Essay Example on Walmart's Expansion: Benefits, Threats, and Challenges in Global Markets

Introduction

Wal-Mart has experienced several benefits and threats as a result of its expansion into global markets. Some of the benefits include increased growth stimulation and higher revenues. However, the internationalization of the organization's operations led to several challenges due to the failure to understand the culture of various target customers in specific market niches such as Japan, Germany, China, and India. Most of Wal-Mart's success is attributable to its expansion into international commerce, which provided enormous opportunities for growth (Salomon, 2019, p.n.p). Globalization encouraged the interlinking of the company's economic systems and markets that saw its expansion into the global economy. Specifically, Wal-Mart's expansion intended to access more inputs including goods and services beyond its mother country. With the complex global nature of the international business environment, Wal-Mart has always failed to understand the culture of the business environment since it consists of both opportunities and threats. Although the company strives to tap the capacities in the international business arena, it faces the challenge of how to deal with the existing cultural beliefs in the process of implementing global strategies. Although the company has been aligning its strategies with the international market forces, its success has been thwarted in various markets due to the failure to understand the underlying culture in those environments.

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Discussion

Understanding market culture is very important for any multinational organization that intends to expand. Notably, culture can directly predict consumer behavior. Wal-Mart has a unique culture that involves providing groceries at low cost, its zealous inventory control, and a wide array of merchandise under one roof. However, the success formula did not fit the German market neither did it earn the trust of Chinese, Indians, and South Koreans. The culture in the four markets is very different from that of the United States due to varying discount chains and shoppers in Germany, for instance, have different habits. Wal-Mart failed to understand the socio-cultural beliefs and the structure of social institutions in Germany, India, China, and South Korea (Salomon, 2019, p.n.p). This implies that the company did not understand the beliefs, tastes, and preferences as well as the existing value systems in the foreign markets. Therefore, the complexity of the aforesaid socio-cultural issues curtailed the company's internationalization operations. For instance, Wal-Mart could not align its operations with the social realities in the host markets. Additionally, the company's marketing strategies did not put the language of the host market into consideration. Consequently, the failure to comply with the German national language resulted in its downfall.

Wal-Mart relied on individualism in the German market although the country's gentry of people believed in collectivity whilst struggling to achieve their goals and long-term targets. The foreign market environment failed to support Wal-Mart's teambuilding culture; hence, forcing the company to use English as the official language during its marketing campaigns. Notably, the use of English as the official language resulted in communication gaps that consequently led to the unsuccessful efforts to form teams in foreign stores. Therefore, the company experienced plummeting sales that forced it to exit the market. Furthermore, Wal-Mart's individualistic approach in the market environment failed to unite the workforce since there are high possibilities that the company did not consider the interests of late adapters (Hamza & Nizam, 2016, p.210). Similarly, the miscommunications send alarming signals that the company did not respond to customers' feedback since most of the reports were ignored at the top-management decision-making. Indeed, the failure to understand the international culture resulted in the demotivation of employees; hence, the high rate of employee turnover in most foreign environments. Most employees in Wal-Mart Germany were unfamiliar with the American culture that the company was initially exposed to.

Wal-Mart's failure in cultural integration in Germany originated from its poor mergers and acquisition. Immediately after the company's acquisition, mistrust developed among employees since they were dissatisfied with the new management's practices. The organization continued to use English throughout its retailing practices and it did not make efforts to connect with existing employees. Additionally, the failed cultural integration involved some aspects of low pay and some of the products did not reach the desired quality standards in the German market. Also, the company could not lay down employees in the new environment as it did in its home country due to the existing stringent laws that protect laborers from exploitation through trade unions. Therefore, Wal-Mart failed to attain its projected cost leadership in Germany dude to the inability to achieve the prospected economies of scale. Hence, the company could not gain control over the retail network.

The failure to understand the culture of the foreign environment poses unhealthy competition for companies that have taken the initiative of going global. The ability to exploit international opportunities declined since Walmart later experienced both local and international competition from its rivals. The international trade barriers increased and did not favor the company in German culture. Also, Walmart faced stiff competition in its UK markets due to the unfavorable cultural conditions and the ability of Tesco and Sainsbury to align with the market requirements. Therefore, when it reached a point where Walmart could not increase its market share in the German retail market, it had no option but to quit. In this regard, Walmart was weak in the German foreign market environment; hence, unable to withstand the competitive rivalry and eventually exited the market. Similarly, the inability to understand the cultural requirements in China, South Korea, and India was responsible for its failure in the aforesaid markets.

Solutions, with their advantages and disadvantages

Walmart has two solutions to the challenges in the international markets that do not favor its growth strategies, namely; local adaptation and battling with local competitors. Local adaptation is whereby the company can establish its local presence throughout Germany, South Korea, and China. By so doing, the top management will understand the unique nature of the local market. Local adaptation would give the business new insights into how to conduct its processes in the new environment while completely reinventing the organization's culture to meet the needs of the locals. Walmart partly adopted this strategy to enter the Chinese market although it still faced difficulties.

The advantage of local adaptation is that it can support the organization's expansion as it enters populous markets that support retail businesses. For example, the company could have adopted the same local adaptation it applied in China to thrive in Germany because the rate of growth of retail sales in the former country is fairly high at 11% (Govindarajan & Gupta, 2002, p.n.p). However, the Chinese market poses several challenges because government policies sometimes do not favor the growth and expansion of foreign firms. The other disadvantage is that the Chinese infrastructure is still underdeveloped as compared to that of the United States. Therefore, such bottlenecks curtail the success of Walmart in the new international markets since it has to reinvent its discounted prices to meet the needs of key target populations (Govindarajan & Gupta, 2002, p.n.p). Even with local adaptation, many Chinese purchase groceries in small quantities and this crippled the success in the populous market despite its efforts to tailor marketing approaches through branding and labeling. Therefore, Walmart failed to gain the greatest consumer appeal and eventually could not fit best with the market culture in Germany and China among other niches mentioned in this context.

The second solution is battling with local competitors to counteract the retaliation it meets from local rivals in the same market. Therefore, Walmart could predict and respond to existing competitive threats in the market environment. For example, the company can acquire a dominant player in the Chinese market just as it applied the same concept during its entry into Germany. The only disadvantage to the solution is that the local markets are regulated by strict zoning laws that sometimes preclude greenfield operations (Govindarajan & Gupta, 2002, p.n.p). Therefore, this would compel the company to explore further acquisitions. Other than the dominant player, Walmart could acquire a weak player that could enable Walmart to transform the weak player just as it did to Woolco in Canada. Battling with locals can as well involve launching an attack on the incumbent dominant player in the market to attain a global competitive advantage in the new environment. The major advantage is that Wal-Mart's global sourcing sometimes fails to guarantee built-in price advantages since some competitors resort to local sourcing (Govindarajan & Gupta, 2002, p.n.p). The local competitors have strong relationships with their clients and local vendors; hence, Wal-Mart's efforts of global outsourcing were short-lived in Germany and even Brazil when it faced stiff competition from Carrefour.

Conclusion and Recommended Strategy

In conclusion, Walmart has significantly expanded in the international markets. However, various political and socio-cultural factors have significantly influenced the success of the company in overseas markets. The two factors, with a special focus on the socio-cultural aspects, create varying degrees of opportunities and threats that have collectively influenced the success of Wal-Mart's strategies of international business (Samuel, 2019, p.n.p). However, globalization has had several benefits on the operations of the company as evident in the increased access to capital and innovation opportunities. Conversely, the company's failure to understand the local culture has been an impediment to its expansion in the new markets due to increased competitive threats (Samuel, 2019, p.n.p). Finally, Walmart should adopt two distinct strategies in its internationalization efforts. For instance, financing strategy and the human resource strategy can support its globalization endeavors in the new market environments.

References

Govindarajan, V., & Gupta, A., K. June 19, 2002. Taking Wal-Mart Global: Lessons from Retailing's Giant. Booz & Company. [Online]. Available at: <https://www.strategy-business.com/article/13866?gko=203b4> [Accessed on March 22, 2020].

Hamza, S., & Nizam, I. 2016. Case Study: Why Walmart Fails in Germany? An Analysis in the Perspective of Organizational Behaviour. International Journal of Accounting & Business Management, Vol. 4 (No.2), PP. 206-215. [Online]. Available at: < https://www.researchgate.net/publication/316790636_Why_Walmart_Failed_in_Germany_An_Analysis_in_the_Perspective_of_Organizational_Behaviour/link/5911e1740f7e9b70f48aa4e2/download> [Accessed on March 21, 2020].

Salomon, R. February 21, 2016. Fortune. Here's Why Walmart Stumbled on The Road to China. February 21, 2016. Fortune Media IP Limited. [Online]. Available at: <https://probe.org/globalization-and-the-wal-mart-effect/> [Accessed on March 21, 2020].

Samuel. April 3, 2019. Blue Ocean Outsource. Globalization and International Business: Walmart Case Stud...