Prior to beginning work on this discussion, read

A  Dollar Store’s Rich Allure in India: A U.S. Franchise’s Success Shows  How “Made in America” Sells; Lessons for Wal-Mart’s Entry?

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Walmart: What happened in India? (Links to an external site.)

, and

Walmart expands again in India—but still not able to open consumer stores to consumer detriment (Links to an external site.)

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Leaders often look for new opportunities for expanding the operations  of their organizations beyond the borders of the country of origin.  Research and discuss two articles that detail difficulties experienced  by Walmart in attempting to expand operations into another country.  Discuss a lesson that can be learned by leadership on attempting to  expand into another country. Your discussion post should be 300 words or more.

Please cite the discussion in APA format. I have attached the articles below that need to be used. 

A Dollar Store’s Rich Allure in India; A U.S. Franchise’s Success Shows ‘Made in America’ Sells; Lessons for Wal-Mart’s Entry?

Bellman, Eric

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Wall Street Journal

, Eastern edition; New York, N.Y. [New York, N.Y]23 Jan 2007: B.1.

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Ajoy Krishnamurti, chief executive of Sankalp Retail Value Stores, which was created to manage the My Dollarstore franchise in India, walks the aisle of a My Dollarstore in Mumbai’s Center One mall, pointing out products. “Hershey’s chocolate syrup really rocks, salad dressing is hot,” he says. “Papaya-and-carrot juice: not particularly hot.”

So far the formula is working. Last year, 4.5 million customers shopped in My Dollarstores in India, up from 370,000 two years earlier. Most of the 42 My Dollarstore outlets, mainly in India’s larger cities, attract more than 600 customers a day, three times the average in the U.S. Mr. Krishnamurti estimates the My Dollarstores in India brought in more than $10 million in sales last year, almost twice the previous year’s revenues.

My Dollarstore learned other lessons on the way to its current success. Its first shops offered exactly the same products sold in U.S. stores: container-loads of goods from the franchise’s long list of products, from baby clothes to health-and-beauty products, snacks and stationary. While Indians rushed to buy super-size bottles of shampoo and cartons of apple juice, they were also wary of the discounted products, fearing the goods might be shoddy, or locally made imitations of international brands. My Dollarstore solved this problem by hiring more staff to answer questions. The stores in India have around 20 employees per 1,000 square feet — more than 10 times that of the U.S. stores. It’s possible because labor is cheap in India: the average shop helper makes less than $150 a month.

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Mumbai, India — Corporate lawyer Archana Singh travels to Europe every year and returns laden with fine Italian cheeses, French wines and single-malt Scottish whiskys. At home in Mumbai, she likes shopping at the neighborhood “dollar store,” which sells exotic products like the newest flavor of Pringles in red-white-and-blue decked aisles that make her feel she’s on vacation in the U.S.

As Wal-Mart Stores Inc. and other retail giants prepare to enter India, an unexpected American rival — California’s My Dollarstore Inc. — is already here and attracting the affluent middle-class customers Wal-Mart and others covet.

In the U.S., most of the so-called dollar stores that sell discounted products at a single price are in low-rent strip malls. In India, My Dollarstores target big spenders, setting up in prime ground-floor spaces at the newest malls. Even the prices are higher end. While everything costs $1 at My Dollarstores in the U.S., in India the same products sell for 99 rupees, or about $2, thanks to transportation costs and import tariffs.

Since opening its first store in Mumbai in 2004, India’s My Dollarstore franchise has been a testing ground for what works — and what doesn’t — for a new entrant to the subcontinent’s nearly $300 billion retail industry spanning food to footwear.

Ajoy Krishnamurti, chief executive of Sankalp Retail Value Stores, which was created to manage the My Dollarstore franchise in India, walks the aisle of a My Dollarstore in Mumbai’s Center One mall, pointing out products. “Hershey’s chocolate syrup really rocks, salad dressing is hot,” he says. “Papaya-and-carrot juice: not particularly hot.”

Though the average annual salary in India is still less than $1,000, My Dollarstore’s track record suggests “Made in America” is a good formula for attracting India’s well-to-do and free-spending middle class.

The governments of India and the U.S. have not always seen eye-to- eye on political issues, but goods associated with the American way of life — Doritos chips, Kellogg’s Pop-Tarts, Alberto VO5 hair conditioner — have long been carried home by Indians living in and visiting the U.S. That helps explain why a store chain associated with bargain basements in the U.S. is attracting the cream of India’s shoppers in an economy whose gross domestic product is growing more than 8% a year recently.

Ms. Singh, 32, says a trip to My Dollarstore reminds her of traveling abroad. She enjoys trying new products and likes the wide aisles — a contrast to the mom-and-pop shops that dominate food, cosmetics and clothing retailing in India. She spends $30 in a typical trip. “Before you realize it, you’ve picked up so much,” she says.

International chains are scarce in India, where the government generally doesn’t allow direct foreign ownership in the retail industry. It restricts foreign investment to single-brand retailers, such as Chanel or Nike, or those that come through franchise agreements — international brands provide the products, retail technology and marketing, but the stores are owned by Indians. Guess Inc., Tommy Hilfiger Corp. and My Dollarstore are among those that have entered the market through franchises.

Yet the government has hinted it’s ready to open the sector to more foreign investment, and Indians are at last shopping enough to make large retail investments worthwhile.

In November, Wal-Mart announced plans to enter India through a joint venture. Its Indian partner Bharti Enterprises Ltd. will own the outlets, while Wal-Mart controls the supply chain and wholesaling operations. Last week U.S. office supply retailers Staples Inc. announced it would also enter India through a joint venture. France’s Carrefour SA and Tesco PLC of the U.K. are scouting for partners, too, and expected to follow with their own India plans.

Certainly just setting up shop will not be enough. Wal-Mart last year had to pull out of both the German and South Korean markets after years of disappointing results there. In India, these behemoths will likely be learning some of the same lessons the tiny My Dollarstore chain has already absorbed.

Dollar stores have been around for decades in the U.S., but My Dollarstore is relatively new. In 1996, Indian immigrant and former leather importer Rex Mehta started Dollarstore Inc. as a Web portal to help independent shops buy and sell goods. In 1999, it moved into the brick-and-mortar business of running a chain of My Dollarstores, and the next year it took the franchise abroad.

Now, the privately held company has annual sales of close to $30 million from franchise fees, wholesaling and consulting. It typically charges $15,000 upfront to anyone who wants to open a My Dollarstore, provides the layout of the stores, the products and the technology needed and charges the stores around 4% of sales.

It’s been expanding faster internationally than at home, and now has around 200 store franchises abroad, from Eastern Europe to Central America to Southeast Asia. In the U.S., where it has about 50 My Dollarstore franchises and provides 100 other independent stores with products and services, its major competitors are the listed giants of the industry, including Family Dollar Stores Inc. and Dollar Tree Stores Inc. Abroad, Mr. Mehta says, he has little competition.

“We are very excited about India,” says Mr. Mehta, who heads the entire operation and is chief executive officer of Dollarstore International Inc., the company that runs the group’s international franchising.

In India, My Dollarstore plays heavily on the American Dream theme. The store in Mumbai’s Center One mall features the same red-white-and- blue decorating scheme and employee uniforms as the U.S. stores, and takes it a step further with posters of the Statue of Liberty on the walls.

So far the formula is working. Last year, 4.5 million customers shopped in My Dollarstores in India, up from 370,000 two years earlier. Most of the 42 My Dollarstore outlets, mainly in India’s larger cities, attract more than 600 customers a day, three times the average in the U.S. Mr. Krishnamurti estimates the My Dollarstores in India brought in more than $10 million in sales last year, almost twice the previous year’s revenues.

He plans to expand to more than 400 stores across the subcontinent in the next three years.

My Dollarstore learned other lessons on the way to its current success. Its first shops offered exactly the same products sold in U.S. stores: container-loads of goods from the franchise’s long list of products, from baby clothes to health-and-beauty products, snacks and stationary. While Indians rushed to buy super-size bottles of shampoo and cartons of apple juice, they were also wary of the discounted products, fearing the goods might be shoddy, or locally made imitations of international brands. My Dollarstore solved this problem by hiring more staff to answer questions. The stores in India have around 20 employees per 1,000 square feet — more than 10 times that of the U.S. stores. It’s possible because labor is cheap in India: the average shop helper makes less than $150 a month.

“Is this really Old Spice?” a customer asks Mr. Krishnamurti at the Center One store. Customers are confused about newly arrived cans of hair mousse, the store’s manager says. “They keep calling it mouse.”

To encourage consumers to try unfamiliar products like blueberry syrup and dog shampoo, My Dollarstore offers something unusual in India: a money-back guarantee, no questions asked. One customer returned a partially eaten jar of peanut butter.

Chinese-made products re-exported from the U.S. proved too expensive, so the stores in India found a way to import directly from China, a practice allowed under the franchise rules.

Some industry experts caution the novelty of My Dollarstores could wear off once Wal-Marts, Carrefours and Tescos come to town. But Mr. Krishnamurti notes that in the U.S., dollar stores have thrived under the noses of the mega-retailers for decades. Meanwhile, his team is learning every day — an edge Mr. Krishnamurti hopes will help when the global retailers arrive. “It doesn’t scare me at all,” he says. “They still have to figure out what is going on with the Indian consumer.”

(c) 2007 Dow Jones & Company, Inc. Reproduced with permission of copyright owner. Further reproduction or distribution is prohibited without permission.

Walmart Expands Again In India – But Still Not Able To Open Consumer Stores To Consumer Detriment

Tim Worstall

Former Contributor

Opinion

This article is more than 3 years old.

·

  Walmart has had rather a tangled tale of development in India. The problem being the Indian government’s restrictions on people doing what Walmart does so well, piling it high and selling it cheap. This is something of a pity–actually it impoverishes them–for the consumers of India. For it means that they still have to purchase retail through the Mom and Pop stores which dominate the sector. At root this is the conflict between the Indian insistence upon protecting the producers and the more normal economic insistence that we should be running the economy for the benefit of consumers. Walmart really is strikingly good at the logistics of retail. But they’re not allowed to deploy that knowledge in India.

So, instead of doing so they’re expanding the cash and carry model rather than the retail

one

:

Walmart India Private Limited, a wholly owned subsidiary of retail behemoth Walmart Stores Inc, on Saturday inked an agreement with the Telangana government to set up 10 wholesale stores in the state over a span of five to seven years. Walmart currently has one store in Hyderabad.

The rules around what can be done in Indian retail are rather

restrictive

:

With many arguing there were various obstacles to foreign multinational corporations setting up shop in India, the Indian government had made attempts to relax rules. The previous rules made it mandatory for foreign supermarkets to source 30 per cent of their products from small Indian firms. Whilst this rule is still in place, the government has now given foreign firms five years to reach this target, thus easing the pressure. Foreign retailers were also only able to set up stores in cities that had a population of over a million; this rule has now been overturned.

Note that these rules are about what foreign owned retail may do. Majority domestically owned retail does not face the same restrictions. It all becomes worse too. Foreigners cannot set up shop to retail multiple lines of products, from multiple manufacturers. Cannot, in essence, be supermarkets. Domestically owned can, thus the various attempts by the likes of Carrefour and Walmart itself to find local joint venture

partners

:

Wal-Mart signed what amounts to a kind of franchise deal with Bharti Enterprises, one of India’s largest cell phone providers.

Wal-Mart will provide logistics, purchasing and support; Bharti, with 30m Indian cell phone customers and a sophisticated understanding of the rapidly-evolving Indian consumer market, will open and run Wal-Mart-branded superstores.

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These JVs generally haven’t worked out well. However, the fully foreign owned company can indeed work in the wholesale sector, thus the actual strategy being used by

Walmart

:

Walmart India currently operates 21 cash-and-carry stores in India and its robust expansion plans will take the number to 71.

If you’re foreign owned then wholesale only, or selling only your own production/brand. To be properly retail across multiple brands then you’ve got to be at least in partnership with a local firm.

All of which is a pity of course. India would be able to make the consumer vastly richer by abolishing these restrictions. Sure, we all know why it is being done. North of 90% of the retail market (itself perhaps $500 billion) is supplied by Mom and Pop stores and open marketplaces. These are huge employers of labour. The rules are there to stop the sector being flattened by the retail behemoths. But that then brings up the question, well, who should we be managing the economy for?

The producers? To a great extent that’s what India does, yes. To a great extent that’s not what the US does. There, instead, the emphasis is upon whoever offers the best deal to the consumers well, let them get on with it. And this makes the country richer, improves the lives of the consumers rather bigly. As Jason Furman once pointed

out

:

There is little dispute that Wal-Mart’s price reductions have benefited the 120 million

American workers employed outside of the retail sector. Plausible estimates of the magnitude of

the savings from Wal-Mart are enormous – a total of $263 billion in 2004, or $2,329 per

household.

Even if you grant that Wal-Mart hurts workers in the retail sector – and the evidence

for this is far from clear – the magnitude of any potential harm is small in comparison. One

study, for example, found that the “Wal-Mart effect” lowered retail wages by $4.7 billion in

2000.

India would make itself very much richer by junking the restrictions on foreign owned retail and thus allowing Walmart, and the others, to run riot through the economy. Given that consumer welfare is our aim they should thus do so.

Walmart: What Happened In India?

Walter Loeb

Senior Contributor

Retail

I cover major developments in the retail industry.

This article is more than 7 years old.

·

  The partnership between Bharti Enterprises and Walmart has been dissolved. Formed in 2007, the joint venture’s purpose was to build and operate cash and carry superstores in India under the name Best Price Modern Wholesale.  As partners, the two companies jointly built 20 superstores.  These superstores are located in major cities such as Amritsar, Zirakpur, Jalandhar, Kota, Bhopai, Ludhiana, Ralpur, Indore, Vijayawada, Agra, Meerut, Lucknow and Jammu.

But the two companies have now agreed to go their separate ways. Bharti will acquire the Compulsory Convertible Debentures held by Walmart in Cedar Support Services, a company owned and controlled by Bharti.  Bharti, which operates 212 stores plans, plans to continue growing independent of Walmart.  Bharti indicated that it is committed to building a world class operation and will continue to invest in a retail concept called “Easyday.”  For its part, Walmart will contiunue to operate the 20 superstores opened since 2007 without the benefit of any partnership.

Walmart management has said it wants to serve India and its people through its cash and carry business. Management believes that the company has in place the supply chain infrastructure, direct farm program, and supplier development that enables it to make good investments and provide good returns for its shareholders.

However, there is a problem. The Indian government requires retailers to source 30 percent from small suppliers which is difficult for Walmart to comply with.  Another problem is the continuing US investigation of fraud in Mexico, Brazil, China and India.  In Indian, the government is investigating whether a loan made by Walmart to Bharti broke foreign investment rules.  Both Bharti and Walmart have denied any wrong doing.

While Bharti and Walmart managements each wished the other well, I suspect that national differences and the challenges of working together broke up this partnership.  Walmart entered into the partnership with Bharti in hopes of achieving a liberalization of the Indian market. This hope was not fulfilled and as a result the relationship with Bharti was no longer desirable, according to Scott Price, President and CEO of Walmart Asia.

This action is similar to what happened in to Walmart in Germany. There Walmart stores were competing with entrenched local general merchandise and food merchants, rendering Walmart unprofitable. The company was restricted from running sales except for certain times, and the operation never appealed to the German shopper.

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While Walmart’s growth has exceeded anyone’s dreams, its shifting strategies in India, Japan and Germany highlight the difficulties of operating a worldwide company. Its amazing international expansion often has the unfortunate flavor of inexperience.  Dealing with foreign authorities requires finesse and charm, and even so sometimes still doesn’t pan out as hoped. The dominance of Walmart in the United States is unrivaled; but the retailer still has to prove itself country by country, city by city.  Even for global behemoths like Walmart, retailing is still a truly local business.