Walmart’s international strategy explained
Walmart started in 1991 in Mexico City through a joint venture. It started expansion by opening over 2000 stores in Mexico, with a market share of at least 53% by 2013. It entered Canada in 1994 by acquiring almost all Woolco discount stores. It also commenced operations in the US and Brazil simultaneously using the same model employed in Canada (Samantha Pearson and Sarah Nassauer 2017). By 2013, Walmart had opened 93 stores across Argentina, expanding through Changoma Express. It entered Chile and other Central American countries around the turn of the century. Through Joint ventures, Walmart entered China in 1996 by partnering with local investors. In 2002, it entered Japan through a subsidiary by acquiring 6% of Seiyu. It entered Germany in 2005 by acquiring two companies but struggled to replicate its previous success. In 1999, it entered the UK through the acquisition of ASDA before finally entering the African market through the acquisition of Massmart in 2011.
Walmart was most successful in the US, as they understood the cultural and business landscape, besides being most efficient in logistics, supply chain, and pricing strategy. In 2017, their net sales totaled 481.8 billion, most of which came from the US. Their last success was in Germany, where a poor understanding of the culture, struggles with labor unions, and poor compliance with local laws and regulations hindered their success and led to its pullout, suffering at least a $1 billion in losses.
- Modes of entry
In entering foreign markets, Walmart uses various entry modes, including acquisitions (Germany, Brazil, Argentina, and Canada), joint ventures (China), and greenfields (part of the US). Greenfields and acquisitions have arguably been the most successful entry modes. Apart from Germany, where cultural and other factors negatively impacted Walmart’s profitability, the company has been very successful in its acquisitions across Asia, North America, Europe, and South America. Greenfields, in part of the US, have also been successful, contributing significantly to the company’s global revenues. The CAGE distance framework is responsible for the various modes of entry to foreign markets. For instance, the US, due to its close proximity, allowed for Greenfield entry, due to the better understanding of cultural, administrative, geographic, and economic frameworks. Further afield, acquisitions have been the best strategy, due to the risk considerations of new markets and the foreign market barriers. Chinas legal environment could not allow for any other forms of entry other than a Joint venture.
3. Recommendations for Walmart’s success in Africa
Walmart’s African enterprise will benefit immensely from the below recommendations, in order to replicate its previous success, that has led to its immense growth to become the largest retail store in the world.
Low price strategy
According to McKinsey Global Institute (2010), unlike in some European markets, the African Market is extremely price conscious and therefore, introducing the Everyday Low Price will be a great step towards capturing and maintaining their African market share. Leveraging on its financial muscle and emphasizing on large volumes and thin margins, Walmart will be able to guarantee lower prices than its competitors, which will go a long way in capturing the market.
Focus on convenience and operational efficiency
The success of Walmart has always been pegged on its convenient location and variety of products. Considerations for busy locations such as bus stops, busy streets, airports, etc is a key consideration for Walmart operations in Africa. Since the average person in this part of the world uses public transport as opposed to private means, locating near public amenities is a sure way to capture the market. Operational efficiency and reduction in waste will at the same time cut operating costs, which will enhance profitability.
Efficiency in supply chains
According to McKinsey Quarterly (2012), 21st-century businesses will compete not only on prices but mostly on supply chain efficiency. Ensuring smooth supply chains will guarantee the availability of goods at all times and at the fairest possible prices. Better partnerships with supply chain actors such as manufacturers, distributors, and transporters, among others, will go a long way in enhancing supply chain and logistical efficiency and consequently, the profitability of the supermarket chain.
Low labor costs
Without compromising the local and regional labor laws and regulations, Walmart will benefit greatly from a low labor cost strategy. Labor cost is one of the largest costs to any business and therefore, reducing this aspect of business costs will go a long way in enhancing the profitability of the company’s operations.
Technology
Technology should be utilized not only as an enabler of business but also as a means of meeting customer needs. Africa is one of the markets where technology continues to play an important role in all business operations. By leveraging technology in areas such as supply chain management, e-commerce, payment solutions, inventory management, information systems, etc., Walmart will not only attain operational efficiency but will also create a competitive advantage (McKinsey Quarterly 2012).
Constant marketing
Constant marketing and promotional activities will be necessary for creating awareness of the availability and value attached to the Walmart brand. Since Africa is a vast continent, there is a need for a large marketing budgetary allocation to be utilized for various promotional activities such as sports sponsorships, CSR activities, and advertisements in various channels such as broadcast and print media, etc.
Expansion
While the African retail market is not as advanced as in other parts of the world, especially in Western countries, analysts identify Africa as the next frontier in business. From its vast population, availability of land, cheap labor, and increasingly enabling regulatory environment, Africa is home to some of the fastest-growing economies in the world and Walmart must be there when the retail market takeoff happens (Walmart Africa website). Walmart will need to study the African market and invest in the most profitable areas to be best positioned to take over the African retail market. By 2022, Walmart should have at least 2 stores in at least half of the African countries. Through managed risk investments such as joint ventures and acquisitions, Walmart can attain this projection, effectively becoming the largest retail chain in Africa by 2022. Walmart, however, can only succeed in this endeavor through deliberate efforts to understand the cultural and business environment in these new markets, since the CAGE framework still plays a great role in the success of any business in foreign markets.
References
Alexandr, Wexler, ‘‘Walmart takes its time on expanding in Africa”, The Wall Street Journal, February 9, 2017.
Samantha Pearson and Sarah Nassauer, ‘‘Wal-Mart Doubles Down in Brazil Despite Sluggish Sales”, The Wall Street Journal, March 12, 2017.
Walmart Africa website; https://corporate.walmart.com/our-story/our-business/international/africa
McKinsey Global Institute, “Lions on the move: The Progress and Potential of African economies” June 2010
McKinsey Quarterly ‘‘From Oxcart to Wal-Mart: Four keys to reaching emerging-market consumers” October 2012
Mother Jones, “Walmart sets its sight on Africa – with Uncle Sam’s help”, Aug. 7, 2014
