Walmart's Global Expansion Challenges and Market Strategy

Introduction to Globalization and Walmart

Walmart, as the world's leading retailer, has been spreading very rapidly, extending its reach across global markets. This began with operations in nine countries across South America, Asia, and Europe, with expansion likely to continue into the future. As the company has attempted to penetrate the hypermarket culture in different countries, it has encountered a range of severe problems in its global operations. Joint ventures and acquisitions of local businesses have become a major challenge in nationalist economies, and strict rules and regulations imposed by governments have blocked Walmart's business operations. Late market entry and miscalculating competitors have destroyed location opportunities and damaged Walmart's relationships with local suppliers. The company has experienced significant challenges in the global market due to its inability to adapt to new local cultures. In addition, sex discrimination, union conflicts, and low wages have prompted employees to develop a negative perspective toward Walmart (Steers & Nardon, 2006).

The global economy has undergone radical transformations over recent decades. Cultural and geographical distances have shrunk notably with advances in fax machines, airplanes, world broadcasting satellites, global computers, and — most importantly — the internet. These advancements have broadened business corporations significantly in terms of their supplier sources and markets (Jha, 2011).

The current modern business world is characterized by globalization. Globalization entails worldwide business operations in free markets, with an open flow of services, goods, knowledge, capital, and competition. This has produced a more efficient global economy. With an increasing number of global firms penetrating local markets, local firms are also going global. This has resulted in a highly competitive business environment, which has increased product quality, widened the variety of goods available, and driven prices down. The processes of globalization have made world consumers the biggest beneficiaries. Globalization has created extensive product diversification, expanded services and products into foreign markets, made them universally accessible, and increased options for consumers (Kneer, 2009).

Globalization also means the expansion of markets for services and goods. However, it simultaneously generates a competitive market environment. Environmental deterioration could become a source of opportunities for businesses that adopt environmentally friendly production processes. Neglected infrastructure has become an opportunity for firms specializing in communication, transportation, and construction. Stagnant economic conditions may be best suited to firms skilled in lean marketing and production techniques. A shortage of skilled labor has posed challenges — and opportunities — for training and educational companies aiming to develop effective programs that upgrade human skills (Koontz & Weihrich, 2010).

Walmart Inc. is a retail discount chain store that operates primarily across the United States. The advent of information technology has allowed Walmart to identify customer preferences and communicate to manufacturers what to produce and when (Brunn, 2006).

Walmart's Organizational Culture

Walmart is deeply satisfied with its culture and the core values of the business, which translate into core beliefs. Public information about Walmart indicates that its customer-oriented culture stems from the organization's pursuit of authentic customer service and low commodity prices. The company is built on three major beliefs: respect for others, striving for excellence, and service to customers. These three beliefs are further supported by two essential rules. The first requires that the company attend to customer requests promptly. The second is to offer greetings in a warm and passionate manner. This philosophy has led Walmart to operate differently from competitors in the aggressive retail industry. The company strives to be the friendliest retailer, to exceed customer expectations, and to deliver better service. Furthermore, Walmart has developed a unique concept of ensuring that all its stores provide a variety of name brands at noticeable discounts, which is part of its everyday low-pricing strategy (Hitt, Ireland & Hoskisson, 2008).

International Penetration Strategy

Aggressive expansion in the international market is another key growth tool for Walmart. The global unit was designed to monitor and manage growing international opportunities and is among the highest-growing departments in the company. Financial reports from Walmart demonstrate that sales generated by the international division have exceeded $40 billion, with a growth rate of approximately sixty percent since 2010. The company believes that if growth trends in the United States slow down, the international division will replace that revenue. According to the head of the international division, the unit is intended to drive Walmart's growth when the U.S. market slows. The company has extended its outlets across the global marketplace after approximately thirteen years of international operations, erecting thousands of stores in nearly twelve countries. Many of these stores are not newly built; some arose from the purchase of local firms and joint ventures, which have been the company's primary strategies for entering new markets (Quelch & Deshpande, 2004).

In the 1990s, Walmart began introducing its goods to the world by establishing joint ventures with leading Mexican retailers such as Cifra, making Mexico among the first members of the international division. This was followed by new operations in Puerto Rico, where Walmart opened stores through acquiring local supermarket chains, enabling the company to connect with local suppliers. The opening of new stores in Brazil confirmed the company's expansion plans in South America; the company began operating by opening new clubs in metropolitan areas and subsequently expanded into five different states. Walmart also planned to acquire the leading hypermarket and supermarket chain Bompreco in northern Brazil, beginning with the opening of a new club. At the time of writing, the company was running twelve supercenters and four distribution centers in Brazil (Steers & Nardon, 2006).

The growth in the number of outlets is a continuous strategy adopted for the company's expansion. Company leadership announced plans for overseas markets, indicating that nearly a third of Walmart's revenue would eventually be derived from outside the saturated American sector. Walmart's expansion in foreign markets has therefore been perceived as a permanent strategy for gaining dominance in the global retailing industry (Jha, 2011).

Large hypermarkets and supermarkets store fresh foods, while neighboring stores provide pharmacy, health, and beauty products for convenience-oriented customers. This standardization of format has supported the branding and expansion of Walmart in both U.S. and international markets. Walmart's success in expanding its market share was built on its measurable retail position as the world's leading retailer (Kneer, 2009). The company adopted a plan based on low pricing, provision of diverse products, enhanced customer service, and community support. Walmart can maintain its low-pricing strategy because it boasts high inventory turnover and competitive gross margins. The company leverages economies of scale to achieve low prices, combined with close vendor relationships, effective information technology systems, and efficient supply chain logistics. This model has worked at both regional and global levels through a focus on low costs, improved quality, lower prices, and increased volume. Walmart's rapid rise to the position of world's leading retailer took a relatively short time, and the company has embraced rapid international expansion as a necessity (Koontz & Weihrich, 2010).

Following this approach, Walmart has frequently used acquisitions and joint ventures with local retail chains as shortcuts to expansion. This strategy motivated the company to buy Woolworth in Canada and to maintain an ongoing joint venture in Mexico as an entry tactic. Within six months, Walmart also managed to acquire wholesale clubs in Argentina (Quelch & Deshpande, 2004).

Conclusion

Walmart remains the world's largest company and leading retailer based on market capitalization. While the company has enjoyed tremendous success operating across U.S. markets, it has pushed aggressively into international markets. Nevertheless, domestic achievement is no guarantee of international success. Considering Asian markets, Japan represents another significant opportunity for Walmart. Through its acquisition of Seiyu, Walmart has taken a measured, go-slow approach to the Japanese market. The acquisition cost Walmart $50 million at an interest rate of seven percent, and the company has been gradually rolling out its pricing strategy and supply chain model in Japan (Hitt, Ireland & Hoskisson, 2008).

In 2009, the chain lost $70 million in Japan. However, the company expects a turnaround driven by improved efficiencies. Store brands have been replacing less profitable offerings, and integration with major global suppliers such as Johnson & Johnson, Procter & Gamble, Kellogg, and Nestlé has been deepened. A newly opened Seiyu outlet in a fishing village — featuring a single floor, long rows of cashier registers, and wide aisles — is serving as a test of Walmart's design, layout, supply system, and brand strategy in Japan (Steers & Nardon, 2006).

Walmart continues to face challenges executing its retail systems in Japan, where most suppliers have not yet implemented the communication technologies required by Walmart's efficiency model. Supplier-retailer relationships have traditionally been based on personal ties stretching back generations, and the shift toward impersonal electronic relations represents a major cultural adjustment. The over four hundred Seiyu stores are now operating systems developed by Walmart, including systems that enable suppliers to monitor product sales in real time (Kneer, 2009). For Walmart to succeed in the international market, the key will be collaborating with local communities familiar with the terrain of each country. The recent acquisition and rollout in Brazil demonstrates that Walmart can adapt — but that doing so requires patience, flexibility, and a genuine willingness to learn from local partners (Labuski & Copeland, 2012).

References

Brunn, S. D. (2006). Wal-Mart world: The world's biggest corporation in the global economy. New York: Routledge.

Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2008). Strategic management: Competitiveness and globalization. Mason, Ohio: Southwestern.

Jha, M. (2011). Retail management. Michigan: Gyan Publishing House.

Kneer, C. (2009). The Wal-Mart success story. California: GRIN Verlag.

Koontz, H., & Weihrich, H. (2010). Essentials of management. New Delhi: McGraw-Hill.

Labuski, C., & Copeland, N. (2012). The world of Wal-Mart: Discounting the American dream. New York: Routledge.

Quelch, J. A., & Deshpande, R. (2004). The global market: Developing a strategy to manage across borders. San Francisco: Jossey-Bass.

Steers, R. M., & Nardon, L. (2006). Managing in the global economy. Armonk, N.Y.: M.E. Sharpe.