Essay: Internationalization

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  • Internationalization
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Businesses are capitalizing on high growth rates, growing middle class and weaknesses of local retailers to storm other countries with their businesses (Bianchi & Ostale 2004). Harrison (2011) views these ideas of internationalization as based on a primary decision, which is motivated by the mission and objectives of international firms. This of course seems acceptable, and for that I believe will set out for processes and strategies in achieving the objective. Firms go international for a number of reasons. Diallo (2012) identifies common ones to be the desire for international opportunities for growth. Other firms would desire to create new opportunities for existing leaders, the quest for greater economies of scale and the need to diversify risk (Corstjens & Lal 2012). Alexander (1990) and Incandela et al (1999) also identify that, more firms internationalize as a result of saturation in their local market and high level of competition. Gielens & Dekimpe (2007) suggest that companies need to expand and grow in their business activities to boost revenues, and also increase profitability. Terpstra & Sarathy (2001) also state that, internationalization is one of the opportunities that many companies are looking at to achieve further growth. Many retailers are going global (Yip 2002), and for that matter, Diallo (2012) sees it to be prudent to think about such, considering retail strategy. Buckley & Ghauri (1999), and many researchers note that, for retail firms, it is a source of profitability. Nonetheless, Bianchi & Ostale (2004) postulate that, not all the attempts that are made become successful. International expansion is mostly difficult for retail firms since many have experienced frustration (Bianchi & Ostale 2004).
 
Wal-Mart Inc. was founded in 1962 by Sam Walton in Rogers, Arkansas (Knorr & Arndt 2003). The famous shopping center in America, Wal-Mart, a multinational retail firm has made its way into many foreign markets (Christopherson 2007; Gordon 2014) such as Mexico, Canada, Chile, Brazil, Argentina and many more (Knorr & Arndt 2003; Kim 2008). Wal-Mart has a base of selling at “lowest prices anytime, anywhere”. The focus on making a difference in the lives of their customers, and helping customers and communities save money and live better (Knorr & Arndt 2003; Gordon 2014; Wal-Mart 2016). Wal-Mart supersedes its competitors with about 11,530 stores, and 2.3 million employees worldwide (Wal-Mart 2016). Cost leadership, sophisticated logistics, inventory management techniques (Knorr & Arndt 2003), greater economies of scale and scope has been Wal-Mart’s strength for many years (Annual Report 2016).

According to the literature, Wal-Mart struggled in Germany for about ten years, from 1996 through to 2006 (Christopherson 2007; Gordon 2014; Knorr& Arndt 2003). It was a surprise to many, probably due to its size, sale, and experience in international activities of the retail market (Christopherson 2007).

Wal-Mart in 1997 entered into the German market by acquiring the Wertkauf chain 21 stores and the unprofitable Spar chain 74 stores (Christopherson 2007; Gordon 2014; Knorr & Arndt 2003). After a decade of struggle, they lost hundreds of millions of dollars and sold their assets to their German competitor Metro, and quit (Gordon 2014). Wal-Mart to say, entered German market with direct investments as in acquisition (Gordon 2014) which Terpstra & Sarathy (2001) claim is the highest risk of strategy to enter into a new market, but probably because of quick access to settle. Gordon (2014) identifies two best entry strategies for international retailers. He notes that it is either on a lower scale or at a very large scale. Nonetheless, Gienlens & Dekimpe (2007) argue that many firms would like to start by investing minimum resources and further commit substantial resources for expansion when they see the green light. Wal-Mart started with 95 stores which of course could earn it high economies of scale, they had initial strategy to redecorate the stores to look more attractive and implement a price leadership as their usual style in the US, but Gordon (2014) views it to be too large to start building a reputation.

Additionally, in direct investment, Knorr & Arndt (2003) postulates that there is full ownership since the international firm arranges to make direct investment in the production unit in the foreign market. In the case of Wal-Mart, it took over those stores completely, and designed to its taste. Much analysis from Pwc (2017) indicate that, to retailers, German’s environment has a high risk for any country to thread on without intensive research, and to be taken for granted. Gordon (2014) argues that Wal-Mart would have succeeded if they had entered through a joint venture as it is suggested by many researchers that firms should select an entry strategy that accurately fit in with the firm’s values (Gienlens & Dekimpe 2007; Knorr & Arndt 2003). For example, Tesco entered the Korean market by a joint venture with another giant local partner and it was quite successful (Kim 2008).

Research on international retailing requires diligent work on the host country and adapting accordingly. It is still not doubtful that, every country has its institutional ‘dos and don’ts’ that no other country is above. The decision to make a move abroad will require a thorough evaluation and analysis on the new environment (Alexander 1990; Knorr & Arndt 2003), due to differences in political and economic scenarios, new competition, new laws and regulation and above all cultural differences (Harrison et al 2000; Burkley & Ghauri 1999). Gordon (2014) and many researchers have discovered that, success in the home country does not guarantee success internationally (Gordon 2014; Knorr& Arndt 2003). The fact that Wal-Mart has great potential to grow locally and internationally, does not give it the mandate to ignore such analysis on the host nation. Burt et al (2002) recorded that M&S withdrew from Canada and US market, Home Depot failed in Chile, and many others. It is advisable to stress that, every country has a set of norms that are valued and to be successful in that market, one needs to simple adopt.

Country analysis comprises of a wide range of specialized information on government departments, international institutions such as the UN and OECD which address the economic, social and environmental issue (OECD 2008). Pwc (2017) also states that some crucial information can be provided by consultants, and some online services can be of great help to the international company to equip itself to the challenges and risk of taking a venture. With all these data, Wal-Mart would have gone loaded with what would not have been surprises to the international company. Moreover, Germany is one country that has a flexible term of seeking information. Pwc (2017) stated that information in Germany is always available, from corporate and labour law to finance, regulation and tax. Wal-Mart became victim to many of these laws.

Twarowska & Kakol (2013) have said that, companies must have a successful global strategy by first of all understanding the nature of global industries and the dynamics of global competition. Knorr & Arndt (2003) go further to explain the consequences of ignoring such suggestion. There are some strategies in the literature that will be useful for firms to succeed in standardizing or adopting their products to foreign markets. According to Twarowska & Kakol (2013), these strategies give MNCs the glue to operate just like the way the host company behaves with less attention to the home company. On this note, Alexander (1997) believes will call for higher level of adaptation to the local business environment. Yib (2002) also supports the notion that, companies that want to internationalize should make room for strategies for the local environment.

The German tax policy and economic development incentives in combination with limited land use controls, do not favour large scale, space extensive that will encourage large scale retailers who offer many goods at low price. The policies in Germany were not too favourable to big retailers like Wal-Mart to penetrate easily. Germans had some land-use relations that needed attention. Stores are not to size 800m2 in locations not designed for retailing. They have influential and stronger unions than US have (Gordon 2014). Retail shops close at 6.00pm and don’t open on Sundays (Pwc 2017; Gordon 2014). Germans have price regulations that prevent any retailer to sell below a certain cost. One can attest from the above that, successful strategic entrance approach used in US did not match with Germans. Economically, Germany retail market is big, with two trillion Euros as its GNP, and competitive and this, in a way was attractive to Wal-Mart but Senge (2004) notes that German market was already saturated. Moreover, there is the need to establish new operations, distribution networks, and the necessity to learn and implement appropriate marketing strategies to be able to compete with rivals in a new market.

Lack of legitimacy and support from the relevant local, social and commercial actors is another factor that can drive away international firms, says Blanchi & Ostale (2004). International firms should establish political connections that will aid in expanding its operation and further guide this expansion in global market. For example the literature explains that it is likely due to competition that a foreign firm is bound to have negative actions from rivals, community groups, unions, law suits from employees and environmental groups. Gordon (2014) advises that, practices such as international firms getting muc
h involved in community events and offering sponsorship to benefit the community, will do much good than harm to foreign businesses. Wal-Mart had issues with employees, consumers and even suppliers such that they lost even the bargaining power to buy goods from suppliers at low cost, which has been something that they enjoy most at home market (Gordon 2014).

Gienlens & Deekimpe (2007) suggest that, knowledge of the potential customers is essential to help the international retailer, and Blanchi & Ostale further explain that, the taste of preference of every country differ from country to country. For example Gordon (2014) noted that, German customers are mostly loyal and committed to their home shops, particularly in the retailing industry and so, possibly in spite of the lower price given by Wal-Mart, they would want to still keep on buying at Metro Group, Shwarz, Edeka Group, Aldi and Rewe (Pwc 2017). Germans would prefer their daily walk-in shopping to weekly drive in bulky purchase (Pwc 2017). Relationship with customers would be the best in the success of a mass retailer (Diallo (2012) such as Wal-Mart. Kim (2008) notes that, it is therefore suicidal for a foreign firm to attempt to reiterate the home version of its retail format in a host market. Wal-Mart’s strength of good customer service, strong organizational culture, efficient operations and “everyday low prices” (EDLP) seem to be nuisance rather than advantage (Wal-Mart 2016).

Additionally, Mitra & Golder (2002) suggested that cultural assessment should highly be considered in cases such as new entry in market. This will call for investigating into elements such as language, religion and social structure and attitudes (Tomlinson 2006; Hofstede 2010; Harrison 2011). Some natives value their culture, and stepping on it will create nuisance and discomfort to business relationships (Harrison et al 2000). Just like the German language is valuable to them. Harrison (2011) stated that “In-depth understanding of a culture is difficult to achieve without a good level of linguistic ability”. He further postulates that cultural distance increases risk of doing business abroad, and failure to notice and appreciate how useful this is may create huge internal and external problems. David Wild, who was then in charge of German Wal-Mart’s operation was not a German, and that for me was a huge mistake. In respect, researchers argue that it is advisable for international firms to engage a manager who is a native of the local market (Gordon 2014). In this regard, lack of cultural integration caused many problems to Wal-Mart in Germany.

In conclusion, Blanchi and Ostale (2004) identify some failure of internationalization as a result of several errors that are related to internal and external factors of the transfer strategy. According to Knorr & Arndt, some general barriers and aggressive practices might be the general cause of failures in internationalization. However, some researchers attributed Wal-Mart’s failure in Germany to negative practice in relation to mismanagement, inadequate consumer research (Gordon 2014). Knorr & Arndt (2003) state categorically the failure of the dominating US retailer as a result of “an incredible degree of ignorance of the specific features of the extremely competitive German retail market”. A company of the size of Wal-Mart and its experience in internationalization strategies, one would have expected massive growth in Germany. I personally think complacency set in their activities and the big mistake of not employing a German manager to manage the host market. Their entry strategy to Germany could also be a contributing factor to their failure. Wal-Mart could have partnered with a company in the host country or probably used its size to grow other smaller retailers who could also be a threat to its operation. The sophisticated logistics, inventory techniques and the strong customer service could not project themselves. Wal-Mart at most, has made success in many countries including Mexico in 1991, Canada in 1995, and China in 1996, South Korea in 1998, and by 1999 it entered into the European Union by entering into the UK market (Gordon 2014; Knorr & Arndt 2003). Undisputedly they have become the market leader in Mexico and Canada.

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