Strategy Of International Business
The topic selected for this research is Wal-Mart’s global strategy and its entry into foreign markets. Despite the importance of the topic, the vast majority of research on globalization is theoretical. Research on how Wal-Mart applies its global strategy and the impact of different type of approaches taken has received relatively little attention. Moreover there is literally no data or research available on organization’s entry into some markets like India and South Korea.
This research takes all the relevant factors important for this study into account. The paper was constructed after considering Wal-Mart’s globalization method (modes of entry), its benefits of extending business globally, how successful was it globally and its effect on cultural, political, economic and social issues and vice versa. This essay has taken into consideration the review of the strategic activities of a Wal-Mart and an overview of the operational and strategic decisions implemented by the company. Also included is an analysis and understanding of the main components of the business strategy and how to sustain it through the business growth. The following essay reflects upon Wal-Mart’s global pursuit and venture into international market, reasons for going globally, its global strategy of market entry, its dealing with relevant factors, its marketing strategies of positioning and growth. It will also discuss benefits and issues that happened due to globalization. This essay will critically evaluate the findings with the help of theories available and corresponding recommendations will be made to Wal-Mart for its current and future foreign ventures.
2. Outline of the Essay
Globalization is a process of integration and interaction among the people, organizations, and governments of different countries; it is a process aided by information technology and is driven by investment and international trade (Hill, 2010). The process of globalization affects the environment, political systems, culture, prosperity and economic development, as well as human physical well-being in societies around the world. For companies, globalization means taking their business foreign by any possible means (Hill, 2010). Organizations go global for many different reasons. Main reasons for businesses going global include making money and growth of the organization. The multinational companies tend to attain economies of scale when they go global due to the large base of customers (Clarke and Getler, 2003). They know if they operate successfully in foreign ventures, their brand name and value will increase. The other drivers for going global varies and include improved communications, convergence, larger customer access, better information technology, cultural distribution and transportation, reduced barriers in trade, privatization programs, and development of international standards (Hill, 2010). Often organizations of developed world set up their businesses in developing countries because of easy access to cheap labour and increasing disposable income of the global middle class (Hill, 2010). Entering a global market is a lengthy process and penetrating the existing market set-up for development is a difficult task. Businesses require marketing infrastructure and proper extensive market knowledge before initiating the plan and a well-developed global strategy (Rugman and Verbeke, 2008). Number of factors plays an important role for options of entering an overseas market. These include a trade-off between the amount of control and the level of commitment of resources. There are number of ways an organization can gain a global entry: By ways of acquisition, joint ventures, exporting, licensing, franchising, royalties, merger, subsidiary, setting up a completely new company, or just by going into partnerships (Peng, 2008). The impacts of globalization involve the economic, social, and environmental outcomes of increased economic integration. The supply chain has been fragmented between nations with extensive geographical relocations of each component (e.g. harvesting materials, parts manufacture, assembly, marketing and sales, distribution, research and development). Today’s globalization includes a new international financial system, a new division of labour (e.g. unskilled and skilled workers, overseas buyers, traders, branders/advertisers, retailers), and a new challenge to the countries to guide its economic development (Bradley, 2005). A global shift has made considerable advantages and disadvantages on today’s society. A particular advantage of entering foreign market is the opportunity of free trade and the result on the global economy. Other advantages include increase flow of communication, knowledge, technology, reduction of cultural barriers, greater flexibility. However, the disadvantage is the destruction of local jobs and markets, exploitation of resources, environmental issues, and forced movement of people (Bennett and Blythe, 2006).
Wal-Mart Stores, Inc. is the largest public corporation (by revenue) of the world and operates a chain of large department stores (DATAMONITOR, 2009). It is also the biggest private employer and the largest grocery retailer in the United States (MINTEL, 2009). The main reason for selecting this company is that it is the perfect example of successfully operating business on the global scale. It has businesses in many countries of the world, both in developed and developing nations. Wal-Mart is one of the best known industries all over the world. Due to company’s successes over the years, it is considered as a retail giant. Its history is one of innovation, leadership and success. For some this corporation is a market trendsetter (Bushan, 2009). In terms of information systems, it is the most sophisticated retailer. Its concentration of a single business strategy is the basis of its success domestically as well as globally. Wal-Mart has achieved desirable success over the decades by this strategy without having to rely upon diversification to sustain its growth and competitive advantages. The leading marketing strategies of Wal-Mart are low prices, service, and smile (Mintel, 2009). There are many factors in Wal-Mart’s success. It’s shared passion, constant improvement, customer focus, speed improvement in operations and community services are values presented by Wal-Mart. One of the success factors is obviously growing in the era of globalization (Bellman, 2009).
Other reasons for choosing this company are: As different countries’ markets became open, Wal-Mart didn’t hesitate to enter them through many different modes depending upon the environmental requirements of the specific countries. The Wal-Mart had a potential to go globally in hope of earning more profits. Wal-Mart concluded many transactions with a lot of foreign companies that allowed it to buy goods at cheaper prices and offer them to the population (Bellman, 2009). Globalization created so-called global economy, entering more and more economic spheres Wal-Mart received more and more loyal customers worldwide thanks to the well-known brand of Wal-Mart. Important reason for selecting Wal-Mart is its global approach in foreign market, the problems it faced, how it tackled different issues, its policies and procedures regarding social, cultural and other important environmental factors, and how it benefited the local environment (MINTEL, 2008) (KEYNOTE, 2008).
This research is an investigation to search for relevant information on the above mentioned topics. It will meet the School’s criteria set to complete the paper with enough investigative data. It has been used in a technical sense as it is an academic activity. The main aim of carrying out the research is to discover answers by applying applications of scientific procedures (Bryman and Bell, 2007). This research is ensured to be rigorous; procedures adapted to be relevant, systematic, justified and appropriate; the approaches taken should follow a certain logical sequence; and the conclusion would be viable and verifiable. It has also been ensured that the findings are examined for reliability and validity. Both descriptive and analytical research in the project has been applied (Saunders et al. 2009). Fact finding enquiries are made to measure frequency and preferences of similar data. Some information has been analysed for critical evaluation purposes. Deductive reasoning has been applied for this research (Saunders et al. 2009) as it works from general to specific. The researcher has narrowed down the theory into more specific hypotheses for testing and finally it lead to the hypotheses with specific data. Secondary research has been conducted which was the data already collected. It was actually the exploration of all the facts, figures and findings that were already researched and organized in the same line of topics. Examples of secondary research are books, magazines, websites, journals, latest articles and market data reports (e.g. Mintel). Every research method has its pros and cons. That’s why the multi-method approach has been adapted to triangulate data from multiple sources to reduce research limitations to minimum (Saunders et al. 2009). Limitations for this research included biased information, unavailability of relevant data, resource and time allocation, etc.
5. Main Findings
Wal-Mart Stores, Inc. runs a chain of large, discount department stores. It is the world’s largest public corporation by revenue (DATAMONITOR, 2009). Wal-Mart is the largest private employer and the largest grocery retailer in the United States. It operates in Mexico as Walmex, in the United Kingdom as Asda, in Japan as Seiyu, and in India as Best Price (MINTEL, 2008). Wal-Mart is one of the best known industries all over the world. Due to company’s successes over the years, it is considered as a retail giant. Its history is one of innovation, leadership and success. Although it started trading with only one store in 1962, it has grown to become the world largest and the most emulated retailer. Today, this retailing pioneer has annual revenues of over $100 billion, more than 3,200 stores in USA as well as over a thousand stores in approximately 14 other countries worldwide (Mintel, 2009). It employees around 2 million persons and through its international reach, an estimate of one hundred million customers are said to visit Wal-Mart stores. According to Wal-Mart’s report, the foreign revenue counted for around 25% of the total sales worldwide (Mintel, 2009). Its concentration of a single business strategy is the basis of its success domestically as well as globally. Wal-Mart has achieved desirable success over the decades by this strategy without having to rely upon diversification to sustain its growth and competitive advantages. The leading marketing strategies of Wal-Mart are low prices, service, and smile (Mintel, 2009). Wal-Mart concluded many transactions with a lot of foreign companies that allowed it to buy goods at cheaper prices and offer them to the population (Bellman, 2009). Globalization created so-called global economy, entering more and more economic spheres Wal-Mart received more and more loyal customers worldwide thanks to the well-known brand of Wal-Mart.
The process of penetrating a global market is a difficult and lengthy task. This activity requires proper extensive knowledge of the market, marketing and management infrastructure, as well as a developed global strategy (Rugman and Verbeke, 2008) (Hill, 2010) (Peng, 2008). Options for entering an overseas market depend upon a number of factors like a trade-off between the amount of control and the level of commitment of resources. There are various motives why Wal-Mart opted for globalization. Simple and compelling reasons for going global includes, to build more brand and shareholder value, to reduce dependencies of home market, for business growth, to exploit the opportunities available globally, to add new revenue sources, exploiting foreign resources, and to compete internationally (Downing, 2008). Wal-Mart’s other reasons for venturing into global market is to achieve economies of scales, to benefit from incentives provided by foreign country and to save costs. It also made strategic decisions to invest its excess revenue in expansion. Wal-Mart launched its international operations in 1991 through a 50-50 joint venture with Cifra SA, Mexico’s largest retailers (MINTEL, 2008). In Canada, Wal-Mart entered by acquisitions the 122 store Woolco Chain. In Brazil, Wal-Mart teamed up with Lojas Americanas SA and opened five stores. But in Argentina, Wal-Mart opened four stores without a partner. In both Germany and UK, Wal-Mart use acquisitions as a strategy to enter new markets. Wal-Mart purchase 21 hypermarkets from Wertkauf GmbH and acquired 74 additional hypermarkets from Spar Handels AG in Germany (MINTEL, 2008). It acquired Britain’s second largest supermarket chain, Asda Group PLC. Wal-Mart earliest foray into China was a joint venture launched in 1996 with Thailand’s Charoen Pokphand Group. Wal-Mart entered Indian market by a joint venture with Bharti Enterprises. Apart from these operations, there are wholly owned subsidiaries in Argentina and Puerto Rico (MINTEL, 2008). In addition to its wholly-owned international operations, Wal-Mart has joint ventures and associations in Japan, Guatemala, El Salvador, Honduras, Nicaragua, and Costa Rica (Fishman, 2006). Wal-Mart has a unique global entry framework. Where it found the culture close to its own and entry easy, it went for organic expansion; where it assumed market culturally close but difficulty of entering it, it chose acquisition strategy; franchise and joint ventures option was adapted for culturally distant countries. These modes of entry depended upon the countries’ laws and regulations other than political pressure and social norms of the society (Bellman, 2009). The growing influence of globalization, competition within retail sector and markets was inevitable. However, with an established goal and appropriate techniques, Wal-Mart gradually lead its way towards success. It adapted the generic strategy of cost leadership in every culture and focused on providing lowest cost services and products to its global customers. Wal-Mart took an opportunistic, rather than programmed, attitude toward its global expansion (MINTEl, 2008). While its global ventures were uniformly successful, the international division nonetheless demonstrated impressive growth and proven to be a source of both ideas and talent (MINTEL, 2008).
There were many challenges faced by the Wal-Mart’s management that influenced the international business decisions. Wal-Mart wished to establish local presence and tried to understand the uniqueness of the local market and to decide which aspects of its business model require little change, which require local adaptation and which need to be wholly reinvented. Wal-Mart’s entry into China, Canada, Mexico and India provides insights into this process (MINTEL, 2008). As the most populous country in the world, China is a major potential market for retailers. But the Chinese market also poses unique challenges because regulations and government policies are often unpredictable and China’s infrastructure is not well developed. Also, middle-class disposable income is dramatically lower in China than in the United States, so that even discount-minded Wal-Mart must reinvent its business model to operate within the reach of key population groups (MINTEL, 2008). Finally, Wal-Mart had to accept that most Chinese tend to buy in small quantities, and that language differences required tailored marketing approaches for product labelling and brand names (KEYNOTE, 2008). Wal-Mart entry into Canada through an acquisition was a logical move for various reasons. Canada was a mature market with significant income and cultural similarities with the United States markets so it faced relatively little need for new learning (KEYNOTE, 2008). Woolco, was available for purchase at an economical price and Wal-Mart business model was precisely what Woolco needed to transform itself into a viable and healthy organization (MINTEL, 2008). For its entry into Mexico, Wal-Mart took a different route because of significant income and cultural differences between the two markets about which Wal-Mart needed to learn, and to which it needed to tailor its operations. Wal-Mart was now able to leverage its learning from the Mexican experience and chose to further expand into the Latin market. The entry into Brazil gave Wal-Mart even greater experience in Latin America, and so it chose to enter Argentina through a wholly owned subsidiary (KEYNOTE, 2009). This decision was reinforced by the fact that there are only two markets in Argentina of significant size. Other challenges that influenced the Wal-Mart decision of choosing above mentioned types of expansion into foreign markets are the cultural differences such as in India and China, intense competition like in UK and Germany, government regulation to protect its people e.g. Indian government didn’t allow Wal-Mart to acquire or directly sell to public, difficulty of getting hold of local suppliers, and difficult economic and market trading conditions such as in Germany that forced Wal-Mart to pull out its business (KEYNOTE, 2009). Wal-Mart also considered individual market’s social and employment policies, tax, trade and tariff controls, government type and stability, supply of labour, economic trends, economic growth, labour costs, likely changes of technology to the economy, cultural aspects of the society, organizational culture, education and occupations of local people, ethical issues and transportation and technology access (Steger, 2010).
Wal-Mart enjoyed many benefits in doing business internationally: increased profits, economies of scale, growth, market share, large customer base, etc. There are many factors in Wal-Mart’s success in several targeted countries. It’s shared passion, constant improvement, customer focus, speed of improvement in operations and community services are values presented by Wal-Mart (KEYNOTE, 2009). Wal-Mart acceptance in many countries was largely due to its international brand name. It is a powerful retail brand with a reputation of value for money and convenience. Other strengths include its use of information technology to support its international logistics and its focused strategy (Helepete and Iyer, 2010). Wal-Mart’s weaknesses consist of its less knowledge of few markets, its imposition of own culture and business model, its dependence on its partners, failure to tackle government restrictions and huge span of control (KEYNOTE, 2009) (MINTEL, 2009). Although Wal-Mart has successfully conducted its business operations successfully but its bargaining power both with suppliers and consumers is weak in countries such as India. Wal-Mart was not very effective in cultural integration.
The organization needs to clearly define its role and strategic priorities (Steger, 2010). It is necessary to develop appropriate strategies to tackle different issues related to globalization. Strategy in home country may not be successful in target country; therefore, organizations have to carefully plan their approach (Hill, 2010) (Bradley, 2005). Wal-Mart’s management always carefully planned its global strategy wherever it conducted the business operations. The company researched the needs of the individual target markets. It has provided key information that was essential in developing global entry plans. Each and every desired market was evaluated to determine its attractiveness and to understand its evolving opportunities and threats. The study of market size, trends, supply chains and growth rate was carried out that helped to choose the appropriate mode of entry into international market. Apart from selecting an appropriate and most relevant mode of entry into a desired country, positioning is another significant strategy that a company must focus upon. Positioning refers to how organization wants its potential global customers to perceive its product or service (Steger, 2010). For every country, Wal-Mart chose strategies of market and product development rather than diversification, which helped the company to achieve its goals in different global markets. In order for Wal-Mart to become a major global retailer, they have closely examined and utilized tactics to profit from their many stores (Hall, 2010). It can be said that on BCG Matrix of industry attractiveness and enterprise strength, Wal-Mart position itself as a leader. This may be true in USA but in many countries it still needs to grow as well as face tough competition but it provides high quality products for low costs in every country (KEYNOTE, 2009). Wal-Mart is a powerful retail brand. It strengths include its reputation for value of money, convenience and a wide range of products all in one store. By this it minimized its global risks and threats e.g. it competed with new entrants, bargained and negotiated with suppliers and buyers for low prices. It exploited opportunities to take over, merge with, or form strategic alliances with other global retailers. However it faced tough competition in global markets e.g. In UK, it has to compete with UK market leader Tesco and other retailers such as Sainsbury’s, Morrison etc (KEYNOTE, 2009). Large global giants also compete with Wal-Mart internationally such as Tesco formed a joint venture in India to compete with Wal-Mart (KEYNOTE, 2009). It’s not just Wal-Mart but almost all large retail chains that compete on the basis of positioning its product at high value and low cost. Other strategies of Wal-Mart that it follows in global chains include taking into account the country’s political, social and specific cultural factors. Wal-Mart was also successful in facing cost pressure and local responsiveness. Economies of scale helped the company to provide the cost effective products and services. It also adapted locally and catered the social and cultural needs of the individual cultures often setting up a partnership with a local company that was successful in dealing with the local issues. The company effectively integrated its strategies according to the local demands and pressures (Bellman, 2009).
The choice of international mode of entry helped the company to achieve many strategic advantages. It can be argued that Wal-Mart obtained competitive advantage globally by low cost focus (Bradley, 2005). It provided the high value – low cost products in every country it operates. The company developed and grew with adapting specific functional strategies. Wal-Mart international reputation helped the company to easily penetrate the global market, and assisted in dealing and negotiating with bargaining powers of suppliers and buyers in respective countries. Successful operations in a country not only helped to grow the market there but provided experience for the company to use it to develop and expand the business operations in another country. Wal-Mart has left an impression on the world, redeeming and otherwise. During this process of garnering a global market share, it raised issues regarding societal and environmental standards. Corporate social responsibility is part of the Wal-Mart’s global culture. It made dramatic changes to rectify some of its activities that were considered harmless to the developing market. The Wal-Mart Corporation is one of those companies that have been impacted by change at all levels as they conduct business and expand their operations throughout the globe. Wal-Mart has also greatly benefited from deeply-held universal values, philosophies, and management practices which have made them successful in diverse countries.
The entry into international market also strategically influenced the global business functions, functional strategies and organizational development. Global expansion taught Wal-Mart to apply quantitative management through its supply chain system which differentiated Wal-Mart from their competitors to make them a world leader. It introduced a sophisticated technology which allowed efficient operations, sales tracking, and reduced inventory turnaround. The operations management systems used by Wal-Mart provided managers the tools needed to perform their job efficiently and to assist managers in making the best decisions. Wal-Mart also implemented TQM by continuously seeking the best products and the lowest prices from national and international suppliers around the globe.
It is very important for the management of the organization to carefully choose international mode of entry as it influences the functional strategies and impacts the corporate culture of the business. As Wal-Mart sees emerging markets as a significant source of growth, it can expand into Russia by directly investing in superstores there as Russia makes a perfect target for Wal-Mart because of its economic progress in recent years. Australia is another perfect market for Wal-Mart as Australia has had one of the most outstanding economies of the world in recent years. It is competitive, vibrant, enthusiastic and flexible than ever before. There are also less challenges investing in these markets. Wal-Mart can keep the international expansion strategy as it proved successful time after time. Cost leadership is not only the success factor as many retailing giants such as Tesco also focuses upon this, Wal-Mart has to consider more features to focus upon for competitive advantage. Cultural value is the main factor that can influence the market entry decision of any multinational, Wal-Mart has to realize this concept and adjust its strategy and business operations taking into account this feature. Wal-Mart should strengthen its cost effectiveness and economies of scale advantages by increasing their steak and continuous expansion process. In order for Wal-Mart to become a major global retailer, it has to closely examine and use its strategy effectively. It needs to take into consideration all the important social and cultural issues as well as current economic and ever changing political conditions. Wal-Mart needs to adjust its positioning strategy and increase its bargaining power. It has to introduce up to date and advanced procedures in markets that has been practiced globally in different countries. It also has to use the technological advancement it’s been using in American stores e.g. stock management software. The company will face many competitors and in order to compete, Wal-Mart must continue providing high quality products at low cost. It also needs to open more stores to achieve true economies of scale. To deter competition, it has to open stores near to large customer base. It is important for organization to acknowledge different strategic options to operate in different types of markets.
It is critical for Wal-Mart to analyse external and internal problems and find the solution to overcome them, so that this will help to create the opportunity for it to glow in the market and be the globally competitive in the future. Moreover, expanding to the unfamiliar market which contains a different culture, environment, and pattern, the company needs to be flexible to adapt the new environment in order to survive and accomplish in its market. No one strategic option for growth is appropriate for all types of environments at all times (Steger, 2010). Which international strategy is actually pursued will depend upon the characteristics of the external environment and the organization’s internal capabilities (Peng, 2008). No matter what model or strategy a Wal-Mart applies, the basic aim remains the same: to survive, grow and earn revenue globally.
The process of globalization affects the environment, political systems, culture, prosperity and economic development, as well as human physical well-being in societies around the world. Wal-Mart is the best example of globalization in the foreign market. Its success depends on many factors including its successful choices of modes of entry into foreign market, utilizing its strengths to exploit every possible opportunity available and taking account of social, political, legal, technological and environmental issues, into consideration. The significance of global approaches taken by Wal-Mart cannot be underestimated. It has worked hard to achieve its targets though it faced many complications. While Wal-Mart has been tremendous successful running its business in the U.S. market, it also enforces expanding throughout in the international market. However, the achievement in the U.S. market cannot always guarantee that Wal-Mart will also success in anywhere else.