Sample Business Studies Case Study on Walmart

Case Study: Walmart

Question 1

That Walmart is one of the largest retailers in the U.S. and the world is not in doubt. After Walmart was founded in Arkansas in 1962, it grew rapidly locally as a result of high service levels, strong inventory management, and purchasing economies (Ball, Geringer, McNett, & Minor, 2013). Consequently, it overcame strong competition to become one of the dominant firms in the American retail industry. However, the company faced limits to growth after the 1990s particularly in the home market. It was at this juncture that the firm resorted to expand its business to the international environment (Ball et al., 2013). The international environment involves firms or businesses conducting operations across borders and having to understanding different market regulations, cultures, laws, or exchange rates. The decision by Walmart to expand business into the international environment saw the company gain absolute advantage. Absolute advantage refers to a scenario in which a firm manufactures a product way faster and at a higher quality, which lead to greater profits for the company as compared to the profits accomplished by competing firms or businesses.

Through international expansion, Walmart’s revenues increased significantly. For instance, in 2014, the firm recorded international sales that accounted for almost 30 percent of its over $480 billion in revenues in that year. A significant increase in the firm’s revenues as a result of international expansion was projected in the subsequent years. The firm has more than 6,300 retail units internationally with these employing more than 900,000 associates in roughly 26 international markets. The fact that the firm employees over 900,000 people has contributed to its competitiveness in the global retail industry.

Question 2

The first major decision in Walmart’s international expansion strategy revolved around the specific countries to be targeted. The firms’ entry into the large European retail market was expected. However, Walmart did not consider this option as it predicted strong competition for the European market share with already established competitors (Ball et al., 2013). The firm would have faced competition for the European market share with retail giants such as Schwarz, Carrefour, and others. To avoid competition for market share, Walmart settled for markets in developing economies in Latin America and China. A developing economy, also known as a low- and middle-income economy, is an economy that is less developed as compared to economies that are classified or considered developed. However, developing economies are ranked above less developed economies. Although developing economies are characterized by less industrial development, they have a potential for security and high growth.

Walmart resolved to expand into developing economies such as Mexico, Argentina, and Brazil all located in the Americas as well as China in Asia. Its success in these markets can be attributed to the use of market-specific strategies. In Mexico, Walmart relied on a 50-50 joint venture that in a way helped in the management of significant income and cultural differences between the U.S. and Mexico (Ball et al., 2013). The firm used a similar strategy when it entered Brazil, but took a majority stake in a 60-40 joint venture with one of Brazil’s biggest retailers, Lojas Americana. Walmart used a joint venture strategy when it entered Argentina although it did so on a wholly-owned basis. When it entered China, Walmart encountered a government that restricted foreign retail operations. Thus, it settled for an almost similar strategy used in the Americas, a joint venture with two Chinese partners. Walmart held a controlling stake in the joint venture. Its success in the Chinese market can also be attributed to its decision to local source products in line with the Chinese government’s desire. Although it sourced from locally produced American brands such as those from Procter & Gamble’s factories in China, Walmart sold brands with which the local Chinese market was familiar.

Question 3

In its international expansion strategy, Walmart also entered the Indian market, which is among the five largest retail markets worldwide. India presented a good opportunity for Walmart with its retail industry valued at more than $500 billion and a population of 400 million people with disposable income (Ball et al., 2013). However, the biggest challenge that the market presented to Walmart was its inefficiency. Other challenges facing Walmart in the Indian market are strict government barriers that curtail foreign-owned retail businesses, poor infrastructure, and frustrating bureaucracy (Ball et al., 2013). To gain absolute advantage and ultimately succeed in India that is also a developing economy, Walmart must learn how to manage India’s highly protectionist and anti-capitalist political parties. It must also put in place interventions aimed at dealing with India’s bad road system, difficulties encountered in acquisition of appropriate plots of land, regular power outages, and lack of adequate distribution and cold-storage systems. Indian market is almost similar to the Chinese retail market that is characterized by nationalist sentiments. These sentiments could prove problematic for Walmart as consumers could prefer emerging Indian retail chains such as Provogue and Shoppers’ Stop. An appropriate approach that would guarantee Walmart’s success in India is establishing joint ventures with local retail chains. The decision by Walmart to establish a 50-50 joint venture with Bharti Enterprises in 2007 was one of the steps to success.

 

 

References

Ball, D. A., Geringer, J. M., McNett, J. M., & Minor, M. S. (2013). International business: the challenge of global competition. New York, NY: McGraw-Hill/Irwin.