Walmart Going Global
Walmart Going Global
Walmart Going Global
TAKING
WAL MART
GLOBAL
lessons from retailing’s giant
How did this retailer go global? By using a strategy of “directed opportunism.” And knowing how to clone its corporate DNA.
...............................
Vijay Govindarajan received his M.B.A. and D.B.A. from Harvard Business School and is the Earl C. Daum 1924 Professor of Interna-
tional Business at Tuck School of Business Administration, Dartmouth College. Anil K. Gupta received his D.B.A. from Harvard Business
School and is Professor of Strategy and International Business at Robert H. Smith School of Business, the University of Maryland at Col-
lege Park. The authors are working on a book, “The Quest for Global Dominance,” to be published by Harvard Business School Press.
14
Fo u r t h Q u a r t e r ’ 9 9
BEST PRACTICE
15
Issue 17
BEST PRACTICE
In undertaking global expansion, Second, a logically sequenced ap- customer relationships would be se-
Wal-Mart had the capacity to leverage proach to market entry allows a com- vere handicaps in the European arena.
two key resources originally devel- pany to apply the learning gained Wal-Mart might have overcome
oped in the United States. It could ex- from its initial market entries to its these difficulties by entering Europe
ploit its tremendous buying power subsequent entries. through an acquisition, but the high-
with such giant domestic suppliers as The choice of which market to er growth rates of Latin American and
Proctor & Gamble, Hallmark, Kellogg, enter first is not always easy. During Asian markets would have made a de-
Nestlé, Coke, Pfizer, Revlon and 3M to the first five years of its globalization layed entry into those markets ex-
procure goods cost-effectively for its (1991 to 1995), Wal-Mart concentrat- tremely costly in terms of lost oppor-
non-United States stores. It could also ed heavily on establishing a presence tunities. In contrast, the opportunity
utilize domestically developed knowl- in the Americas: Mexico, Brazil, costs of delaying acquisition-based
edge bases and competencies in such Argentina and Canada. It is important entries into European markets ap-
areas as efficient store management, to examine whether it should have fo- peared to be relatively small.
the effective use of technology vis-à- cused first on Europe or Asia instead. It is no doubt true that Asian mar-
kets had huge potential when Wal-
Mart launched its globalization effort
16
Fo u r t h Q u a r t e r ’ 9 9
BEST PRACTICE
During 1992-93, Wal-Mart agreed ical price. Furthermore, Wal-Mart’s Thus Wal-Mart’s ability to clone its do-
to sell low-priced products to two business model was precisely what mestically grown DNA and insert it in-
Japanese retailers, Ito-Yokado and Woolco needed to transform itself in- to its global operations would be a
Yaohan, that would market these to a viable and healthy organization. key to success, as illustrated by its en-
products in Japan, Singapore, Hong For its entry into Mexico, Wal- try into Canada.3
Kong, Malaysia, Thailand, Indonesia Mart took a different route. Because Wal-Mart acquired Woolco Cana-
and the Philippines. Then, in 1994, there are significant income and cul- da at a time when a combination of
Wal-Mart entered Hong Kong through tural differences between the United high costs and low productivity had
a joint venture with the C.P. Pokphand States and Mexican markets about driven the Canadian company into
Company, a Thailand-based conglom- which the company needed to learn, the red. Wal-Mart quickly recon-
erate, to open three Value Club mem- and to which it needed to tailor its op- figured Woolco along the lines of its
bership discount stores in Hong Kong. erations, the local market require- successful United States model, a
ments would have made a startup strategy facilitated by the similarity
MODE OF ENTRY problematic. So, the company chose between the United States and Cana-
Once Wal-Mart had selected the coun- to form a 50-50 joint venture with dian markets. This transformation oc-
try or countries to enter, it needed to Cifra, Mexico’s largest retailer, count- curred in four central areas:
determine the appropriate mode of ing on Cifra to provide operational ex- 1. Work force: Once the purchase
entry. Every company making this pertise in the Mexican market. was finalized, Wal-Mart sent its
move faces an array of choices: It can For further expansion in Latin transition team to Canada to famil-
acquire an existing player, build an al- America, Wal-Mart targeted the re- iarize Woolco’s 15,000 employees
liance with an existing player or start gion’s next two largest markets: Brazil with the Wal-Mart way of doing
greenfield operations, either alone or and Argentina. The entry into Brazil business. The team was successful
in partnership with another player. was also accomplished through a in clarifying and defining Wal-Mart’s
Wal-Mart entered Canada joint venture — with Lojas Ameri- core beliefs and practices to the
through an acquisition. This was a cana, a local retailer. But Wal-Mart was new Woolco associates.
logical move for three reasons. First, now able to leverage its learning from 2. Stores: At the time of the sale, many
Canada is a mature market — an un- the Mexican experience and chose to of Woolco’s122 stores were in poor
attractive situation for greenfield op- establish a 60-40 joint venture in shape. Wal-Mart brought every out-
erations, since adding new stores (i.e., which it had the controlling stake. let up to its own standards and ren-
new capacity) will only intensify an al- The entry into Brazil gave Wal- ovated each plant within three to
ready high degree of local competi- Mart even greater experience in Latin four months. It took an additional
tion. Second, because there are America, and so it chose to enter Ar- three to four months to restock
significant income and cultural simi- gentina through a wholly owned sub- each store.
larities between the United States and sidiary. This decision was reinforced 3. Customers: Although the Woolco
Canadian markets, Wal-Mart faced rel- by the fact that there are only two mar- acquisition was Wal-Mart’s first en-
atively little need for new learning. kets in Argentina of significant size. try into Canada, the company had
Thus, entering through a strategic al- a head start in building a consumer
liance was unnecessary. Third, a poor- CLONING THE CORPORATE DNA franchise because most Canadians
ly performing player, Woolco, was Wal-Mart had developed several ma- live near the United States border
available for purchase at an econom- jor capabilities in the United States. and were already familiar with
...............................
3
The Wal-Mart Encyclopedia, Volume III, Salomon Brothers, October 1995, p. 32. “Wal-Mart Stores Inc.,” Merrill Lynch, March 6, 1998,
pp. 18-19.
21
Issue 17
BEST PRACTICE
Wal-Mart. Wal-Mart leveraged this need to be wholly reinvented. Wal- nantly male market. Wal-Mart also be-
high brand recognition into cus- Mart’s entry into China provides in- gan testing smaller satellite stores
4
tomer acceptance and loyalty by in- sights into this process. that seemed to fit better with the buy-
troducing its “everyday low prices” As the most populous country in ing habits, as well as the transporta-
approach to a market accustomed the world, China is a major potential tion and shopping trends, in China.
to high/low retail pricing. market for retailers. Retail sales in In addition to varied formats,
4. Business Model: A broad merchan- China grew at an annual rate of 11 per- Wal-Mart tested merchandise items to
dise mix, excellent customer ser- cent between 1990 and 1995, pro- determine what would have the great-
vice, a high in-stock position and re- pelled by economic liberalization and est consumer appeal and fit best with
warding employees for diminished a large pent-up demand for consumer the Chinese culture. As a result,
pilferage were among the United goods. But the Chinese market also Wal-Mart began to carry a wider range
States core attributes that were poses unique challenges because reg- of products, particularly perishable
successfully transplanted into Wal- ulations and government policies are goods that appealed to the Chinese
Mart’s Canadian operation. often unpredictable and China’s in- palate.
The transfer of Wal-Mart’s corpo- frastructure is not well developed. Al- Product sourcing was another
rate DNA to Canada produced dra- so, middle-class disposable income is area requiring adaptation. Wal-Mart
matic results. Between 1994 (the time dramatically lower in China than in had three options: 1) products ob-
of acquisition) and 1997, sales per the United States, so that even dis- tained from global suppliers; 2) prod-
square foot increased from C$100 to count-minded Wal-Mart must reinvent ucts manufactured in China by global
C$292 and market share rose from 22 its business model to operate within suppliers such as Procter & Gamble,
percent to 45 percent. During the the reach of key population groups. Fi- and 3) products from local suppliers.
same period, expenses as a percent- nally, Wal-Mart had to accept that Wal-Mart elected to purchase 85
age of sales in Canada declined by 330 most Chinese tend to buy in small percent of its merchandise for the
basis points. Wal-Mart’s Canadian op- quantities, and that language differ- Chinese market in China through a
eration turned profitable in 1996 — ences required tailored marketing ap- combination of options 2 and 3. This
only two years after acquisition. By proaches for product labeling and solution sought to balance the desire
1997, it had become the leading dis- brand names. of local customers for high-status
count retailer in the country. Wal-Mart responded by conduct- United States-made consumer goods
ing a number of experiments. First, it and pressure from local governments
WINNING THE LOCAL BATTLE experimented with different store for- to purchase domestic goods.
For Wal-Mart, winning the local battle mats to see which had the greatest
involves two steps: customer appeal. One was the Shen- 2. Battles with local competitors
4
“Wal-Mart Stores Inc.,” Merrill Lynch, March 6, 1998, p. 47. “Wal-Mart International Reshapes the World Retailing Order,” Discount
Store News, January 20, 1997.
22
Fo u r t h Q u a r t e r ’ 9 9
BEST PRACTICE
23
Issue 17
BEST PRACTICE
and excellent customer service — analyzed and transmitted elec- pilferage decreases in a particular
offering profit sharing, incentive tronically to see how a particular store (versus the industry standard)
bonuses and discount stock pur- region, district, store, department is shared among store employees.
chase plans; promotion from within a store or item was per- Marketing
within; promotion and pay raises forming. This eliminated stock- Wal-Mart’s marketing strategy
based on performance, not se- outs, reduced the need for mark- was to guarantee “everyday low
niority, and an open door policy. downs on slow-moving stock and prices” as a way to attract cus-
Management information and maximized inventory turnover. tomers. The traditional discount
control systems: Wal-Mart’s man- The benchmark information retailer, which relies on “sales,”
agement information and control across stores was also a valuable not only has to do more advertis-
systems helped the company tool to help “problem” stores. ing and promotions but also has
manage its more than 3,000 Shoplifting controls: Wal-Mart to rely more on catalog mailing,
stores in remote places thousands has cut its pilferage-related losses buildup of inventory before a
of miles away from headquarters. by instituting a policy in which 50 sale, markdowns on the unsold
Store-level data were collected, percent of the savings created by inventory, etc.
continued from page 22 lar in format to Wal-Mart’s, featured Carrefour, the French retailer,
approaches to neutralizing local com- high-quality personnel and locations, had been operating in Brazil since
petitors in different markets: and were larger than the average 1975. When Wal-Mart entered Brazil in
Acquiring a dominant player. German hypermarket. 1996, it decided to overtake competi-
Wal-Mart used this approach in its Acquiring a weak player. Ac- tors by aggressively pricing its prod-
5
entry into Germany. In December quiring a weak player in the local mar- ucts. This strategy backfired, as Car-
1997, it acquired the Wertkauf hyper- ket is an effective approach, provided refour and other local competitors
market chain of 21 stores, one of the the global company has the ability to cut prices as well, leading to a price
most profitable hypermarket chains transform the weak player within a war and initial losses.
in the country, from the Mann family very short time. This is what Wal-Mart Wal-Mart realized that its global
of Germany. Having determined that did in Canada in acquiring Woolco. sourcing did not provide any built-in
building new hypermarkets in Ger- Launching a frontal attack on the price advantage because the leading
many would be ill-advised due to the incumbent. Attacking dominant and sales category in Brazilian super-
mature European market and that entrenched local competitors head- centers was food items, whose sourc-
strict zoning laws precluded green- on is feasible only when the global ing tended to be local. Competitors
field operations, Wal-Mart spent more company can bring significant com- such as Carrefour had an advantage
than two years exploring potential ac- petitive advantage to the host coun- in local sourcing because of their long
quisitions, including Britain’s Tesco, try. Wal-Mart’s entry into Brazil illus- relationships with local vendors.
Germany’s Metro and the Nether- trates the potential — and the So Wal-Mart chose to focus on
6
lands’ Makro. Wertkauf’s stores, simi- limitations — of a frontal attack. areas where it could differentiate it-
...............................
5
“Target Europe,” Chain Store Age, March 1998.
6
“Wal-Mart Stores Inc.,” Merrill Lynch, March 6, 1998, p. 34. “Wal-Mart International Reshapes the World Retailing Order,” Discount
Store News, January 20, 1997.
24
Fo u r t h Q u a r t e r ’ 9 9
BEST PRACTICE
25
Issue 17