Walmart’s

Global Expansion

Case Study

Unbreacable Group - Commenter

International Business

Instructor: PhD. Tran Thi Phuong Thuy

By

Walmart Global’s Expansion Case Study

Unbreacable Group Instructor: PhD. Tran Thi Phuong Thuy 1

TABLE OF CONTENTS

GROUP INTRODUCTION: UNBREACABLE ---------------------------------------- 2

WALMART INTRODUCTION ---------------------------------------------------------- 3

CASE STUDY SUMMARY: WALMART’S GLOBAL EXPANSION ------------ 4

CASE STUDY QUESTIONS’ ANSWERS --------------------------------------------- 5

QUESTIONS FOR PRESENTING GROUP AND ANSWERS ---------------------- 7

REFERENCES ---------------------------------------------------------------------------10

Walmart Global’s Expansion Case Study

Unbreacable Group Instructor: PhD. Tran Thi Phuong Thuy 2

GROUP INTRODUCTION: UNBREACABLE

Our group name is ‘UnbreaCable’. At first, you wouldn’t see any linkage between

the name and the subject. So the group ourselves will break it down for you.

First, “UnbreaCable” has similar pronunciation with ‘unbreakable’,

which defines one of our team’s characteristic. It means that nothing, no one could

separate us.

Second, ‘UnbreaCable’ actually is the shortened combination of

“Unbreakable” and “Cable”. Unbreakable cable, which means that the cable

cannot be broken, relates to an incident in Vietnam recently. The Internet cable in

the sea was believed to be broken by the sharks, which has been causing chaos all

over Vietnam. That people can only connect to the Internet at extremely low speed

results in unfinished business and interrupted communication.

There is no doubt that the Internet – constituting an easy-to-access, worldwide

network – has already has a significant effect on the conduct of international

business. Not only has it enhanced firms’ ability to spot potential foreign partners

but it also help with the human resources and financial management of worldwide

corporations. Incapable Internet service would therefore turn an economy upside

down, especially in the current globalization situation. An unbreakable cable would

mean much to Vietnam and its international relations as it leads to a strong and

lasting communication among countries. The world economy, in general, and

Vietnam’s economy, in particular will be accelerated due to the promotion of multi-

national solidarity.

Walmart Global’s Expansion Case Study

Unbreacable Group Instructor: PhD. Tran Thi Phuong Thuy 3

WALMART INTRODUCTION

Wal-Mart Stores, Inc., branded as Walmart, is an American multinational

retail corporation that operates chains of large discount department

stores and warehouse stores. Headquartered in Bentonville, Arkansas, the company

was founded by Sam Walton in 1962 and incorporated on October 31, 1969. The

company operates under the Walmart name in the US and Puerto Rico. It operates

in Mexico as Walmart de México y Centroamérica, in the United Kingdom as Asda,

in Japan as Seiyu, and in India as Best Price. It has wholly owned operations in

Argentina, Brazil, and Canada.

Walmart helps people around the world save money and live better --

anytime and anywhere -- in retail stores, online and through their mobile devices.

Each week, more than 245 million customers and members visit our nearly 11,000

stores under 71 banners in 27 countries and e-commerce websites in 10 countries.

With fiscal year 2014 sales of approximately $473 billion, Walmart employs 2.2

million associates worldwide.

Walmart is the world's largest company by revenue, according to

the Fortune Global 500 list in 2014, the biggest private employer in the world with

over two million employees, and the largest retailer in the world.

The company was publicly listed on the New York Stock Exchange in 1972.

In the late 1980s and early 1990s, the company rose from a regional to national giant.

By 1988, Walmart was the most profitable retailer in the US and by October 1989 it

had become the largest in terms of revenue.

Walmart Global’s Expansion Case Study

Unbreacable Group Instructor: PhD. Tran Thi Phuong Thuy 4

CASE STUDY SUMMARY: WALMART’S GLOBAL EXPANSION

1962, Walmart was established in Arkansas by Sam Walton and has grown

rapidly to become the largest retailer in the world with 2002 sales of $218

million, 1.3 million associates, and some 4.500 stores.

1991, Walmart’s operations were confined to the US.

In the US, Walmart established a competitive advantage based upon a combination

of efficient merchandising and progressive human relations policies.

Walmart was a leader in the implementation of information systems to track product

sales and inventory.

It developed one of the most efficient distribution systems and promotion of

widespread stock ownership among employees which led to high productivity

enabling it to decrease operating costs – a strategy to gain market share first in

general merchandising.

By 1990, due to market saturation in US, Walmart decided to expand globally.

Walmart started to expand internationally in 1991 by opening its first stores in

Mexico, a joint venture with Cifera.

There were some initial problems: poor infrastructure, crowded roads, and a lack of

leverage with local suppliers, which resulted in stocking problems, raised costs and

prices, limited ability to gain market share and problems with merchandise selection.

By the mid-1990s, Walmart found ways to adapt to the local environment:

Partnership with a Mexican trucking company, more appealing merchandise,

suppliers built factories near its Mexican distribution centers which helped to drive

down inventory and logistics costs.

1998, acquiring a controlling interest in Cifera.

By 2002, Mexican operation with 600 stores generated more than $10 billion.

The company also expanded into Canada, Britain, Germany, Japan, S.Korea, Brazil,

Argentina and China and had over 1200 stores outside US, 303,000 associates, and

revenues of more than $35 billion.

Walmart was aided by 3 developments when expanding internationally:

Barriers to cross-border investment fell during the 1990s

Walmart Global’s Expansion Case Study

Unbreacable Group Instructor: PhD. Tran Thi Phuong Thuy 5

Ability to reap significant economies of scale from its global buying power due to

international expansion. (Walmart key suppliers have long been international

companies).

Advances in information systems, particularly the spread of Internet-based software.

CASE STUDY QUESTIONS’ ANSWERS

1. How does expanding internationally benefit Walmart?

After its beginning in 1962 Walmart ever since had constant growth rates and

successfully gained market share in the merchandise and food retailing markets. “By

1990, however, Walmart realized that its opportunities for growth in the United

States were becoming more limited”. To keep steady growth rates and profits the

company decided to expand globally. The core competency of Walmart is the price.

Selling merchandise and food for low prices made them earn market shares and

continue the growth rates. Going global gives companies the opportunity of using

location economies to secure the quality, use economy of scale to lower the

productions costs per unit and benefit from learning effects. A global supply chain

and global markets will lower the production costs since more volume is ordered

following a higher demand trough international markets. Especially for Walmart

expanding internationally supports and secures their core competency: Selling

everyday life goods at a low price.

2. What are the risks that Walmart faces when entering other retail

markets? How can these risks be mitigated?

The strategy for success worked very well in the United States. That does not mean

that it works very well in other countries. There are different preferences and

consumer patterns in different countries. Adding to that Walmart may face strong

competition from already established retailers that have a better understanding in

local needs and demands of the customers. Another thread could be a strict

government that protects the local economy or an instable government/economy.

Through strong market research or co-operation/acquisition of local retailer

companies Walmart could gain critical knowledge of the local market and its

consumers. Especially a co-operation with an established company could lower the

barriers from a strict government since both companies could gain from such a trade-

off, increase revenue and eventually pay more tax. In a situation where the

Walmart Global’s Expansion Case Study

Unbreacable Group Instructor: PhD. Tran Thi Phuong Thuy 6

government or the economy is not stable it is favorable to stay out of the market

since the own rights are low protected and the overall performance is hard to predict.

3. Why do you think that Walmart first entered Mexico via a joint venture?

Why did it purchase its Mexican joint venture partner in 1997?

This was the first time that Walmart operated internationally under a CEO who spent

most of his life in the United States. Sam Walton was known as an indigenous

business man who wanted all of his employees to think how to improve and develop

the company. There was no reason to change this mind set and go arrogantly into a

new market not paying attention to the Mexican customers’ needs and preferences.

Henry Davis, the CEO of Cifra, was a born Mexican who was sent by Cifra to study

at Harvard University. Therefore he knew both life styles: the US and the Mexican.

In 1991 when Walmart negotiated with Mexicans biggest retail market Cifra there

where political negotiations ongoing weather there will be a free-trade agreement

between the United States. “Cifra’s president, Henry Davis, said that the prospect of

free trade between the two countries helped make the deal attractive.” By founding

the joint venture Walmart avoided to compete against an already established local

company that had highest market shares. Walmart now had a local guide who

showed them how to sell products in Mexico and a direct reach to Cifra’s costumers.

After the initial joint venture “Walmart had set up several other joint ventures with

its Mexican partner […]”. In 1997 all these joint ventures merged with Cifra. “Wal-

Mart then took a controlling, 51 percent stake in Cifra for $1.2 billion. The company

thereby held a majority stake in the largest retailer in Mexico […]” and the name

changed to Wal-Mart de México y Centroamérica – which can be seen as an

expansion into the whole Central American region.

4. What strategy is Walmart - a global strategy, localization strategy,

international strategy, or strategy? Does this strategic choice make sense? Why?

As stated earlier the core competency of Walmart is the low price of the offered

products. Therefore there is a strong cost pressure. Focusing on the offered products

you can see that Walmart is a store where one buys daily used products. Cultural

differences and preferences are mainly shown in the daily life, which is lived with

daily life products – bought from Walmart. Derived from that Walmart’s strategy

Walmart Global’s Expansion Case Study

Unbreacable Group Instructor: PhD. Tran Thi Phuong Thuy 7

for internationalization is a Transnational Strategy: High Pressures for Cost – High

Pressures for Local Responsiveness.

Does this strategic choice make sense? Of course it does. In fact it is the only

possible strategy for a retailer as Walmart. When people buy there they are in their

cultural comfort zone and not willing to try exotic products on a daily basis.

QUESTIONS FOR PRESENTING GROUP AND ANSWERS

1. Analyze Walmart when first expanding to the Mexican market using

the SWOT model?

Strengths Weaknesses

Large capital

Have experience in American

market as a dominant retailer

Have efficient merchandising and

progressive human relations

policies

Have relations with international

suppliers

Retailing market practices were

well-suited to America

Lack of knowledge about Mexican

market’ consumer tastes and

preferences.

Lack leverage with local suppliers

Opportunities Threats

Barriers to cross-border

investment fell during the 1990s

Many Walmart suppliers have long

been international companies

Advances in information systems,

particularly the spread of Internet-

based system

Poor infrastructure, crowded roads

in Mexico

Existing dominant retailers in

Mexico

Significant global competition

Law and regulations in Mexico

which protect local retailers and

limit Walmart expansion

Slow growth in Mexican economy

2. Walmart’s motto is “Saving people money so they can live better”.

When expanding their market, what did Walmart do to keep their low-cost

leadership?

Establishing partnership with trucking company to improve distribution system.

Walmart Global’s Expansion Case Study

Unbreacable Group Instructor: PhD. Tran Thi Phuong Thuy 8

As Walmart’s presence grew, many of Walmart’s suppliers built factories near its

distribution centers, which helped further reduce inventory and logistics costs.

Using its enhanced size to demand deeper discounts from the local operations of its

global suppliers.

Making bulk purchases from vendors to enjoy volume discounts, and paying low

wages.

Maintain low cost by having efficient and effective operations.

Its marketing strategy relies on word-of-mouth communication and focuses on

everyday low prices, which means that customers can buy the products at the lowest

price all the time.

3. What were some entry modes Walmart use when entering new

markets? What are the benefits in each way?

Entry mode 1: through joint venture with its local player.

Help gain better knowledge of the new market.

Help Walmart to work with local authorities.

Entry mode 2: entry mode of acquisition.

Avoid time-consuming problem of building up stores.

Entry mode 3: offshore-sourcing strategy.

Use the new market as a major production or assembly source country for their

products in the US increase profit in motherland.

Entry mode 4: Building its own store.

Gain complete control of the new facilities.

4. In some different foreign markets, Walmart operates under different

names1. Explain this occurrence. Does it have anything to do with Walmart’s

strategy when expanding internationally?

1 The company operates under the Walmart name in the US and Puerto Rico. It operates in Mexico as Walmart de México y Centroamérica, in the United Kingdom as Asda, in Japan as Seiyu, and in India as Best Price.

Walmart Global’s Expansion Case Study

Unbreacable Group Instructor: PhD. Tran Thi Phuong Thuy 9

Walmart entered many foreign markets either through a joint venture2 with its

local player or through acquisition3 of an existing firms. It then proceeded to

expand its share and take over the main administration. With this strategy,

Walmart can keep the old brand names of companies once it cooperated.

Keeping the existing brand names benefits Walmart in various ways.

First, it can avoid prejudice from local people toward a foreign cooperation.

Walmart is famous for its dominant position in the US, which means wherever it

goes, smaller business retailers would have higher chance of going bankrupt. Local

habitants of course would pose a negative attitudes toward the upcoming of an

unwanted investment likewise.

However, when Walmart buys out and restructures a local stores chain, people

would still think of it as a national business or simply a venture. Even if they heard

the local stores was wholly sold to a foreign group, the established loyalty toward

a familiar brand would still keep them buying products from that store.

Since Walmart was already one of the possessors of the local brand, it doesn’t

have to change anything about itself but to take the step to affect the business style

of that trademark. Improvement on existing products will just become more

appealing to people, let alone boycott it because of its foreign origin.

This strategy also saves Walmart a great amount of time getting adapt to the local

taste and preferences since the everything was already in the database of the old

companies.

2 A joint venture (JV) is a business agreement in which the parties agree to develop, for a finite time, a new

entity and new assets by contributing equity. They exercise control over the enterprise and consequently share

revenues, expenses and assets. 3 Business acquisition is the process of acquiring a company to build on strengths or weaknesses of the

acquiring company. A merger is similar to an acquisition but refers more strictly to combining all of the

interests of both companies into a stronger single company. The end result is to grow the business in a quicker and more profitable manner than normal organic growth would allow.

Walmart Global’s Expansion Case Study

Unbreacable Group Instructor: PhD. Tran Thi Phuong Thuy 10

REFERENCES

WALMART SUCCESS IN MEXICO, CANADA AND CHINA: GLOBAL

EXPANSION, STRATEGIES, ENTRY MODES, THREATS AND

OPPORTUNITIES by Lee Yee Mun

Wal-Mart: Staying on Top of the Fortune 500 A Case Study on Wal-Mart Stores

Inc. by Patrick Hayden, Seung Lee, Kate McMahon, Mike Pereira

Walmart’s official website: corporate.walmart.com

"Walmart Corporate: Locations". Walmart. Retrieved 19 January 2014.

"WAL MART STORES INC 2014 Annual Report Form (10-K)" (XBRL). United

States Securities and Exchange Commission. March 21, 2014.

"2012 Form 10-K, Wal-Mart Stores, Inc.". Google.

"Wal-Mart Form 10K: Portions of Annual Report to Shareholders". United States

Securities and Exchange Commission. Retrieved June 28, 2011.

"Walmart Corporate: Our Business". Walmart. Retrieved 19 January 2014.

"Walmart Corporate: United Kingdom". Walmart. Retrieved 19 January 2014.

"Market Cap Rankings". Ycharts. Zacks Investment Research. April 8, 2012.

Retrieved April 9, 2012.

Ann Zimmerman (June 7, 2010). "Rival Chains Secretly Fund Opposition to

Walmart".The Wall Street Journal. Retrieved June 8, 2010.

"Walmart 2010 Annual Report PDF (13.4 MB)." Walmart. 2010. Retrieved

October 22, 2010.