1. Introduction
With the trend of business globalization, there are many topics about the international retailing. Some of the issues of working in the domestic market have had an impact on many retailers, who consider to enter the foreign markets and regard it as a viable growth strategy. These problems contain: the maturity of the domestic market, reduction of free trade barriers and changes in retail sale pattern through joining and acquisition. Besides, with the promotion of the retail internationalization, retailing is rapidly to become a global industry. In fact, most successful retailers in the world have made its main sale segment as a part of international business (Mešić, 2014). The report examines Walmart as one of the many companies affected by changes at all levels because they operate and expand their business globally (Mujtaba and Maxwell, 2011). This means that a formula which is known to be successful in the country of origin is replicated to other places. Furthermore, the report observes Aldi’s multinational internationalisation strategy, which revolves around implantation of autonomous affiliates functioning comparably to the parent company, but modified to the local market (Salmon and Tordjman, 1989).
2. Background information
2.1. Walmart
Walmart is an American company, beginning as a small discount store in Rogers, Arkansas in 1962. It operated several retail formats, including Walmart U.S., Walmart International and Sam’s Club. The corporation is the world’s largest retailer with over 11,700 stores with operations in 28 countries, employing more than 2.2 million (Walmart, 2018). It not only has millions of employees, but also is one of the biggest firms worldwide in terms of organizational size, business value and financial performance (Thompson, 2018). In the Forbes list, Walmart is the 26th most valuable brand in the world in 2018, with a market capitalization of $246.2 billion (Forbes, 2018). In 2018 fiscal year, its total revenue up to $500.3 billion which grew 3% from 2017 (Walmart, 2018). As for the firm’s strategy, from its suppliers to form scale economy, it keeps costs low with a high effective inventory control system which can compete with its rivals and attract more customers (Docplayer.net, 2019). Based on this price advantage, Walmart has nearly 270 million consumers and members visit their shop and website each week (Walmart, 2018).
2.2. Aldi
The existence of Aldi starts with the opening of a store in Essen, Germany, by Anna Albrecht in 1913. Albrecht’s sons Karl and Theo acquired the firm in their hands in 1948 and furtherly extended it to four stores in the home market. The stores were named “Albrecht Discount”, later abbreviated to just Aldi in 1962. Subsequently, the chain currently includes various locations around the world by operating over 11,000 stores across the home and international markets. The company split in half in the mid-1960s because of a disagreement over the selling of cigarettes. After the division, Theo Albrecht started controlling the stores in northern Germany, whereas Karl Albrecht took advantage of the stores in the south (Business Insider, 2019). The separate entities still operate and share one concept, and are eventually cooperating if there is a potential strategic benefits. Aldi Nord and Süd hardly compete directly as they don’t function in the same markets. The only exceptions to this statement are in California and in the home market. The values of Aldi are built on providing high quality goods at the lowest possible value. Beyond Europe, Aldi is set to drive its efforts towards international expansion in both USA and Australia. Even though Aldi Nord and Aldi Süd fit into the same company, they function separately and have different methods for conducting their sourcing operation. The majority of Aldi’s sourcing is conducted on a national basis and each operating market has its own central purchasing subsidiary (Retailanalysis.igd.com, 2019).
3. Strategy and entry modes
In order to examine the both retailers’ strategies the theory of social embeddedness can be seen in the case that as it is embedded in home society a retailer has to develop correspondingly in the host market when it internationalizes. This can be achieved by competing with the others, while the management of a certain retailer is set to undertake actions towards responding and changing not only the economic relations, but also the social order (Burt, Johansson and Dawson, 2015). Therefore, considering the retail considerations of social embeddedness, it can be separated into societal embeddedness, network embeddedness and territorial embeddedness as three inter-related mechanisms. (Burt, Johansson and Dawson, 2017).
3.1. Walmart
Gielens and Dekimpe indicate that retailers are more likely to achieve success in international expansion if they first develop foreign market, with a large scale, using no partnership or acquired assets, and also providing a store formats (Gerhard and Hahn, 2005). In Walmart, it began opening its first stores in Mexico in 1901 and started to expand its international business (Yousigma.com, 2019). When the company entered Mexico, there were no other strong competitors. Therefore, Walmart cooperated with CIFRA which is the most successful retailer in Mexico (Bell, Lal and Salmon, 2004). Although the firm adopted global strategy in Mexican market, its distribution system is inefficient in this country. Furthermore, poor infrastructure, heavy traffic and most of suppliers cannot deliver directly to Walmart shops, lead to inventory problems and high cost (Yousigma.com, 2019). According to Salmon and Tordjman (1989)’s theory, global strategy requires central control and coordination ability. By the mid-1990s, Walmart adjusted and bettered the distribution system through cooperating with Mexican trucking company (Yousigma.com, 2019).
In 1992, Walmart entered Latin America when it established its first shop in Argentina. The enterprise also achieved greater market penetration by opening some discount stores and warehouse member clubs. Then Walmart continued its international expansion in Canada by acquisition. In 1994, the corporation purchased 120 Woolco discount stores in Canada and rapidly converted into the Walmart format. Besides, Walmart Canada declared that it had also finished another acquisition in 2011, which is occupied 39 Canadian stores by this company (Mun and Yazdanifard, 2012). After the purchase completed in Latin America and Mexico, the enterprise entered the Indian markets through a joint venture with Bharti Group in 2007 (Gupta and Sahay, 2015). Therefore, Walmart’s entry modes have big different in Latin America, Mexico and India.
3.2. Aldi
Aldi mainly operates one type of store format: a traditional discount model offering a limited product range, in a small format. The key driver of Aldi’s growth remains the specific expansion in Europe, USA and Australia. Aldi Nord has commenced an initiative to modernize its European stores, in order to improve the in-store environment. This includes significant investment made regarding the transformation of the appearance and in-store environment to enhance the shopping experience to potentially drive sales up (Business Insider, 2019). On the other hand, Aldi Süd is concentrating on its international expansion. The plainness of the format permits Aldi to keep costs low, while distributing steadiness for customers. The format focuses on delivering efficiency by keeping in-store expenses to the bottom with supplying basic interiors and fixtures.
Aldi is using the ‘slow & well considered´ approach for its internationalization processes. By adopting this strategy, Aldi gives itself a chance to examine the market’s reaction for scope of growth and product requirements. By giving itself time, Aldi can adapt to the changing circumstances arising out of various controllable as well as uncontrollable factors. These may range from adverse weather conditions, inflation, government regulations and many more. In the past years Aldi’s rate of expansion has been increased in order to compensate for the stagnant growth in Germany as well as the saturated markets for the heavy discounters. By opening small number of outlets at once, Aldi can mitigate its losses if they desire to pull out of the market due to its well-considered and slow approach. Aldi’s cautious approach can be seen when they decided to venture into Switzerland. They firstly unwrapped their stores in the German speaking part of Switzerland before expanding in other areas, in order to analyze the possibility for growth (Gerhard and Hahn, 2005).
4. Successful international expansion
4.1. Walmart in China
When Walmart first came onto China, some Chinese retailers have also established their own business for competition. In 2005, Shanghai Bailan Group acquired four competitor supermarkets. China Resources Enterprise had employed foreign chain managers to improve its profitability (Azarova, 2010). Although Chinese market is competitive, the majority multinational companies believe that entering China is not only a choice for their business expansion, but also a necessary step for their future business. Moreover, China’s economy is developing rapidly and it has a huge market in the 21st century. Therefore, Walmart has become the top retail enterprise in China with its acquisition of Trust-Mart. In addition to adopting the acquisition strategy, the firm also used the offshore sourcing strategy. That means Walmart regards China as its major source of production or assembly for its products in America. It is worth mentioning that Walmart is the single biggest export channel from Chinese manufacturers to the USA (Mun and Yazdanifard, 2012). Besides, the company held to its low-cost Strategy in this country and created huge revenues (George, 2007).
4.2. Aldi in USA
In the USA, Aldi operates both Aldi Süd discount stores and Trader Joe’s supermarkets. In 1979, Theo Albrecht purchased the Trader Joe’s chain, growing the Aldi brand’s influence in the US. Aldi has identified USA as a key growth market and it is looking to rapidly build on its already significant store numbers. The potential exists for significant regional expansion. USA is the only international market in which both Aldi divisions have interests and it is the only market in which Aldi operates a non-discount format. Aldi Süd operates the Aldi discount fascia. It opened its first discount store in USA in 1976, in Iowa. The format is typical of a standard Aldi Süd store. Aldi’s discount stores use a range of private labels exclusive to the USA market, and sourced locally. By the end of 2022, Aldi plans to have nearly 2,500 stores open in the US. Currently, Aldi has over 1,600 stores across 35 states — nearly double what the chain had a decade ago. It’s on track to become the third-largest grocery in the US by store count, behind Walmart and Kroger. The German company, known globally for its rock-bottom prices and no-frills shopping experience, is overhauling and expanding its product selection amid a $5.3 billion investment in its US stores — Aldi is spending $1.9 billion to remodel existing stores and another $3.4 billion to build 800 new ones over the next four years (Business Insider, 2019)
5. Unsuccessful international expansion
5.1. Walmart in Germany
Germany is regarded as the largest retail base in Europe. In Germany, Wertkauf is a one-stop shopping centers with its $1.4 billion annual sales. It provided a wide range of high quality general merchandise and food and its stores operation modes is similar to the popular Walmart Supermarket format in America. Consequently, Walmart purchased 21 Wertkauf hypermarkets to enter German market in 1998. But Walmart’s business in Germany quickly became a costly struggle. Because the enterprise underestimated some key factors when it accessed the new market. For example, most of acquired stores were geographically dispersed and some of these always in poor areas. The firm also faced some cultural differences: it provided grocery packaging for consumers (Germans like packing by themselves); its employees were required to smile at customers (Germans used to brusque service). In addition, Walmart faced two fierce rivals in German market: Lidl and Aldi. Compared with these two companies, though Walmart’s vast size makes it a huge influence on the purchase of clothing and other goods, Aldi and Lidl dominated the food retailing. Walmart had struggled in that predicament for nearly 8 years, it finally decided to withdraw from the German market in 2006 (Azarova, 2010).
5.2. Aldi in Greece
Hofer, Aldi Sud’s Austrian subsidiary was responsible for operations in Greece. The objective of the campaign was to secure a 20% share of the country’s retail food market in a ten-year time. The first Aldi outlets in Greece opened in November 2008. In July 2010, after only 18 months in action, the company pronounced its intention to abandon the country by the end of the year. In the end of the first decade of the 21st century Aldi had to deal with a very with the typically narrow margins for development in this environment. It was an environment whose growth entailed a number of strict limitations, boundaries and obligations. The establishment in the Greek market under such conditions was very hard, but not impossible. It required special handling, with no place for oversights or delays. Evaluation of Aldi’s investment plan in Greece exposes a number of mistaken appraisals and unfortunate choices that can be seen during the phases of preparation and implementation. Among the other factors, overestimation of the size and the incoherent expansion of the stores network were mostly accountable for the failure (Skordili, 2013).
6. Comparison of the retailers’ internationalization:
Walmart has learned countless lessons through its expansions into many countries, beginning with joint ventures, then expanding by direct purchases of established retail outlets or direct entry. However, this growth has not been achieved without reversals, particularly in the company’s expansion efforts. Yet, Walmart was ineffective in its attempt to transfer its US retail model to Germany. Legislative differences, cultural misunderstandings and use of non-German management led to this failure.
In China, Walmart entered more slowly, over ten years, with a limited number of retail outlets. Chinese people are multichannel shoppers with several components creating their ideal shopping experience. Chinese are also very brand conscious, although not brand loyal. With the acquisition of Trust-Mart’s network in 2008, Walmart became the biggest retailer in China (Retailanalysis.igd.com, 2019). As in the USA, Walmart works with suppliers who are proactive in terms of meeting cost, quality and delivery targets (Mun and Yazdanifard, 2012). Overall, Walmart in China has worked to achieve the right balance between quality, assortment and price.
According to Dunning’s, Electric theory of Internationalization, which suggests that Aldi can possess the advantage of owner specific management, internalization and location benefits. Owner specific management indicates that Aldi’s trade secrets were safe. Internalization implies that the channel of distribution can be adjusted to reduce costs, by cutting off intermediaries and capitalizing on the economies of scale. Aldi can also have the advantage of selecting an appropriate location in their favour. Apart from this Aldi could also have benefited from the ‘First- Mover advantage’ in Greece, for example. As is apparent in the case of countries like USA, Aldi ensured the first mover advantage. This gave them sufficient prospects to expand into the market with considerable growth potential.
It is suggested that when a firm is expanding abroad it can do some terrible mistakes. Often, expanding fast is not a good idea as you don’t wait to see the results of your new store operation in a specific geographic area before opening another one, particularly when having a lot of loans it’s a perfect recipe for possible failure. Ignoring competition is another mistake as it can hold a firm back in terms of catching up with industry trends and awareness of what other firms do. Finally, by not differentiating a product, means that consumers have no reason to choose you over another competitor firm thus success is not possible without demand (Jennings, 2017).
7. Conclusion:
To sum up, Walmart has used a strategy that has been very successful, because the company convinced people that they are paying lower prices for the same quality of goods offered by other big-box retailers. Recent news of imposition tariffs and fluctuation of long-established trade agreements between the USA and foreign exchange associates, Walmart’s operations might be negatively affected at least in the USA (Hunt, Watts and Bryant, 2018). In addition, the German retailer Aldi is quite successful as its American rival, but is famous for its concept of being very simple, aiming directly at the customers by providing many different benefits. Aldi runs its expansion strategy very wisely, as it never risks to open subsequent store unless it perceives the preceding store in the area to make profit (Schmid et al., 2018).
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