This paper examines Walmart's international expansion strategy from two angles: first, the non-profit motivations driving global growth, including risk diversification, defensive competition, and market knowledge acquisition; and second, the organizational control models—centralized versus localized—that determine operational success abroad. The analysis draws on the Brazil case study to illustrate how centralized control can fail when insensitive to local consumer preferences, and demonstrates why hybrid approaches with strong local responsiveness achieve superior market penetration and customer satisfaction.
Walmart's pursuit of international markets has been driven by the strategy of enabling the firm to continue growing profits. With fewer than 100 stores opening each year in the United States, the market appears to be moving toward a saturation point, and new stores may result in diminishing returns. Opening stores in new markets will allow the firm to continue growing and pursue profit, but there are also several additional motivations that could drive international expansion beyond simple revenue generation.
The first reason for international expansion may be linked to diversification of risk. Walmart is well developed in the US market with a dominant position. However, when a firm has a significant amount of revenue coming from a single market, there is risk of a downturn if that market suffers—for example, economic shock (Mintzberg et al., 2008). If a firm operates only in one country and that country experiences a significant economic downturn, the firm may suffer reduced revenues and lower profits, and may have to undertake new strategies to satisfy new market needs.
If the firm operates in multiple different markets, exposure to risk in a single market is reduced, since a lower percentage of revenue is generated by each market. This places the firm in a stronger position to deal with regional issues that may impact operations or sales (Mintzberg et al., 2008). Geographic diversification of revenue streams creates organizational resilience and buffers against localized economic shocks.
The second motivation may be to undertake expansion as a defensive strategy. Although Walmart is the dominant retailer in the United States, it is not the dominant player in all markets. For example, in the UK, Tesco is the dominant firm, and in France, Carrefour holds the leading position. This international landscape indicates that large firms with significant resources could potentially enter the US market.
Having a presence internationally places Walmart in a strong position to develop further, especially if there is increased competition in the home market. The firm could also compete aggressively in international markets if competing firms seek to establish themselves in the American market (Mintzberg et al., 2008). A global footprint serves as both an offensive platform and an insurance policy against home-market incursion.
"Local learning and supply chain optimization"
Strong centralized control gives the firm a clear advantage in ensuring that the shopping experience will be consistent across all stores and that desired image and standards are maintained. In the United States, a customer knows what to expect when entering a Walmart: there will be a similar layout, and with centralized control, different stores will have the same promotions at the same time, selling many of the same goods. The standardized approach also facilitates increased potential benefits in terms of economies of scope and scale (Nellis and Parker, 2006).
There are significant disadvantages associated with the centralized control approach, particularly when applied uniformly across diverse international markets. Differences exist between different markets in consumer preferences, purchasing power, and cultural expectations. Firms that do not adapt to local needs are unlikely to capture significant market share, as customers will not choose to purchase goods that do not meet their preferences.
While there may be increased costs associated with local control and the additional hierarchy needed to make decisions, and some loss of potential economies of scale, the benefits are substantial. Local control offers a greater ability to recognize and satisfy local demand, and allows the firm to adapt and change more rapidly, since decisions are made closer to the operating environment. This organizational flexibility often outweighs the efficiency losses from reduced centralization.
Walmart's experience in Brazil illustrates the dangers of the centralized approach. When Walmart started operations in Brazil, they sold American jeans and footballs, products that reflected their home market strategy. However, to attract customers, they realized they needed to satisfy local demand, which centered on cheaper knock-off jeans and soccer balls, along with displays for ingredients used in local dishes (Simchi-Levi et al., 2007).
"Centralization failure drives shift to local autonomy"
You’re 79% through this paper. Sign up to read the remaining 2 sections.
Sign Up Now — Instant Access Already a member? Log inAlways verify citation format against your institution’s current style guide requirements.