Hypothesis Labour issues, cultural differences, and logistics and supply chain issues in host country will stall Wal-Mart’s success in South Africa and Chile. Objective To determine if factors such as labour, cultural differences, and logistics and supply chain impact Wal-Mart’s entry and operations in an international market, and if they do, how does it influence its long term success of failure in those markets.
Scope of the Research The domain of the research has been limited to two markets – South Africa and Chile – for these are two new markets where Wal-Mart has entered recently and hence, these will serve as a good opportunity to study the above mentioned factors and their impact on WalMart’s operations. Research Methodology The research methodology consists of secondary research. 25-40 peer-reviewed journals and articles have been referred to as part of this research.
Expected Contribution This research paper will ascertain whether the factors such as labour issues, cultural differences, and logistics and supply chain issues in South Africa and Chile will stall WalMart’s success in these countries or not; and if they do, how will they impact its operations and growth in these countries. This will serve as a good learning for any global retail player planning to foray into any similar new emerging world market.
Justification/Need of the Research Wal-Mart, the US based world’s largest retailer, has been known to have carved many niches in the front-end and back-end of the burgeoning global retail sector, and has been successful in not only its home country but in many of its International forays too. However, not every International stint has been a smooth ride for the retail giant. The wide array of problems it’s faced in China and its exit from Germany and South Korea in the past, highlight a grave area of concern for all the stakeholders of the retailer.
Hence, it becomes imperative to study these factors and tackle them, for these very factors are likely to now impact WalMart’s success or failure in its new International Markets – South Africa and Chile. A detailed understanding of these factors can help Wal-Mart fine-tune its strategies to gain a sustainable competitive edge in these markets, and establish its long term success there. These learning can then be leveraged while foraying into any new similar international markets in future, in order to avoid any unforeseen pitfalls in those markets. Introduction Wal-Mart Wal-Mart Stores, Inc. s the largest retailer in the world, the world’s second-largest company after Exxonmobil and the nation’s largest nongovernmental employer. Wal-Mart Stores, Inc. operates retail stores in various retailing formats in all 50 states in the United States. The Company’s mass merchandising operations serve its customers primarily through the operation of three segments. The Wal-Mart Stores segment includes its discount stores, Supercenters, and Neighborhood Markets in the United States. The Sam’s club segment includes the warehouse membership clubs in the United States.
The Company’s subsidiary, McLane Company, Inc. provides products and distribution services to retail industry and institutional foodservice customers. The use of new information technology enabled WalMart to know what customers were buying and to tell manufactures what to produce and where to ship the goods. Globalisation & Wal-Mart’s International Expansions The world economy has undergone a radical transformation in the last two decades. Geographical and cultural distances have shrunk significantly which has allowed business corporations to widen substantially both their markets and their supplier sources.
Globalization is about worldwide economic activity – about open markets, competition and the free flow of goods, services, capital and knowledge. It has made the world economy more efficient. As global companies enter local markets, local companies enter global ones. The resulting competition increases product quality, widens the range of available goods, and keeps prices low. Consumers everywhere are the big winners from the globalization process. Globalization actually creates more diversity, not less.
While it expanded into international markets, making products and services universally available, it also increased consumer choice. Leveraging on this trend, Wal-Mart too is spreading its power throughout the world, especially in new emerging economies. In January 2009, Wal-Mart acquired a majority in Distribucion y Servicio (D&S) S. A. , Chile’s leading food retailer. In June of 2011, Wal-Mart completed the purchase of 51% stocks of South Africa based Massmart, after the South African Competition Commission Tribunal gave its approval of the acquisition of the firm in May 2011.
But these takeovers have not been a cakewalk for the retail giant. International Issues Being number one in the United States does not always guarantee for being number one elsewhere in the world. There are many problems that Wal-Mart is now facing in this highly competitive business world. Many references illustrate various problems and causes WalMart faced while expanding into International market. For instance, acquisitions and joint ventures with local businesses became a problem in nationalist countries. Strict government rules and regulations blocked business operations.
Misreading competitors and late-entry destroyed location opportunities and at the same time harmed the relationship with local suppliers. Adapting to local culture in host countries became a big problem in global business. Moreover, low wages, labour unions, sex discrimination, etc. brought Wal-Mart to be an evil in employees’ perspective in some of its past international forays. These problems now seem to be staring Wal-Mart in the face even in South Africa and Chile. Its entry into these markets has been met with wide protests.
Upon entry too, setting up smooth operations has been a big challenge too, as adapting to local culture and consumers and forging relations with suppliers and establishing effective logistics infrastructure has been very difficult. Nevertheless, having faced certain similar problems in other countries as well, Wal-Mart is relatively more effective in handling these issues, though it’s bound to take its own time. Review of Literature The domain of the problems that Wal-Mart faced in some of its key International expansions, such as in Germany, South Korea, China, etc. ary from local retailers’ unrests, government policy hindrances, labour and payment conflicts, underdeveloped infrastructure and logistics and supply chain management problems, etc. The grave challenges that Wal-Mart faced in one of its most ambitious entry in the Chinese organised modern retail market were acquiring the right kind of local leadership for its management and operations; discontentment of suppliers with Wal-Mart’s policy of pitting suppliers against each other to procure products at the lowest possible costs; infrastructural bottlenecks; demand by state-run labour unions to allow its branches in Wal-Mart stores; etc.
In Chile Wal-Mart has been confronted with stiff competition from local retail giants which have been on an acquisition spree and target the same customers that Wal-Mart does, and the impact on growth posed by a relatively small economy. Another major problem it has encountered is adapting to local shopping habits that are deeply engrained in the potential customers. The likely impact of proposed acquisition of retailer Massmart Holdings Ltd. by Wal-Mart Stores Inc. n South Africa is that apart from the business opportunities for Wal-Mart in the growing South African consumer market, it has sparked the usual round of threats and protests that it has faced in other developing markets. South Africa’s powerful unions’ strike is believed to have downsized the Arkansas-based company’s desire to buy Massmart outright. In many developing nations, customers have no choice but to shop locally often within walking distance of their homes.
Few own cars, and roads are too poor, traffic too terrible, or gasoline too expensive to make a big-box retail model effective. And trying to open many smaller outlets in crowded urban environments will make it harder for Wal-Mart to keep costs down. Wal-Mart entered South Korea in late 1990s for its international expansion, but it had a major failure in this market and left Korea in 2005 as the American way of marketing did not translate well in Korea. Wal-Mart had critical shortfalls in enabling value exchange with the
Korean consumers as the Korean consumers had significantly different taste and preferences compared to American consumers. Wal-Mart’s Every Day Low Price (EDLP) strategy was not perceived to have the “value” in the minds of the Korean consumers, while its store locations were not strategically well positioned to create sufficient customer traffic. Wal-Mart’s competitive advantage of low cost and low price was not suitable in the Korean competition and consumption context.
Wal-Mart was not prepared to develop an effective localization strategy that might have stemmed from not having a clear projection of how much it was willing to invest and grow in this market. All this shows the importance of the compatibility of a corporate unique value proposition and strategic fit with the local market conditions, which Wal-Mart now needs to understand in detail, to be able to make its venture in new international markets such as Chile and South Africa a success.
Wal-Mart has met with strong opposition of the South Africa Commercial, Catering and Allied Workers Union (Saccawu) on its collaboration with Massmart Holdings Ltd. in South Africa. The union pointed out that the move would suffocate local retailers and cause job losses. This opposition was believed to stem from its affiliation with the Congress of South African Trade Unions (Cosatu). Saccawu objected to Wal-Mart coming to South Africa, citing the United States’ retail giant’s reputation of anti-union tendencies and alleged bullying of its suppliers.
That led to the formation of an anti-Wal-Mart coalition. This is likely to hamper South African investors’ opportunity to share in Massmart’s growth prospects, which currently look even brighter after Wal-Mart’s commitment on investing in the business. Wal-Mart’s acquisition of South Africa’s Massmart could lead to thousands of job losses and worsening labour conditions. According to a study commissioned by South Africa’s economic development and agricultural departments, if Massmart shifts 1 percent of its sales to imports from domestic suppliers, about 4,000 jobs could be lost.
Wal-Mart’s entry into South Africa could also mean worsening working conditions at Massmart, according to the report. Although Wal-Mart has said it will honour Massmart’s existing contracts with workers, it still faces extreme opposition from local union, who have been known to have disrupted the smooth functioning of many International companies who have entered South Africa in the past. International relationships involve unique risks due to potential problems arising from transactions held between buyers and sellers of different cultural backgrounds.
These cultural differences can negatively affect the development of relational outcomes such as trust and commitment, and managing day-to-day business affairs. To compete globally, firms will have to increasingly establish relationships with other companies which operate in different cultures. Two hypotheses were tested with Chilean retail firms. The results showed that cultural differences do affect the level of trust and commitment of exchange relationships between foreign suppliers and Chilean distributors.
In wake of this, it becomes imperative for Wal-Mart to strengthen it relationship marketing, which has emerged as an effective way to manage these exchange relationships. At the same time however, forming lasting, productive relationships is challenging in any circumstance; and forming them across international boundaries is even more complex due to cultural differences. This perception of South African retailers and manufacturers with regard to in-store promotions is crucial for Wal-Mart that has recently entered this dynamic market.
A literature review of in-store promotions was undertaken in the context of channel conflict between manufacturers and retailers. Perceptions of these two groups were obtained about the promotional activities conducted, promotion objectives, price and non-price promotions and the effectiveness and evaluation methods for promotions. The results indicated that there were differences between the two groups, with the retailers being the dominant group. Also there was a lack of sound measurement of in-store promotion.
This can have important implication for Wal-Mart’s operations and in-store promotions in South Africa, where it will have to modify its processes of promotion of local suppliers’ products, in a manner that gets Wal-Mart an upper hand on its suppliers to secure its own interests, and at the same time does not offend the suppliers’ interests completely and doesn’t hamper its relations with them. Wal-Mart’s South African venture will push dramatic change in various aspects of local retailing, but, the retail giant will have to change too.
Wal-Mart’s purchase of 51% stake in Mass Mart and Dion’s have been met with surprise and excitement by South Africa. There is little doubt that the entry of the world’s largest retailer into South Africa will see a major shakeup in how every retailer does business here, but it will also mean that Wal-Mart will have to adapt. In response to opposition from labour unions (remarkable for a union in a country with massive unemployment), Wal-Mart has pointed out that it respects the laws, including labour laws in every country in the world in which it operates.
Indeed, its sustainable agricultural policies could see a dramatic boost to South Africa’s agricultural industry, which is a major employer. And Wal-Mart has made it clear that it sees the impact spreading beyond South Africa’s borders. In recent years, Wal-Mart has successfully moved into developing world markets such as Brazil and Mexico. It has 8 613 retail units under 55 different banners in 15 countries, with sales of US$400 billion in 2009, of which international sales accounted for 25% of group earnings.
In past years, Wal-Mart was the butt of critics scorn for everything from its labour policies – easy hire, easy fire – to low wages and a failure to advance women. But consumer pressure and management changes in recent years have seen a dramatic turnaround: Its employment policies are far better and it has become a global change agent in terms of ecologically acceptable, sustainable food policies. In South Africa, stores like Pick ‘n Pay and Woolworths have started limited sustainable fish retailing and have also timidly begun selling some vegetables outside of plastic packaging.
But still, stores contribute to global warming by flying in tomatoes from Israel, beans from Kenya and coffee from Colombia instead of local sourcing – which WalMart is doing in a significant way in north America. Wal-Mart has made commitments from zero waste to a focus on climate change. Its sustainable agriculture policy has three major initiatives: Supporting farmers and their communities, food production that consumes fewer resources and creates less waste, and more conscientious sourcing of key agriculture products.
If Wal-Mart introduces these policies here it could be transformative in a very positive way for South Africa’s agriculture and labour industry; and may see all stores rapidly implementing sustainability projects. But without an explanation of their intentions, it is quite difficult at this stage to understand the impact of Wal-Mart. One of its biggest challenges in South Africa will be staff – local retail staff education levels are lower than that of their US counterparts, productivity is lower and the labour laws are more stringent.
Once Wal-Mart can overcome the staff challenges – globally, they are showing a commitment to staff training – the South African consumer will benefit. Wal-Mart will use its international buying power and prices will come down, while creating a stimulus for South Africa’s beleaguered manufacturing industry. The market will be more competitive and large, medium and small retailers will have to change their business ideals or risk not surviving. Those ideals could be better stock management, competitive pricing, productive staff, improved service levels.
In the medium to long term, good businesses will survive and get stronger and the consumer will have more choice better service and better products at reduced prices. Wal-Mart’s acquisition of D&S builds on the expansion strategy that has served it best. WalMart has excelled in large countries or ones adjacent to a significant Wal-Mart presence (like that in Argentina and Brazil), where it can deploy its expertise in running far-flung distribution networks. It has also done well when able to acquire a market leader like Chile’s
D. Wal-Mart’s sensationally successful purchase of Cifra in Mexico illustrates both principles. For D&S, becoming part of a global giant with deep pockets should boost its advantage in the competitive Chilean market. However, D&S workers will not be pleased with Wal-Mart’s combative attitude toward unions (though Wal-Mart does work with unions in Argentina and Brazil). And local suppliers may end up bruised by the company’s bare-knuckled exploitation of global buying power.
Although Carrefour pulled out of Chile after achieving limited growth, but Chile’s number two retailer, Cencosud, is likely to seek out an international partner, creating a new opening for the French multi-nationals. This transaction will bring additional investment to Chile, not only in upgraded and new stores, but in associate and supplier development. Chile already is a growing global source for seafood, fruits and vegetables, and this transaction will give Chile’s suppliers access to WalMart’s global network of stores.
The new partnership with Wal-Mart will enhance D’ ability to grow in Chile, improve the efficiency of its operations and offer more value and savings to customers. Both Wal-Mart and D&S share the same principles, values and the philosophy, respect for the individual, service to their customers, striving for excellence and saving people money so they can live better. The successful tender offer for D&S is evidence that even in this difficult economic environment, Wal-Mart remains committed to its international growth strategy.
Wal-Mart International will continue to have a faster growth rate than the United States for the foreseeable future. Its growth will be concentrated in well established markets, which deliver consistently strong returns, as well as in emerging markets with strong growth potential. Chile’s size and political and economic stability make it an important growth market for Wal-Mart. Wal-Mart can learn from its endeavours, especially its’ failure in South Korean Market, and use this learning in crafting its strategies for successfully establishing itself in its relatively new international forays, such as Chile and South Africa.
Wal-Mart’s failure demonstrates how it failed to alter its business practices to the idiosyncrasies of a foreign culture. The primary managerial implication is that the local culture determines the business model. The world’s largest retail corporation, Wal-Mart, failed to capture the hearts of South Korean consumers. Despite its stunning successes in the U. S. and overseas, Wal-Mart was unable to effectively apply its U. S. business model in South Korea. This has pointed out Wal-Mart’s inability to understand and respond to the common local consumer.
There are many lessons to be learned for Wal-Mart here. The most important aspect for going global is an in-depth understanding of what the local customers really want, desire, and need. As Wal-Mart expands internationally, especially in complex markets such as Chile and South Africa, the virtues of flexibility and adaptability become of primary significance for its success. However, these areas of strengths are by design, rather than by accident. They need to be incorporated into strategic thinking of the firm.
Some business concepts may be recognized globally and are easily transferable, while others may be suited only to these particular countries or regions. Theory suggests that the typical market withdrawal occurs after seven years from entry. It took Wal-Mart a year longer to realize that its South Korean operations would not thrive. This particular failure may be classified as competitive or perhaps more as operational. Wal-Mart did not post solid financial results for its South Korean operations. Even more, it failed to adjust its marketing and market approaches to the consumers.
Although the company tried to maintain its common internationally recognized market positioning, its adaptation to local habits was found insufficient. Hence, it can be echoed for Wal-Mart that it needs to understand what it is that is being internationalized and the value this has to consumers in the destination markets. Wal-Mart needs to understand its own core competencies and values, as well as whether those values will resonate with consumers in new cultures such as that of Chile and South Africa. It must understand that transplanting a retail concept means retaining its core features while skilfully focusing on local consumers.
One of the core elements that Wal-Mart will have to account for to establish a strong longterm foothold in South Africa is the demand by locals for concrete jobs. South Africa wants concrete commitments from U. S. retail giant Wal-Mart not to cut jobs in its new venture with regional chain Massmart. The local people and the government there wants to ensure that this investment, or this merger, does not have some of the potential negative effects, in terms of job losses in particular, given the already feeble job market and unemployment problems in South Africa.
Some of the things that were emphasised by the proponents of this merger – that there would be job growth – need to be seen being tied down and nailed down. This is crucial for Wal-Mart to gain the goodwill of not only the South African government, but also the trust of the local people there. Wal-Mart’s entry into South Africa can be a win-win situation for both. Wal-Mart’s entry is a smart move as Africa has a population of over 800 million people and a huge number are becoming urbanized, and that brings with it a need and desire to upgrade living standards.
Massmart, based in Johannesburg, South Africa, operates 290 stores across 13 African countries, but predominantly in South Africa. Hence, South Africa presents a compelling growth opportunity for Wal-Mart and offers a platform for growth and expansion in other African countries. It possesses attractive market dynamics, favourable demographic trends and a growing economy. This proposed acquisition is a great opportunity to deliver on that mission for all the people in the regions of the African continent where Massmart currently operates.
Massmart is an ideal vehicle for such a mission, because its operation is as sophisticated as any in Western Europe or the U. S. Its hypermarkets and supermarkets and other brands are leading anchors of shopping centres throughout the region. However, South African labour unions have expressed alarm. The Western Cape provincial arm of the Congress of South African Trade Unions says it will oppose Wal-Mart, though Wal-Mart has pledged to try to work with the organization. Wal-Mart has promised to respect and honour pre-existing union relationships and are committed to abiding by South African labour laws.
However, this can be a big nail in the plank for Wal-Mart, if it fails to successfully tackle this issue. Findings & Conclusion Key Findings Wal-Mart, the world’s largest retailer, has been on a successive path of foraying into International markets for many years now. Many of these markets have been potentially challenging for Wal-Mart, but it has performed unexpectedly well in these. However, not all has been a cake-walk for the retail mammoth; for it has seen its bad time as well, especially its exit from Germany and South Korea, and stiff challenges in China.
The articles analysed in this research paper show that now that Wal-Mart has established its foothold in emerging market of Chile and has entered South Africa, a lot of its success will depend on how minutely it understands the complex dynamics of these markets, ranging from labour protests and demand of unionisation in its stores, adapting to completely new culture, with consumers having their own unique needs, work-condition requirements, constraints of forging strong relationships with local manufacturers and suppliers, etc. or these are some of the many challenges prevalent in these economies, and have been faced by many International players too, who have entered these markets in the past. These articles show that the above mentioned factors are likely to come in way of Wal-Mart’s success in these two markets, though they won’t necessarily stall its growth, as long as Wal-Mart strategically designs its way out to garner long-term sustainable success and revenues in these markets.
Conclusion & Suggestions All the secondary research done as part of this research paper highlight some key trends: The Wal-Mart’s foray in Chile and South Africa is a bold step by the retail giant into these complex markets, which till now shows signs of potential long-term success, given that it successfully addresses the obstacles that it’s likely to confront in these markets: ? ? Protest by labour unions and demand for unionisation in its stores Sensitising and adapting itself to the local culture and values of these countries, at the same time retaining its own core values ?
In-depth understanding and catering to the needs and demands of the local consumers and employees ? ? Establishing effective logistics and building strong relationships with its suppliers, such that they too grow with Wal-Mart’s own growth in these markets Winning the trust and the goodwill of the local governments and establishing its own effective leadership Having faced certain similar situations in the past in other international arkets where WalMart failed to remain intact, it is now better prepared to deal with these problems in South Africa and Chile, and is also better poised to deal with other unforeseen issues too, given its dedicated effort to collaborate more with local suppliers, consumers, employees and governments, in order to tackle these issues head-on. All it needs is to focus on its core competencies and at the same time exhibit more adaptability, in order to continue achieving a sustainable competitive advantage. References 1. Strategy and the Business Landscape; Pankaj Ghemawat; Pearson Education, First Edition . Wal-Mart in China: Can the world’s largest retailer succeed in the World’s Most Populous Market? ; Gary Gereffi and Ryan Ong; Harvard’s Asia Pacific Review 3. Slow Cycle into Africa; Andile Makholwa; Finweek, 10/28/2010 4. Competitive Strategy and the Wal-Mart Threat: Positioning for Survival and Success; John A. Parnell and Donald L. Lester; Sam Advanced Management Journal, 2008 5. S. Africa at A Discount; Jeremy Kahn; Newsweek, 12/13/2010, Vol. 156, Issue 24 6. What is the local Wal-Mart Effect? ; Michael J. Hicks; Economic Development Journal, 2006, Vol. 5, Issue 3 7.
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