Why was Wal-Mart a success in Mexico, but a failure in Germany??

 

Wal-Mart started its international operations in 1991 with its entry into Mexico. The company established its footprint in Mexico through a joint venture with Cifra, a leading Mexican retailer that gave it the necessary understanding of the Mexican market and helped it fine-tune its strategies to suit the local customers. Customers were always the focal point of the firm and ‘Wal-Mex’ made sure to provide them with the best prices and a high-end experience that left a mark on them.

The air conditioned and clean shopping environment within the retail outlet was a stark contrast to the outdoor market in Mexico, where flies regularly swarmed the buckets of shrimp and fish piled on counters without ice. The firm also remained true to its image of being a retailer that provided customers quality products at cheaper prices not  only in bigger cities but also in smaller towns. By 1999, Wal-Mex had lowered its costs to a great extent and had passed on the savings to shoppers in a very systematic way, for e.g. by having dedicated days where it sold around 6000 items at a marked down price.

While having consumers as the focal point helped Wal-Mex a great deal, there were many other measures that had a significant impact as well. Wal-Mex’s jobs were well paid according to Mexican standards and served as a gateway to the state health and pension systems at a time when full-time jobs in Mexico were scarce and salaries were low. It also gained popularity as jobs in Wal-Mex were based on it skill level than family connections, which gave many talented people a chance.

Cultural connection also helped the firm to find its footing in Mexico. An example being that it had Zapotec-speaking interviewers to put applicants at ease and later having the obligatory Wal-Mart cheer being shouted in Zapotec. Due to its work in US, Wal-Mex was also able to get government approval to set up in-store bank branches in Mexico, which made financial products more affordable to millions of Mexicans and helped increase its popularity.

Another major reason was the NAFTA agreement that turned Mexico and Canada into a single trading zone for US. As a result, tariffs tumbled and this unleashed a pent-up Mexican demand for US-made goods. The trade treaty helped eliminate some of the transportation costs and helped Wal-Mex achieve its competitive advantages. Mexico's cheap labor was an added reason why Wal-Mex was profitable. Cheap labor replaced the robots used in U.S. centers and as a result, its Mexico City distribution center became the company's most efficient one in the world.

While Wal-Mex was a success story, things weren’t as great for the retail giant as it looked to expand into Germany. The biggest mistake made by the management was to replicate a successful U.S. business formula in Germany without paying any attention to local idiosyncrasies, be it understanding the differences in market and shopping cultures of people or the legal and institutional framework required to retail in the nation. A number of managers were brought directly from US and had little understanding of the German market and did not speak the local language. Frequent changes in the management did not help either.

Germany as a country loves stability and the frequent personnel changes at the helm gave a frivolous impression and suggested company problems. Another fatal flaw was that Germany's retail market was already saturated with discounters such as Aldi and Lidl, and WalMart inevitably found itself amidst cutthroat price war. Anti-trust lawyers banned its practice of luring consumers with price dumping and the country’s stringent laws governing opening hours meant stores couldn't stay open for long.

German labor law also prevented the easy-come, easy-go hiring and firing that was common in U.S and the unions here played a far more influential role than their US counterparts and the company failed to acknowledge this impact on wage bargaining process, which led to a company wide salary increase of 0.5%. Customers believed that WalMart offered low value low priced merchandize, some even considering it to be American junk that the retail chain was trying to sell. As Germans value quality and the image of WalMart were opposite, the brand value declined. The cultural practices at WalMart did not help either.

WalMart staff hired to greet the shoppers and bag their groceries turned them off. The staff itself did not understand the practice of chanting "WALMART" before the start of the shift and found it too regimental. Another issue was that the smiling. WalMart required its checkout people to flash smiles at customers after bagging their purchases. But because the Germans don't usually smile at total strangers, the spectacle of WalMart employees grinning not only didn't impress consumers, but also unnerved them. WalMart also experienced great difficulties in dealing with suppliers, as it did not have the bargaining power to buy goods from suppliers at low cost, reason being that it had just 95 outlets and was unable to do bulk purchases.

Originally, it had wanted to build 50 superstores as quickly as possible, but while Germany has one-third of the population of U.S., it doesn't have one-third of its surface area. German planning law did not allow large scale construction and hence, instead of increasing its number of stores, Wal-Mart actually had to close a few down – some of which were taken over by Wal-Mart's rivals once its leases ran out.

Kumar Aaditya Chauhan MGMT620 The reasons mentioned above combined with a few others, were the major reason of the WalMart debacle in Germany, which ultimately led to the retail giant pulling out its operations from the country.