Why has Walmart viewed international expansion as a critical part of its strategy?
After its incorporation in 1962, Walmart was growing and expanding at a rapid pace. The company was able to gain a significant competitive advantage and outdo its contenders due to its high levels of service, well-established and functional inventory management, and purchasing economies. By the 1980s and 1990s, Walmart had risen to the top of the hierarchy and become the dominant player in the US retail industry.
However, the corporation did not want to stop there: it soon realized that the domestic market had its constraints, impeding further growth. Markets outside the US promised Walmart new opportunities to make even more profit and strengthen its presence overseas. Besides, the international expansion would mean diversifying the business portfolio and decreasing the company’s vulnerability to political, economic, and social fluctuations.
What did Walmart do to enable the company to achieve success in Latin America and China?
Back in the 1990s, Walmart planned to conquer nations with large populations and growing purchasing power: Mexico, Argentina, and Brazil, and China. At the time, the company did not have enough resources to target both markets – Latin America and Asia – at once, so it directed its efforts at Mexico first. Walmart was aware of the substantial differences in income and culture, which lead to a close partnership with Cifra, a Mexican retail conglomerate. Their business relationship was mutually beneficial: the 50-50 joint venture implied ongoing experience and resources exchange. Once Walmart was more sure about its strategy with entering the Latin market, it took a majority position with a Brazilian retailer, Lojas Americana.
With the newly gained expertise, Walmart built its presence in Argentina on a wholly-owned basis. The expansion to the Latin American market did not go without particular challenges. For example, at first, Walmart overlooked Mexicans’ transportation habits and built large parking lots. Soon the corporation realized that the core customer base relied on buses, and they did not like crossing giant parking areas to arrive at the entrance.
The biggest challenge of the Chinese market was meeting the government’s requirements, which at first caused Walmart a great deal of frustration. Since China was an attractive business destination, Walmart had to play by Chinese authorities’ rules. The most significant conflict was ensuring the local sourcing of products requested by the government and maintaining the American aura and shopping experiences. Soon Walmart found an acceptable solution: it relied mainly on locally produced American brands.
In order to appease the Chinese customer, it provided goods that previously were not universally available such as coconut juice from Guangdong province, hams and mushrooms from rural Yunnan, and oats from Fujian province. Adjusting to the realities of the Chinese market taught Walmart the importance of building relationships with local agencies and communities. Bureaucratic red tape was still a problem, but the company found a way to accelerate the processes by earning the trust of Chinese officials. Walmart took them to Walmart’s American headquarters, and in China, the corporation supported local charities and helped underprivileged communities.
What should Walmart do—or not do—to help ensure that the company achieves success in India?
India is considered by many to be the second China, and obviously, the country is an attractive business destination for Walmart. So far, the company’s Indian expansion has not been going without problems. The opening of Walmart stores has been confronted with much resistance from small and medium retailers. On top of that, the US company has faced impediments in the form of government legislation that controls foreign businesses.
In order to stay afloat in the market environment that is different from what Walmart is accustomed to, it needs to investigate new customers’ habits and consumption behavior. The corporation should not expect Indians to be open to the idea of shopping at big malls, even though in the future, they might warm up to this lifestyle change. However, at present, Indian customers prefer to make purchases at the so-called Kirana shops – small stores scattered all across India (Loeb, 2019). Therefore, Walmart should use this distribution channel in its own interests and operate as an organized wholesaler.
Another idea that might be feasible given the current situation and global trends is to strengthen its online presence in India. Around half of the Indian population still uses old phone models with a slow Internet connection (Khatri, 2019). The usual version of the Walmart website would not be loading as fast as expected, so the company might want to provide Indians with a modified app. Lastly, Walmart might draw on the experience it gained when expanding into China. It could find a good ratio of local and American products to reach out to customers with diverse tastes and preferences.
Concepts
International Business
The first concept that relates directly to the case study is international business. It is defined as a business that operates across national borders. Carrying out business internationally differs from doing the same domestically as there are three environments involved: — domestic, foreign, and international— instead of one. Today, the defining international business trend is the shift of attention from Europe and North America to emerging markets in Latin America and Asia.
The case for analysis deals with Walmart’s expansion into the said emerging markets and becoming an international company. In alignment with what is written in the textbook, thirty years ago, Walmart realized the vast number of opportunities that emerging economies could offer and readjusted its strategy to enter the new markets.
The information provided about the challenges of doing business internationally has helped with answering the second and third questions. Indeed, the foreign environment functions by its own rules that need to be understood and accepted by any corporation that is willing to become part of it. The best examples from the history of Walmart’s overseas expansion are probably recognizing Mexican customers’ needs and providing Chinese customers with an extended range of goods. Based on the assumption that customers’ needs come first, one may suggest that Walmart try to appease Indians by accommodating their lifestyle instead of disrupting it.
Culture Analysis Framework
Two of the four frameworks described in the textbook were particularly helpful in solving the case: Hall’s low context and high context cultures and Trompenaars seven dimension framework. Hall argued that Western culture (American, Canadian, British) is predominantly low-context: communication agents prefer to be open, direct, and straightforward. They do not let emotions and personal bonds interfere with their business decisions and prioritize formal rules.
High context cultures such as Chinese culture often operate on the premise of unspoken traditions. In the case of Walmart, the company took a leap from low context American culture to the high-context Chinese cultural environment. This change of context required readjustment and a shift in strategy. The differentiation between the two types of cultures helped to understand why Walmart needed to build trusting relationships with Chinese agencies from the government.
Trompenaars’ seven-dimension framework describes the culture’s patterns for relationships among people, actual behavior, time, and nature. His dimensions are as follows:
- specific vs. diffuse,
- universalism vs. particularism (rules vs. relationships),
- individualism vs. communitarianism,
- neutral vs. affective (unemotional vs. emotional),
- achievement vs. ascription,
- attitudes toward time,
- attitudes toward the environment.
The framework relates to the case of Walmart because it explores cultural differences from various angles. It was especially helpful with solving the last problem: Walmart’s Indian strategy. Apparently, Indian customers have their own attitude toward the environment: they do not like big malls and prefer small Kirana shops. If this cultural difference were overlooked, Walmart might have wasted resources on building big shopping centers that would not be popular with local populations. Instead, the American corporation appeased customers’ tastes by providing Kirana shops with the merchandise.
Lastly, the concept of sustainability might apply to the present business case. Sustainability is defined as an approach to doing business that ensures that today’s actions and decisions do not hurt future generations. Companies that pursue sustainability pursue not only financial profits but also consider their environmental and social impact. Walmart understood the current need for sustainable practices and readjusted its strategy to fit in. In China, Walmart collaborated with charities to help underprivileged communities. By doing so, the company both improved the situation on a local level and invested in its reputation.
References
Khatri, B. (2019). India’s Internet speeds growing much slower than other countries And that’s a problem. Web.
Loeb, W. (2019). Walmart expects business in India will get easier. Web.