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Essay: Why Businesses Go Global: A Case Study of Wal-Mart in Germany

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Businesses are capitalizing on high growth rates, growing middle class and weaknesses of localretailers 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 bythe mission and objectives of international firms. This of course seems acceptable, and for that Ibelieve will set out for processes and strategies in achieving the objective. Firms go internationalfor a number of reasons. Diallo (2012) identifies common ones to be the desire for internationalopportunities   for   growth. Other firms would desire  to  create  new   opportunities   for  existingleaders, the quest for greater economies of scale and the need to diversify risk (Corstjens & Lal2012). Alexander (1990) and Incandela et al (1999) also identify that, more firms internationalizeas 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 boostrevenues,   and   also   increase   profitability.   Terpstra   &   Sarathy   (2001)   also   state   that,internationalization is one of the opportunities that many companies are looking at to achievefurther 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   experiencedfrustration (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 wayinto 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 ofselling at “lowest prices anytime, anywhere”. The focus on making a difference in the lives oftheir 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 about11,530   stores,   and   2.3   million   employees   worldwide   (Wal-Mart   2016).   Cost   leadership,sophisticated   logistics,   inventory   management   techniques   (Knorr   &   Arndt   2003),   greatereconomies of scale and scope has been Wal-Mart’s strength for many years (Annual Report2016).

According to the literature, Wal-Mart struggled in Germany for   about ten years,   from 1996through to 2006 (Christopherson 2007; Gordon 2014; Knorr& Arndt 2003). It was a surprise tomany, 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 andthe 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 theirGerman competitor Metro, and quit (Gordon 2014).  Wal-Mart to say, entered German marketwith direct investments as in acquisition (Gordon 2014) which Terpstra & Sarathy (2001) claimis the highest risk of strategy to enter into a new market, but probably because of quick access tosettle. Gordon (2014) identifies two best entry strategies for international retailers. He notes thatit 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 commitsubstantial resources for expansion when they see  the green light. Wal-Mart  started with 95stores   which   of   course   could   earn   it   high   economies   of   scale,   they  had   initial   strategy   toredecorate the stores to look more attractive and implement a price leadership as their usual stylein 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 ownershipsince the international firm arranges to make direct investment in the production unit in theforeign market. In the case of Wal-Mart, it took over those stores completely, and designed to itstaste. Much analysis from Pwc (2017) indicate that, to retailers, German’s environment has ahigh 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 jointventure as it is suggested by many researchers that firms should select an entry strategy thataccurately fit in with the firm’s values (Gienlens & Dekimpe 2007; Knorr & Arndt 2003). Forexample, Tesco entered the Korean market by a joint venture with another giant local partner andit was quite successful (Kim 2008). Research  on   international   retailing   requires  diligent  work  on   the   host   country   and  adaptingaccordingly. It is still not doubtful that, every country has its institutional ‘dos and don’ts’ that noother 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 differencesin political and economic scenarios, new competition, new laws and regulation and above allcultural differences (Harrison et al 2000; Burkley & Ghauri 1999). Gordon (2014) and manyresearchers   have   discovered   that,  success   in   the   home   country   does   not   guarantee   successinternationally (Gordon 2014; Knorr& Arndt 2003). The fact that Wal-Mart has great potential togrow locally and internationally, does not give it the mandate to ignore such analysis on the hostnation. Burt et al (2002) recorded that M&S withdrew from Canada and US market, Home Depotfailed in Chile, and many others. It is advisable to stress that, every country has a set of normsthat 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   governmentdepartments, international institutions such as the UN and OECD which address the economic,social   and   environmental   issue   (OECD   2008).   Pwc   (2017)   also   states   that   some   crucialinformation can be provided by consultants, and some online services can be of great help to theinternational company to equip itself to the challenges and risk of taking a venture. With all thesedata,   Wal-Mart   would   have   gone   loaded   with   what   would   not   have   been   surprises   to   theinternational company. Moreover, Germany is one country that has a flexible term of seekinginformation. Pwc (2017) stated that information in Germany is always available, from corporateand 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 byfirst 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. Thereare some strategies in the literature that will be useful for firms to succeed in standardizing oradopting their  products to foreign markets. According to Twarowska  & Kakol (2013),  thesestrategies give MNCs the glue to operate just like the way the host company behaves with lessattention to the home company. On this note, Alexander (1997) believes will call for higher levelof   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   localenvironment.  The German tax policy and economic development incentives in combination with limited landuse 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 bigretailers like Wal-Mart to penetrate easily.   Germans had some land-use relations that neededattention.   Stores   are   not   to   size   800m2   in   locations   not   designed   for   retailing.  They   haveinfluential and stronger unions than US have (Gordon 2014). Retail shops close at 6.00pm anddon’t open on Sundays (Pwc 2017; Gordon 2014). Germans have price regulations that preventany retailer to sell below a certain cost. One can attest from the above that, successful strategicentrance   approach  used   in   US   did   not   match   with   Germans.   Economically,   Germany   retailmarket  is   big,  with   two   trillion  Euros   as  its   GNP,  and   competitive  and   this,   in  a   way  wasattractive   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 necessityto learn and implement appropriate marketing strategies to be able to compete with rivals in anew market. Lack of legitimacy and support from the relevant local, social and commercial actors is anotherfactor that can drive away international firms, says Blanchi & Ostale (2004). International firmsshould establish political connections that will aid in expanding its operation and further guidethis expansion  in  global market.   For  example   the  literature  explains  that  it   is  likely  due  tocompetition 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 much involved in community events and offeringsponsorship 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 thebargaining power to buy goods from suppliers at low cost, which has been something that theyenjoy most at home market (Gordon 2014).  Gienlens & Deekimpe (2007) suggest that, knowledge of the potential customers is essential tohelp the international retailer, and Blanchi & Ostale further explain that, the taste of preferenceof every country differ from country to country. For example Gordon (2014) noted that, Germancustomers  are  mostly  loyal  and committed to their  home  shops,  particularly  in the retailingindustry and so, possibly in spite of the lower price given by Wal-Mart, they would want to stillkeep on buying at Metro Group, Shwarz, Edeka Group, Aldi and Rewe (Pwc 2017). Germanswould   prefer   their   daily   walk-in  shopping   to   weekly   drive   in   bulky   purchase   (Pwc   2017).

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