Global Standardization Or Localization Strategy?
The Wal-Mart was founded in the year 1962, in the state of Arkansas by Sam Walton and has emerged as largest retailer and as the largest company in the world. Wal-Mart incorporated a strategy of high level services, purchasing economies and strong inventory management and overpowered his competitors and become the dominant firm in the industry of U.S. retail. During the 1980s and 1990s, after the period of rapid expansion in home country the Wal-Mart faced limits to grow and forced to expand and grow internationally (Wal-Mart takes on the World).
In the year of 1991, Wal-Mart started to expand globally by opening its first store in Mexico but the biggest challenge was Wal-Mart’s business practices and culture which need to be transferred internationally. When Wal-Mart began to expand globally, it had to decide that which countries would be beneficial and profit making for them. To expand in the Mexico, Wal-Mart used deliberate entry strategy for the emerging market as it used 50-50 joint venture with Cifera which is the largest local retailer of the Mexico. This partnership helped Wal-Mart to manage the substantial difference between the income and culture of America and Mexico (Wal-Mart takes on the World).
The Mexico became its first focus of their expansion because of the following reasons.
For the Global expansion, Wal-Mart needs to enter in the emerging market as its starting point. Therefore, it targeted Mexico although the European retail market was large to succeed there.
To get success in the global market company need to grow in the large populated area and thus, Mexico one of the country of Latin America (Wal-Mart takes on the World).
The company decided to focus on the America’s more than the geographically distant and more culturally Asian marketplace. According to this belief Mexico was the best option to start (Wal-Mart takes on the World).
In the mid of year 1980, the Mexican economy began to open and its retail sector began a process of deep transformation which was accelerated by the entry of Wal-Mart and has had profound implication in retail sector as well as for the supplying industries (Leonardo Iacovone, 2008).
The urbanization of Mexico is the biggest reason to choose for the expansion of the Wal-Mart (Leonardo Iacovone, 2008)
What was their entry strategy in Mexico and what are the advantages of that strategy?
Wal-Mart is the largest retailer company that starts globalization with Mexico in the year of 1991, with following the absolute advantage theory of international business. To strongly enter in the Mexico market, Wal-Mart adopts very deliberate entry strategy i.e. adopts the strategy of joint venture. The Wal-Mart decided to enter with the joint venture because of having lack of managerial, operational and financial resources in order to simultaneously pursue the international market (Wal-Mart takes on the World).
Wal-Mart enters in Mexico adopting the strategy of joint venture. It used 50-50 Joint venture with the Cifra, the retail conglomerate of Mexico. This entry mode helped Wal-Mart to sustain difference between the income and the culture two different countries although it also faced several challenges due to the crowded roads, poor infrastructure and lack of leverage with local suppliers. This resulted in managing stock and ultimately prices and costs increased in comparison to the U.S stores but strategy of joint venture helped in providing expertise in operating in the Mexican market and also provides a base for learning about retailing in the Mexico (Wal-Mart takes on the World).
Later on in the year of 1997, after acquire experience with the partners of different country Mexico, Wal-Mart decided to expand future by holding controlling position in Cifra. This was renamed to Wal-Mart de Mexico S.A. de C.V and by the end of year 2008, Wal-Mart operated more than thousand units in Mexico and was accounting for more than half of all supermarket sales in Mexico (Wal-Mart takes on the World).
The advantages associated with the entry strategy of Wal-Mart in Mexico were:
It able to sustain difference of culture and income of Mexico and US.
It decreases the capital risk involved of Wal-Mart.
It leverages the local company’s facility in terms of manufacturing, marketing, retailing and distribution (Entry Methods ).
It provides leverage the local company’s managerial ability to exist in the local environment (Entry Methods ).
It leverages the local company’s contact with the several communities and governments to get authority and permit of work (Entry Methods ).
What did Wal-Mart do to enable the company to achieve success in Canada and Latin America? Why did Wal-Mart fail to achieve success in Europe?
After initiating the process of globalization with Mexico, Wal-Mart entered in the Canadian market in the year of 1994 by acquired more than hundred Woolco stores. It entered with adopting the strategy of acquisition unlike as in Latin America and Asia. The Canada is a matured and developed country hence, Wal-Mart hindered with the strong entrenched competitors in the way of the growth and the expansion (Wal-Mart takes on the World).
The company entered in Canada by holding control on hundred and twenty two Wolcoo stores which was money losing company hence, the Wal-Mart restrict and quickly transformed the company. The Wal-Mart applied many practices that had been given successful results in the U.S. In order to quickly transformation, team was brought from U.S and within two years of acquisition the Canadian operation was profitable and the Wal-Mart was accounted for more than three hundred stores in Canada. As Canada borders the US the consumer was aware about the culture, Wal-Mart and its customer loyalty, brand- acceptance, discounts, brand awareness (Wal-Mart takes on the World).
To enter in the Latin America Wal-Mart targeted largest market of the region i.e. Argentina and Brazil. Wal-Mart enters in the Latin American market by the strategy of joint venture with a local retailer Lojas Americana. For example, In Brazil, Wal-Mart emphasized on the customer services with the broader merchandise that competitors can not provided. Although there were some challenges related to the culture Wal-Mart also took advantage of the joint venture and become smarter to business in Latin America (Wal-Mart takes on the World).
Following are the reasons to enable the company to achieve success in Canada and Latin America is:
The Canada and Latin America are the matured and developed countries which help to lead the strategies of Wal-Mart.
To enter in the Latin America, the company used joint venture which helped to manage the difference between two countries in terms of culture and income.
To enter in Canada, the Wal-Mart used acquisition strategy and earned profit
As Canada bordered the US, the consumers are well aware about culture of the organization.
In Brazil, Wal-Mart emphasized on the customer services with the broader merchandise that competitors can not provided to the local customers.
The Canada was able to accept the quick transformation and the U.S practices in their business and hence, provides profits to the region as well as the organization.
The emerging market of Canada and Latin America helped Wal-Mart to expand.
The large amount of population of Canada and Latin America emerged Wal-Mart to grow successfully.
The living styles of Canada and Latin America is the major reason to enable succeeds in region of Canada and Latin America.
The approach of “always low price” of Wal-Mart succeeds expansion in the respective region.
In the case of globalization in Europe, the European culture and market is very different than the market of Latin America and the Canadian. For Example, In Germany Wal-Mart acquired two companies, the 21- unit Wertkauf Hypermarket in 1998 and 74- Interspar stores in the year of 1999. In the year of 1999, the company entered in the United Kingdom by acquiring 229-store ASDA group and later on in the year of 2008, the Wal-Mart was the second largest super market chain entered in the United Kingdom. With more than three hundred stores but has been loosing ground to leader Tesco Plc. These acquaintance leads Wal-Mart to have share market quickly with the competitive and highly advanced retail market of the Europe (Wal-Mart takes on the World).
Although having strong market share the Wal-Mart encountered difficulties in managing two big companies in two different cities with limited infrastructure. Wal-Mart tried to nourish with different practices implemented in the U.S but the expatriates were lacking the German language skills. German suppliers were not familiarizing with many efforts and practices such as centralize purchasing and inventory management. At the same time, German customers were not responding well to the American practices and also faced to many management issues like relationship between the employee and supervisors. After trying for decades, Wal-Mart had to withdraw for Germany and another reason being that competitors were also having same strategies and practices. Therefore, Wal-Mart did not have competitive advantage in Europe (Wal-Mart takes on the World).
Is Wal-Mart pursuing a global standardization strategy or localization strategy? Discuss and explain your answer.
Wal-Mart moved into the process of globalization because of three significant reasons
Growth opportunities in the U.S were becoming constrained.
It believes that it can transfer its business model into the foreign market.
It wished to preempt other retailers that were also starting to expand internationally.
To expand globally, Wal-Mart is pursuing a global standardization strategy. In the path of the Globalization, the Wal-Mart had been faced many challenges and the company seems to have learned from his mistakes which leads to the continuous growth. Wal-Mart has changed its strategy from an organic growing company to an acquiring company. In early 1991, it focus on expand globally into the internationally market. This expansion has proved to be successful and therefore, Wal-Mart can maintain this strategy in long terms and keep on growing its international business.
The Wal-Mart initially treated foreign market as the domestic market as like United States but later on after the expansion in Mexico it concluded that this was not correct approach. To succeed in the global market the company needs to personalize it’s offering to local conditions with keeping market strategies and market constant in every market.
Globalization has yielded with many of the additional advantages to the company as it enhanced bargaining power with the suppliers and enhanced its ability to transfer valuable ideas from one nation to another.
After got hold on the local market, the company decides to expand globally and in the year of 1991, it started expansion with inaugurating a store in Mexico in 50-50 joint venture with the local player of the Mexico.
In the year of 2005, the Wal-Mart acquired one- third part of the Central American Retail Holding Co and share increased to 51 % in the year of 2006 which renamed to Wal-Mart Central America. There are still various opportunities and open potential market for a Wal-Mart store and the company is committing to explore these opportunities either they are in U.S or in the other country.
International expansion is the company’s fastest growing division. The company announced that they will be soon being a part of India and Russia and its indicating that both countries will be soon a part of International coverage market.
Wal-Mart realized that there is strong competition from their competitor such as Carrefour of France, Tesco from the United Kingdom and Ahold of Holland and to exist in such a globalised competitive world there is a need of growing globally.
Wal-Mart is laggard with just 17% of its sale generated from operations takes place worldwide. Hence, there is still scope for further global expansion.
Wal-Mart had varieties of well publicized miscue while learning the strategy to do business in China. For example, some house hold items are not found in China which is found at American Wal-Mart as Kitchen towels, window curtains etc because the wide variety of China window sizes that caused people to make their own window’s curtain.
“Always Low Prices” approach of Wal-Mart met resistance from competitors and regulators and the Wal-Mart is known as the most discounted retailer shop.
Wal-Mart adopted the strategy of customer services, the excellence and the respect for the individual and commences business globally.Order Now