Walmart International experienced uneven business results across countries. While the company operated in 30 countries, 85% of its sales came from only three major markets: the United States, the United Kingdom, and Mexico. Recently, it retreated from Germany and South Korea markets and faced uncertain futures in some of the others. To ensure the future success of Walmart International, it is essential to evaluate the company’s business in foreign markets. To accomplish this goal, I will use three evaluation criteria: market entry strategy, business operation, and cultural adaptability.
Strengths
Market entry strategy
Walmart employed the acquisition strategy to enter most foreign markets. For the market that Walmart penetrated through Joint ventures, it always tried to acquire a major position in ownership (Mexico and Brazil markets) or turn a local business into its subsidiary (Japan market). By doing so, Walmart had the right to rename local companies under its name and had greater flexibility in adjusting the operation of acquired businesses. For example, after receiving the majority position of Cifra Mexico, Walmart renamed the companies to Walmart de Mexico and applied its business model and operation expertise to improve the business’s efficiency.
Walmart acquired businesses that already captured a dominant share of the local market, and most of them were unprofitable. This strategy helped Walmart reduce entry barriers and utilize currently available resources, including suppliers, customer base, brand recognition, and local capitalizing. As proof, CARHCO had a high localization and strong position in the Central American market. After acquiring the major stake in CARHCO (51%), Walmart allowed stores to keep their local identity, and their business results turned out to be successful.
To quickly replicate its business model and apply operational expertise to acquired stores, Walmart chose local retailers which have a similar business model or similar store formats. For instance, Woolco, a discount store that built its store format after the Walmart model, was unprofitable at the time of acquisition due to poor management. Thanks to expertise in operation, Walmart helped these stores turn a profit quickly and became the third-largest retailer in Canada.
Business operation
Walmart quickly adjusted its operation to adapt local customer behaviors and reach out to many customer segments. In Mexico, Walmart operates more than 2,000 stores with different formats to attract customers from various segments. To target Brazilian middle class consumers, Walmart launched small discount stores named Todo Dia. In Canada, the company also adapted to local customer behaviors by employing newspaper advertising and providing a wide range of products in furniture, consumer electronics, and pet supplies categories. Walmart even utilized the D&S credit card business to cater to low-income consumers in the Chile market.
Weaknesses
Market entry strategy
Lack of partnership, entering new markets by itself, or acquiring too small local businesses were Walmart’s main causes of failures. For instance, Germany was the only country in which Walmart acquired small local stores which captured only 3% market share with poor brand recognition among customers. Walmart had the lower bargaining power over suppliers and found it hard to reach the economics of scale. As a result, Walmart experienced hardship competing with local retailers, which had larger customer bases and strong relationships with local suppliers. The same issue happened in Argentina, where Walmart penetrated the market with its own stores. Walmart had low space of expansion and captured only 2% of the market. Consequently, the company faced supplier boycotts and could not execute the low-price strategy effectively.
Business operation
Walmart experienced several cultural missteps when blindly applying American managers’ frame strategy and operational methods to local markets. Take the German market as an example; service protocols that were considered friendly and supportive in the US were perceived differently by German. German consumers did not like store staff to smile at them or help them bag their groceries. At the same time, giving local store managers significant authority in directing the store operation sometimes caused problems. As it was the case of Walmart in China, which was accused of mislabeling ordinary pork as organic.
Cultural adaptability
Walmart employed a prototype approach in applying US’ product mix to foreign markets. The US product mix was poorly fit for the Korean market, where consumers were attracted by F&B products. In Brazil, Walmart’s product mix with touted golf clubs and baseball gloves was also not suitable for Brazilians.
Walmart also lacked awareness about cultural differences. Its pricing strategy centralized around the Everyday Low Price was a poor fit for some markets. For example, Korean consumers appreciated luxurious and service-oriented shopping experiences more than a low price. In Brazil, the EDLP strategy also contradicted periodical discounts and markups prevalent. In Japan, low price was perceived as poor quality, and consumers were not attracted by Walmart’s principal value of low price.
Action plan
Walmart should standardize its strategic approach in running a business overseas based on three main categories: market entry strategy, business operation, and cultural adaptability. The strategic approach should capture the following suggestion:
- For the market entry strategy, Walmart should continue to deploy the acquisition strategy. When the company looks for local businesses to acquire, it should target businesses with similar business models or store formats and already capture a dominant share in that market. For highly regulated, luxury-oriented, or high-quality based markets, Walmart should partner with local conglomerates or well-respected local retailers to reduce the effect of market entry barriers.
- In terms of business operation, Walmart should continue to promote flexibility in operating local stores to capture a wide range of consumer segments. At the same time, the company should bring in an international management team to work alongside local managers to transfer operational practices while adjusting their strategy and business model to local culture.
- Regarding cultural aspects, Walmart should carefully study a wide variety of cultural factors: customer behavior, customer perception of EDLP model and different store format, local culture, local regulation, supplier relationship, et cetera.
Short term
- Walmart should form Go to market strategy teams to review stores performance in accordance with the above strategic approach and come up with action plans to improve business activities.
- Walmart should use the above lesson learned from actual assessment and adjustment to local stores to perfect the strategic approach.
long term
- Walmart should apply this approach to increase its chances of success when it expands business activities to India, Turkey, and other emerging markets.
