Reference no: EM133294389

THE GLOBALIZATION OF WALMART

Founded in Arkansas in 1962, Walmart became the dominant firm in the U.S. retail industry by leveraging high levels of service, strong inventory management, and purchasing economies. 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 6,360 international retail units employ 800,000 associates in 27 countries, and the company sources its products from more than 100 nations. International sales accounted for 24 percent of Walmart's $500 billion in revenues for 2018, a level that is projected to increase substantially over the next decade.

Globalizing Walmart: Where and How to Begin?

When Walmart began to expand internationally, it had to decide which countries to target. The European retail market was large, but success would require taking market share from established competitors. 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 learning opportunities and expertise in operating in the Mexico market. Leveraging its Mexican learning, in 1996 Walmart entered Brazil by taking 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. By 2018, Walmart's 2,358 units in Mexico accounted for half of all supermarket sales in Mexico.

The Challenge of China

The lure of China proved too great to ignore and Walmart set up operations there in 1996. Beijing restricted operations of foreign retailers, including requirements for government-backed partners and limits on the number and location of stores. Walmart formed a venture with two politically connected Chinese partners, with Walmart holding a controlling stake. 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 and Gamble's factories in China). Walmart also learned the importance of building relationships with the central and local governments and with local communities. Bureaucratic red tape, graft, and lengthy delays in the approval process proved to aggravate, but the company learned ways to curry favor with local officials. By 2018, Walmart operated 443 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. To exploit the potential of India, Walmart needed to manage a notoriously frustrating bureaucracy, highly protectionist and anti-capitalist 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 country's diversity is also 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, had started to emerge, and nationalistic sentiments continue to produce much consternation for expansion efforts of foreign companies such as Walmart.

As part of its market-opening strategy, 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, and their first store opened in 2009. Due to constraints on retailing, this venture was technically focused on the wholesale market, selling only to large institutional or wholesale buyers while the company built up its infrastructure and skills for eventual liberalization of the retail market. By 2018, the venture had opened 20 BestPrice Modern Wholesale stores, with plans to open additional stores and ultimately be in a market leadership position. Also in 2018, Walmart spent $16 billion to purchase a majority holding in Flipkart, a leading Indian e-commerce firm, in order to enhance its competitiveness in India and abroad. 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.

Critical Thinking 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?