Chapter 1 - Summary2 Chapter 2 - Introduction3 Chapter 3 - Environmental Analysis5 Chapter 4 – Motivation for international business7 Chapter 5 - Foreign Country Selection for expansion8 Chapter 6 - Foreign market entry mode selection9 Chapter 7 - Conclusion10 Bibliography11 Appendix A12 Figure 1 - Internal Environmental Factors12 Figure 2 - PESTEL Analysis of Walmart13 Figure 3 - Porters 5 Forces Model14
Chapter 1 - Summary
The market forces are dynamic and push the companies for making some strategic decisions. These strategic decisions are crucial when they involve heavy investment and effort. One of the means the businesses expand is by means of entering into foreign markets. This report will discuss about the largest retailers of United States market “Walmart” which plans to enter Australia which is a new foreign market.
This move by Walmart is not devoid of speculations and expectation of success and failure. Various factors influence in making a decision for a firm to enter a new market such as current and potential size of market, level of competition, legal and political environment, socio-cultural environment, GDP per capita and, purchasing power and rural/ urban distribution of population.
It will also discuss about the methods adopted by Walmart to enter the new market and study patterns. A number of factors have to be taken into consideration before making a move in foreign country as the legislations, competitors and socioeconomic differences exists in each country. Overall, this report will identify the methodology of Walmart of entry in Australian market and describe the forces that may influence in entry of new market place. It will also look into the economic situations of Walmart home country and analyse the advantages of going international while being operating already in diverse markets.
Chapter 2 - Introduction
Walmart is the largest multinational company in retail industry (Cullen and Parboteeah, 2008). Walmart retail store was started by Mr Sam Walton in 1945. He began his career as J. C. Penny management trainee. In infancy of the Walmart store Mr Walton leased a Ben Franklin franchised in Arkansas, United States of America. He kept on struggling in retail industry and by the year 1962 he owned the store under the name of Walton 5 & 7. In the same year he with assistance of his brother James opened the first Walmart Discount city in Rogers, Arkansas. In 1970 Walmart went for public offering at the time when its sales were scoring at $44 million and had 18 stores under its umbrella in small and medium sized towns. It grew to 276 Walmart stores by the year 1980.
The commitment of Waltons’ in retail industry gave them consecutive successes. In United states alone Walmart operates approximately 700 discount stores together with 610 Sam’s Club, 900 and 2,900 super center that are involved in selling groceries and general merchandise (Walmart). Walmart has been growing since then. Sam’s Wholesale club was introduced by Walmart in 1983. The company signed a joint venture in 1987 with Dallas based supermarket chain and started Hypermart*USA. The next acquisition move was witnessed in 1990 when Walmart acquired wholesale distributor company McLane. In 1992 founder Mr Sam died but the company expanded its operations in Mexico.
The year 1994 marks acquisition of Woolco Stores by Walmart in Canada. It carried on with the international expansion and by 1996 it entered in China, followed by Germany in 1997, carried forward by acquisitions in Brazil in 1998. Interspar hypermarkets in Germany and ASDA group in United Kingdom were also acquired in the year 1998. In 2000 it started selling house hold appliances at selected scores only.
In the year 2001 it formed alliance with America online for internet ordering by the customer. 2002 came out to be the big year for Walmart. In this year company was crowned America’s largest corporation by Fortune Magazine, also developed strong holding in Japan but had to close first store in Germany. In 2002 it opened up 178 supercenters, 33 discount stores and 25 SAMS’S club together with 107 international units.
In 2003 it had to sell one of the distribution businesses as divestment however in same year opened a new store in Beijing, China. The year 2004 witnessed acquisition of 118-Store Bompreco Chain in Brazil and opening up of online music library at competitive rates. In the year 2005 major achievement attribute to introduction of Metro 7 line, opening of third store in Beijing and acquisition of 140 stores in Brazil. The achievements also included in the year 2005 was signing of an agreement with Garth Brooks as a result of which star’s music were to be sold only by Walmart. The year 2006 did not bring much success and Walmart had to sale 85 stores in Germany and 16 stores in South Korea while opened only one supercentre in California.
In 2007 major breakthrough of joint venture occurred between Walmart and Bharti Enterprises for entry in Indian market. In 2008 major scuffles in organization hierarchy occurred. In the year 2009 Walmart acquired a major stake in Chile’s largest food retail. In 2010 it opened its new Latin America headquarters. 2011 marks acquisition of stake in South African retailer. Walmart has a good history of profitability even during the recessionary period. While Wal-Mart's US retail operation enjoyed a boon during the deep recession as many shoppers traded down to its lower-priced stores, more recently it has struggled, logging eight consecutive quarters of negative same-store sales.
The slump followed corporate missteps, including a decision to narrow its product assortment and de-clutter its stores, which alienated its core customers. In fiscal 2011 (ends January) overall sales increased by more than 3% vs. the previous year, with net income up by about 14% over the same period. However, all the sales growth came from the company's international and Sam's Club divisions, which grew by 12% and 3.5%, respectively.
Wal-Mart US eked out a 0.1% change in sales in fiscal 2011 vs. fiscal 2010.Looking abroad for growth, Wal-Mart in mid-2011 bought a 51% stake in South African retailer Massmart Holdings in a deal valued at about $2.4 billion. The purchase bought Wal-Mart entry into the fast-growing African market. In June 2011 Walmart International acquired a 51% stake in South African retailer Massmart, which operates 288 stores in 13 countries in sub-Saharan Africa, in a deal valued at about $2.4 billion.
Chapter 3 - Environmental Analysis
The environment in which Walmart is operating is crucial. The business environment is comprised of internal and external environment. There are few factors that have to be taken into consideration for evaluation of internal environment such as Walmart mission statement, policies, employees, management, climate, culture, resources, managerial philosophies and leadership style (Figure 1). Walmart mission statement is “If we work together, we’ll lower the cost of living for everyone…we’ll give the world an opportunity to see what it’s like to save and have a better life.”
Walmart is originally a US based company and US is currently under high pressure, because of the global economic recession. Walmart has a competitive advantage because of healthy internal environment with respect to employees with strong leadership and managerial skills workforce.
The company’s human resource policies are friendly and helpful for internal customers due to which there is not a very high turnover rate. Walmart has strong centralized corporate structure and is controlled by Walton family. Walmart culture is very easy going for employees as it functions under the guidance of Mr. Walton who said our success lies in humans. Walmart has an efficient distribution system and cooperative trained staff. The information communication of Walmart is strong which helps customers to pick things easily. These internal environmental factors contribute in success of the organization.
The external factors such as socio-cultural, economic, political, technological and legal environment affect significant role in the operations of the business. To analyse the factors Porter’s five force model is used (Figure 3). The first force being faced by Walmart is degree of competition among existing customers such as in Australian market K-Mart, Coles, Big W and Woolworth are some major players in retail industry. However, each of them has different competitive edge.
Second is threat of new entrants in the market which is quite significant in Australian borders, Aldi another discount store has recently made an entry and giving tough time for the competitors. Entry in markets in Australia is comparatively easier due to less barriers. The thirds force is bargaining power of buyers which is approximately same Walmart encounters in its own doors. An edge to Walmart in the market will be due to its base in America due to which the people think that the quality of products/ services offered is of high standards.
The fourth force is the bargaining power of suppliers. This will help in manipulation of price and competition of same product in cheaper rate. The Walmart suppliers are highly specific and it will not be difficult for Walmart to get its supplies from already registered retailers, finally, the threat of substitute is there which may be in the form of online ordering of the product. This facility is already offered by Walmart. The competitor company is Kmart which is already capturing a significant market in Australia and Walmart has yet to make its entry in Australian markets. Kmart has various stores throughout Australia and offers the competitively low prices for all the products.
This may pose the problem for the Walmart to enter into the market, However, the suppliers of Walmart products have developed a relationship which will help Walmart to enter into the market and make its position through its already developed online system(Stump and Sriram, 1997). The buyer relationship with the Walmart has been developed over time and so the trust is established amongst the people about Walmart products which also pay them off (Naughton et al., 2006).
Chapter 4 – Motivation for international business
Walmart mission is to reach to the customer and serve customer in lowest prices so that they can live lives better. This approach motivated Walmart to make strategic move to enter Australian market. By and large market patterns are similar therefore it is advantageous for Walmart to explore new venues of opportunity.
Also that that the last two year Walmart survived in financial crisis but it was evident that Walmart shall explore alternative stores to achieve their aims (2010b). Since, there is a recession currently in the US market. It is wise to have businesses open up at different locations so that the profits are not stopped pooling in.
Another advantage for going international is to better serve the customers by facilitating them at their proximities. This not uplifts in customer good will but also provides employees to learn from different cultures. The glooming market conditions and stable economy of Australia with potential of new market competitors are main factors for Walmart to enter. Walmart has the competitive edge that it enjoys in United States market and since it is popular in America it is well known by many people in Australian society.
Therefore, capturing the market attention will not be a difficult job for Walmart (Christian, 2011). Walmart website is also visited every day by millions of people and that shows for low price sellers Walmart comes out to be the better options besides its rivals (Chen et al., 2006). Therefore, the strategic decision of Walmart to enter as solo venture in Australian market will be highly beneficial which will facilitate the existing online customers from Australia to visit the retail market.
Chapter 5 - Foreign Country Selection for expansion The next country in which Walmart shall make entry is Australia. Australia did not get affected by the recent global financial crisis (2010a). Its market is conducive since the competitors are few in numbers.
A critical analysis of political, economic, sociocultural, technological, environmental and legal limitations point that Walmart will be able to make its mark in the market since the players are not having complete control of the market. It is worth consideration as well that Walmart has already made significant and successful entries in various markets. Since, the objective of Walmart is to make people lives easier and happier. This relates with the Australian government’s commitment to make the things approachable to every person in Australian borders.
Therefore, initial outlay for start of business as sole venture is worthy to enter in to Australian markets (Agarwal and Ramaswami, 1992). It is essential to take into account the political stability of the government. Although present government has expanding tax cover but consumer goods will remain to be less affected by this taxation. It is also worth considering that the present regime though had bad times but has survived opposition negative campaign against it. Therefore, political environment does not pose any major threat to the present regime while in continues towards completion of her tenure.
To introduce the Walmart it is wise that it opens up its own stores than renting or subcontracting because this will bring unnecessary pressures on it to make. Culturally, Australian and United States are not entirely different though some patterns in preferences do differ. Walmart operates its website already in Australia. The Australian society relies too much on doing internet shopping but still the competition is very high in Physical retailing. The advantage with Walmart is that it has already various suppliers which provide products at cheaper rates and they will be easily available to supply Walmart in Australia. This opens up new market for the suppliers as well.
The strength of Walmart lies in its people who have great experience in entering and managing effectively in foreign markets. The selections of the country for entry is made on the basis of similarity of cultures and stability of economical and government machinery. Since, Australia to a significant degree resembles to American economy and has vast potential for business opportunities, therefore expansion of Walmart will be easier as compare to Walmart entering in Indian markets.
Chapter 6 - Foreign market entry mode selection Foreign market entry modes differ in degree of risk they present, the control and commitment of resources they require and the return on investment they promise. Walmart plans to enter as sole venture. To do this Walmart has to seek for registration with Australian Securities and Exchange Commission (Commision).
Since the competitors like K-Mart, Coles and Woolworths are stable and making profitable business therefore join venture or other forms of entry are not possible. The risk involved in sole venture is high but since the suppliers of Walmart can supply at competitive rates for entering in the Australian market therefore it is beneficial for the firm to start as solo venture. If it plans to enter market with weak player then it may lose its image.
Therefore, in initial phase Walmart will open up sole venture in one city only and then gradually enter the other markets with in the country. It will be easier to enter market in this way since other players would still be taking their market share. Gradually Walmart will enter into making alliances with small or weaker players such as Aldi which is finding difficulty to make its presence in the Australian Retail industry. It may enter in association with 7/11 chain of retail stores throughout
Australian which has sound understanding of Australian Culture and norms. There are two major types of entry modes: equity and non-equity modes. The non-equity modes category includes export and contractual agreements. The equity modes category includes: joint venture and wholly owned subsidiaries. The failure of Walmart in Indian market is attributed due to not owning locally (Halepete et al., 1973). Therefore, the better decision is to go for solo venture and establish locally while initially starting up in one location and then expanding to different cities and localities. .
Chapter 7 - Conclusion
In conclusion, it is inferred that it is advantageous and easy for Walmart to make entry into Australian market this will help them in achieving their mission and provide an opportunity to serve its customers at their door front. The difficulties may be encountered initially but it is an undeniable fact that Australia is a melted pot like America and therefore the societal patterns does not differ significantly as compare to Australia. It is a competitive advantage for a firm to exist in various international locations so that it can capture larger customer base and one of the means to achieve this is to have existence in different countries.
This is in line with the objectives of Walmart to reach to people and make things affordable to the so that they can have better lives in affordable prices. This objective of Walmart happened to be successful in different markets where it made significant progress such as Brazil and Canada. The expansion in firms is attributable to their success and therefore expanding globally spreads positive message to the stakeholder and hence as public listed company will attract more investments in the firm. Hence, the decision of Walmart to enter in Australian market is beneficial for the company.
This decision is very likely to be successful due to the similarity in cultural and governmental relations of the two countries. It is also significant for the Australian market to increase competition so that the retail players will be threatened and reduce the prices of commodities for the nation as a whole. This will further boost the retail industry.
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Figure 1 - Internal Environmental Factors
Figure 2 - PESTEL Analysis of Walmart
Figure 3 - Porters 5 Forces Model