Walmart's Story: Walmart in Africa Case Study

Introduction

Walmart was founded in 1962 by Sam Moore Walton in Arkansas. Walmart was formed on the idea that if you are a big retailer you can manage wholesalers to discount goods and that saving should be passed to the customers (ICMR Center for Management Research, 2014). Within five years of its opening, Walmart had grown to 18 stores and had revenues of $9 million. In 1972 Walmart was listed on the New York Stock Exchange; contributing to its rapid growth resulting in 276 stores in a total of 11 states in the United States of America alone by the end of that decade. However, there was more success to come in the next decade (the 1980's) with sales growing from $1 billion in 1980 to $26 billion in 1989 (Walmart Inc. 2018).

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In 1991 after having great success in America, Walmart started to investigate expanding internationally. It was Mexico the first foreign market; through a joint venture with Cifra, a Mexican retail company after which Walmart expanded to the Canada and China markets. Walmart had great success in Mexico but also big failures which led to the quick exit from markets such as Germany and South Korea. The financial crisis in 2008 and the limited opportunities for local growth created a need for new emerging markets. Walmart started to research India and Africa. Currently, Walmart has 11,700 stores under 65 banners (Not all stores trade as Walmart) in 28 countries and e-commerce websites. Walmart revenue for the fiscal year 2018 was $500.3 billion. Walmart's current president and the chief executive officer is Doug McMillon.

Walmart in Africa

In September 2010, Walmart offered a $4.6 billion to acquire the South African retail chain Massmart Holdings Inc. This South African retail included stores as general merchandise suppliers, electronic retailers, do-it-yourself building suppliers and food wholesalers. The entry to the South African market was not easy for Walmart; South African unions amongst them the South African Commercial, Catering and Allied Workers Union (SACCAWU) with the support of the Global Union Federation UNI Global and in the United States, the United Food, and Commercial Workers wanted to prevent the merge (Kenny, 2014). In South Africa, these kinds of merges are assessed by the Competition Commission. The Commission is there to assist the Competition Tribunal on whether to approve the merger unconditionally or to approve the merger with conditions or at other times to prohibit the merger entirely (Bonakele 2011).

The entry was finally approved by the Competition Appeal Court of South Africa ruling. The Court ruled in favor giving Walmart a controlling stake of 51% but it came with some conditions. The most fundamental was that Walmart could not cut any jobs during the first two years after the merge. Walmart was going to give preference of employment to 503 workers made retrenched by Massmart before the merge. Walmart also agreed to develop and implement a program to assist the local suppliers to improve their competitiveness. The program for a supply-chain training should run for three years and the spending for Walmart was around US$13.37 (ICMR Center for Management Research, 2014).

Issues and challenges faced by Walmart when entering Africa

Marketing studies have consistently pointed out that Multinational Corporations (MNCs) need to know and identify the role of stakeholders if they want to have success in a particular market (Natasha Evers & Martin, 2012). Stakeholders can include employees, shareholders, investors, suppliers, regulators (government), consumers groups, business associations and community groups. The study identified that the key stakeholders, in this case, were the Trade Unions and the government of South Africa. Both key holders fought for preserving jobs in the value chain. However, the main difference was the approach; while the government wanted to achieve a compromised commitment from Walmart. In the emerging markets, governments always play a protective role in the entry of MNCs to their countries. Emerging markets can offer high growth opportunities, however, they have the absence of intermediaries like market research firms and credit card systems to efficiently connect buyers and sellers.

Another significant challenge in the South African market at the time was the unemployment rate in South Africa that was about 35%. The government had the need of creating more jobs. Agriculture and agri-business were identified as the industry creating jobs and contributing to the Government's Economic Growth Path. It was expected that the government was going to be a key stakeholder; this to ensure that the entry of Walmart was not going to lead to the elimination of its local supplier industry and jobs.

The importance of MNCs understanding the local market conditions when entering new markets

Walmart entry in Africa happened through the purchase of privately-owned shares. Which very interestingly more than 70% of Massmart were foreign shareholders. However, the issue was not the change of shareholding. The issue was the entry of Walmart. The government primary need was to protect some local manufacturing organizations. Walmart should have recognized these aspirations and seriousness of the situation and considered how to contribute towards it. Walmart should have known that Trade Unions had a unique position in the government structure of South Africa. Africa's post-apartheid legislations protect the labor force in South Africa. This means that workers in Africa had unprecedented influence over economic and social policy formulations. Walmart reputation did not help. The reputation for being anti-trade union separate and negate any intent of dialogue.

Trade unions and the government wanted a binding commitment from Walmart. This could have guaranteed that the key stakeholder concerns were going to be addressed in the process. Instead, the firm insisted that it was not their legal obligation to meet the demands of the government and the trade unions. This caused Walmart to miss the opportunity of addressing all the issues outside the court. The reaction of the key stakeholders by the non-acceptance of an informal commitment illustrates the low level of trust between the firm and stakeholders. Again, the problem was significantly contributed by the apartheid and the post-apartheid experience of the South Africans that foreign businesses and the government are very suspicious of each other. Finally, Walmart should have known that Massmart Holdings Inc. was lacking the skills and experience to manage the merge. Walmart gave too much weight to the fact that Massmart was a "home" company. Massmart Holdings Inc. added to the issues when 503 workers were retrenched only months before the merge. It was clear that Massmart Holdings Inc. itself did not have a stakeholder strategy and the organization had a reactive approach to its business management.

Strategies to be followed when entering a foreign market. - Preeti

The primary focus of a company when entering a new market is to underlie the choice of competitive strategy. Two central questions need to address, first, is the long-term profitability as a function of the attractiveness of industries and the factors that determine it and secondly, the determinants of the relative competitive position within the retail market. (Porter 2008). When a firm expands their markets, the dimensions of the new market strategy set are formulated by the following matters: (1) location of the production (2) does the entrant own the production (3) whether or not the entrant owns the distribution (4) whether it is an outright ownership or shared through a Joint Venture and (5) whether the owner has been acquired or received through an investment (Peter & Casson 1998). Other dimensions which shape the firm's strategy are given by the post-entry challenges faced by organizations in a new market of which they have little knowledge about. 1. The uncertainty of the payoffs and knowledge previously accumulated; 2. Heavy Sunk costs 3. Bargaining powers which can have a significant impact on the firm's profitability 4. Multimarket entry and 5. Establishing product differentiation (Sen 1997).

The foreign market entry strategy can be determined by the interdependence within a multinational enterprise (MNE) and the subsidiary as follows:

• Negative impact on post-entry growth for an MNE in a foreign market is likely due to strong and complex interdependence between the subsidiary and the MNE. (Tan, 2009)
• The MNE must look at facilitating knowledge-sharing between interdependent subsidiaries. To facilitate this, the MNE needs to develop a corporate culture throughout the subsidiary network which has a set of common values. Knowledge sharing will help the subsidiary to lower its set-up costs, and "unlearn" and "relearn" their existing knowledge. (Tan, 2009)
• Developing Marketing competence - Adaptation to the local markets and being highly sensitive to cultural and institutional differences; these are key factors likely to shape our marketing strategies. (Tan, 2009)

Differences in the working environment of Wal-mart vs. practice in Africa. - Preeti

With reference to Wal-Mart's corporate culture, with the primary focus on profit maximization but they praise the symbolic roots of American life - hard work, democracy, patriotism and consumerism (Gereffi & Christian 2009). There has been continuous pressure on Walmart to improve its labor conditions in the United States. Walmart has signed a framework agreement with Union Network International (UNI) to respect labor rights throughout its global operations. (Logan, 2014). Walmart after having acquired Massmart Holdings Inc. one of Walmart's most significant investment in Africa. The South African tribunal to place conditions on the acquisition, including reinstatement of over five hundred laid-off employees, protection of existing labor agreement for three years, and the establishment of a fund to buy from local suppliers. (Logan 2014)

The South African government's decision of privatization in the late 1980s, the 'new' South Africa observes economic efficiency and political expediency as a complex relationship and struggle to find the right balance (Hentz 2000). This led to strict labor laws in Africa due to its economic crisis which was a result of the capitalist accumulation referring to the growing poles of a rich minority at one end vs. a poor majority at the other (Narsiah, 2002). A visible difference between the working environment of Wal-Mart vs. the national working culture in Africa which is mostly controlled by labor unions and highly protective in nature.

Discuss and debate the strategies that Wal-Mart should follow in the future to succeed in the African market.

In order to improve revenue and gain consumers' loyalty, Wal-Mart should focus on improving its image towards the community; this could be done by creating new jobs, providing employees with better working conditions, competitive salaries and additional job security (Ramstad, 2006). Furthermore, Wal-Mart should conduct broader research in regards to local consumer's customs and dietary preferences. Supporting programs to enhance local retailers would be a way for Wal-Mart to become widely accepted within the African continent. In hindsight, a strategy of resilient sales in Africa will enable Wal-Mart to increase its revenue alike South America (Moreau, 2009).

Discuss the lessons that Wal-Mart should learn from its experience in international markets like Germany and South Korea.

Following a strategy of international expansion, Wal-Mart arrived in Germany in 1997, which led to a costly experience after withdrawing from the market. Reports indicate Wal-Mart lost close to $200 million per year, resulting the company to exit the German market at an estimated...