Background of the Case
The explosion of retail stores worldwide has opened many channels where consumers can access product information and numerous buying options. Wal-Mart is the world’s largest retail store, headquartered in the U.S., and operates in 15 countries with over 6500 stores globally (Hunt et al., 2018). The authors reveal that the mega retail store was compelled to venture into international expansion since the early 1990s due to unrelenting changes in the home market. The fast growth of stores across the U.S. resulted in the overshadowing of old stores by new ones as the market got flooded with similar businesses. Wal-Mart is now expanding its business operations to other countries outside of the USA, especially those marked as fast-growing markets for retail stores (Hunt et al., 2018). Carl Douglas, the president and Chief Executive Officer (CEO) of Wal-Mart, has been furnished with the knowledge about numerous issues linked to the expansion of the departmental store to the target South Korean and Chinese markets (Pattnaik et al., 2020). Four specific matters related to cultural orientation, including aspects of communication and work style, supplier contracts, employment hiring choices, and employee recognition practices, have been noted. In line with these issues, the CEO has called for a comprehensive analysis of each one of them with a view of suggesting feasible approached to address them.
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In today’s global economy, businesses of all types and sizes strive to establish operations in foreign markets. The specific objective for the expansion of Wal-Mart includes the seizure of new distribution territories. About 95% of the world’s population lives outside of the United States of America (Pattnaik et al., 2020). As a result, growth to South Korea and China will offer the retail store a chance to conquer new market niches and deliver products to more consumers. Another reason for Wal-Mart’s plan is to ensure asset diversification, which will protect the business from unpredictable occurrences (Bretos et al., 2020). For instance, expansion to South Korea and China will allow the company to cushion negative growth in one market by operating fruitfully in another. The strategy will also enable Wal-Mart to maintain a positive revenue stream since it will introduce differentiated products and services from hundreds of top manufacturing companies globally. Implementing this agenda is highly recommended since it will have more benefits for the company in terms of increased market share, which is expected to boost profitability.
Potential Countries and Business Circumstances for International Expansion
Although there are many countries that Wal-Mart would wish to establish its chain store business, various challenges associated with cultural and religious orientation have thwarted the company’s efforts. Various principles, guidelines, and criteria for business activities in different countries have profound effects on the implementation of commercial practices. Consequently, Wal-Mart selected South Korea and China as potential areas for its international growth due to various reasons.
South Korea is a potential market for retail stores. The nation is renowned for specialization in the production of high financial information and incentives that are directed towards the improvement of its economy. According to Yonder et al. (2016), the country is technologically-driven and a high taste for producing hardware, petrochemicals, ships, vehicles, and mechanical technology, among others. However, the expansion of Wal-Mart to this region will encounter developmental challenges since the store’s primary products are grocery and foodstuff. According to Hunt et al. (2016), Wal-Mart had penetrated the Korean market in the late 1990s to implement its strategy for international expansion.
Nonetheless, the retail store was not ready for a localization plan, and it suffered a significant failure because the management upheld the American way of marketing in the foreign land. The people of South Korea have divergent tastes and preferences from those of Americans. The merchandising mix of Wal-Mart is unpopular in the Korean culture, as they perceive it to be too westernized for local competitors (Lerner, 2018). People in this part of the world prefer making purchases from the local stores for daily consumer products. From the perspectives of many Koreans, Wal-Mart’s persistence on Every-Day Low Price (EDLP) philosophy had less value since its stores were established in commercially inappropriate locations to create sufficient consumer traffic. As such, the store’s low cost and price strategy did not fit well in the Korean market setup, depriving it of competitive advantage.
Having experienced such conditions in the past, Wal-Mart has an opportunity to reestablish its stores, provided the company is willing to tailor an effective localization strategy that favors the consumption behavior of the Korean people. The company should also develop an achievable reentry plan that encompasses a clear projection of the amount of capital it is willing to invest in this market. The success of foreign business in an international market depends on the compatibility of its corporate exclusive value proposition and tactical fit with the general market settings.
One primary factor that can contribute to Wal-Mart’s success in this market is the creation of value that aligns with the tastes and preferences of the Korean people. For instance, the store can offer fresh produce that has been partially processed and repackaged in a way that leaves it ready to cook or consume. Wal-Mart should also include a Deli section that offers traditional foodstuffs popular among the Korean people (Cao et al., 2019). The meat section can also be set to cut and package meat products based on the preferences of consumers. Furthermore, the giant store should reenter the Korean market through a local partner to avoid repeating its previous mistake of implementing an alien American standardization strategy. Wal-Mart’s entry mode will play a significant role in developing its strategy and positioning in the foreign market.
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Currently, Wal-Mart is aggressively targeting China, which is regarded as a high-income economy. This characteristic implies that the country has potential customers that can afford both essential and non-essential goods. Politically, the state has a stable government and, thus, people in China are more likely to purchase everyday consumables than those in countries with unstable regimes (Anwar, 2017). This position puts the country as a potential market for Wal-Mart’s goods and services.
One of the primary challenges for establishing retail store business in China is major departmental stores, such as Suning Commerce Group and Red Star Macalline Holding Group. Wal-Mart would face enormous rivalry in the retail market because these competitors are well-established and claim the Chinese market (Kim et al., 2019). However, Wal-Mart’s pricing strategy will position the business in a competitive space, attracting many consumers. Wales et al. (2019) reveal that Like Parnell, a former vice-president of Wal-Mart, highlighted that the business needed to change with its customers to stay successful. To compete in China, the retail store must allow its consumers to shop in a manner that makes them most comfortable (Wales et al., 2019). For instance, the people of this nation enjoy shopping with their families and like examining products closely. To fit the shopping experience of Chinese consumers, Wal-Mart must have broader shopping walkways to display their products well so that their buyers may touch and study them as they shop.
Cultural Orientation of the Target Markets
Wal-Mart’s formula does not fit in every culture, as evidenced in its business interventions in countries such as South Korea, Germany, and Mexico. The departmental store withdrew its businesses from various despite its fair prices and a wide range of products. The fallbacks can be attributed to its failure to align its globalization strategy with the habits of shoppers in target markets. To blend in with the shopping culture of consumers in both China and South Korea, Wal-Mart will have to enter the niches by identifying and acquiring one major store in each of the countries (Peng, 2016). Nevertheless, the integration of acquisitions calls for more sensitivity to ensure appropriate consolidation of multiple control centers and imposition of the company’s corporate culture on foreign employees and shoppers.
Although international expansion has turned the world into a smaller place where people can conduct borderless business, there are still many challenges that multinational companies, such as Wal-Mart, encounter while transacting on a global scale. Religion and culture have been significant players in this area, as Christian leaders encounter solitude and difficulty in fast-paced and information-saturated countries, such as China and South Korea (Werner & Sun, 2015). Divergent religious views on leadership and management variously generate misunderstanding in organizations driven by pragmatism. Nonetheless, Wal-Mart needs to adopt a bipartisan approach that encompasses cultural and religious inclusivity to thrive in South Korea and China, where the people practice little or no Christian ideologies.
Wal-Mart is seen as an aggressive business that can gain a competitive advantage over other stores, which are often smaller, in foreign markets. Wal-Mart has aggressively targeted China. It is owing to the economic expansion taking place right currently, the retail store in an ideal position to seize a vast market opportunity. Wal-Mart exports approximately $10 billion worth of goods from China annually (Yoder et al., 2019). According to Bretos et al. (2020), the retail store had established over 26 stores by the end of 2003; however, it still lags behind Carrefour S.A., which runs 45 hypermarkets and 90 Dia discount stores in China alone. It is important to note that Carrefour entered the Chinese market later in 2004. The size of Wal-Mart gives it immense purchasing power, which offers a competitive advantage over its rivals. In China, Wal-Mart’s chief in Asia spent much time checking in local markets and shops to comprehend the goods better the typical Chinese consumer wants to buy (Rottig & de Oliveira, 2019). This position will allow them to have the collections and choices of merchandise that appeal to the Chinese people. In Mexico, Wal-Mart learned by trial and error that what they sell in the U.S. is not going to be the same elsewhere.
Another strategy that Wal-Mart utilizes is organic growth. This approach is noted when a company uses its resources to open a store or to acquire existing retail facilities from established ones. This strategy hinges on the availability of the firm’s assets to support the high cost of the initial investment. Wal-Mart has adequate financial resources to engage in business collaborations, whether acquisition or merger, with established retail stores in foreign countries. Therefore, the firm should take advantage of its strong financial position to lure established businesses into mergers or acquisitions as one way of blending in the foreign market niches in China and South Korea.
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