Wal-Mart’s Global Expansion Introduction Sam Walton established Wal-Mart at Arkansas in 1962. It has grown dramatically over the last 40 years and has become one of the world’s largest retailers with the sales of $401 billion in a year ending Jan. 31st 2009. Wal-Mart has approximately 7,000 stores globally with 2 million employees. It is the largest private employer in Mexico and Canada with the employee figures hitting around 1. 4 million in this region. It also operates 3,600 additional stores in 16 worldwide markets that include China, Japan, South Korea, India and United Kingdom.
Wal-Mart does particularly well in Canada where they have a chain of 314 stores. In 2008, it had 92,284,000 dollars of gross profit. Wal-Mart serves its customers and members over 200 million times per week and ranked first among retailers in Fortune Magazine’s 2009 Most Admired Companies survey. Wal-Mart provides sustainability- focused products. Wal-Mart not only provides jobs for senior citizens and students but also provide opportunities to build careers with competitive salaries. The retailer claims that 75% of its stores management team joined the company as hourly sales associates.
Wal-Mart has also got an impressive ethical policy which includes regular use of recycling products and creating almost zero landfill waste. The company also makes vast amount of donations to different local level charitable organizations every year for improving people’s lives, which made Wal-Mart a trusted organization for funding the community programs to address hunger, homelessness, education, job training and other basic needs. International Expansion of Wal-Mart and its Benefits
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By 1990, Wal-Mart realized that the opportunities for growth in United States is becoming limited because of the saturation of the market and decided to expand their business globally. Their international expansion put a greater impact on international market and has changed the way business is conducted globally. It has also increased the benefits for the consumers as it helps them spend less money on goods they purchase. The company’s relationship with their key suppliers such as General Electronics (For appliances), Unilever (For Food Products) and Procter & Gamble (For Personal care products) is very good.
All these suppliers are internationally recognized with vast global expansion and because of this Wal-Mart are able to demand deeper discounts from the local operations of its suppliers. Apart from these world renowned suppliers Wal-Mart also does business with more than 2,500 minority and women-owned business enterprises (MWBE). The result of this good relationship with suppliers means they can lower their prices to attract more consumers, gain market share and increase their profit margins in international market. Wal-Mart claims in its data sheet for December 2009 that its international business achieved 11. % rise in sales for the whole financial year. Except the profit and market share another benefit of international expansion for Wal-Mart is the flow of different ideas for example, a double-floor store in New York was opened because of the success of multi-floor stores in South Korea. Other ideas such as the layout of the wine department in Argentina have now been used into the layouts of company’s stores worldwide. Wal-Mart is also constantly trying to improve its reputation ethically and consistently helping over 100,000 charitable and community-focused organizations by providing financial and volunteer support.
Retailer’s policy of buying fair-trade products in the international market is also attracting the attention of many consumers to shop in Wal-Mart. Risks When Entering Other Retail Markets The idea of expanding internationally was initially jeered off and the critics showed that Wal-Mart’s style of trading only suits to an American market, which in other countries is not going to work because of the different market structure, people’s taste and the popularity of already established retailers. But instead of all the critics Wal-Mart went ahead with an idea and in 1991opened their first international branch in Mexico.
Expanding business internationally also brought some risks for the retailer as being new in the market they faced problems like bad infrastructure, lack of leverage from their suppliers and no knowledge about consumers taste, which resulted the rise in prices of their products and lack of interest from the consumers. One prime example of this kind of mistake was in Mexico where they merchandised products like ice skates, lawn mowers and fishing tackles which were good sellers in United States but without a surprise didn’t do well in Mexico.
Managers had to reduce prices to sell that stock but it was re-ordered because of the automated ordering system. These problems created a large risk to prove the critics right about Wal-Mart not surviving internationally. Diminishing the Risks Wal-Mart learned vastly from their experience in Mexico and after that whenever they entered any international market they took strict measures on not repeating the same mistakes. To avoid risks of making past mistakes they made deals with vehicle companies which means improved and frequent distribution system, adapted local environment and merchandised goods in stores that appealed local tastes.
With the grown presence of Wal-Mart in the international market their suppliers built factories near the distribution centers so they could serve the company better, which meant frequent inventory and cutting down the cost to get better market share. These are the tactics that has made Wal-Mart one of the most successful and globally recognized retailer in the world. Entering Mexico via Joint Venture Wal-Mart first entered Mexico through a joint venture with Cifera, because it was the largest local retailer in Mexico which was somehow within the standard as Wal-Mart was in the United States.
The other reason it entered through a joint venture was because they wanted to be on the safe side when entering a new market considering they had no previous experience of the market they were planning to enter and hoped the experience from Cifera will help them in making their brand global, which they had planned to do after the market in America got saturated for domestic growth. Financial Aspect of Joint Venture As for the financial aspect of joint venture seems to be that both companies can benefit from the profit as well as share the risk and cost.
Get a greater access to resources which both companies can share with each other and also the availability for both companies to a new market distribution. While not to forget the risk of this particular idea for a business is that every company has different objectives on how to move forward with the business. The other risk is the communication flow as one company can be centralized and the other decentralized. Purchase of Joint Venture Partner The major reason believed to push Wal-Mart to buy of their Mexican joint venture partner Cifera.
Was that they had gained enough experience working in Mexico which was around about 7 years and during that time they had increased their sales of good as well as made contacts to help them prosper without the help of having a joint venture. After getting exposed and experience within the market they had considered to start their own chain of stores to have a firsthand control rather than having to collaborate with their partner to make certain decisions.
The other reason could be considered that is since their deployment in the Mexico during 1991 when goods were being sold at 20 percent more than in the States due to various different conditions such as transport and production of goods. They were able to sort out the problem by at first having a deal in place with a major transport company to bring products from their factory to the stores in Mexico, which later on opted on suppliers to open factories around areas where stores were located which enabled to cut down on logistics cost. Having this in place they were able to provide the same goods in the same price as they did in the States.
Difference of Strategy for Dominance Before explaining the strategy that Wal-Mart pursued it would be helpful in understanding the strategies. As per the question four different strategies were provided to consider and show the one chosen by Wal-Mart to match its strategic choice and why. The four strategies are global strategy, localization strategy, international strategy, and transnational strategy. Global standardization strategy is a “strategy that focuses on increasing profitability by reaping cost reductions from experience curve and location economies” (Hill, 2009).
Localization strategy is a “plan which focuses on increasing profitability by customizing the goods or services to match tastes in national markets” (Hill, 2009). Transnational strategy is a “plan to exploit experience-based cost and location economies, transfer core competencies with the firm, and pay attention to local responsiveness” (Hill, 2009). Lastly international strategy is “trying to create value by transferring core competencies to foreign markets where indigenous competitors lack those competencies” (Hill, 2009).
Domination The strategy that Wal-Mart used to go global from United States was the global strategy at first in Mexico but after noticing that the strategy has no affect rather than sales going up they had to cut down the price of goods to be able to sell them. This enabled the company to change from global to localization strategy which is to focus on increasing profitability by customizing the firm’s goods or services they provide a good match to tastes and preferences in different national markets.
This enabled them to adapt to the local market and provide goods that matched the local environment. As for making sense of this strategy it was a valuable and the right decision considering the outcome from the change. As profit grew so did the hold in the market as well as outsmarting their nearest rival by having more than twice as many stores within the country. Conclusion To conclude, Wal-Mart benefited vastly from their global expansion. It experienced an increase of global market share, reputation and profit margin.
It also gained economies of scales. Although, they faced massive problems when they took their business internationally but they quickly learned from their mistakes and adapted the strategies according to different international markets, which benefited them in many ways. Wal-Mart ranked 8th in 2009 Forbes Magazine’s of global companies but 1st in global retailers ranking and if they keep attracting consumers by their business strategies then without a doubt it will stay the top retailer for a long time.
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