its entry, Walmart had only established 5 retail outlets, 2 Supercenters and 3 Sam’s Clubs. However, the firm has over the years embarked on a rapid expansion campaign. Currently, the firm operates more than 512 units.
To meet its customer’s demand, the firm has adopted the concept of product mix. It is estimated that the firm supplies more than offers more than 50,000 consumer products such as food products, apparels and sporting products. This has made the firm to be a unique retailer in the Brazilian market because there is no other retailer who offers such a wide range of products in the country.
Reasons for market entry
There are different reasons that motivated Walmart to venture into the international market. One of the factors that the firm’s management team considered in venturing in the Brazilian and Canadian market is that the market was not saturated. Consequently, the firm would have been in position to increase its market share hence attaining its high sales objective (Rocha & Luis 61).
Decision to venture into the Japanese and the Canadian markets arose from the fact that the country has a substantial population (McKinnon para. 1). Consequently, the size of the market was relatively high. Additionally, the firm’s entry into Brazil and Japan was also necessitated by the high rate of economic growth being experienced in Japan and Brazil. Currently, Brazil is one of the countries has is considered to be an emerging economy in within the Latin America (Rocha & Luis 61).
Over the years, the three economies have continued to experience substantial economic growth. As a result, the consumers have experienced an increment in their purchasing power. Walmart identified the increment in consumer purchasing power in these economies as an opportunity to increase its sales revenue.
Challenges experienced in the international market
Operating in the international market presents numerous challenges that organizations have to deal with. In its Japanese market, Walmart has continued to face numerous cultural challenges. The culture of a country has a significant impact on the consumer’s purchasing patterns. Consequently, it is vital for firms intending to venture into the international market to conduct a comprehensive cultural analysis. This will aid in determining the degree of fit. Conducting cultural analysis is also vital because it enables a firm’s management team to adjust its business and market strategies ().
In its Brazilian market, Walmart did not have sufficient knowledge regarding the tastes and preferences of the customers. In Brazil, Walmart established a number of Sam’s Clubs. However, Brazilian consumers have not adopted the culture of paying for membership fees. Additionally, they have not adopted the culture of purchasing in large volumes. In order to fit in this culture, Walmart was faced with a major challenge of ensuring that it fit in the Brazilian culture (Rocha & Luis 68).
The firm’s management team expected that the Japanese would adapt Walmart’s culture. This is a major challenge because firms are required to adapt into the foreign culture in their internationalization strategy. The Japanese have a unique culture. Consequently, it was paramount for Walmart to customize its stores in accordance with the Japanese culture.
The Japanese are not used to purchasing their supplies from large stores. Additionally, purchasing fresh produce rather than packaged products is a culture that is strongly entrenched within the Japanese culture. However, Walmart has not adequately specialized in the provision of fresh product.
In an effort to attract a large number of customers, Walmart has continuously adopted low cost strategy as its business strategy. However, Japanese interpret high price to mean high quality. Therefore, most Japanese perceive high price to translate to value for their money. This is well illustrated by the fact that the Japanese purchase 40% of the total global luxury products annually. These cultural misunderstandings have adversely affected Walmart’s ability to succeed in the Japanese market.
Despite its effort to venture the Japanese market through Seiyu Limited, Walmart has not been successful. This is due to the fact that Seiyu has drastically been overtaken by its competitors in the Japanese market such as 7-Eleven Company Limited. Over the years, these firms have continued to adhere to Japanese culture which has significantly contributed towards their success.
The firm’s success in the international market is well illustrated by the fact that it has managed to establish numerous retail outlets. Additionally, the firm has continued to sustain a large human resource base of more than 2.2 million employees. This shows that Wal-Mart has adopted effective human resource management strategies.
Conclusion and recommendations
The analysis has shown that Walmart has been very committed towards attaining success in the international market. This is well illustrated by the fact that it has incorporated different modes of international market entry. Decision to adopt different mode of market entry arose from recognition of the fact that markets vary across countries.
Additionally, its success in these markets is well illustrated by the fact that it has continued to dominate the retail sector. Despite this, existence of cultural differences is one of the major challenges that Walmart faced in its internationalization efforts.
Recommendations
To succeed in the international market, it is paramount for the firm to take into account the following.
- The firm should conduct a comprehensive market research in order to understand the prevailing market conditions. The research should focus on both the consumers and the competitors.
- Walmart should undertake a comprehensive cultural analysis prior to venturing the international market. Its failure in conducting cultural analysis is illustrated by the challenges it is facing in Japan. This will play an important role with regard to formulation of business and market strategy. For example, identification of cultural differences affecting the consumer’s purchasing patterns should inform the firm on the most appropriate business and market strategy to adopt.
- The firm’s management team should continuously review its business and market strategies in order to determine their success. Such reviews will play an important role in the firm’s success because it will be able to adjust appropriately.
- The firm should not adopt its low cost strategy in all the market it enters. However, it is vital for the firm to incorporate other strategies such as differentiation.
Reference List
McKinnon, Judy. Walmart to invest $753 million to expand Canadian operations. 2012. Web.
Rocha, Angela and Dib Luis. “The entry of Walmart in Brazil and the competitive responses of multinational and domestic firms”. International Journal of Retail and Distribution Management. 30. 2(2002): 61-74. Emerald. Web.
Walmart: Our locations, Canada 2020. Web.
Walmart: Our story 2020. Web.