Macro Environment

1. Through the use of suitable tools, conduct a foreign market analysis and evaluate critically the strategic and environmental reasons of why Wal-Mart engaged in internationalisation strategies.

2. Using appropriate theories critically analyse the importance of a cross-cultural understanding for international businesses success. Support your answer by quoting relevant examples from the Wal-Mart case study.

Foreign expansion is primarily due to the reason of growth, wealth and capital. Although, foreign expansion helps in gaining large customer base that not only accompanies value increase but also carries out the successful operation of foreign venture. The drivers that are chiefly responsible for the success of any organization is the technological breakthroughs that renders communication strategy easily (Cox, Clegg and Ietto-Gillies 2013). The implementation and tactics is applied in different countries through costs and deflated currencies. Foreign ventures are often accompanied by internationalization strategies that change depending on the competition that needs to be integrated with regional economies, cultures as well as societies worldwide (McFarlin and Sweeney 2014).

In this essay, the foreign market analysis will be performed on Wal-Mart using suitable tools like PESTEL, SWOT and Porter’s Five Forces. However, the evaluation of Wal-Mart will be based on the global market that had gone through inevitable ebb and flow of commerce by adopting internationalization strategies. In addition, the cross-cultural understanding leads to various opportunities that the organization cannot develop while not expanding.

1. International Expansion is mesmerizing for the organizations that operate in highly competitive environment. This can be only possible when the organization like Wal-Mart that not only create value for shareholders but also can estimate the cost before entering in the new regions to perform business activities (Verbeke 203). However, the companies need to be careful before entering any country. The rationale of Wal-Mart to adopt foreign expansion was to improve the cost effectiveness of the operations followed by global customers and expanding the market to attract new customers.

Wal-Mart’s basic mission statements involved to reduce cost and generate more revenue by lowering the cost of living by ultimately becoming an international brand. However, the basic aim was to target the demographics of customers who had moderate incomes and the shoppers who are interested in prices. Secondly, the customer base in changing so with changing needs Wal-Mart provides goods on reasonable rates (Roberts and Berg 2012). 

Wal-Mart has been a dominant retailer in the domestic markets but after trying its hands on international market, it has developed into “commitment strategy” where it ascertains to provide low price with genuine customer services. To begin with the PESTEL analysis, there are many modes of market entry that needs to be considered while entering a foreign market. The political as well as legal factors included the fodder by competitors in which many lawsuits inflicted reputation damage on Wal-Mart. While expansion, Wal-Mart was considered one of the “poster companies” which not only posed issues in field of environment, workers pay but also in general anti corporate sentiments. Due to the following issues, Wal-Mart did fail its expansion plans in California, Vancouver, Cedar, etc. In all the cases, the activists from different countries posed antitrust laws by carefully coordinating thousands of firms that stood above the normal market. On the other hand, foreign expansion also reflected the issues that it had to combat while entering economies using different modes of entry whether it is franchising, strategic alliance, and merger, importing, or exporting. However, policies and laws of different countries gave many complications rather were complex to handle (Harris 2013).

Micro Environment

The economic factors that helped Wal-Mart to grow in other countries include the generation of income over the past decade that increased with increase in revenue. Secondly, the Free Trade Agreements (multilateral and bilateral trade agreements) that helped in shaping the market as a whole. On the other hand, the price sensitivity highlighted the customer’s low switching cost and brand sensitivity (Friel et al. 2013). The socio-cultural factor were based on the faster pace of live efficiency that though created difficulties in venturing into a new country but the main impact that it created on the Wal-Mart store was the language barriers, cultural diversity trend and healthy lifestyle trend. In China, the shopping habits were concentrated on excessive use of bargaining whereas the same was not used in the case of Germany and Korea. Although, there were wide variations in the shopping culture where at some places, Wal-Mart changed the shopping culture (Mexico) but at some places it had to imply some other strategies (China). Language barriers and competition at each step was effectively challenged. The technological factors were more advanced in developed countries as compared to developed countries such that they were provisions of online shopping as well (Gollin-Kies, Hall and Moore 2015). The countries like United States are technologically advanced whereas country like Mexico had to be educated regarding large refrigerators as well (Hoag 2016).

On the other hand, environmental factors that are considered effective are the carbon density issues, plastic products used in packaging as well as the trends of business sustainability.

The SWOT strategy highlights the internal as well as the external environment based on the strengths, weaknesses, opportunities and threats. The strengths that Wal-Mart overviewed while entering into foreign expansion are the nature of markets and the offered products and services in the market. On the other hand, Wal-Mart not only possessed strong presence in the market but also had a large base of customer loyalty. Moreover, the organization possessed cost and pricing advantages over rivals. The cost leadership strategy implied by Wal-Mart helped in acquiring more market though it was benefitted from the large economies of scale. The internal environment possessed weaknesses as well which accounted for low global presence and the infiltration of e-commerce rivals in the business (Ungosn and Wong 2014). Although, it did not had much global presence, but it was badly affected by the lawsuits of different confirms that accused the firm of child labor, discrimination, low wages and extra hours. However, Wal-Mart is accustomed with low turnover ratios as well with no or less differentiations as compared to its competitors.

Porter’s Five Forces

On the other hand, opportunities and threats of the external environment included the global expansion that not only comprised of the new geographical areas but also highlighted the online sales that did not match any competitors’ sales. However, the different modes of strategy applied in different countries were diverse as well as was based on the concept of attractiveness of the country, control and risk. The internationalization strategy was divided into three modes of globalization routes (Shapiro and Varian 2013).

Globalization Route 1

Globalization Route 2

Globalization Route 3

Figure: Globalization Route

Source: (Copeland and Labuski 2013)

The threat that Wal-Mart faced was in terms of competition as well as laws and regulations that were different in United States, Mexico, China or Japan for that matter. However, in the name of threat, the major threat that the organization faced was on the current economy status and the barriers that it had to face while entering the business. It was more confined to the cost effective acquisition through synergies but the main impact was faced mainly due to the cultural barriers.

The Porter’s Five Forces model on the internationalization strategies is based on the outline of the Wal-Mart strategy institutionalized for the market expansion. Wal-Mart possessed a threat of competition between firms, as there were many local and international firms that were established like Tesco and Sainsbury in United Kingdom and Brazil, ALDI and LIDI in Germany (Matusitz and Minei 2013). On the other hand, the threat of substitutes were medium because except already established firms there were no such organization offering a wide range of products but competition did exist amongst individual products. The threat of potential entrants were in a medium-high position as achieving high economies of scale with cost leadership strategy were difficult on managerial experience that could worldwide offer smooth operations. Moreover, with lack in distribution system, Wal-Mart had to consider the organizations with high capital requirements. The bargaining power of buyers were low as there was no such firm who was offering product at low prices and the bargaining power of suppliers were moderately low as Wal-Mart always enjoyed supremacy over the suppliers and was in a good position to negotiate with its suppliers because there were low switching costs (Barberá Marcilla 2014).

2. The importance of cross-cultural understanding is based on the entry modes an organization adopts depending on the different cross-cultural analysis of each country were Wal-Mart efficiently entered the market and made it to be a huge success. Wal-Mart’s analysis is based on the tale of two cities where different strategies were adopted. To cater to the cultural dimension, the following are the different modes of strategies (Ferraro and Brody 2015).

Exporting strategy is based on the sourcing of products and services from the home country to the other country where the expansion is needed. However, organizations/ firms have different techniques of distribution in different countries. This strategy is commented to be the easier out of the all and possesses low risk but it does not have control on operations. Moreover, this strategy is based on low control, which might give a potential impact on transportation (Kovács 2014). Conversely, Licensing and Franchising is based on fast entry system that is of low cost and low risk. However, like exporting, it cannot apply its operations and there is a major disadvantage that licensee can become a major competitor later and there are various laws that needs to be kept in mind like IP and contract law before going for this mode of business entry that can be culturally not beneficial (Khanna and Palepu 2013).

The most popular method of modes of entry is partnership and strategic alliance with a local partner such that there is a contractual agreement between the two parties to achieve a common goal whether it is increasing the market share or foreign exposure. This mode is popular because the local firm is well known with the cultural attributes of doing business and establishes its relationship across a wide customer base as there are shared costs that reduces investments (López-Duarte et al. 2016). The only disadvantage is that there is higher cost than any other type of entry with problem of integration between the two different corporate cultures. The method that follows partnership is acquisition, which involves fast entry as well as established operations in the other country. The only factor that lacks here is the integration with home and office. On the other hand, the new venture that has established in the type of entry is Greenfield Revenue that has maximum control, as it is a wholly owned subsidiary. Moreover, it involves large market knowledge but due to high-unknown risks, it often recommended (Fung 2014).

A business cannot entirely rely on the cultural mode of entry method but it also has to off shore different variables that are taxation, currency, laws and regulation. The adoption of global strategy of Wal-Mart highlights that Mexico has strategic alliance with partnership that is based on joint venture. Moreover, Canada had acquisition strategy where it acquired Woolco stores. On the other hand, Germany and South Korea also had undertaken low cost strategy with the mode of entry of partnership and strategic alliance. Overall, UK , Japan as well as Chile acquired acquisition strategy. Out of all the strategies, the strategy that had been exceptionally helpful is the strategic alliance strategy where Wal-Mart adopted low cost strategy and eventually established its hold on the business. Moreover, the results in China had been challenging because there was a need to adapt merchandising and operations strategy that was only possible through joint venture. However, Wal-Mart had not been fruitful in China earlier as they were bargain hunters just like American and Europeans. Conversely, after adoption of merchandising strategy and unionization, China had proved to be Wal-Mart’s center for the growth strategy based on longstanding mechanism of China and Wal-Mart to work together (Huang and Yu 2015).

Conclusion

It can be concluded that overall Wal-Mart’s strategy has been productive as it came across many threats and opportunities in external environment while combating its weaknesses in the internal environment. Although, Wal-Mart had to face many factor like Trade Agreement and different lawsuits that hindered its expansion in California but eventually, it adapted different modes of internalization strategies that helped the organization achieve the desired results. The most strategy being strategic alliance by partnering helped the most as the culture was easily identified through local firms and in the same way, today Wal-Mart’s largest growth strategy will take place in China. 

References

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