Wal-Mart's CSR Failure in Germany: Ethics and Culture

Introduction

Wal-Mart's approach to global expansion perpetuated the senior management philosophies and strategies that guided the company to market leadership through its Low Price Every Day (LPED) value proposition throughout North America. These philosophies and strategies, while responsible for strong growth in the United States and comparable markets, were at times either borderline or blatantly unethical. One example of such unethical practice was the deliberate reduction of employment in stores where unionization had become a significant threat (Christopherson, 2007).

Wal-Mart's extremely efficient and profitable supply chain operations also bred an arrogance and blindness toward regional and local cultural, employment, legal, and even religious standards in markets very different from the United States (Talaulicar, 2009). With these ethical blind spots rooted in corporate ethnocentrism, it is unsurprising that Wal-Mart failed in Germany on both cultural and ethical grounds.

Wal-Mart's Failure in Germany

Like many of its expansion strategies in other nations, Wal-Mart completed a series of acquisitions in Germany to establish a foothold at the low end of the nation's retail market (Christopherson, 2007). Of these acquisitions, the most significant was the purchase of the Wertkauf hypermarket chain from the Mann family in 1997 — the year Wal-Mart began to gain critical mass in the German market (Talaulicar, 2009).

Beyond the difficulties of expanding its supply chain and retail operations — difficulties compounded by the German government's stringent controls on below-cost selling and restricted shopping hours designed to protect workers' union rights — Wal-Mart faced serious conflicts stemming from its lack of cultural awareness and legal expertise in Germany (Christopherson, 2007). Among the many areas where Wal-Mart demonstrated ignorance of German norms, the failure to understand the distinction between rule-based versus principle-based approaches to ethics was particularly damaging, ultimately causing the retailer to be sued repeatedly by the German Works Council and labor unions (Talaulicar, 2009).

Without a proper Corporate Social Responsibility (CSR) program in place to introduce the Wal-Mart Statement of Ethics — a document required by the New York Stock Exchange (NYSE) as a condition of Wal-Mart's public listing — the company floundered and alienated local and regional governments across Germany. Labor unions sued to prevent the Statement of Ethics from being enforced (Talaulicar, 2009). When German workers were handed the Statement of Ethics, they immediately brought it to their union leaders, who filed complaints with local government authorities. The German unions argued that the Statement of Ethics violated the German Works Constitution Act (Talaulicar, 2009).

Conclusion

If Wal-Mart had defined a thorough Corporate Social Responsibility (CSR) program to launch the Statement of Ethics in Germany — one that incorporated the cultural and legal specifics of the country — the company would have significantly improved its chances of success. Instead, Wal-Mart proceeded with distributing the Statement of Ethics without considering the ramifications for the cultural and legal relationships it held with thousands of employees across Germany. The result was a major public relations disaster, compounded by a series of lawsuits and the eventual withdrawal from the country entirely. At one point, the lack of a coherent CSR plan cost Wal-Mart up to $200 million per day in operating costs (Talaulicar, 2009). Clearly, a sound CSR strategy that reflects cultural and legal considerations can save billions of dollars annually for any firm pursuing global expansion.