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An Operational Problem Faced by International Firm

Executive Summary

The sole aim of the paper is to analyse the operational problem faced by Wal-Mart in Japan. The discussion focuses on the obstacles and failures that were faced by Wal-Mart during its expansion in Japan due to its operational issues. The retailing giant Wal-Mart entered Japan with its excellent trade policies and strategies; however, it could not succeed in the market of Japan. The problems that are identified for failure of Wal-Mart in Japan include inappropriate pricing strategy and inefficiency of supply chain management. The low-cost scheme of Wal-Mart could not prove successful in the market of the country. Moreover, another hurdle that led the company to its failure in the market is that Wal-Mart failed to differentiate between the culture of Japan and the USA, due to which, the company could not identify the shopping trends of the consumers of Japan. Hence, the company failed to fulfil the demands of customers in the country.

Due to poor comprehension of the culture and shopping trends of people in Japan, and inappropriate pricing strategy, Wal-Mart could not attract the customers of the country, which led to decline in its sales in Japan. After close insight and adequate analysis of the issues, adequate solutions and strategies are suggested that can be implemented for managing the issue. The solution includes redeveloping the pricing strategies according to the business environment of Japan. Another suggestion includes operating through sub-stores in the market of Japan as it will help in understanding the culture and shopping trends of the consumers in the country in order to fulfil their demands.

Table of Content

Introduction 4

Analysis of Operational Issues of Wal-Mart in Japan 5

Suggested Strategies to Manage the Issue 7

Conclusion 10

References 11

Introduction

Business organisations, at the present time, are expanding in the global market in order to enhance the customer base and attain competitive advantage. Multinational organisation are expanding in the developed as well as developing nations to expand the business. The organisations require robust operational strategies for expanding in different countries according to the trends and consumer behaviour in the host country. Operational issues in the business while expanding in the host country can lead the company to failure, as operational issues affect the operational performance of the organisation. Operational issues impact the strategy execution of the organisations in the host country, which in turn severely affect the success of the organisation. The operational issues include inappropriate pricing strategy, inadequate alliances, the structure of the organisation, business locations and marketing. The operational issues affect the growth of the organisation in a country; hence, it is essential for the organisation to address its operational issues, as it helps in managing sustainable growth (Cuervo-Cazurra, Newburry and Park, 2016).

In this regard, the discussion concentrates on the operational issue of Wal-Mart in Japan that affected the success of the company in the country. Wal-Mart is a multinational retail corporation with its headquarters in Bentonville, U.S. The company entered in the market of Japan in the year 2002 by purchasing 36% stakes of Seiyu, which was a group of supermarkets in Japan and in 2008 the company purchased 100% stakes of Seiyu (Roberts and Berg, 2012). The company entered the market of Japan with strong policies and strategies; however, it is facing challenges in the market due to operational issues. The discussion includes analysis of the operational issues of Wal-Mart in Japan. Furthermore, the discussion comprises suggestions based on robust pieces of evidence for successfully managing and addressing the issues.

Analysis of Operational Issues of Wal-Mart in Japan

The business of Wal-Mart in Japan is facing several challenges due to issues in the operations of the company. The issues in operations are the biggest hurdle in the growth of the company in the market of Japan. The company entered the market of Japan through a joint venture with Seiyu. In the beginning, the company purchased 36% shares of Seiyu but later on purchased complete stakes of Seiyu without a proper understanding of the cultures and market of Japan. The company could have its own brand name for entering the market, as company possess a strong brand image. Wal-Mart stepped in the market without comprehending the demands and shopping trends of the customers (Aklamanu, 2014).

The company faced the issue of poor sales performance in the market of Japan due to its inappropriate pricing strategies. Every-Day Low Pricing (ELDP) is the core pricing strategy of Wal-Mart, and through following this strategy, the company offers products and services at low to the customers. The company has successfully penetrated the market of the US with its low pricing strategy; however, it could not succeed in the market of Japan with this strategy. The strategy of the company to render goods to the customers at a lower price was not sufficient enough to generate profit, and it proved to be unsuccessful in the Japanese market (Japan Today, 2018). The company failed to carry out its ELDP strategy in the market of the country, as people of Japan compare quality with price. They hold the perception that a product with high price possesses high quality and they do not compromise with the quality of products for affordable prices (Agriculture and Agri-Food Canada, 2016). The pricing strategy of the company led the customers to believe that the products that are offered on lower prices are of lower quality. Hence, the customers of Japan could not trust Wal-Mart for the quality of products.

The operational issue of inappropriate pricing strategy has emerged from the failure of the company to grasp and comprehend the culture of the country. Moreover, the company has failed to understand the consumers and retail environment of the Japanese market. Japan is a country with high rates of per capita income, and the country possesses second most developed and one among the largest economies in the world (Barboza, 2010). Hence, it is an attractive market for retailers. There is a broad range of opportunities in the market of Japan, and the retailers are required to comprehend the market and culture of Japan before expansion in order to develop effective operational strategies.  

The company has failed to differentiate between the trends and consumption patterns of the US and Japan. The buying behaviour of consumers in Japan is different from that of the US; moreover, there is the difference in patterns of product selection and purchasing behaviour of consumers. The consumers of Japan prefer buying goods in smaller quantities at regular intervals rather than stocking up like consumers of America. Due to this reason, the company could not appropriately carry out its pricing strategy in Japan. The strategy helps in earning profits through high volume sales; however, in Japan prefer buying at regular intervals rather than buying high volume at a time. Moreover, Japanese prefer buying more fresh products rather than packaged goods (Agriculture and Agri-Food Canada, 2016). However, Wal-Mart prefers offering packaged goods rather than fresh items, which is one among the reason for the decline in sales of the company in Japan.  

 Wal-Mart has failed to respond to the demands of the customers in the country due to its omnipresent strategy. The company continued to follow its low pricing strategy in the market of Japan without understanding the needs of the local customers, which lead to a decline in its sales. Another issue that leads Wal-Mart to face challenges in the market of Japan is the inefficiency of its supply chains. The retail culture of the country has a strong relationship between the members of the supply chain. Hence, there is a strong connection between manufacturers, retailers, customers, and distributors in the country (Katzner, 20078). Moreover, in Japan, the network of suppliers that render goods to the retailers is strong and close-knit. The country possesses a close and strong local relationship among the suppliers, which increases the difficulty for the foreign retailers to enter the industry. The local retailers in the country possess a strong relationship with the suppliers. However, for large firms like Wal-Mart, it is not possible to develop a relationship with the suppliers in order to do the business. Hence, Wal-Mart ignored the power of suppliers in the country. Moreover, the strategy of Wal-Mart includes cutting costs with the suppliers in order to offer goods at an affordable price to customers. Due to the inappropriate understanding of the retailer's network and suppliers, Wal-Mart is facing the challenges in its supply chain management.  

Suggested Strategies to Manage the Issue

Wal-Mart entered the retail market of Japan through a joint venture with Seiyu; however, the company could have used its own brand name for successfully entering the retail market of the country. The brand name of Wal-Mart is associated with offering good quality of products, and this might have helped the company in attracting the consumers in Japan, as they prefer buying high-quality goods. The most significant operational issue that led Wal-Mart to face a challenge in the market of Japan is its low pricing strategy (The Japan Times, 2018). Due to low pricing consumers developed misconception about the quality of the products offered by the company. Moreover, the company lacked in comprehending the buying behaviour and shopping trends of the consumers in Japan. Due to this, the company failed to meet the demands of Japanese consumers.

Hence, the company is required to consider the factors like culture, costs, and demographics in order to penetrate the market of Japan. The marketing managers of the company are suggested to develop a deeper understanding of the culture of Japan would help in comprehending the trends and area-specific requirements of the zones in which they are operating. The notion has been equally supported by the Hofstedes' cultural dimension theory, which suggests that understanding the culture of the country before expansion is highly beneficial for the business and its owners, as it helps in understanding the trends of the host country (Kreitner and Cassidy, 2012). Moreover, a better understanding of the culture would help the company in meeting the requirements and demands of the customers in Japan, which, in turn, would help in enhancing the sales of the company.

 The company is required to increase its sales and build a relationship of trust with the customers in order to penetrate the market of Japan. In order to increase sales, the company is suggested to operate through a sub-brand in the market of Japan. The company can introduce small stores in multiple neighbourhoods with the limited and fresh quality of the products. This would help the company in building strong relations with the customers and would also help in building value for them. According to Kumar and Reinartz (2018), understanding and fulfilling the demands of the customers help the organisations in enhancing profit margins. Moreover, organisations are required to be flexible for adapting the demands of the customers, which helps in building a strong relationship with the customers. Operating through sub-brands would assist the company in building a strong relationship with the customers, which, in turn, would help in enhancing the profit margins. Moreover, the company would be able to fulfil the demands of the customers by operating through small stores. The managers are suggested to focus on meeting the demands of the customers by operating through sub-brands and local stores. Moreover, operating through sub-brand stores would help the company in promoting the quality of its products and services.

The low pricing strategy of Wal-Mart is not successful in the market of Japan; hence, the marketing managers are suggested to redevelop the pricing strategy of the company according to the trends in the market of the country. The trends of the market and characteristics of the customer including buying power and purchasing behaviour play a crucial role in developing a pricing strategy (Schindler, 2011). Hence, the marketing managers are suggested to redevelop pricing strategy on the basis of characteristics of the Japanese customers.

In addition to redeveloping pricing strategy, the company is suggested to manage its supply chain. The company is suggested to adopt localisation, wherein it must develop a relationship with the suppliers by increasing engagement with the suppliers of groceries in the market of Japan. Managing interpersonal relationship by engaging with the suppliers would also help the company in managing its supply chain in an effective manner. Localisation and understanding the demographics would be highly beneficial for the company, as it would help in meeting the demands of the market. The same strategy was adopted by AEON, which is one of the competitors of Wal-Mart in the retail market of Japan. AEON concentrated on localisation and it operates in the market according to the requirements of the customers, and it helped the company in penetrating the market of Japan, and now it is one among the biggest retailers of the country (Larke and Causton, 2005).

Conclusion

The business organisations from various sectors are expanding in the global market in order to attain competitive advantage and develop a strong customer base. The companies require strong operational strategies to expand in different countries as issues in operation can severely affect the growth and success of the companies in host countries. The issues in operations of Wal-Mart lead the company to face challenges in the market of Japan. The operational issues of the company in Japan include inappropriate pricing strategy and inefficiency of supply chain management. Moreover, the company lacks an understanding of the culture and trends of the consumers in Japan, due to which, the company is unable to meet the demands of the customers. Hence, the company is suggested to redevelop its pricing strategy according to the characteristics of the customer of the country. Moreover, the company is suggested to operate through sub-brand stores, which would help the company in understanding and meeting the demands of Japanese customers.  

References

Agriculture and Agri-Food Canada. 2016. Modern Grocery Retailing in Japan. [Online]. Available at: http://www.agr.gc.ca/resources/prod/Internet-Internet/MISB-DGSIM/ATS-SEA/PDF/6731-eng.pdf [Accessed on: 11 December 2018].

Akalmanu, A. 2014. Understanding Failure in International Retailing: An Institutional Framework for Future Investigation. China-USA Business Review, 13 (3), pp. 178-198.

Barboza, D. 2010. China Passes Japan as Second-Largest Economy.  [Online]. Available at: https://www.nytimes.com/2010/08/16/business/global/16yuan.html [Accessed on: 11 December 2018].

Cuervo-Cazurra, A., Newburry, W. and Park, S. H. 2016. Emerging Market Multinationals: Managing Operational Challenges for Sustained International Growth. Cambridge: Cambridge University Press.

Japan Today. 2018. Walmart prepares to pull out of Japan. [Online]. Available at: https://japantoday.com/category/features/kuchikomi/walmart-prepares-to-pull-out-of-japan [Accessed on: 11 December 2018].

Katzner, D. W. 2008. Culture and Economic Explanation: Economics in the US and Japan. Abingdon: Routledge.

Kreitner, R. and Cassidy, C. 2012. Management. California: Cengage Learning.

Kumar, V. and Reinartz, W. 2018. Customer Relationship Management: Concept, Strategy, and Tools. Berlin: Springer.

Larke, R. and Causton, M. 2005. Japan - A Modern Retail Superpower. Berlin: Springer.

Roberts, B and Berg, N. 2012. Walmart: Key Insights and Practical Lessons from the World's Largest Retailer. London: Kogan Page Publishers.

Schindler, R. M. 2011. Pricing Strategies: A Marketing Approach. California: SAGE Publications.

The Japan Times. 2018. Foreign supermarkets struggle to make a profit in Japan. [Online]. Available at: https://www.japantimes.co.jp/news/2018/07/21/business/corporate-business/foreign-supermarkets-struggle-make-profit-japan/#.XA-g4dszaM8  [Accessed on: 11 December 2018].

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