Wal Mart Global Strategy Exercise PDF

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Seminar 2: Leveraging Competencies and Capabilities Across National Institutions Student Brief Context: In 2012 the global retail sector was dominated by four major retailers – Wal-Mart, with sales of $466.1bn; Carrefour $112.6bn, Tesco $96.8bn, and Metro from Germany, $90.5bn. Projected growth for all these firms is expected to come from increasing sales to emerging market countries. However, international expansion has not always been as easy as it seems – indeed even Tesco has had to pull back from its operations including the USA! Other than the obvious about tastes, why is it that firms are able to exploit their competencies in some instances but not in others? In Lecture 4 you were introduced to theory surrounding the effect of national institutions on strategy. In this seminar you will assume the role of management trainees at Wal-Mart who are undergoing a global strategy development workshop in which you will use theory to make sense of Wal-Mart’s experiences across countries. Task: In preparation for the session you are asked to review the 15 exhibits attached relating to a range of past experiences encountered by Wal-Mart in its global expansion. Some of these are presented as internal memos while others include insights from sources such as press releases and analyst statements. Your task is to evaluate the evidence contained in these exhibits to identify the extent to which Wal-Mart has been (or is) able to adapt across institutional differences. You may use the attached worksheet to organize your thoughts and bring this to the seminar as your notes.

Exhibit 1

History of Wal-Mart

In going outside the United States, Wal-Mart had the option of entering Europe, Asia or other countries in the Western hemisphere but in 1991 Wal-Mart lacked the necessary competencies and resources - financial, organizational and managerial. Wal-Mart chose as its first global points of entry Mexico (1991), Brazil (1994) and Argentina (1995) - the countries with the three largest populations in Latin America - in addition to Canada, suggesting a preference for contiguous markets. Wal-Mart’s entry to Canada was an acquisition – the poorly performing player, Woolco, that was available for purchase at an economical price. Wal-Mart felt it could turn Woolco around because of similarities with Wal-Mart’s business model. Canada is a mature market - an unattractive situation for greenfield operations, since adding new stores (i.e., new capacity) will only intensify an already high degree of local competition. Wal-Mart did not acquire the Woolco stores that were either unionized (Wal-Mart has a no union policy in the USA) or had downtown locations (where it is difficult to develop retail space or organize efficient delivery). Because there are significant similarities between the United States and Canadian markets, Wal-Mart faced relatively little need for new learning, so a strategic alliance was unnecessary --- unlike its entry to South America where it made extensive use of joint ventures.

Exhibit 2 News Flash, 1997: Acquisition Target News just in is that the US retailing giant Wal-Mart has finally set its sights on the Wertkauf hypermarket chain of 21 hypermarket stores from the Mann family of Germany. This comes after Wal-Mart has spent the last two years exploring potential acquisitions including Britain's Tesco, Germany's Metro and the Netherlands' Makro. Wertkauf's stores are similar in format to Wal-Mart's, feature high-quality personnel and locations, and are larger than the average German hypermarket. Rumor has it the price tag is $880m.

Exhibit 3: Memo To: From: Subject:

Germany Exploration Group Maria Moore, Internal Change Consultant Lessons from Canada

In response to your request for information on how Wal-Mart dealt with the Woolco acquisition, the following may be of interest as you plan for operations in Germany. A transition team was sent to Canada from the USA to familiarize Woolco's 15,000 employees with our ‘WalMart way,’ of doing business. Much of this was spent in in clarifying and defining our core beliefs and practices to the new Woolco associates – which turned out to be a very successful and easy process indeed. Within about 3-4 months, we were able to renovate every one of the 122 Woolco stores up to our own standards. These outlets were in very poor shape when we acquired them. It took us 3-4 months to restock each store. Although Woolco was our first entry into Canada, we believe our success is partly due to the fact that most Canadians live near the United States border and were already familiar with Wal-Mart. We were able to leverage this high brand recognition into customer acceptance and loyalty by introducing our "everyday low prices" approach in a country that was not used to consistently low prices. On reflection we found that the main US attributes we were able to transplant to our Canadian operations were our focus on a broad merchandise mix, excellent customer service, a high in-stock position and rewarding employees for diminished pilferage. Our success in transferring our corporate DNA to Canada is seen in that between the date of the acquisition in 1994 and 1997, sales per square foot increased from C$100 to C$292 and market share rose from 22% to 45%. Our expenses as a percentage of sales fell by 330 basis points and our Canadian operation turned profitable in 1996 making us the leading discount retailer in the country by 1997.

Exhibit 4 Client Memo From: Land Use Consulting To: Wal-Mart Ref: Opportunities for Superstore in Germany In response to your enquiry about land use policies in Germany, you should be aware that in 1977, the government enacted strict planning and zoning regulations designed to protect traditional retailers. The law prohibited construction of stores with more than 800m 2 sales area in locations not designated for retailing. Retail development is largely restricted to town or city centers, but even here the approval process for a new store still could require from 1 to 4 years. To develop a large retail store outside an urban area requires the retailer to create a building use plan that would cover a comprehensive development concept accounting for environmental, conservation, and private legal concerns. For example, a new site would not be able to sell products that compete directly with stores in nearby towns. The plan would need to be first approved by the town or city council and then regional planning boards at the state and national level. To develop a supercentre of 12,960m2 would require adherence to these policies.

Exhibit 5 Extract Tourist Guide: Travelling to Germany --- things you should know As an American shopping in Germany, you need to know that many German retailers do not offer free bags for the goods you buy from them. Your idea of friendly customer service, such as greeters and baggers, will not be found --- indeed you are expected to bag your own groceries and take them out of the store yourself. In addition, don’t expect to see staff waiting around to help you --- it’s a fact of life that many stores, such as Aldi, Metro and Rewe, are focused on providing minimal customer service and using minimal labor in order to minimize costs. Coupled with this, American visitors are often shocked by the lack of investment in store design by retailers in Germany – stores are often much more basic in layout, looks and feel.

Exhibit 6 Memo To: Apparel Group Review From: Lindsey Morris, Apparel Management Team Subject: George Label, 2010 Following our review we have decided to invest heavily in the ASDA ‘George’ label and drop many of our other apparel labels. Last year George accounted for 25 per cent of our clothing offerings. We have taken steps to develop our capability by doubling George’s product development team to about 40 people. We have faced sagging apparel sales in the US after shifts in styles and leadership. In Canada, our clothing sales have been flat in the first half of this year and last year, our overall apparel business lost market share last because of reduced customer purchasing in the recession. We have taken lessons from George both in Britain and the United States. In the U.S. stores, for example, we stumbled with a $30 George 100% cotton men's shirt that required ironing. The new line in Canada features a $10 no-iron men's dress shirt made of blended fabrics. By building a fashionably credible brand, we see that there is significant market share for us to go after.

Exhibit 7 Retail News Service (2003) The new Shop Closing Law limits opening hours in Germany to between 6am and 8pm. Stores cannot open on Sundays unless an exception is granted by the regional state government or if the shop provides ‘essential’ functions, such as pharmaceutical drugs and petrol, or tourist souvenirs. The law, although more liberal than before, is welcome news to our many small, domestic retailers who have complained at the unfair advantage of larger competitors who are able to keep their stores open longer with lower expenses. It is also considered a victory by religious groups, who supported the importance of family time, and political groups who maintain that retail workers working longer hours than in other sectors, was inherently unfair. As a result of this law we expect the shortened working hours will lead to relatively higher wages per retail worker, as much as a 19% premium, compared to UK workers. Such higher wages are good for the local economy and we welcome the protection given to small retailers so we can maintain these wage levels.

Exhibit 8

Memo

To: From: Subject:

Global Team Dave Berger, Supply Chain Manager Views on Global Expansion

In response to your question raised at the recent planning meeting, my team has made an assessment of the possibility for leveraging our supply chain linkages as Wal-Mart undertakes a global expansion path. We have significant buying power with giant domestic suppliers such as Proctor & Gamble, Hallmark, Kellogg, Nestlé, Coke, Pfizer, Revlon and 3M who procure goods cost-effectively for our U.S. stores. These companies are also global players with strong networks in many markets around the world. If we can use our suppliers’ networks overseas, we believe we could continue to use our technology with these suppliers to continue to manage the supply chain relationship in our foreign outlets. We highlight, however a potential risk factor that arose in our entry to Brazil. We found that our global sourcing did not provide any built-in price advantage because the leading sales category in Brazilian supercenters was food items, the sourcing for which tended to be local. In this area some of our key competitors, such as Carrefour, had an advantage because of their long relationships with local vendors. We anticipate the dominance of food retailing in certain markets, for example in Germany and China, will likewise favor local sourcing.

Exhibit 9 Newsflash Bloomberg: Wal-Mart recently translated its ethics code into German and distributed it to its employees. The reaction surprised the American managers: Wal-Mart’s employees (represented by Ver.di, the serviceworkers union) interpreted the caution against supervisor-employee relationships as a puritanical ban on interoffice romance and saw a call to report improper behavior as an invitation to inform on coworkers rather than seeing that, in the American context, reporting law-breaking is just good citizenship.

Exhibit 10 Ver.di Press Release A great victory has been won for service sector employees in Germany! As the union representing these workers, we recently filed a lawsuit against Wal-Mart for not releasing the year-end figures needed to negotiate wages. All businesses in Germany are required to release financial data to allow unions to negotiate wages and ensure job security. As a result of the lawsuit and industrial action (a 2-day strike), Wal-Mart has now come to the negotiating table (as expected by Germany’s coordinated bargaining system between unions and employer groups) and conceded a salary increase that was 0.5% over negotiated retail-sector levels.

Exhibit 11 Citigroup Analyst Report (2013) We are impressed by the level of sophistication of ASDA’s so-called omnichannel capabilities with mobile commerce accounting for 16% of its online sales from which its parent, Wal-Mart, can learn. Asda has an impressive e-commerce business: it is able to offer online groceries that could reach 98% of Britain’s population, has a non-food site, and its George.com apparel delivers across Europe. Customers can order online and pick up general merchandise within two hours in all stores and pick up groceries in more than 100 stores. Among the digital tools developed by ASDA, the Asda Price Guarantee (APG) app, delivered $500,000 of savings on the customers’ shopping compared to its main competitors in the UK. It’s not all one-way however, as Asda has begun trying out a new scan-and-go app developed in Walmart Labs. So, does ASDA have the ‘secret sauce’ that can help its parent develop online grocery sales as an attractive growth opportunity in the US?

Exhibit 12 Analyst Reactions: China (Forbes 2015 and Fortune 2016) Since opening its first superstore in Shenzhen in 1996 Wal-Mart’s Chinese business has only grown to just over 400 stores located across 117 cities and 25 provinces. Wal-Mart has made some progress in the past to become the third largest retail chain in China, behind Sun-Art and China Resources Enterprise Ltd. However, its journey to second or first position will be extremely strenuous, given Sun-Art’s better customer understanding and the fact that China Resources Enterprise is state-backed. While Wal-Mart’s strategies to adapt to local tastes have not been fruitful, local retail chain Sun-Art retail group has been extremely successful. Its imitation of Wal-Mart’s business model and better understanding of consumer behavior have helped it win Wal-Mart’s potential customers. While WalMart sources around 95% of merchandise locally and hires Chinese nationals to run its stores, its international image keeps it a few steps behind Sun-Art. Walmart has struggled to understand Chinese consumers and Chinese culture. Chinese consumers, unlike those in the U.S., differ widely from city to city in their needs. Walmart therefore struggles to find the right product mix to offer, which makes it challenging to sell a core set of products nationwide and problematic in achieving economies of scale necessary for its low-cost business model. Chinese consumers’ buying decisions are not always price driven; rather they are more inclined towards tailor-made products and a shopping environment that reflects authenticity, quality of products and local preferences (and trust is associated with being local!). While Wal-Mart’s EDLP (every-day low prices) strategy has been very successful around the globe, it has been regarded as cheap and unsafe in China. In fact, it has been stated by Wal-Mart China’s CEO in the past that local consumers’ biggest concern is trust and authenticity.

Exhibit 13 Retail Week Report, 2013

Its 6am in Bentonville, Arkansas as shareholders and employees from around the world gather. Among them ASDA’s boss, Andy Clarke, watches more than 200 Asda staff do the ‘Poznan´ dance - a celebration from Polish football. As a showcase, ASDA has a lot to celebrate proving to be the engine room in Wal-Mart’s international division. The division has escalated in importance accounting for 30% of revenue and achieving growth of 7% in the last year to $135bn. Exhibit 14 China’s infrastructure (Forbes 2016) Although China has led the globe in infrastructure investment over the past several years, outside of its largest cities (e.g., Shanghai, Beijing, Tianjin, Guangzhou, and Shenzhen), its infrastructure remains more than problematic. The efficient transport of goods from one region to another is a challenge because of China’s sheer physical size, and because its air, ground, and rail infrastructure does not meet developed country standards. Not surprisingly, Walmart’s China business has struggled to generate profits, and it has consistently underperformed in this huge and potentially lucrative market as the company did not anticipate that scaling up its business model there would present so many problems. Walmart’s struggles highlight the difficulties inherent in transferring a competitive advantage rooted in supply-chain efficiency and logistics, to a country lacking a sophisticated technological and physical infrastructure.

Exhibit 15 Appointments: We are pleased to announce that two members of the ASDA management team have joined the Wal-Mart management team: marketing chief Rick Bendel and chief operating officer Judith McKenna.

Wal-Mart and National Institutions Worksheet Ex #

1

National institutional issue evident in the exhibit (if any). Wal-Mart history

2

Acquisition in Germany

3

Lessons from Canada

4

Germany – land use

5

Americans in Germany

6

ASDA’s George label

7

Germany shop hours

8

Global supply chain

9

Ethics code

10

Union law suit

11

ASDA analyst report

12

China context

13

ASDA performance

14

China’s infrastructure

15

Wal-Mart’s Top Team

What the exhibit implies for Wal-Mart’s ability to leverage learning and resources across country boundaries....