Discuss about the International marketing for Wal-Mart in Complex patterns.
There are complex patterns of change that affect the global marketplace. International marketing refers to marketing activities coordinated and integrated across different country markets. According to Khanna and Palepu, (2013, p. 400), marketing involves placing the consumer’s needs at the center of organizational operations to provide a firm base for success in the fast moving world of international marketing. As per Doodle and Robin, (2009, p. 25) global marketing strategy aims at leveraging the assets, products, and experience of a company globally in respect to different cultures in different countries.
Wal-Mart, the United States based company, was established in 1962 by Sam Walton and his brother. Since its inception, Wal-Mart has created more that 1,000 discount stores in the US as well as introducing customer self-service based innovative concepts. The company deals with the supply of quality items some of which include automotive products, home furnishings, electronics, hardware, jewelry, and housewares among other thousands of items. The Wal-Mart case study (2014, p. 540) reveals that the management of Wal-Mart decided to extent its operations internationally specifically in Mexico. Currently, Wal-Mart operates its retail stores in at least thirteen global markets outside the US borders.
The purpose of this report is to analyze and assess the critical issues in international marketing strategy, international marketing decisions, and activities that faced Wal-Mart after the company’s decision to go internationally.
Wal-Mart decided to expand its operations globally to Mexico in the 1990s. The management used foreign market entry strategies namely acquisitions, joint ventures, and wholly owned subsidiaries. Luo and Wang, (2012, p. 250) states that Wal-Mart used joint venture strategy to enter the Mexican market through a Mexican company Cifra. The main reason that made the management of Wal-Mart company fall on the decision of expanding its retail stores globally to the Mexican market as discussed below.
Over the years, Wal-Mart had been experiencing stiff competition from K-Mart and Target companies in the market environment. David Glass, who got appointed the CEO of Wal-Mart in 1988 had tried to start a hypermarket for the business in the USA in an attempt to win more customers and firmly position the company in the US market. However, this did not work. Further, the CEO bought out Cellum’s stake in the joint venture to boost the profitability, which never achieved the objective of creating a competitive advantage over the rival firms K-Mart and Target. On the other hand, Graff, (2006, p. 55) reported that K-Mart and Target adopted the use of aggressive expansion and therefore posing competition to the company.
As a result of the high competition from K-Mart, Wal-Mart’s market share in the US kept deteriorating and this necessitated the management’s decision to expand its operations to Mexico. The management of Wal-Mart believed that entering Mexico through a joint venture with Cifra would enable the firm establish a customer base within Mexico and therefore, creating a competitive advantage over Target and K-mart. Graff, (2006, p. 64) argues that the company intended to match its operations and prove to the upcoming rivals that it could still compete outside the United States. Wal-Mart transferred its information systems, logistics, and management expertise across all its retail stores both in the US and Mexico markets in an attempt to create a competitive advantage over the key rivals.
In the supply of high-quality automotive, hardware, jewellery, beauty products and many other commodities in the hypermarkets located in the US, Wal-Mart carried out a market research that revealed the US market was not enough to consume their products. In Grant, et al., (2014, p. 5) research, the management realized that confining the companies operations to the US markets meant missing the many potential opportunities for creating broader markets elsewhere beyond the United States borders since the US markets representation only a small percentage of the overall customer base. Within the US market environment, Wal-Mart could not exploit its maximum potential in the provision of good and services since as per its capacity, the productivity level exceeded the consumers and this surplus assets needed a market for its consumption.
Further, Wal-Mart wanted to diversify the business culture, language, and legal environment. According to Doodle and Robin, (2009, p. 30), the management of Wal-Mart saw this as an excellent investment zone where they could establish its business operations. Wal-Mart needed to diversify its operations and fame in global markets where it could make more profits and remain stable regarding capital base. With the strong capital base, Wal-Mart’s company managers were sure that the firm would be able to adapt to the foreign business culture, language, and governmental regulations about the retail industry.
With the establishment of liberalization and globalization in the retail sector, Wal-Mart became able to launch new markets and to create chances for discount stores across the world. Berthon, et al., (2012, p. 265) argues that the company pursued aggressive globalization and found out that with the advancement of technologies, there were unexploited market opportunities in the world that needed its attention. Further, the management of the company learned that to survive, Wal-Mart needed to expand its operations towards the international arena. With increased liberalization, the company needed to show high sales and profits that could satisfy the high demands of the capital markets such as that existing in Mexico by then.
The emerging technologies under the liberalization sector which led to increased cultural homogenization and removal of trade barriers made Wal-Mart decide to go globally. The emerging retail markets offered low levels of disposable income, and this also necessitated Wal-Mart’s decision to expand its operation to Mexico. Further, Christopherson, (2007, p. 455) argued that other world retail companies had made a step forward and capitalized on growth opportunities mainly brought to the economy by the rapid expansion of technology. Wal-Mart’ wide coverage in the US domestic markets meant that limiting its operations in the local market made the company miss a huge percentage of the world’s market.
Usually, the similar cultural affinity, language and legal environment between the United States and the United Kingdom made most American firms first to target the UK. Contrarily, Wal-Mart decided to enter the Germany market industry first, a decision that surprised the analysts. According to Falconbridge and Muzio, (2014, p. 38), the market analysts got surprised of Wal-Mart’s decision since by then the Germain retailing industry experienced continued slow growth rates making retailers get indulged in pricing wars for their products. Falconbridge and Muzio, (2014, p. 38), the Germany marketing environment was unfriendly, and this kept on eroding the profitability margins of every company that invested its business activities within the country, especially global markets. Further, with the inflexible business environment within Germany, the labor costs increased leading to the creation of unaffordable real estate prices.
However, despite the inflexibility of the business climate, high energy costs, and persistent slow growth rate in the Germany market, the president of Wal-Mart (Ron Tiarks) felt that it was wise to enter the Germany market. Based on the following arguments, it was a wise decision for Wal-Mart to enter the Germain market. The following discussion represents the opinions that justify Wal-Mart’s decision to operate in Germany as correct.
Given that Germany got rated as the third largest economy in the world, it was wise for the administration of Wal-Mart to decide to extend the company’s operations to Germany. According to Berg, (2014, p. 6), large economies frequently command a strong customer base and use of high technologies that makes enterprises thrive in such environments and therefore, should not get taken for granted. The fact that German offered the company a perfect market where Wal-Mart could diversify its retailing services in all European countries necessitated Wal-Mart to make steps first to establish themselves firmly in the strongest economy in Europe.
Traditionally, Wal-Mart had been able to set high standards in the retailing industry, and this means that its venture into the German market was not an exception to ensure continued success in the market. In the research conducted by Ihlen and Roper, (2014, p. 45) Wal-Mart had been successful especially in the US an aspect that made the company’s management gain confidence invest in German. Wrigley, (2002, p. 81) argues that the firm looked forward to being a pan-European player given the presence of large customer base in the continent. Therefore, it was not wrong for Wal-Mart to decide to extend its operations to German since, from the experience, it had succeeded in Mexico and across all the states of America.
Since the Wal-Mart Sores everyday low price (EDLP) philosophy confirmed to Germany’s price sensitive market environment, it was wise for the company to the extent its operations to the country. The EDLP philosophy discouraged the company’s customers from looking for promotions and special offers from other suppliers. The report published by Turnbull and Valla, (2013, p. 22) states since the governmental regulations emphasized on the application of a sensitive price policies, this suited Wal-Mart given its intense use of EDLP philosophy. Application of sensitive price theories could assist Wal-Mart to thrive in its business operations in the compound market environment in Germain.
With its customer-focused services, Wal-Mart was able to gain a strong customer base in Germany. Further, most Germany stores offered seasonal sales discounts and special offers to customers due to their greed to make higher revenues. According to Douglas and Craig, (2011, p. 85), with the strong capital base of Wal-Mart, the company could establish price reductions and offer products to customers at an affordable price, hence being correct to venture its retail activities in German. Further, being an experienced company, it was possible and easy for Wal-Mart to adjust its policies so that they could conform to the nature of German laws. Also, it was an easy task for the enterprise sell its high-quality products at the right prices to avoid hurting the less established businesses.
The fact the United States firms preferred exploiting their business opportunities in United Kingdom due to the common culture, language, and legal requirements between the UK and the US, shows that there was stiff competition for customers in the United Kingdom. It was correct for the management of Wal-Mart to decide to go to operate in Germany since this would act as an opportunity for a competitive advantage over the other domestic companies venturing in the UK. Although the culture, language and legal environment in Germany never favored Wal-Mart’s policies, Sethi, (2014, p. 424) saw it possible for the company to adjust its policies so that they could fit with the German business culture. Further, the German customer base entirely convinced Wal-Mart that the market was a perfect chance to obtain a competitive advantage over other rivals namely K-Mart, Woolworth, and Target corporations.
Wal-Mart expanded its operations to Germany through the acquisition of 21 hypermarkets of Werkauf which provided both general merchandise and food to the customers. Based on the research conducted by Wal-Mart, Wertkauf stores was considered able to offer a right path to enter the German market, but this did not work since Wartkauf stores covered only southwestern Germany markets. Fernie, et al., (2006, p. 248) among other reasons which will get discussed below, this continued the approach to entering the Germany market made it fail miserably for five years in the Germany business environment.
The intense competition from Germany retailers made it impossible for Wal-Mart to formulate payment approaches. Under circumstances whereby Wal-Mart reduced the price over its products and services, all Germany retailers lowered their prices so as to maintain their clients, and this made the company get challenged in establishing a strong position in business environment. Salvioni and Gennari, (2014, p. 470) identified that Wal-Mart kept making more steps to slash its commodities prices in 2000. Unfortunately its strong competitor Real reacted by lowering prices for approximately 3000 items. The Germany competitor Real claimed that the prices of Wal-Mart were lower than theirs, and this made the company’s operations across the Germany market to keep deteriorating at a constant frequency.
Mainly, the leading domestic cause of the Company’s success was its efficient and excellent supply chain relations. At the US markets, Wal-Mart and its key suppliers adopted the use of a centralized distribution channel opposed to Germany vendors who were never comfortable with a centralized distribution system. According to Jahanson and Mattsson, (2015, p. 132), Wal-Mart’s relationship with the Germany customers was not mature and therefore, unable to decide on the product assortments. Therefore, Wal-mart was forced by circumstances to sell less demanded commodities by the Germany market, yet its suppliers kept pushing for it.
While carrying out its international business in Germany, Wal-Mart begun with just one stockroom which stocked all merchadise, this created a number of inventory problems. As per Schilke, et al., (2009, p. 46), the company faced a great challenge when it came to recruiting new employees due to the reduced wage rates it provided to the personnel. Barely, only a little number of people, especially the unskilled and less qualified proved to be available. As a result of shortage of workers for Wal-Mart, the movement of goods got delayed a problem that lead to excessive stockpilling. Despite the continued efforts nade by Wal-Mart to renovate and put its brand name across all retail stores, its EDLP message never penetrated the Germany market since Interspar’s and Werkauf were not popular With the Germany customers.
Wal-Mart used to pay low wages and provided unconducive working environment for the workforce. The poor working conditions and low salaries posed an operational problems. While carrying out the retail stores business in the US, Wal-Mart dscouraged employees from forming labor unions whereby the staff could raise their grievances towards tha management in unison. Zou and Cavusgil, (2002, p. 56) argues that immediately Wal-Mart aquired Wertkauf and Interspar, the management disallowed the staff members from meeting each other and share their ideas and perceptions regarding the company’s value of their inputs.
Wal-Mart violated various German laws for it breached the act of law against restraints of competition. As per Papadopoulos and Heslop, (2014, p. 90), the German legal requirements prohibited large companies from reducing their price rates and engaging in price wars with small firms since this would discourage local business. The law allowed big business to lower prices only after providing justification for the decision to lower prices. Contrarily, The foreign investor company reduced prices for margarine, sugar, and milk. These new set prices by the firm got considered lower than cost price at which Wal-Mart bought them, this translated to a direct loss. Further, the company vilated the law that required official publishement of audited financial statements to the concerned authorities.
Faulconbridge and Muzio, (2014, p. 40) states that it remained challenging for the corporation to integrate Wertkauf and Interspar. Wekauf and Interspar used different business cultures and languages something which brought up concerns over the management of Wal-Mart. First and foremost, yet decision making in Wertkauf was highly centralised with the senior management, operations at Interspar were highly decentralised in all regional units. Further, it was difficult for Wal-Mart to integrate its domestic US culture with that of the German market environment. In attempts to integrate the three business cultures and employees morale got affected by the existing regulations adopted by the firm. Also, Wal-Mart faced language barriers in the German market since the top management shown less interest in learning the German language.
The Germany market proved difficult for Wal-Mart to crack something which made the company make continued losses in five consecutive years (1997-2002). The main reason for this persistent failure was the company’s inability to understand the shopping habits of Germans as well as the countries business culture. The fact that Wal-Mart was unable to correct its mistakes in the German business environment shows that it would have been difficult for the company to improve its performance in the nation (Wal-Mart’s German Misadventure, 2000, p. 578). If the top management was sensitive enough to the business culture and customer requirements in Germany, Wal-Mart would not have exhibited the significant losses as portrayed in its weak retailing performance across the Germany markets.
Further, Wal-Mart would not have been able to improve its performance in Germany due to its poor foreign market entry strategy of acquisitions. Even after failing miserably in the Germany market, Wal-Mart still focussed on acquiring the second retail store to make its stores total to 95 in Germany. Despite the fact that there were various other foreign market entry strategies that the company could have opted for, the management proved to be ignorant and focussed on acquisitions which never suited the Germany market culture (Wal-Mart Case Study, 2014, p. 65). Therefore, it was wise for Wal-Mart to retrain from acquisitions more stores in Germany. Venturing in the US markets where Wal-Mart clearly understood the market culture would enable the company to operate optimally and achieve high profits.
Conclusion
Most challenges faced by the international marketers are caused by unfamiliar business climate where these firms implement their venture operations. Successful players in the global markets have the ability to adjust appropriately to the impacts of strange business conditions. Achieving a substantial competitive advantage over foreign competitors depends on a company’s ability to focus on strategic perspectives which are truly global. Further, well-managed enterprises monitor the control procedures for all international markets an aspect that enables them to thrive in the foreign markets.
Apparently, business organizations planning to compete effectively in international countries should establish well-focussed global marketing strategies that are based on a conclusive and inclusive understanding of the foreign markets which the corporation is targeting. Also of great importance is creativity and innovation on the external market entry strategies suiting a particular market. Further, companies should increasingly adopt the implementation of successful implementation strategies by enhancing continued counter trading, networking, and value-based marketing strategies that suit the customers. With consideration of all these recommendations, companies will undoubtedly excel in the foreign markets.
References
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