Wal-Mart International Business Analysis

Subject: Case Studies
Pages: 9
Words: 2473
Reading time:
9 min
Study level: PhD

Overview of the Organization

Wal-Mart is a large multinational retail corporation that was founded in 1962 by Sam Walton at Walnut Street in Rogers. According to Roberts and Berg (201, p.45), this American corporation started as a discounted store. The owner was focused on providing goods to the customers at lower costs to achieve high sales volume. The company received instant popularity as many consumers were attracted to its lower prices on various products as compared to other leading retailers. In five years, Wal-Mart had managed to open 24 outlets within Arkansas. Its first store outside Arkansas was opened at Sikeston, Missouri in 1968.

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The firm was finally incorporated in 1969 as Wal-Mart Stores, Inc. The journey through the 1980s and 1990s was extremely successful. The firm gained massive market share within the United States as it maintained its low prices, especially on consumer goods. This earned its attraction as many consumers considered it sensitive to the economic constraints experienced by many American families.

This firm has expanded its operations to various countries in North America, Europe, and selected countries in Asia. Currently, Wal-Mart is ranked the largest public corporation in the fortune 500. The firm is also the largest employer in the world, with an estimated 2.2 million employees spread across the world. In the financial year that ended on December 31, 2013, it had the largest revenue, most of which was from its stores in the United States. This firm has also engaged actively in the fight against environmental degradation in various countries.

International Business Objectives

Wal-Mart has been keen on expanding its operations to various countries around the world. North America, Europe, and South America were the first targets when the management decided to expand its market share. The international business objective for this firm is to enter new markets, integrate its operations with the local forces, and continue to offer products at friendly prices. The firm has developed effective ways of entering the international markets. As Kipple, Kipple, and Wherry (2010, p. 49) observe, Wal-Mart has aimed to expand its operations globally. The entry into the Chinese market was seen as a major move towards achieving this objective. The firm has also entered the African market, with its first store opened in Johannesburg, South Africa in 2010.

Analysis of the Internationalization Process

According to Ricks (2006, p. 78), the internalization process is very challenging because a firm will be moving away from the common forces in the home market, to a strange environment with new forces that the firm has to understand to achieve success. Wal-Mart has been very successful in its internationalization process despite the challenges that it has faced in some of the regions such as Germany and South Korea. In this section, the researcher will analyze the international process, especially the market entry strategy that it has been using in various markets.

International Business Environment in the Host Country

Wal-Mart has made a successful entry in many other countries in Europe, Asia, South America, and Africa within the last four-five decades. According to Green (2011, p. 78), most of the Wal-Mart stores are in the United States. However, the research will focus on its operations in China. China is a unique market that the top management of Wal-Mart has been given special attention

to.

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To analyze the Chinese market, it is important to use the PESTEL analysis tool to investigate various aspects of the external environment. The political environment in China has faced challenges in the past, especially during the rebellion among the Tibetans. The political leadership of this country has always maintained a hands-on leadership approach when dealing with the business fraternity. This government does not hesitate to make direct interventions whenever it feels this is necessary.

This was witnessed in 2010 when it censored Google. This is a clear indication that although the government has opened up its borders to international business society, it is always ready to act against their freedom of operations whenever they feel that their political environment is threatened. However, the new regime under President Xi is more promising to the international business society. It is committed to promoting international trade in the country.

The economic environment in this country is highly promising, and that is why the management of Wal-Mart has given it special attention. It has four times the population of the United States, and a third of the total population in the world. The majority of people in China are in the middle class, and this means that the discounted products of Wal-Mart are very popular in this region. The nature of the consumers in China is slightly different from that of the Americans or the Europeans. According to Berger (2006, p. 56), the Americans and Europeans do not fear spending. They spend much of their income because of a positive mind that they will be able to generate more.

However, this is not the case in China. Most of the Chinese prefer minimal spending and this means that they will always compare prices of various products before making their purchases. Wal-Mart can thrive in such markets because its main principle when dealing with customers is to charge as low prices on its products as possible. The large population in this country makes it even more attractive. Already the firm has registered success in its initial operations since it entered this market. The management of the firm is planning on the strategies that it can use to expand its market shares in this country.

The social environment in China has positively been transforming over the years. There is a change in the mentality of the Chinese that they can only buy their products. Currently, most of the Chinese base their buying decision on the quality of the products, and the prices charged on the products. This means that Wal-Mart will be judged by the Chinese consumers based on its services and the pricing strategy.

Technology in this country has remained highly dynamic, with the emergence of China as the world’s economic power. Most of the Chinese have access to internet-enabled computers or smartphones. With the increasing population of the middle class, online purchasing is increasingly becoming relevant in this society. Wal-Mart must, therefore, find a way of adopting the emerging technologies to satisfy the needs of the clients in this vast market.

Ecological problems have become very relevant issues that managements of various organizations have been forced to find the best ways of managing them. China is ranked the world’s leading producer of greenhouse gases (Dlabay & Scott 2010, p. 89). Many companies in this country are under intense pressure to find the best way of dealing with the issue of pollution. Most of the wrappers used at this firm are made of plastic which is non-biodegradable. To protect its image in this host country, this firm will need to find alternative wrappers that are environmentally friendly. The management may also need to consider engaging in corporate social responsibility that is focused on environmental conservation.

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The legal environment in China is slightly different from the legal environment in the home country of Wal-Mart. Although China has made massive strides towards embracing international business policies as stipulated by the World Trade Organization, some business laws are specific to the country. These laws define how a firm should carry out its operations while in this country. These local laws and regulations must be respected to operate successfully in this new market.

Internationalization Process of the Organization

The process of going global in business operations is very challenging because a firm will be making an entry into new markets with new environmental factors that may need some time to understand. At this stage, it is necessary to analyze some of the international business theories, and market entry modes that can explain how Wal-Mart made an entry into the Chinese market.

International business theories

Several international business theories have been used to explain how governments around the world have tried to control international trade. According to Mitchell (2008, p. 112), Mercantilism is one of the oldest theories that have been used in international trade. This theory gives the state power to regulate trade within its borders in a manner that would earn it the maximum advantage. The theory supports the use of tariffs and other trade barriers to discourage imports as a way of strengthening the local economy. It holds that the power of the state is strengthened when the economy becomes strong.

This theory is very relevant to the Chinese market that for a long period has made efforts to discourage imports as a way of promoting the local industry. Although most of the tariffs have been eliminated or reduced, the government still offers direct support to some of the firms, the fact that gives some of the firms an unfair competitive advantage. Wal-Mart must be ready to deal with this uneven competitive ground in China.

Absolute Advantage Theory has been used to support the need for a firm or a region to export its products to other markets away from home. Aswathappa (2010, p. 92) defines this theory as “The ability of a country, individual, company or region to produce a good or service at a lower cost per unit than the cost at which any other entity produces that good or service.” According to this theory, internationalization can only make sense if the exporting firm has a superior ability over the host companies to deliver products at cheap costs and of the best quality. Wal-Mart has managed to offer discounted prices on its products in the United States and Europe where the cost of labor is very high. This means that it would be even in a better position to deliver products at lower prices while operating in the Chinese market where the cost of labor and other factors of production is low.

Market entry modes

Choosing the right entry mode into a new market is one of the most challenging tasks that always affect many organizations. Wal-Mart was keen on choosing the right market entry modes in various countries to achieve the best results. According to Massengill (2013, p. 75), Wal-Mart used different market entry modes in different countries based on environmental factors. The firm used a direct market entry in South Africa through the acquisition of an already existing supermarket. It bought all its assets, including the employees. This proved to be successful. The joint venture strategy that the firm has used to enter the Chinese markets has also proven to be very successful.

In the United Kingdom, the firm has subsidiaries, some of which are wholly owned by Wal-Mart. The majority-owned subsidiaries in the United Kingdom operating as Asda, in Mexico as Walmex, in Japan as Seiyu have also been very successful. These subsidiaries are given names that are different from that of the parent firm. This makes the locals in the home market believe that the subsidiary is a local firm. Consumers in China tend to favor locally produced goods.

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It is only a few Britons who know that Asda is a subsidiary of Wal-Mart. They have always believed that it is a local brand, the fact that has increased its popularity. The firm has a 51% share in CARHCO (Central America Retail Holding Company) which operates in Guatemala, Honduras, Costa Rica, El Salvador, and Nicaragua. According to Rugman (2009, p. 42), the market entry modes always determine how successful a firm can become in a given market. Wal-Mart has been keen on choosing the right entry mode in all the global markets that it targets.

Key international business environmental factors

As stated before, Wal-Mart is operating in various continents under different names. The Chinese business environment has been discussed in detail in the section above. However, the global markets where this firm operates have varying environmental factors based on the nature of political leadership, the stability of the economy, socio-cultural issues, and other environmental factors that may have direct or indirect impacts on this firm. However, the stiff competition that this firm is experiencing in the United States and China can be considered universal in all the markets. Large chain stores such as Tesco, AT&T, Best Buy, and Kroger are posing stiff competition for this firm in various major markets.

Factors affecting the internationalization process of Wal-Mart

Numerous factors may affect the internalization process of a company based on the type of market chosen. At Wal-Mart, several factors have always affected its internalization process in different ways. Wal-Mart had developed a strong urge to enter the Chinese market as early as the late 1970s. The firm was attracted to the large population and the fast-growing economy in this country. However, the political factors in this country could not allow it to make an entry as soon as it desired. It forced this firm to wait for several years for the Chinese government to open its borders to allow for free trade.

The political tension in the Middle East has also affected the ability of this firm to globalize its operations effectively in this region. The political climate in this region is very unfriendly to American firms, especially since the onset of the War on Terror that has seen the presence of American troops increase in the region. Some of the large American firms such as Citibank were forced to withdraw from this market, and things have not changed much for the better.

This means that Wal-Mart may experience challenges in the region, and this explains why it has not made any serious move to make an entry into any of these markets. Similarly, the political tension between the United States and Russia may explain the reason why this firm has not considered this market. Protectionist strategies employed in some countries have also slowed the ability of this firm to globalize its operations.

Evaluation of the Experience

The assignment on the internationalization process of Wal-Mart had a massive impact on my experience in global operations. The study has made the researcher aware of the fact that there is no single market entry strategy that can be considered universally acceptable. Wal-Mart has been treating each market as uniquely as possible. Each market has the best market entry strategy that is appropriate based on the prevailing local forces.

The researcher has also realized that the political relationship between one country and the other may affect the ability of a firm to globalize its operations. Despite the attractiveness of the Russian market, the tension between the United States and Russia has slowed the ability of Wal-Mart to enter this market. The same case has been seen in the Middle East markets. From the study, it is also clear that success in the internationalization process can only be achieved with effective marketing strategies, based on intensive market research.

List of References

Aswathappa, K 2010, International Business, Tata McGraw Hill Education, New Delhi.

Berger, K 2006, Private dispute resolution in international business, Center for Transnational Law, New York.

Dlabay, L & Scott, J 2010, International business, South-Western, Mason.

Green, J 2011, The fault in our stars, Penguin, Camberwell.

Kipple, A, Kipple, A & Wherry, L 2010, People of Wal-Mart: Shop and awe, Sourcebooks, Naperville.

Massengill, R 2013, Wal-Mart wars: Moral populism in the twenty-first century, New York University Press, New York.

Mitchell, C 2008, A short course in international business culture: Building your international business through cultural awareness, World Trade Press, Petaluma.

Ricks, D 2006, Blunders in international business, Blackwell Publishers, Malden.

Roberts, B & Berg, N 2012, Walmart: Key insights and practical lessons from the world’s largest retailer, Kogan Page, London.

Rugman, 2009, The Oxford handbook of international business, Oxford University Press, Oxford.