Reference no: EM133359704

Question 1 - In the light of Hofsted model, explain an evaluate the failure of Walmart in Germany

Question 2 - Elaborate on the major issues Walmart Faced when they wanted to break into Germany

Question 3 - Formulate recommendations to the company on how they should have done differently to succeed in Germany.

The Case Study

International Business Failures: Walmart in Germany

Back in 1988, Walmart because the largest retaller in the US and started thinking about expansion abroad. Over the years they can claim to have been successful in some markets, such as Mexico, Canada, China and the UK but Germany was the opposite story and has become the stuff of business school international case studies. In the US, Waimart's success formula based on - a low price guarantees - tight stock management - effective logistics and distribution Would this translate to Germany? In 1997 Walmart bought the Wertkauf and Interspar stores in Germany, with a plan to gain traction in Europe's largest retail market. However whilst the market might have been large, it was also saturated with strong local players and an annual growth rate of just 0,3%. Compared to other markets, Germany is highly regulated with opening hours being restricted and the total cost of employees higher than in other countries (+19% at that time vs the UK). Company Culture Walmart immediately introduced a number of aspects from their US operations: - group stretching in a morning - Walmart chants in the morning - requirement for cashiers to smile all the time - greeters (smilingl) at the entrance to stores - an "ethics code" that obliged employees to report on other staff members if they didn't comply with the rules, as well as forbidding relationships with other staff members Although the idea was to increase motivation and loyalty to the company, group stretching and. chanting seemed cult-like to many Germans. You really wouldn't want to be next to me first thing if someone tried to make me do anything like that! Many also felt that it was too strong a reminder of a period in history where many Germans went along with such activities, and felt reminded of the Nuremberg rallies. As for smiling all the time, that just came across as weird and insincere. It's not like Germans don't smile, but when someone smiles at you ALL. THE. TIME it just feels fake. Placing greeters at the entrances to stores felt creepy to many people as well as being a complete waste of time and money. Why do you need someone with a plastic smile to greet you cheerily when you go to do the "necessary evil" of your weekly shop? Ethics code? Until now, I've not been able to find anyone who could tell me what was so ethical about it BUT it employed both communist methods (informing on colleagues to avoid punishment yourself) and was against German law (as a company you can't regulate people's private lives unless it is having deliberate effect on the company's reputation. So you can stop people running hate campaigns bout the company on Facebook, but you can't prevent Jane from accounts having an affair with the lead of Fresh Veg). In 2005 the court overturned this ethics code, but by then Walmart was far along he road of companies that failed internationally due to cultural differences. Legal issues It wasn't just the ethics code that got Walmart into hot water though - there were a whole list of other legal issues as well. This in my book is completely unacceptable - I can fathom how a company can fail due to being new in a saturated market but becoming one of the most notorious international business failures due to not checking with local law??? And this for a US company who normally would be more concerned about getting sued for thingsI Walmart apparently discussed at the US HQ that the German employees were all communists, however this truly says more about US labour laws than Germany. Most of the laws which Walmart fell foul of were either European laws, or ones which have at least a similar equivalent across many parts of the world. (And as an interesting aside, China regarded as one of the few "communist" countries worldwide - is a major market for Walmart where the brand is well accepted. What does that say? So, what were these "communist" ideas? Well... - Waimart in many cases failed to pay the minimum wage - Employees were forced to work too many hours (this is an EU regulation that limits worker exploitation) - German requirements for paid holiday time are completely different to the US ( 5 weeks is very usual in Europe with many German companies offering 6) - Walmart didn't want to pay sick leave (legal requirement) As you can imagine, the relationship between the labour unions and Waimart were pretty terrible, rather than the usual generally amicable cooperation that exists in Germany. Sales Tactics As if the above problems were not enough, the strong local competitors Aldi and Lidl were making life hard. The discount sector had around 40% market share at that time in Germany and prices were generally around 15% lower than the European average. (Food prices in retail are still relatively low in Germany due to intense competition and customer expectations). Walmart's answer was to sell at lower prices than the discounters to try and push them out and then to raise prices later. This however, fell foul of anti-dumping laws that forbid selling products below the purchasing price and the company was accused of predatory pricing. Consumers also had higher expectations about quality than Walmart expected. In Germany it's not simply enough to sell at the lowest price - the quality has to be at least reasonable too (this is something that Aldi & Lidl are famed for managing well. On top of all that, German customers didn't like the "pack everything in plastic bags" attitude or amount of non food items made of cheap Chinese plastic as it conflicted with their environmental principles. Withdrawal All of the factors mentioned above combined to result in falling sales. Profit margins were just 1% (compared to 6-8% with Asda's in the UK) and Walmart were unable to rise above the 3% market share mark. That in itself isn't such a bad situation in Germany BUT the company's expectations had been completely different.