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Walmart Company is currently the world’s largest retailer, and has aggressively entered into the international market since year 1991. Its global operations spanning across 15 countries is attributed to its effective employment of international business strategy.
Its early global expansion strategy into Mexico and Canada is characterised by entering into regions that are geographically closest and culturally most similar. This strategic move allowed Walmart to fully utilise its existing financial and managerial resources to tap into new markets, whilst mitigating risks if the operations fail abroad. Its subsequent expansion into ...view middle of the document...
However, its subsequent expansion to countries such as Germany, South Korea and Japan was unsuccessful due to cultural differences that worked against the Walmart’s model. These problems stemmed from issues related to cultural, consumer’s shopping patterns and political and legal systems. The aforementioned combined factors play a vital role when it comes to determining a company’s success and performance. Walmart’s global expansion reveals many lessons which will further be analysed in the following sections of the report. Lastly, Walmart’s future expansion in the BRIC (Brazil, Russia, India, China) countries will be covered.
1.0 What was Walmart’s early global expansion strategy? Why did it first choose to enter Canada and Mexico rather than expand in Europe and Asia?
1.1 Walmart’s early global expansion strategy
When Walmart started venturing beyond its large domestic markets, the company first needed to determine the appropriate mode of entry. Walmart was driven by both market-seeking as well as resource-seeking initiatives when it chose to enter the Latin America and Canada. According to WalMart Watch (2012), the three primary tactics used by Walmart prior entering a country are;
1.) Building partnerships with local businesses and organizations
2.) Working with government officials
3.) Tapping into the burgeoning middle class’s purchasing power
Besides both countries having the closest geographic proximities with Central America, the proactive reasons that lured Walmart to enter into Mexico and Canada was the creation of the North American Free Trade Agreement (NAFTA) that came into effect in year 1994. According to Ghosh (1998), NAFTA reduces US’s firm’s costs of doing business, hence allowing Walmart to gain a competitive advantage over other competitors when operating in the Canadian and Mexican market.
Walmart entered the Canadian market in year 1994 via an acquisition of a local retail store, Woolco (Sternquist, 1997). This was a logical move for Walmart considering that;
i) Firstly, Canada is a mature market. Setting up a greenfield operation may be unattractive, considering that adding new stores will only intensify competition within an already saturated market.
ii) Secondly, Canada’s geographic proximity with the United States allowed Walmart to exercise its cost effective logistics in Canada (Agren & Ogier, 2011). This allowed Walmart to reduce transfer costs related to transportation and corporate communication.
iii) Thirdly, Canada has significant income and cultural similarities with America. This is aligned with Sternquist (1997) who stipulated that cultural proximity is an important factor for mass retailers when operating in a foreign country.
iv) Fourthly, faced with limited managerial and financial resources, the penetration to the Canadian market meant that Walmart would face relatively little need for new learning. This is aligned with Walmart’s decision to keep...