Case Study Walmart

Since 1991, Walmart International has experienced mixed results with its big-box, low cost strategy around the world, yet managed to progress to running 4,112 units in 15 countries – just shy of matching the number of units in the United States. The famous “Everyday low prices”, one-stop-shop Walmart boasts such a product assortment that it achieves economies of scale and scope in operations and marketing (Etgar & Rachman-Moore, 2010).

Reception of this strategy was so poor in Germany and Korea that Walmart withdrew from those countries in 2006 (Boyle, 2009). Other countries, such as Brazil, Canada and the United Kingdom, have been very receptive with hundreds of units per country. Walmart’s success is based in maximizing its supply chain. In spite of its size and clout, Walmart is attempting to further increase its buying power by consolidating its purchasing with partners (Boyle &Wolf, 2010).

The larger the amount of any commodity a large retailer can purchase, the greater the concession on price, delivery, and credit it can extract. In some cases the exclusivity can be a demonstration of monopsonistic procurement and the buyer power that comes with it (Guruswama, Sharmy & Jos, 2007). As a result of analyzing Walmart’s global expansion using several analytical tools I will highlight its successes, its failures and its learning curve. I will suggest a future strategy for Walmart in two of the most likely targets for growth – India and China – that will capitalize on these findings and build on emerging management processes within Walmart International. History of Walmart Global Expansion

Walmart took its first step into the global arena in Mexico in a joint venture with Grupo Cifra in 1991. This first step grew by leaps and in 2008 Walmart held 55% of the Mexican retail market and was the largest employer in Mexico (DeGregorio, Thomas, deCastilla, 2008, p.532). According to their 2010 Annual Report, Walmart Mexico boasts 1,469 units in a variety of formats. After almost 30 years of exponential growth in the United States, Walmart expanded out to the global market.

Verdier, et. al. did an internationalization performance study involving Walmart and Carrefour, and surmised that given Walmart’s age, they were best prepared to expand quickly in the international market, while Carrefour began earlier in their life cycle, they progressed at a slower pace (2010). Since 1991, Walmart International has experienced mixed results with its big-box, low cost strategy around the world but still progressed to running 4,112 units in 15 countries. In 1994, Walmart entered China by way of collaboration with a Thai organization, the C.P.

Pokhpand Company (Bhandari, 2010), and is now at 279 units after investing in Trust-Mart’s 100+ retail units. India has posed challenges delaying Walmart’s market entrance, most notably the prohibition of FDI that was relaxed in 2006 after the United States Ambassador to India met with several top representatives of Indian government (Rai, Rajshekhar 2005). Shortly after, a joint venture with Bharti Enterprises was formed with a conditional memo of understanding (Press Trust of India, 2008). Walmart US remains stable in net sales growth (2010 – 63.8% of net income), with Sam’s Club showing a 3-year decline (ending 2010 at 11.5% of net income).

Walmart Global is showing slow but steady increases and ended 2010 at 24.7% of Walmart’s net income (walmart.com). Current Key Strategies in China and India

In 1999, after the departure of Walmart’s International Division head, Walmart began “trying to manage a complete U-turn on international strategy from piecemeal organic growth to aggressive acquisition” (Economist, 2000). This is evident in their continual acquisitions and joint ventures. Performance of these acquisitions now accounts for 24.7% of Walmart’s net sales as reported in the 2010 Annual Report. Boasting the largest population numbers globally (1.189B in India and 1.336B in China), there is a lot of opportunity for customers, but there are also many potential barriers to reaching them. In India, threats to success include widespread poverty, poor infrastructure, insufficient access to education, and the migration from rural to urban living.

In China, associated risks of expansion include the rate of inflation exceeding government projections and inadequate job growth for the new workers in the job market (youth and immigrants). In China, Walmart’s plummeting market share (from 8% to 5.5%) highlights a need to reassess their strategy and respond to the Chinese customer trend of seeking focused differentiation – higher end products and the willingness to pay for them. Another move that contributed to the market share decrease was the Chinese government’s insistence on making an example of Walmart and their food supply chain in what has been dubbed the “Green Pork” scandal (Webb, 2011).

Through technological networking, Walmart was also able to create WIN, “Walmart’s Innovation Network”, where entrepreneurs apply for entry into the company’s huge distribution system. By doing so, Walmart not only helps businessmen distribute their products efficiently, it also increases diversified product lines of high quality for its customers (Shah & Phipps, 2002). The WIN strategy, combined with the creation of the “Global Ethics Office” in 2004 are two large steps corporate Walmart is taking to avoid and ameliorate cultural, regional, and regulatory issues in the global market. The three driving ethical principles for Walmart are: Respect for the Individual, Service to the Customer and Striving for Excellence (Walmart, 2011). This is a great foundation for a future strategy.

Suggested Future Strategies for China and India I suggest a future strategy for Walmart which will advance a company spokesman’s statement of, "We operate stores in…countries outside the U.S., three-fourths of which are under brands other than Walmart. What this means is that we work to tailor our stores and formats to the needs of our customers wherever they may be." (Frazier, 2007).

As we see through PESTEL and SWOT analyses (see Appendix A), Walmart is exercising their strengths in India with Best Price’s employment of 25 people to travel the region and benchmark prices at smaller retailers, to ensure that they're consistently offering the best value. Raj Jain, the head of Walmart's Indian operations, also opened a training institute in Amritsar last December in partnership with Bharti and the Punjab government. (Boyle, 2009).

These investments in the culture, the customer and the employee will positively affect Walmart’s ability to sustain successful operations not only in India and China, but globally. I propose that this be taken further. Regionally, teams should be formed to research: culture; customer trends; local, regional and national politics that impact business; environmental impact and community concerns.

These teams should actively participate in the formation of a plan for Walmart entering the market or improving performance in the market. These CAGE teams would advance into a new market and anticipate a 5-10 year research and implementation process prior to Walmart opening or acquiring a new unit. This team would research directly with potential customers as to their expectations and needs in the market, cultivate relationships with local politicians and government agencies, and investigate partnerships for philanthropic endeavors to benefit Walmart’s image in the community.

The CAGE team should be comprised of local business experts who are intimately familiar with the region and possess a high level of knowledge of politics, community infrastructure, economics and geography. These team members, reporting to the Global Ethics Office, would be joined by a few (no more than 25% of the team) executives who specialize in Walmart-specific operations, philosophy, management and networks. Each CAGE team must be trained and certified through the Global Ethics Office before approaching a Region.

This team can benefit further by using the training institute in Amritsar, and could replicate that in China as well. Both the CAGE team concept and the training institute are excellent public relations points to share with a community to show Walmart is more than just “everyday low prices” to the community. CAGE team members for a new project may also apply their knowledge in management of the new Walmart unit, or find career opportunities at higher levels in the Global Ethics Office and CAGE structure.

To sustain growth, the CAGE team can also serve as a standards certification and strategy recommendations committee. This team, after granting initial insights and approval for a new unit, will re-examine standards for existing units to ensure they are being upheld and that local conditions have not changed and warrant course correction on behalf of Walmart.

Walmart would use its existing performance metrics for improving shareholder value to measure success: growth, leverage and returns. This process will enhance both leverage and returns by reducing the time to enter a new market by quelling concerns and resistance from communities prior to a larger capital investment by Walmart.

Regulatory fees, fines for violations, income lost due to temporary closures for compliance reasons will be lessened through this program due to a more thorough and current knowledge of the region. Growth will be realized through annual net sales increases due to higher rates of customer satisfaction, provided by customers seeing the principles of the Global Ethics Office in action in their community through the work of the CAGE team.

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Guruswamy, M., Sharma, K., Jos, M. (February 2007). FDI in Retail – III: Implications of Walmart’s Backdoor Entry. Centre for Policy Alternatives. New Delhi, India. Retrieved from http://www.indiafdiwatch.org/index.php?id=76.

Hopkins, Jim. (2003, January 1). “Wal-Mart’s Influence Grows”. Retrieved on November 1, 2011 from http://www.usatoday.com/money/industries/retail/2003-01-28-walmartnation_x.htm Holmes, T. J. (2011), The Diffusion of Wal-Mart and Economies of Density. Econometrica, 79: 253–302. Press Trust of India / Chandigarh (2008). Bharti Wal-Mart sticks to India plan, store by June '09, November 12. Business Standard. http://www.business-standard.com/india/storypage.php?autono=49391&tp=on

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