How does expanding internationally benefit Wal-Mart?
In its 2003 financial report, Wal-mart stated that its sales in international division surpassed 40 billion dollars, and increased by more than 15% compared to its previous years (IHS Global Insight, 2006). By expanding internationally, the company was able to acquire a mass market that led to a drastic increase in its sales. The company has gathered a mass market in countries outside its initial base. Countries like China, Japan, and Germany. By expanding globally, the company has benefited from economies of scale. Most of its suppliers operate at a global level. In connection, the company is able to bargain for larger discounts on the goods it purchases from its suppliers (Hoovers, 2004).
Another benefit that Wal-Mart gains by operating globally is the ability to ease channels for the exchange of information and ideas from one country to another. When the company experiences benefits and success in one country, it is able to replicate that success to another country leading to enormous profits e.g. the idea about Multi-level stores in South Korea was replicated in New York leading to successful stores in New York. The expansion into the global market came as a much-needed call for the company to match its competitor’s ability. Many companies’ such as Ahold, and France Giant retailer Carrefour had already gone global while Wal-mart was operating in a single country.
What are the risks that Wal-Mart faces when entering other retail markets? How can these risks be mitigated?
Adapting to local culture in the new countries is not always easy. At one level, the country had been used to the United States culture. Penetrating other countries such as Japan, South Korea meant that the company had to deal with the new cultures e.g. Sam’s clubs in Brazil. Also, while the company was able to build close ties with suppliers in the United State, building mutual relations with local suppliers in other countries has become a major challenge in other countries. Many governments often impose regulations that favor local companies and disadvantage foreign investors. At times, the company is surrounded by barriers of entry and discouraging terms of trade. The company has drastically failed in its Human Resource strategy, not only in the US but also in the countries of expansion. Employees are often poorly paid and motivated. The company never pays workers for working overtime. This has created great hostility towards the company. On the other hand, the company is hated globally for its sex-discrimination policies.
Why do you think that Wal-Mart first entered Mexico via a joint venture? Why did it purchase its Mexican joint venture partner in 1998?
In its initial attempt, its prices were much higher than the prices already offered in the Mexican companies. Secondly, the companies had already become popular and their products had gained great popularity among the consumers. Venturing alone would not result in any sales for the company. Also, being new in the country, distribution became a major problem because of the poor infrastructure in the company. Entering into a joint venture helped the country greatly in all of these problems (Molin, 2004).
With respect to our textbook chapters on The Strategy and Structure of International Business, what strategy is Wal-Mart pursuing—a global standardization strategy, localization strategy, international strategy, or transnational strategy? Does this strategic choice make sense? Why?
The company has adopted an international strategy. It has expanded from South America to Europe and eventually to Asia (Wal-Mart, 2005). These efforts to expand the company are increasing yearly. As discussed above, this strategy has earned great benefits for the company. Though the problems are clearly evident, the benefits surpass the limitations. With many of its competitors operating at an international level, the strategy surely makes sense. In the recent news, of the company, the ability to be able to reach out through facebook to contribute towards fighting hunger caught my interest. The company’s ability to reach the global market has not only been beneficial internally but is also being beneficial to the community through channels such as Facebook.
What Interests me
The company has adopted an international strategy. It has expanded from South America to Europe and eventually to Asia (About, 2008). These efforts to expand the company are increasing yearly. As discussed above, this strategy has earned great benefits for the company. Though the problems are clearly evident, the benefits surpass the limitations. In the recent news, of the company, the ability to be able to reach out through facebook to contribute towards fighting hunger caught my interest (Wal-Mart, 2005). The company’s ability to reach the global market has not only been beneficial internally but is also being beneficial to the community through channels such as Facebook.
References
About: Wal-Mart. (2008). Web.
Hoovers: Wal-Mart Stores. (2004). Web.
IHS Global Insight: The Price Impact of Wal-Mart. (2006). Web.
Molin, D. (2004). A bullish Wal-Mart: Targeting New Countries, Smaller Formats. Web.
Wal-Mart: International Operations. (2005). Web.