Wal-Mart is the name that is well-known to all the households these days because it has established itself as the largest retailer the world over. The sales of Wal-Mart are growing with every passing day as the sales totaled up to more than $280 billion, according to the reports published in 2004. However, it should be noted Wal-Mart did not appear on the international with more than 4500 stores in 14 different countries and with a workforce of 1.5 million over a small period of time. From the very beginning, Wal-Mart worked day in and day out to make sure that it develops the right strategies that would help it to become a success; both at the national and the global level. It worked efficiently to establish itself as the best merchandiser that operated with the most effective systems that led to the increased buying of the customers and superior growth of the incorporation. By developing and implementing the right strategies, Wal-Mart established itself as the leader in many disciplines, one of which was the logistics systems.
In this paper, we shall discuss the different forces that led to the international expansion of Wal-Mart. Later in this paper, we will look at the strategies that were used by Wal-Mart to enter different countries that it did and the obstacles that it had to face in its way to become the most well-known retailer the world over.
Driving forces for international expansion
There were many forces that led to the expansion of Wal-Mart to other countries apart from just America. Being the world's largest retail corporation, Wal-Mart is known for many reasons, one of which is the influence it has on the government of America. The legislature of Wal-Mart Stores Inc. is friendly and the policies that have been devised by the incorporation are completely in accordance with the policies of the government. This method has been the political driving force for Wal-Mart since it has helped it to achieve many goals including the elimination of the estate tax, limitation of the port security and restriction of tariff protections. Moreover, this strategy has also helped Wal-Mart to obtain attractive subsidies that greatly helped the global expansion of the company. A survey concluded that Wal-Mart has been given subsidies worth of 1.2 billion from the U.S. government that it has achieved on the form of funds, grants and subsidies. These subsidies have been used by Wal-Mart to establish it internationally.
One of the main factors that led to the success of Wal-Mart in America as well as it came out as a driving force for its international expansion was the development of the information system in which it established it as a leader. This information system was used by Wal-Mart to develop a distribution system that was very efficient and one of its kind in the world. It was also one of the first few companies in the world that promoted widespread stock ownership and that too among its employees. These were the strategies that led to high production and made it possible for Wal-Mart to pay for its operational costs and therefore it passed very low cost to the consumers. These strategies played a very significant role in the international expansion of Wal-Mart.
Wal-Mart was forced to expand internationally and make business in the foreign market in the early 1990s mainly because of the critical condition that were there in the U.S. market. Firstly, the firm feared that it would face a great deal of market saturation in America. Since Wal-Mart emerges on the scene with 200 new stores every year, it results in very short distance between a new store and an old one. Moreover, the consumers were offered lesser incentive as the prices offered by Wal-Mart and its main competitors was decreased over time. Therefore, there wasn't much of a difference for consumers to go to Wal-Mart or any other retailer.
Moreover, there was a decline in the demand for products that were being produced by Wal-Mart because the overall family size in America was decreasing. Considering all the factors that have been mentioned above, it appeared to Wal-Mart that international expansion was the only strategy that would lead to business growth and thus it started its international operations from Mexico in 1999.
Expansion in different countries
It was very smart of Wal-Mart that it did not use the same strategies for its expansion in different countries. Different strategies in different countries were devised based on the business, economic and competitive environments. First of all Wal-Mart established its presence in the local markets by considering what was unique about that particular market and then it moved on to modify that particular business model so that it would suit the market. Since the environment seemed positive in China, Wal-Mart decided to start its operations here. The government of China is well-known for its liberal initiatives and the open policies it has to offer for its population. This gives an increased income (that is also disposable) to the consumers since there is limited competition that is offered by the same kind of business models ensuring a high economic growth. In the year 2007, the retail sale in China was recorded to be $1.2 trillion and it is expected that it would further increase to $2.4 trillion by the year 2020. These figures indicate that the company has a bright opportunity in China. These were some of the factors that forced Wal-Mart to research on the market in China and their presence there.
At the moment, Wal-Mart owns 7,873 stores around the world in 15 different countries, out of which 3,615 stores are placed in the international market and the remaining stores are there in the U.S. Furthermore, the international segment of the company contributes a total of 24.6% to the total revenue that the company earns, according to a fiscal report that was issued in 2009. Nonetheless, despite such significant international sales, the company's international segment is not even close to even one-third of the sales objectives that it had anticipated to achieve in the year 2005. If we study the international business of Wal-Mart, we discover there is a mixed story. The company made great success in countries like the UK, Mexico, Canada and China. At the same time, it was so unsuccessful in South Korea and Germany that it actually decided to withdraw from these countries.
Unlike America, Wal-Mart had to struggle a lot to make a significant mark in some of the international markets including Germany. It has been reported that the company started losing business as soon as it entered the German market. Some reports have also revealed that in some instances the inferior products were being sold at a discounted price. This led to the customers with less press elasticity go for the brands that offered good quality in discounted price. Moreover, it also results in a huge turnover of the labor force, which has been estimated to be about 44% for Wal-Mart, according to some international surveys. The aforementioned are weaknesses that the company had to cope with if it wished to become a successful retailer internationally.
In the UK, Wal-Mart functions under a specific organized culture known as the Wal-Mart way. Under this way, the executive are like servants and the workers are similar to being an associates. The associates or the employees in this scenario have the ability to adapt the culture of the place and thus go after the novel notions. This makes the work relations between the employees even stronger and they are hoping to attain the best results. Also, giving in to what the customer wants is always rendered as the major goal. This is a must keep goal if a business or any organization wishes to be truly successful. The store in Britain wants to provide for the British families what they need and deliver the products to them in an efficient and easy manner.
The fastest augmenting retail markets in the world are of Russia and India. As much as they are growing and thus show signs for prosperity, ironically enough they turn out to be the most irritating for the retailers as well. In India, Wal-Mart has been only able to accomplish one wholesale outlet. On the other hand, in Russia, only a single office of 30 persons has been successfully created in Moscow only after five years. Despite such slow growth, the company hopes to do well in both the countries. The strategy that Wal-Mart has in mind is to conquer through acquisitions, expansion and joint ventures.
The retail sector in India totals about $350 billion and is made up of little family run shops. The organized retail stores only make up of 5% of the total sales. Wal-Mart had to go around the laws and regulations that were placed for the foreign retailers vending to the customers there. The company interacted with Bharti Enterprises to initiate a cash and carry shop that opened up in…