Posted: May 25th, 2022

Wal-Mart’s challenges in the Global market

Management

Wal-Mart’s challenges in the Global market

Wal-Mart as the world’s leading retailer has been spreading very fast extending its power across the world market. This began with the nine countries in South America, Asia, and Europe. This expansion is likely to extend even in the near future. As the company attempts at penetrating the hypermarket culture in different countries, it has encountered a battery of severe problems in the process of its global operations. Joint ventures and acquisitions of local businesses have become a major challenge in nationalism economies. Therefore, strict rules and regulations imposed by governments have blocked Wal-Mart’s business operations. Late entry and miscalculating competitors have destroyed location opportunities and tampered with Wal-Mart’s relationship with local suppliers. The company experienced big challenges in the global market due to its inability to adapt to new local cultures. In addition, sex discrimination, unions, and low wages prompted employees to have an evil perspective towards Wal-Mart (Steers & Nardon, 2006).

Introduction

The global economy has been facing radical transformations in the recent past decades. Cultural and geographical distances have shrunk notably with the advances in fax machines, airplanes, world broadcasting satellites and global computers and the most important element: the internet. From such advancements, business corporations have been widened significantly in terms of their supplier sources and markets (Jha, 2011).

People are referring the current modern business world as globalization. Globalization entails worldwide business operations in free markets, open flow of services, goods, knowledge, capital, and competition. This has led to the current efficient economic world. With an increase in the number of global firms penetrating local markets, local firms are also going global. This has resulted in a competitive business environment, which has increased quality of products, widened the variety of goods in the market, and made prices decrease. The processes of globalization have made world consumers the biggest beneficiaries. Globalization has created a lot of product diversification besides expanding into foreign markets, making services, and products universally accessible it has also increased options for consumers (Kneer, 2009).

Globalization means that market expansion of services and goods produced. However, globalization leads to a competitive market environment. Deterioration of the environment could be a source of opportunities for businesses that can adopt environmentally friendly production processes. Neglected infrastructures have become another opportunity for firms specializing in communication, transportation, and construction industries. The stagnant economic condition could be best suited for firms that are good at lean marketing and production techniques. Low expertise has posed challenges for training and educational companies to develop effective programs that seek to upgrade human skills (Koontz & Weihrich, 2010).

Wal-Mart Inc. is a retail discount chain store that operates primarily across the states of the United States. The advent of information technology appliances has allowed Wal-Mart to establish customer preferences thus updating manufacturers on what to produce and at what time (Brunn, 2006).

Discussion

Organizational Culture

Wal-Mart is satisfied with its culture and the core values of the business that translate into core beliefs. Public information regarding Wal-Mart 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, which include respect for others, strive for excellence and service to customers. Additionally, these three beliefs have been supported by two essential requests. The first rule requires that the company attend to request as per the time they are made. The other rule is to offer greetings in a passionate manner. This philosophy has led Wal-Mart to operate differently from competitors in the aggressive market industry. The company strives to become the friendliest, exceed customer expectations, and give better services. Furthermore, the company has developed a unique concept of ensuring all its stores provide a variety of name brands at noticeable discounts, which is part of its daily pricing strategy (Hitt, Ireland & Hoskisson, 2008).

International Penetration

Aggressive expansion in the international market is another tool for growth. The global unit was designed to monitor and manage the growing opportunities. This unit is among the highest growing departments of the company. The financial reports from Wal-Mart demonstrate that sales generated by the international department have exceeded $40 billion. The growth rate has been rated at sixty percent as from 2010. The company believes that if the trends in the United States slow down, the division will replace the market. According to the head of the international division, the international division seeks to be the growth of Wal-Mart when the trend in the U.S. market slows down. The company has extended its outlets across the global market place after operating in the international market for approximately thirteen years. Wal-Mart has erected thousands of stores in nearly twelve countries across the world. These stores are not newly established stores; some of them arise from the purchase of local firms and joint ventures as strategies that the company has adopted in expanding in every country (Quelch & Deshpande, 2004).

In the 1990s, Wal-Mart began inducing its goods to the world through establishing joint ventures with Mexican leading retailers such as Cifra. This made Mexico become among the first members of the international division. This was followed by new operations in Puerto Rico, which opened Wal-Mart stores through acquiring local chains of supermarkets. This enabled Wal-Mart to connect with local suppliers. Opening of new stores in Brazil confirmed the company’s expansion plans in South American segments. The company began operating through opening new clubs in the region’s metropolitan area. After establishing its stores in Brazil, the company has expanded and grown in five different states. Next year, Wal-Mart plans to acquire the leading hypermarket and supermarket chain, Bompreco in Northern Brazil. This will begin by opening a new club. Currently, the company is running into twelve supercenters and four distribution centers (Steers & Nardon, 2006).

The growth in the number of outlets is a continuous plan adopted for the expansion of the company. Accordingly, the company’s leadership had announced of the growth plans in overseas markets indicating that nearly a third of its revenue be derived from outside the saturated American sector. Therefore, Wal-Mart’s expansion in foreign markets has been perceived as a permanent strategy of gaining dominance in the global retailing industry (Jha, 2011).

Expansion Problems in International Market

The large hypermarket and supermarkets store fresh foods. The neighboring stores provide pharmacy, smaller food, health, and beauty for customers who are oriented with convenience. This formatting standardization has helped the branding and expansion of Wal-Mart in international and U.S. markets. Wal-Mart would not have succeeded in expanding its market share without a measurable retail position as the leading world retailer (Kneer, 2009). The company has adopted a plan based on low pricing strategy, provision of a variety of products, enhanced customer service, and support for the neighboring community. It is evident that Wal-Mart can follow the low pricing strategy because it boasts of a high inventory and competitive gross margin turnover. The company engages economies of scale to achieve low prices. This is coupled by close relationships with vendors, effective systems of information technology and efficient logistics of supply chain. This concept has worked on the regional and global levels with the aim of low costs, improved quality, lower prices, and increased volume. Wal-Mart’s rapid development to attain the world’s leading retailer position took relatively s short time. Wal-Mart believes that it has no option but to embrace rapid expansion abroad (Koontz & Weihrich, 2010).

Following this consideration, Wal-Mart has been using the shortcut to expand through acquisition and joint ventures with local retail chains. The company has a lot at its disposal motivating it to buy Woolworth in Canada. It has an ongoing joint venture in Mexico, as an entry tactic in the Mexican market. In a span of six months, Wal-Mart managed to buy out wholesale clubs in Argentina (Quelch & Deshpande, 2004).

External Challenges

Late Entry

Besides the expansion of Wal-Mart in different countries and its intended plans to expand into more, the company is still trailing in the competitive market. Some four European retailers including Ahold and Carrefour boast of a couple of decades as being experienced in international operations compared to Wal-Mart. Carrefour is the giant France retailer and one of the major rivals of Wal-Mart in international retailing. While this giant corporation has already penetrated forty countries, Wal-Mart has only managed to enter twelve. This case involves the competitive advantage of first come first serve. New entrants such as Wal-Mart must design other strategies in persuading customers to shop at its stores (Steers & Nardon, 2006).

Overlook Competitors

Wal-Mart must realize that it is a new player in the international market and must strive to establish a strong trust in its strength and pricing of products. Large-scale stores emerged to judge the intensity of Wal-Mart. Although Wal-Mart is used to control the U.S. market, its extraordinary superiority in the U.S. cannot fit in the global marketplace. At the time of its entry in the international market, its rivals have already made powerful investments in automated stores. Reports indicate that its culture and the misreading of the competitors led a series of bad decisions in the global business (Brunn, 2006).

Destroying Small Businesses

By becoming the leading global retailer, Wal-Mart is obsessed with numbers. After all, the company is the leader and pursues the entire world market for further success. In the international market, the larger size of Wal-Mart cannot be used to conclude that the company is successful and better. In fact, the company has faced criticisms regarding its impact on small retailers. Independent retailing shops have gone out of business due to the entry of this giant retailer. If Wal-Mart were to enter any town after a period of at least twelve years, it would be prone to extinction. This is not just a common phenomenon in the United States; it has been repeated in all areas where the company has established its presence. In some nations, Wal-Mart has been prohibited from some communities because it leads to the death of local businesses. In the end, we might think that Wal-Mart is a custodian but a cautious killer in reality (Koontz & Weihrich, 2010).

Cultural Differences

The biggest obstacle Wal-Mart has encountered when attempting to expand in the global market is its local position. Community groups seldom accept the company when it rejects plans of erecting new stores. This does not only protect the cultures of local communities but also preserves culture differentiation (Jha, 2011). The giant retailer had various problems with consumers, which forced the company to re-consider some adjustments. Researchers say that the retailer is trailing in lack of knowledge with respect to the taste of the local communities. A good example is the challenges experienced by the new store in Brazil. Brazilians do not encourage people to pay for an entry fee or membership for their clubs. Moreover, they discourage large stores for volumes of goods. For Wal-Mart to fix this into its culture, it was forced to adjust its strategies. Another cultural barrier arises from the collection of data. The company is used to receiving calls in the U.S. market from retailers seeking for data about trends in local retail markets. However, this trend is not applicable in foreign markets. This has forced the giant company to depend strongly on their independent physical observations (Labuski & Copeland, 2012).

Suppliers

Supplier relationships have been a major issue of concern for Wal-Mart in global markets. The company has become tired of applying similar standards as those applied in the U.S. with its local suppliers. However, the relationship between manufacturers and retailers is quite different from that in the United States. In the United Sates, Wal-Mart is the dominant retailers and all suppliers have to follow its conditions and rules (Kneer, 2009). The industry must set standards and prices as determined by the company. This is the reason why the company sells and buys cheaply. Nevertheless, Wal-Mart has been prohibited from conducting business with some manufacturers in foreign markets. This follows its attempt to sell goods at a price that fell below the manufacturing costs. This created some extreme reactions. Some local suppliers banned Wal-Mart for giving special discounts or even selling products to the giant retailer. In addition, some manufacturers have rejected the company’s delivery system. This arises from the refusal to supply products to the company’s distribution centers. They have lobbied to ignore any form of discount. This coupled with irregular deliveries and inventory control problems have orchestrated the product shortage on the shelves of Wal-Mart stores (Koontz & Weihrich, 2010).

Government Polices and Regulations

In the current business community, dealing with government regulations and rules is unavoidable. A giant retailer in the U.S. can behave like a bully but must act like a foreigner when it is in a different country. Wal-Mart’s entry into China clarified this problem. China’s population is over one million with over two hundred cities. Besides Wal-Mart’s early success, the company has been plagued by burdens defying radical solutions (Jha, 2011). These problems include strong foreign and local competition, supply chain, and a lot of red tape from the government. We are all familiar with the fact that any communist government operates on limited and strict rules and regulations. The communist government of China has boxed retailers from selected foreign firms for limiting competition.

In addition, the local suppliers control and nominate some selected products. For example, tobacco and liquor should be bought from local firms, and the favorite Chinese vegetables must be purchased nearby too. Besides establishing a store in China, Wal-Mart is yet to open a new outlet in a booming city. The company only operates thirty-seven outlets. Similarly, just like any other retailers, the company has encountered the government red tape in its efforts to expand. This is enough evidence to show that Wal-Mart has been struggling to survive in China (Steers & Nardon, 2006).

Internal Challenges

Human Resource Management

As the world is increasingly transforming into a global village, highly noticeable firms such as Wal-Mart will continue to face serious challenges in addressing social issues that affects its customers. Some problems are expected to come from the community groups and unions. Although it would be impossible for anyone to force Wal-Mart to consider unions, these unions would still ruin the business itself (Labuski & Copeland, 2012). Unions have been complaining that Wal-Mart has been taking advantage of the employees. Based on their wages, employees have been unable to afford benefits and health insurance. Employees of the giant retailer work overtime with no payment. This has resulted in a series of lawsuits, which concluded that the company must pay its employees for work done during overtime hours. This was a ruling pushed by workers who were forced to work overtime with no pay for the period between 1995 and 2000. Therefore, Wal-Mart has been attempting to decrease the number of permanent workers in support of unionizing its employees. This has helped Wal-Mart in eliminating the common union basis (Kneer, 2009).

Following Wal-Mart’s rapid growth, the leading challenges have been a lack of adequate human capital. The company has claimed that it cannot boast to be a global player because its foreign managers cannot even communicate through the language of the foreign country. In order to solve this circumstance, the company had to decentralize the authority of its management from a centralized headquarters to international operations. Independent country managers gained the freedom to run the operations of the business. This is evident in the merchandising and operations departments. Nevertheless, Wal-Mart has been incapable of maintaining a quality workforce like in the U.S. Local workers among them managers do not have experience in the culture of the company; they have been slow in adjusting (Labuski & Copeland, 2012).

Wal-Mart remains the world largest company and leading retailer based on market capitalization, ignoring profits and generation of revenue. While the company has enjoyed a period of tremendous success in operating across the U.S. markets, it has reinforced expansion across the international market. Nevertheless, the achievement the company has attained in U.S. markets is not a guarantee that it will be successful in the rest of international market. Considering Asian markets, another potential opportunity for Wal-Mart would be Japan. Through its acquisition and partnerships, the retailer has been carefully analyzing the market by embracing a go-slow approach. While acquiring Japan’s Seiyu, Wal-Mart had to part with $50 million at an interest rate of seven percent. As a result, Wal-Mart has been slowly rolling out its practices and systems in Japan. This began by putting the company’s pricing strategy and supply chain into effect (Hitt, Ireland & Hoskisson, 2008).

In 2009, the chain lost $70 million. However, the company may oversee a turnaround courtesy of its efficiencies. Brand names have been replaced with stores that are more profitable and enhanced integration with the largest suppliers of Wal-Mart such as Johnson and Johnson, Procter & Gamble, Kellogg and Nestle. Recently, the newly acquired Seiyu opened a new outlet in a fishing village featuring one floor, long row of cashier registers and a wide aisle. This is a test of Wal-Mart’s design, layout, supply system, and brands in Japan (Steers & Nardon, 2006).

Wal-Mart continues to face challenges in executing its retail system link in Japan. In addition, most suppliers have not yet implemented communication technologies that conform to Wal-Mart’s efficiency systems. In addition, supplier-retailer relationships have been traditionally based on personal ties dating back from a series of generations. A major cultural adjustment will be witnessed by the shift towards impersonal electronic relations. The over four hundred stores belonging to Seiyu are currently using systems developed by Wal-Mart including the system that enables suppliers to monitor and oversee product sales (Kneer, 2009). For Wal-Mart to succeed in the international market, the key would be to collaborate with local communities, who are familiar with the terrain of the area. The recent acquisition in Brazil is slowly rolling out Wal-Mart’s operation system. They have already learnt how to leverage the management (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, 2009

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.

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