Walmart's Global Expansion Case Study

Walmart’s Global Expansion Case Study

By

Unbreacable Group - Commenter International Business Instructor: PhD. Tran Thi Phuong Thuy

Walmart Global’s Expansion Case Study

TABLE OF CONTENTS GROUP INTRODUCTION: UNBREACABLE ---------------------------------------- 2 WALMART INTRODUCTION ---------------------------------------------------------- 3 CASE STUDY SUMMARY: WALMART’S GLOBAL EXPANSION ------------ 4 CASE STUDY QUESTIONS’ ANSWERS --------------------------------------------- 5

QUESTIONS FOR PRESENTING GROUP AND ANSWERS ---------------------- 7 REFERENCES --------------------------------------------------------------------------- 10

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Instructor: PhD. Tran Thi Phuong Thuy


GROUP INTRODUCTION: UNBREACABLE Our group name is ‘UnbreaCable’. At first, you wouldn’t see any linkage between the name and the subject. So the group ourselves will break it down for you.

First, “UnbreaCable” has similar pronunciation with ‘unbreakable’ , which defines one of our team’s characteristic. It means that nothing, no one could separate us. Second, ‘UnbreaCable’ actually is the shortened combination of “Unbreakable” and “Cable”. Unbreakable cable, which means that the cable cannot be broken, relates to an incident in Vietnam recently. The Internet cable in the sea was believed to be broken by the sharks, which has been causing chaos all over Vietnam. That people can only connect to the Internet at extremely low speed results in unfinished business and interrupted communication. There is no doubt that the Internet – constituting an easy-to-access, worldwide network – has already has a significant effect on the conduct of international business. Not only has it enhanced firms’ ability to spot potential foreign partners but it also help with the human resources and financial management of worldwide corporations. Incapable Internet service would therefore turn an economy upside down, especially in the current globalization situation. An unbreakable cable would mean much to Vietnam and its international relations as it leads to a strong and lasting communication among countries. The world economy, in general, and Vietnam’s economy, in particular will be accelerated due to the promotion of multinational solidarity. 

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WALMART INTRODUCTION Wal-Mart Stores, Inc., branded as Walmart, is an American multinational retail corporation that operates chains of large discount department stores and warehouse stores. Headquartered in Bentonville, Arkansas, the company was founded by Sam Walton in 1962 and incorporated on October 31, 1969. The company operates under the Walmart name in the US and Puerto Rico. It operates in Mexico as Walmart de México y Centroamérica, in the United Kingdom as Asda, in Japan as Seiyu, and in India as Best Price. It has wholly owned operations in Argentina, Brazil, and Canada. 

Walmart helps people around the world save money and live better -anytime and anywhere -- in retail stores, online and through their mobile devices. Each week, more than 245 million customers and members visit our nearly 11,000 stores under 71 banners in 27 countries and e-commerce websites in 10 countries. With fiscal year 2014 sales of approximately $473 billion, Walmart employs 2.2 million associates worldwide. 

Walmart is the world's largest company by revenue, according to the Fortune Global 500 list in 2014, the biggest private employer in the world with over two million employees, and the largest retailer in the world. 

The company was publicly listed on the New York Stock Exchange in 1972. In the late 1980s and early 1990s, the company rose from a regional to national giant. By 1988, Walmart was the most profitable retailer in the US and by October 1989 it had become the largest in terms of revenue. 

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CASE STUDY SUMMARY: WALMART’S GLOBAL EXPANSION 

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1962, Walmart was established in Arkansas by Sam Walton and has grown rapidly to become the largest retailer in the world with 2002 sales of $218 million, 1.3 million associates, and some 4.500 stores. 1991, Walmart’s operations were confined to the US.

In the US, Walmart established a competitive advantage based upon a combination of efficient merchandising and progressive human relations policies. Walmart was a leader in the implementation of information systems to track product sales and inventory. It developed one of the most efficient distribution systems and promotion of widespread stock ownership among employees which led to high productivity enabling it to decrease operating costs – a strategy to gain market share first in general merchandising. 

By 1990, due to market saturation in US, Walmart decided to expand globally.

Walmart started to expand internationally in 1991 by opening its first stores in Mexico, a joint venture with Cifera. There were some initial problems: poor infrastructure, crowded roads, and a lack of leverage with local suppliers, which resulted in stocking problems, raised costs and prices, limited ability to gain market share and problems with merchandise selection. 

By the mid-1990s, Walmart found ways to adapt to the local environment:

Partnership with a Mexican trucking company, more appealing merchandise, suppliers built factories near its Mexican distribution centers which helped to drive down inventory and logistics costs. 

1998, acquiring a controlling interest in Cifera.

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By 2002, Mexican operation with 600 stores generated more than $10 billion.

The company also expanded into Canada, Britain, Germany, Japan, S.Korea, Brazil, Argentina and China and had over 1200 stores outside US, 303,000 associates, and revenues of more than $35 billion. 

Walmart was aided by 3 developments when expanding internationally:

Barriers to cross-border investment fell during the 1990s

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Ability to reap significant economies of scale from its global buying power due to international expansion. (Walmart key suppliers have long been international companies). Advances in information systems, particularly the spread of Internet-based software.

CASE STUDY QUESTIONS’ ANSWERS 1. How does expanding internationally benefit Walmart?

After its beginning in 1962 Walmart ever since had constant growth rates and successfully gained market share in the merchandise and food retailing markets. “By 1990, however, Walmart realized that its opportunities for growth in the United States were becoming more limited”. To keep steady growth rates and profits the company decided to expand globally. The core competency of Walmart is the price. Selling merchandise and food for low prices made them earn market shares and continue the growth rates. Going global gives companies the opportunity of using location economies to secure the quality, 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 volume is ordered following a higher demand trough international markets. Especially for Walmart expanding internationally supports and secures their core competency: Selling everyday life goods at a low price. 2. What are the risks that Walmart faces when entering other retail markets? How can these risks be mitigated?

The strategy for success worked very well in the United States. That does not mean that it works very well in other countries. There are different preferences and consumer patterns in different countries. Adding to that Walmart may face strong competition from already established retailers that have a better understanding in local needs and demands of the customers. Another thread could be a strict government that protects the local economy or an instable government/economy. Through strong market research or co-operation/acquisition of local retailer companies Walmart could gain critical knowledge of the local market and its consumers. Especially a co-operation with an established company could lower the barriers from a strict government since both companies could gain from such a tradeoff, increase revenue and eventually pay more tax. In a situation where the

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government or the economy is not stable it is favorable to stay out of the market since the own rights are low protected and the overall performance is hard to predict. 3. Why do you think that Walmart first entered Mexico via a joint venture? Why did it purchase its Mexican joint venture partner in 1997?

This was the first time that Walmart operated internationally under a CEO who spent most of his life in the United States. Sam Walton was known as an indigenous business man who wanted all of his employees to think how to improve and develop the company. There 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 Davis, the CEO of Cifra, was a born Mexican who was sent by Cifra to study at Harvard University. Therefore he knew both life styles: the US and the Mexican. In 1991 when Walmart negotiated with Mexicans biggest retail market Cifra there where political negotiations ongoing weather there will be a free-trade agreement between the United States. “Cifra’s president, Henry Davis, said that the prospect of free trade between the two countries helped make the deal attractive.” By founding the joint venture Walmart avoided to compete against an already established local company that had highest market shares. Walmart now had a local guide who showed them ho w to sell products in Mexico and a direct reach to Cifra’s costumers. After the initial joint venture “Walmart had set up several other joint ventures with its Mexican partner […]”. In 1997 all these joint ventures merged with Cifra. “WalMart then took a controlling, 51 percent stake in Cifra for $1.2 billion. The company thereby held a majority stake in the largest retailer in Mexico […]” and the name changed to Wal-Mart de México y Centroamérica – which can be seen as an expansion into the whole Central American region. 4. What strategy is Walmart - a global strategy, localization strategy, international strategy, or strategy? Does this strategic choice make sense? Why?

As stated earlier the core competency of Walmart is the low price of the offered products. Therefore there is a strong cost pressure. Focusing on the offered products you can see that Walmart is a store where one buys daily used products. Cultural differences and preferences are mainly shown in the daily life, which is lived with daily life products – bought from Walmart. Derived from that Walmart’s strategy

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for internationalization is a Transnational Strategy: High Pressures for Cost – High Pressures for Local Responsiveness. Does this strategic choice make sense? Of course it does. In fact it is the only possible strategy for a retailer as Walmart. When people buy there they are in their cultural comfort zone and not willing to try exotic products on a daily basis.

QUESTIONS FOR PRESENTING GROUP AND ANSWERS 1. Analyze Walmart when first expanding to the Mexican market using the SWOT model? Strengths Weaknesses Large capital Retailing market practices were well-suited to America Have experience in American Lack of knowledge about Mexican market as a dominant retailer market’ consumer tastes and Have efficient merchandising and preferences. progressive human relations policies Lack leverage with local suppliers Have relations with international suppliers Opportunities Threats Barriers to cross-border Poor infrastructure, crowded roads investment fell during the 1990s in Mexico Many Walmart suppliers have long Existing dominant retailers in been international companies Mexico Advances in information systems, Significant global competition particularly the spread of InternetLaw and regulations in Mexico based system which protect local retailers and limit Walmart expansion Slow growth in Mexican economy 

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2. Walmart’s motto is “Saving people money so they can live better”. When expanding their market, what did Walmart do to keep their low-cost leadership?

Establishing partnership with trucking company to improve distribution system.

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As Walmart’s presence grew, many of Walmart’s sup pliers built factories near its distribution centers, which helped further reduce inventory and logistics costs. Using its enhanced size to demand deeper discounts from the local operations of its global suppliers. Making bulk purchases from vendors to enjoy volume discounts, and paying low wages. Maintain low cost by having efficient and effective operations. Its marketing strategy relies on word-of-mouth communication and focuses on everyday low prices, which means that customers can buy the products at the lowest price all the time. 3. What were some entry modes Walmart use when entering new markets? What are the benefits in each way?

Entry mode 1: through joint venture with its local player. Help gain better knowledge of the new market. Help Walmart to work with local authorities. Entry mode 2: entry mode of acquisition. Avoid time-consuming problem of building up stores. Entry mode 3: offshore-sourcing strategy. Use the new market as a major production or assembly source country for their products in the US  increase profit in motherland. Entry mode 4: Building its own store. Gain complete control of the new facilities. 

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4. In some different foreign markets, Walmart operates under different names1. Explain this occurrence. Does it have anything to do with Walmart’s strategy when expanding internationally?

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The company operates under the Walmart name in the US and Puerto Rico. It operates in Mexico as Walmart de México y Centroamérica , in the United Kingdom as Asda, in Japan as Seiyu, and in India as Best Price.

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Walmart entered many foreign markets either through a joint venture 2 with its local player or through acquisition 3 of an existing firms. It then proceeded to expand its share and take over the main administration. With this strategy, Walmart can keep the old brand names of companies once it cooperated. Keeping the existing brand names benefits Walmart in various ways. First, it can avoid prejudice from local people toward a foreign cooperation. Walmart is famous for its dominant position in the US, which means wherever it goes, smaller business retailers would have higher chance of going bankrupt. Local habitants of course would pose a negative attitudes toward the upcoming of an unwanted investment likewise. However, when Walmart buys out and restructures a local stores chain, people would still think of it as a national business or simply a venture. Even if they heard the local stores was wholly sold to a foreign group, the established loyalty toward a familiar brand would still keep them buying products from that store. Since Walmart was already one of the posse ssors of the local brand, it doesn’t have to change anything about itself but to take the step to affect the business style of that trademark. Improvement on existing products will just become more appealing to people, let alone boycott it because of its foreign origin. This strategy also saves Walmart a great amount of time getting adapt to the local taste and preferences since the everything was already in the database of the old companies.

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A joint venture (JV) is a business agreement in which the parties agree to develop, for a finite time, a new entity and new assets by contributing equity. They exercise control over the enterprise and consequently share revenues, expenses and assets. 3 Business acquisition is the process of acquiring a company to build on strengths or weaknesses of the acquiring company. A merger is similar to an acquisition but refers more strictly to combining all of the interests of both companies into a stronger single company. The end result is to grow the business in a quicker and more profitable manner than normal organic growth would allow.

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REFERENCES WALMART SUCCESS IN MEXICO, CANADA AND CHINA: GLOBAL EXPANSION, STRATEGIES, ENTRY MODES, THREATS AND OPPORTUNITIES by Lee Yee Mun Wal-Mart: Staying on Top of the Fortune 500 A Case Study on Wal-Mart Stores Inc. by Patrick Hayden, Seung Lee, Kate McMahon, Mike Pereira Walmart’s official website: corporate.walmart.com

"Walmart Corporate: Locations". Walmart. Retrieved 19 January 2014. "WAL MART STORES INC 2014 Annual Report Form (10-K)" (XBRL). United States Securities and Exchange Commission. March 21, 2014. "2012 Form 10-K, Wal-Mart Stores, Inc.". Google. "Wal-Mart Form 10K: Portions of Annual Report to Shareholders". United States Securities and Exchange Commission. Retrieved June 28, 2011. "Walmart Corporate: Our Business". Walmart. Retrieved 19 January 2014. "Walmart Corporate: United Kingdom". Walmart. Retrieved 19 January 2014. "Market Cap Rankings". Ycharts. Zacks Investment Research. April 8, 2012. Retrieved April 9, 2012. Ann Zimmerman (June 7, 2010). "Rival Chains Secretly Fund Opposition to Walmart".The Wall Street Journal . Retrieved June 8, 2010. "Walmart 2010 Annual Report PDF (13.4 MB)." Walmart. 2010. Retrieved October 22, 2010.

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Walmart's Global Expansion Case Study

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