Question 1 Walmart cases study

1. How does does expanding expanding internationa internationally lly benefit benefit walmart? walmart? Wal-Mart is well-known American company that operating retail stores including grocery stores discounts warehouse clubs and combination of general merchandise store. !xpanding globally allows firms to increase their profitability and rate of profit growth in ways not a"ailable to purely domestic enterprises. #he firm that operate internationally are able to expand the market for their domestic product offerings by selling those product in international markets. $eside that reali%e location economies by dispersing indi"idual "alue creation acti"ities to those locations around the globe where they can be performed most efficiently and effecti"ely also be able a ble when the firms that operate internationally. &irms that pursue such a strategy strateg y can reali%e what we refer to as location economies which are the economies that arise from performing a "alue creation c reation acti"ity in the optimal location for that acti"ity where"er in the world that might be transportation costs and trade barrier permitting. 'ocating a "alue creation acti"ity in the optimal location for that acti"ity can ha"e one of two effects. (t can lower the costs of "alue creation and help the firm achie"e a low-cost position and it can enable a firm to differentiate its products offering from those of competitor )ther than that the firms can reali%e greater cost economies from experience effects by ser"ing an expanded global market from a central location thereby reducing the cost of "alue creation. When do the expanding internationally business the firms can earn a greater return by le"eraging any "aluable skills de"eloped in foreign operations and transferring them to other entities within the firm*s global network of operations.

#hose ha"e more benefit when the firms expand their business internationally such as the firms can grow their business. &or example When trading internationally the +uni"erse, of potential clients and suppliers will

increase significantly. ust imagine increasing the number of potential clients by 1 percent each time you start selling in a new country. (n all likelihood this will probably be much easier than trying to expand your market place in your +home, country. $eside that di"ersify risk also the benefit when the firms expand their business. &or example #he idea that a business relies solely on one market and directs all its resources into a single currency may pro"e to be more risky than it may first seem. ust look at the number of unprecedented global +disasters, /financial meltdown earth0uakes and unrest in the Middle !ast o"er the last few years and the drastic impacts these ha"e had on markets. 2our 2our home market mark et could contract or e"en disappear but your business may be sa"ed by the re"enue it generates o"erseas. )ther than that the benefit bene fit is can get better margin. As well as seeing increased sales you may well en3oy better margins. 4terling which is currently weak may gi"e you a head start when exporting. 5ricing pressure could be less and it could also reduce seasonal market fluctuations. !arlier payments also the benefit when expand the business in internationally. When working with companies o"erseas o "erseas both you and your customer will want to execute the transaction in the safest and most efficient manner possible. )ne of the many ad"antages when trading internationally is that o"erseas payers often pay upfront. #his reduces payment risk and may well help your working capital.  And the last benefit the firms can get is is less competition. &or example #he ability to stand out amongst competitors is a crucial factor in business. When there are fewer competitors this task is made easier. 2our 2our business which may be "iewed as comparable to others in the 67 may when placed in a larger and more di"erse en"ironment turn out to be a uni0ue product or ser"ice not to be missed. $y making the product or ser"ice a"ailable to worldwide buyers you instantly create another life line for the business by being in less competition and increasing the possibility of standing out. #his will in turn boost sales potential and allow your business to flourish. $enefit walmart when their expanding internationally. After After its beginning in 189: Walmart e"er since had constant growth rates and successfully gained

market share in the merchandise and food retailing markets. +$y 188 howe"er Walmart reali%ed that its opportunities for growth in the 6nited 4tates were becoming more limited,. #o keep steady growth rates r ates and profits the company decided to expand globally. #he core competency of Walmart is the price. 4elling merchandise and food for low prices made them earn market shares and continue the growth rates. ;oing global gi"es companies the opportunity of using location economies to secure the 0uality use use economy of scale to lower the  productions costs per unit and benefit from learning effects. A global supply chain and global markets will lower the production costs since more "olume is ordered following a higher demand trough international markets. !specially for Walmart expanding internationally supports and secures their core competency< 4elling e"eryday life goods at a low price.

:. What are the the risks that walmart walmart faces faces when enterin entering g order retail retail markets? markets? How can these risks be mitigated? #he strategy for success worked "ery well in the 6nited 4tates. #hat does not mean that it works "ery well in other countries. #here are different preferences and consumer patterns in different countries. Walmart had begun expanding internationally in the early 188s in an effort to re3u"enate sales growth. #his global expansion has enabled Walmart to become the largest retail operator spanning o"er => retail units worldwide /owling et al :8. @onetheless the growth has not been without costs and still encounters a range

of ongoing risks when entering other retail markets. 4uch risk include political financial and economical local responsi"eness. &irstly the risk that walmart faces is local regulations such as land-use or employment unrest social situation like strikes go"ernment corruption in some countries can be considered as a serious obstacle for expansions. ;ermany is a critical market to Walmart howe"er it withdrew in :9 after an eight-year attempt to make it profitable. )ne of the big reasons is that the land-use regulations which were unfa"ourable to Walmart de"elopment approach because the inabilities to scale effecti"ely make it hard to decease fixed costs. 4econdly local responsi"eness also puts a lot of pressure on Walmart. #he differences and the likelihood of changes in consumer tastes preferences and distribution channels create critical aspects .&or example Walmart entered 4outh 7orea in 188s and 7orean consumers had preferences for fresh food and were also willing to make daily trips to local retailers for the purchase of groceries gi"en their limited storage space. )n the contrast Wal-Mart offered dry-food with its layout aimed to ser"e infre0uent bulk shopping leading to financial drawbacks.

#hirdly #here are different preferences and consumer patterns in different countries. Adding to that Walmart may face strong competition from alread y established retailers that ha"e a better understanding in local needs and demands of the customers. ompetition in o"erseas market can be fierce as well since competitors like arrefour has penetrated in those markets earlier and outperformed Walmart. #he next could be a strict go"ernment that protects the local economy or an instable go"ernmentBeconomy. #hrough strong market research or cooperationBac0uisition of local retailer companies Walmart could gain critical

knowledge of the local market and its consumers. !specially a co-operation with an established company could lower the the barriers from a strict go"ernment since both companies could gain from such a trade-off increase re"enue and e"entually pay more tax. (n a situation where the go"ernment or the economy is not stable it is fa"orable to stay out of the market since the own rights are low protected and the o"erall performance is hard to predict.  And the lastly economic and financial risks are both dangerous. #he !ast  Asian &inancial risis during 188= caused countless Asian Asian currencies to fall by C-9D and property "alues to drop /nelson :E. Howe"er in 188E Walmart had announced its purchase of a ma3ority stake in F stores and 9 additional de"elopment sites in 7orea and expansions in other Asia countries.  Although this was one year following the crisis it was still seen as a serious problem for Walmart in which it had assets in Asian countries because the growth rate /;5 and the risk of further currency depreciation would result the "alue of recei"able cash flows to fall. #his kind of exposure had clearly played a part in Walmart sales figures which was 3ust 9.FD of o"erall sales during the 188E fiscal year /Geference for $usiness :11. Moreo"er an an analysis of the case re"ealed that the initial missteps of Walmart in Mexico were due to the costs pressures with local suppliers. 4uch kind of cost pressures is common for international businesses in competiti"e global markets /owling et al :8  And then how can these risks be mitigated firstly firstly finance finance in"estment and money mismanagement are crucial economical risks of international business. #herefore to manage foreign exchange exposure effecti"ely effecti"ely Walmart Walmart must exercise hedging acti"ities forecast future exchange rate mo"ements and use tactics such as forward contracts and currency swaps. Moreo"er it is recommended for Walmart risk and assu rance managers to undertake deep research on the country*s political and economical status and consider capital flows across borders and the different business acti"ity norms when making decisions on how to best manage the firms* assets and protect it from ad"erse conse0uences.

 A further reasonable suggestion for for Walmart is analyse and learn from from local competitors* experiences and to hire local employees. 6nderstanding the customer and the market is highly important because customers ha"e uni0ue peculiarities for tastes and buying preferences and therefore Walmart should make ad3ustments to its American formats .&urthermore !'5 strateg y of Walmart can not always be the the best choice in some areas of the countries since it has great chances to trigger price wars and harm its reputation.

>. Why do you think think that walmart walmart first first entered entered Mexico Mexico 3oint "enture "enture? ? Why did it purchase its Mexican 3oint "enture partner in 188E?  A 3oint 3oint "enture is a contractual business undertaking between two or more parties. (t is similar to a business partnership with one key difference< a partnership generally in"ol"es an ongoing long-term business relationship whereas a 3oint "enture is based on a single business transaction. (ndi"iduals or companies choose to enter 3oint "entures in order to share strengths minimi%e risks and increase competiti"e ad"antages in the marketplace. oint "entures can be distinct business units /a new business entity may be created for the 3oint "enture or collaborations between businesses. (n a collaboration for example a high-technology firm may contract with a manufacturer to bring its idea for a product to market the former pro"ides the know-how the latter the means. Walmart entered entered in Mexico by using the strategy of 3oint "enture with its local player (&GA who was the largest player in Mexico.

#his was the first time that Walmart operated internationally under a !) who spent most of his life in the 6nited 4tates. 4am Walton was known as an indigenous business man who wanted all of his employees to think how to impro"e and de"elop the company. #here was no reason to change this mind set and go arrogantly into a new market not paying attention to the Mexican customers* needs and preferences. Henry a"is the !) of ifra was a born Mexican who was sent by ifra to study at Har"ard 6ni"ersity. #herefore he knew both life styles the 64 and the Mexican. Moreo"er Mexico was an emerging market and whilst the de"elopment costs in a foreign market are high Walmart could share these costs and risks with a local partner. (n 1881 when Walmart negotiated with Mexicans biggest retail market ifra there where political negotiations ongoing weather there will be a free-trade agreement between the 6nited 4tates. +ifra*s president Henry a"is said that the prospect of free trade between the two countries helped make the deal attracti"e., $y founding the 3oint "enture Walmart a"oided to compete against an already established local company that had highest market shares. Walmart now had a local guide who showed them how to sell products in Mexico and a direct reach to ifra*s costumers. on"ersely Walmart Walmart American retailing practices initially did not work efficiently in Mexico as it was dominated by se"eral large regional retailers and had infrastructure supply chains consumer tastes and preferences that were different. As As a result prices pr ices at Walmart Mexico were : percent per cent abo"e prices for comparable products in 64 stores which limited its ability to gain market share. #here were also problems with merchandise selection such as ice skates riding lawnmowers leaf blowers and fishing tackle. )n the other hand in an effort to extend its reach and profitability in Mexico Walmart announced to take a controlling stake in Mexican 3oint-"enture partner ifra in 188E. #he @orth American &ree #rade Agreement /@A&#A /@A&#A also played a significant role in this ac0uisition and pro"ided Wal-Mart with good

prospects for further de"elopment such as lowering trade barriers and tariffs between the two countries. Another reason for the ac0uirement was due to the dramatic peso de"aluation in 188F-8C which offered Walmarts uni0ue opportunity to buy the controlling share of ifra at an extremely low price. #herefore Walmart with its expertise knowledge and full control adapted its operations to match the local en"ironment #he difficulties of operating as a 3oint "enture could also ha"e been seen as a reason to alter the ownership structure of Walmart in Mexico. (n term of 3oint "enture disad"antages it could lead to conflicts and battles for control between the in"esting firms if their goals and ob3ecti"es change or if they take different "iews /owling :8. #hese conflicts tend to be greater when the "enture is between firms of different nationalities which often end in the dissolution of the "enture.  After the initial 3oint "enture +Walmart +Walmart had set up se"eral other 3oint "entures with its Mexican partner IJK,. (n 188E all these 3oint "entures merged with ifra. +Walmart then took a controlling C1 percent stake in ifra for L1.: billion. #he company thereby held a ma3ority stake in the largest retailer in Mexico IJK, and the name changed to Walmart de Mxico y entroamrica N which can be seen as an expansion into the whole entral American region.

F. What strategy strategy is Walmart Walmart pursuing N a global strategy strategy locali%atio locali%ation n strategy strategy international strategy or transnational strategy? oes this strategic choice make sense? Why? ;lobal strategy as defined in business terms is an organi%ationOs strategic guide to globali%ation. A sound global strategy should address these 0uestions< what must be /"ersus what is the extent of market presence in the worldOs ma3or markets? How to build the necessary global presence? What must be and /"ersus what is the optimal locations around the world for the "arious "alue chain acti"ities? How to run global presence into global competiti"e ad"antage? While the locali%ation strategy refers to increasing profitability by customi%ing the firms goods or ser"ices so they pro"ide a good match to tastes and preferences in different national markets. 'ocali%ation is most appropriate where consumer tastes and preference differ substantially across nations and cost pressures are not too intense. $y customi%ing the product offering to local demands the firms increase the "alue of that product in the local market. (nternational strategy taking product first produced for their domestic market and selling them internationally with only minimal local customini%ation. #he distinguishing feature of many such firms is that they are selling a product that ser"es uni"ersal needs but they do not face significant competitors and thus unlike firms pursuing a global standardi%ation strategy they are not confronted with pressures to reduce their cost structure.  And than the transnational strategy trying to simultaneously achie"e low costs through location economies economies of scale and learning effects.

ifferentiate their product offering across geographic markets to account for local differences and foster a multidirectional flow of skills between different subsidiaries in the firms global network of operations. &rom this case study it is clearly e"ident that Walmart pursued not only a locali%ation strategy but also a transnational strategy from the periods of 189: to :E. 4pecifically speaking before the mid-188s Walmart took an international strategy to operate the business. After the failure in the Mexico market Walmart shifted towards a transnational strategy to expand o"erseas. $efore 1881 Walmart was confined to the 6nited 4tates its high producti"ity resulted in low operation costs and successfully dominated the retailing market. (nitially Walmart Walmart did not pay enough attention to the different infrastructure "arious consumer tastes and preferences and cost structure in Mexico. As a result Walmart considered that its successful market strategy could be replicated in Mexico market. According to owling et al. /:8 claimed that a international strategy is appropriate when cost pressures are low as well as pressures for local responsi"eness are low. #his means that a firm can reduce costs through scale economies in the local market without enough consideration of local customi%ation. #herefore Walmart chose international strategy a t the beginning when it accessed into Mexico retailing market. #here are some e"idences that can support this idea. (n 1881 Walmart established its first store as a 3oint "enture in Mexico. Additionally Additionally Walmart had problems such as poor infrastructure and lacking of le"erage with local suppliers in the same period which made Walmart commodity too expensi"e to gain the market share. Moreo"er Mexico had lower income le"els than America and Walmart offering of higher priced products and unpopular items in Mexico contributed to the failure of gaining the market share. +'ess than one in three international retail expansions succeed when expanding o"erseas.,/$ainP o := onse0uently Wal-Mart Wal-Mart transformed from an international strategy to a transnational strategy. #herefore #herefore Walmart addressed these barriers barrier s by taking learning effects. &or instance by the mid-188s Walmart impro"ed the distribution system and matched the local en"ironment /owling et al. :8.

Moreo"er their products which in Mexican stores offered products to meet the local market demands and many factories were built near its Mexican distribution centers by its suppliers. $y this location economy fixed costs such as labour salaries can be usually lowered. onse0uently achie"ing low costs of location economy makes Walmart pursued a transnational strategy more effecti"ely. oes this strategic choice make sense? )f course it does. (n fact it is the only possible strategy for a retailer retailer as Walmart. Walmart. When people buy buy there they are in their cultural comfort %one and not willing to try exotic products on a daily basis.  And the last recommendation #he first thing thing for Walmart to to do before entering a new market is to ask itself the 0uestion whether it is an appropriate time to enter the market. #he reason is that at the time policies and regulations in this area can make it difficult for Walmart to be successful. 4uch as land-use regulations in some of the countries is a serious problem for its big-box model and without sufficient scale Walmart cannot reduce its fixed cost. #horough research is the second important thing for Walmart to do. 6nderstand the customers will make sure Walmart can ha"e the right strategies merchandise mixes and formats to satisfy different tastes and preferences.

Geference < $ain P o QWal-Mart ;oes Abroad for ;rowth* $usiness Week  "iewed :1 &ebruary:=

hris # :CWal-Mart in Mexico< the limited of o f growth 1 st ed @elson 'ichtenstein @ew 2ork nelson :E !ast Asian !conomy "iewed 9 April :11 Rhttp no. : pp. 1>-11 1>- 111 1 owling 5 'iesch 5 ;ray ;ray 4 P Hill H' :8 (nternational business< Asia5acificedition 1 st ed Mc;raw-Hill Australia 5ty 'td 4ydney 7im G$. :E OWal-Mart 7orea< hallenges of !ntering a &oreign MarketO ournal of Asia- 5acific $usiness "ol.8 no. F pp. >FF T >C= 'uhnow  :1 'ower tariffs retail muscle translate into big sales for wal-mart in Mexico 4taff Geporter of the Wall 4treet ournal "iewed >1 August >1 :1http