Mini-case
- Refer to “The Globalization of Walmart” on page 255 of your textbook.
Directions
- Answer the 3 questions stated at the end of the case study.
- Then identify three concepts from Units 1 through 4, that relate to the information in the case study.
Briefly explain the concepts
Explain how the concepts relate to the case study content
Explain how the concepts helped to solve a problem within the case study
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MI N I C A S E
THE GLOBALIZATION OF WALMART
Founded in Arkansas in 1962, Walmart has developed into the largest retailer in the world. Driven by high
levels of service, strong inventory management, and purchasing economies, the company overpowered
competitors and became the dominant firm in the U.S. retail industry. After rapid expansion during the
1980s and 1990s, Walmart faced limits to growth in its home market and was forced to look
internationally for opportunities.
When Walmart opened its first international location in 1991, many skeptics claimed its business practices
and culture could not be transferred internationally. Yet, the company’s globalization efforts progressed at
a rapid pace. Its more than 6,357 international retail units employ 900,000 associates in 26 international
markets. International sales accounted for nearly 30 percent of Walmart’s more than $480 billion in
revenues for 2014, a level that is projected to increase substantially over the next decade.
Globalizing Walmart: Whe re and How to Begin?
When Walmart began to expand internationally, it had to decide which countries to target. Although the
European retail market was large, Walmart would have had to take market share from established
competitors to succeed there. Instead, Walmart deliberately selected emerging markets as its starting
point for international expansion. In the Americas, it targeted nations with large, growing populations—
Mexico, Argentina, and Brazil—and in Asia it aimed at China. Lacking the organizational, managerial, and
financial resources to simultaneously pursue all of these markets, Walmart focused first on the Americas
rather than the more culturally and geographically distant Asian marketplace.
For its first international store, opened in 1991 in Mexico City, Walmart used a 50–50 joint venture to help
manage the substantial differences in culture and income between the United States and Mexico. Its
partner, the retail conglomerate, Cifra, provided expertise in operating in the Mexico market and a base
for learning about retailing in that country. Leveraging its learning from Mexico when it entered Brazil in
1996, Walmart took a majority position in a 60–40 venture with a local retailer, Lojas Americana. When
subsequently entering Argentina, Walmart did so on a wholly owned basis. After gaining experience with
partners, in 1997 Walmart expanded further in Mexico by acquiring a controlling interest in Cifra. By 2014,
Walmart’s 2,498 units in Mexico accounted for over half of all supermarket sales in Mexico.
Still, learning the dos and don’ts was a difficult process. “It wasn’t such a good idea to stick so closely to
the domestic Walmart blueprint in Argentina, or in some of the other international markets,” said the
president of Walmart International. “We built large parking lots at some of our Mexican stores, only to
realize that many of our customers there rode the bus to the store, then trudged across those large
parking lots with bags full of merchandise.”a
T he Challenge of China
The lure of China proved too great to ignore. Walmart was one of the first international retailers in China
when it set up operations in 1996. Beijing restricted the operations of foreign retailers, including
requirements for government-backed partners and limits on the number and location of stores. Walmart
subsequently formed a venture with two politically connected Chinese partners, with Walmart holding a
controlling stake. Initial activities were concentrated in Shenzhen, a rapidly growing city bordering Hong
Kong, while it learned about Chinese retailing. Walmart had many well-publicized miscues while learning
how to do business in China. For example, Walmart no longer tries to sell extension ladders or a year’s
supply of soy sauce or shampoo to Chinese customers, who typically live in cramped apartments with
limited storage space.
Operationally, the scarcity of highly modernized suppliers in China frustrated Walmart’s initial attempts to
achieve high levels of efficiency. Pressured to appease the government’s desire for local sourcing of
products, while maintaining the aura of being an American shopping experience, Walmart sourced about
85 percent of the Chinese stores’ purchases from local manufacturers but heavily weighted purchasing
toward locally produced American brands (such as products from Procter & Gamble’s factories in China).
Walmart also mass-markets Chinese products that were previously available only in isolated parts of the
country, such as coconut juice from Guangdong province, hams and mushrooms from rural Yunnan, and
oats from Fujian province.
Walmart also learned the importance of building relationships with agencies from the central and local
governments and with local communities. Bureaucratic red tape, graft, and lengthy delays in the approval
process proved to be aggravating, but the company learned to curry favor through actions such as inviting
Chinese officials to visit Walmart’s American headquarters, assisting local charities, and even building a
school for the local community. By 2014, Walmart operated 403 retail units in China and estimated its
Chinese operations could be nearly as large as in the United States within 20 years.
India: Anticipating the Opening Up of a Billion -Person Market
Although one of the world’s five largest retail markets, at more than $500 billion, and having 400 million
people with disposable income, the inefficiency of the Indian retail sector is well known. More than 95
percent of retail sales are made through nearly 15 million tea stands, newspaper stalls, and mom-and-
pop stores. Strict government barriers have prevented foreign-owned retail businesses, although that
situation may be changing. “Many smart people—much smarter than I—believe that India could be the
next China,” said John Menzer, the former head of Walmart’s international operations. “So, certainly, as a
retailer it’s a place where we’d like to be.”b
Page 256
Exploiting the potential of India could be a major challenge, particularly given the country’s notoriously
frustrating bureaucracy and poor infrastructure. Walmart will have to learn to manage highly protectionist
and anticapitalist political parties, a bad road system, frequent power outages, difficulties acquiring
appropriate plots of land, and lack of adequate distribution and cold-storage systems, among other
concerns. The diversity of the country could also prove problematic, with 18 official languages, 6,000
castes and subcastes, and widely varying regional consumer cultures. Savvy new Indian chains, such as
Provogue and Shoppers’ Stop, are starting to emerge, and nationalistic sentiments may produce much
consternation for expansion efforts of foreign companies such as Walmart.
To prepare for an eventual opening of the market, Walmart began establishing relationships with Indian
suppliers, distributors, and consumers. In 2007, Walmart established Bharti Walmart, a 50–50 joint
venture with Bharti Enterprises, a leader in mobile telecommunications. The venture’s first store opened
in 2009. Due to the constraints on retailing, this venture is technically focused on the wholesale market,
selling only to large institutional or wholesale buyers while the company builds up its infrastructure and
skills for an eventual liberalization of the retail market. By 2014, the venture had opened 20 BestPrice
Modern Wholesale stores, with plans to open additional stores and ultimately be in a market leadership
position. Clearly, to succeed when the Indian market finally opens up, Walmart will need to understand
the political and market dynamics and exploit the lessons it has learned from entering other emerging
markets.
Questions
1. Why has Walmart viewed international expansion as a critical part of its strategy?
2. What did Walmart do to enable the company to achieve success in Latin America and
China?
3. What should Walmart do—or not do—to help ensure that the company achieves success in
India?
