International Business Strategy: Wal-Mart in India - Essay Example

? International Business Strategy: Wal-Mart in India Table of Contents International Business Strategy Wal-Mart in India Table of Contents Executive Summary 3 Introduction 4 Analysis of Wal-Mart Business Strategies 4 Firm Motivations for Internationalization 4 Wal-Mart’s Mode of Entry 5 Wal-Mart’s Corporate Strategy 5 Wal-Mart in India 6 Conclusion 7 Recommendations 7 Bibliography 9 Executive Summary Wal-Mart is a U.S. based international retail store chain. It is known for its aggressive and well-planned strategies for internationalization, entry and corporation. However, Wal-Mart’s recent venture into India is causing much debate among business critics. The points for business considerations are as follows: 1. Wal-Mart is known to be slow in internationalization. It has been flopped in Germany already. Its endeavour into India is full of strategic risks. 2. Wal-Mart has entered into India with a 50-50 partnership with Bhartia, a legendry retail brand. This has minimized Wal-Mart’s own business freedom. 3. Government policies in India have not allowed Wal-Mart to use its brand name and logos. It is a mere back-end supporter, not a retailing brand there. Thus, Wal-Mart is facing a great and risky business challenge in India. It has to be careful enough not to deviate from cultural regulations and norms as it is already facing reservations from patriotic political parties and local retailers being only foreign. Any more deviation might repeat what happened in Germany. To be successful, Wal-Mart has to merge into the national culture so as not to present the image of an alien to the Indian clientele. Introduction Wal-Mart is a U.S based Multinational Corporation, which operates chains of warehouse stores and discount departmental stores in the U.S and 15 other countries. The company is listed on the NYSE, and is reported to be the world’s largest public corporation by revenue (Forbes Global 2000 as cited in Hayden et al, 2002). Wal-Mart has 8500 stores in 15 countries and has been mostly successful in its venture into the global market. Once asked if Wal-Mart was trying to take over the world, the reply from one of the senior heads from Wal-Mart, with a smile on his face was, “I don't think so, and all we want to do is grow”. This has been evident from the aggressive growth and expansion strategy adopted by Wal-Mart both within and outside the U.S. It has been expanding with massive momentum, with the strategy of “Always Low Prices Always” and has taken over the retail industry in many countries. However, it has stumbled in its smooth expansion in countries like Germany, where Wal-Mart became a text book case of “how not to enter a foreign market” (Peng, 2009). The success of Wal-Mart in its home country, and a variety of other markets like Argentina, Brazil, Britain, Canada, China, Japan, Mexico and Puerto Rico do not seem to have translated into the German market and therefore, Wal-Mart’s expansion plans must be carefully evaluated before giving them a green signal. Wal-Mart knows that venture into India will not be an easy feat because of the market dynamics. Analysis of Wal-Mart Business Strategies To understand Wal-Mart’s position in international business, an analysis of its internationalization, entry and corporate strategies is must. This analysis is as follows: Firm Motivations for Internationalization Internationalization has always been a risky move. Wal-Mart’s failure in Germany or its initial struggle in Mexico clearly indicates that expansion abroad should be carefully evaluated to see whether going abroad is warranted. Source: Global strategy by Mike Peng Wal-Mart falls in cell 3 and may be termed as slow as it internationalizes. The company is still in exploring locations in U.S. In 2010, it opened about 600 international stores, while only about 150 in U.S. However, its pace of internalization is slower than some of its competitors, like Carrefour in France, or Metro in Germany. According to John B. Menzer, Wal-Mart India’s President and CEO, "India is a sensitive market so we will be devising our strategy for her carefully…Retailing is like a game of three dimensional chess where we operate as a player from every aspect, so depending on the needs of the market we shall change and adapt". Although India represents an emerging market with a lot of retail potential, it does not favour FDI and is against the retail chain business and can be a very potent risk (Roll, 2007). Wal-Mart’s Mode of Entry Wal-Mart has always carefully chosen its mode of entry into foreign countries. Wal-Mart entered Canada through acquiring a local player Woolco. In Mexico, the entry was done through a 50-50 joint venture with Mexico’s largest retailer, Cifra. The entry into Latin America was also through joint ventures. Therefore, the entry mode is chosen with specific consideration to the region, and is a not a ‘one size fits all approach’. According to Arti Singh who is the corporate affairs vice president in Wal-Mart India, the retail store chain operates in combination of a variety of brand names from the international private sector but all efforts are being put forward by the company to act domestically catering to the needs of the local clients of the host country. Every market is being explored in this regard and India is no exception. India does not allow FDI in retailing. Government does not permit foreign investment especially in the multi brand retail sector. Single brand retail welcomes almost 51% of the FDI while whole sale venture allows hundred percent. A joint venture was carried out by Bharti enterprises and Wal-Mart Stores in 2007 and together they devised “cash and carry stores” operating under the brand name of “Best Price Modern Wholesale” (Rataul, 2009). In India, a “50-50 joint venture” is mechanized by Wal-Mart in the whole sale, cash n carry segment. It has also established partnerships with Indian farmers through the ‘Direct Farm Program’ so that healthy and high quality fruits and vegetables can be grown for the stores. Wal-Mart’s Corporate Strategy Wal-Mart’s corporate strategy rests on its key goal to dominate the retail industry by having the lowest possible prices. It also has an aggressive expansion strategy both in the U.S and abroad. It also aims at creating a positive brand image where ever it operates, and is diversifying into other areas of retail like grocery and pharmacy. The strategy that has been put forward by Sam Walton stressed to build strong associations and good relationships at both ends of the retail business while staying conscious and alert of the minuscule intricacies in the layout of stores, and the techniques utilized for merchandizing and to capitalize all opportunities for saving expenditure, thus developing a spirit for high performance. Such strategy helps to provide customers with valuable products and also provides a formula to make these goods easily available and accessible for the clientele. It also aids to maintain a cost structure which ensures competitive pricing and a good-brand image for retaining loyal and trustworthy clients (Stalk, Evan, and Shulman, 1992). Wal-Mart generally carries out its operations by employing the sole philosophy of “Everyday Low Price”. It has evolved as a market pioneer due to the strategies adopted for curtailing costs that has allowed it to sustain its clients by offering them additional savings on company products. The company initiated the testing, adapting and applying of innovative methods to maintain a leading edge in the competitive merchandizing, and has been quite a success in this regard (Thompson & Strickland, 1995, p. 860). Wal-Mart in India India is one of the most lucrative markets for Wal-Mart, with a $375 billion retail business, ranking as the 8th largest of the world, and with a growth potential of about 7% by 2011. However, the question of whether Wal-Mart would be successful in India still remains unanswered. Since the operations are being carried out in relation to the joint venture, Wal-Mart’s role in India would be limited to providing ‘back-end support’ to Bharti enterprise’s grocery stores called Best price. This has two major implications. Neither, the original business model of Wal-Mart is being used, which has proved to be a recipe of success in many of the international ventures, nor the Wal-Mart brand name would be used to dominate the market and to command consumer loyalty (Tice, 2010). The branding and business consequences of this strategy are yet to be seen because all global businesses and international operations have worked to retain and maintain a consistent brand image and identity in all countries where they are operating. Wal-Mart, due to regulations in India, will not be even able to use their brand name, let the brand communications and experiences alone. Wal-Mart’s own logos of low prices, inventory management and efficient logistics would be absent in India (India knowledge, 2006). As Merrill Lynch, the appraisal of the opening of Wal-Mart takes into account many considerations. India is, indeed, one of the biggest retail markets of the world, but the ‘Wal-Mart’ culture is not very prevalent there. Wal-Mart is facing severe opposition from local retailers. In the past, Wal-Mart has suffered at the hands of competitors. Competition in Germany and South Korea has driven out Wal-Mart out of the market before, and the same can happen in India. Moreover, India is steeped into an economic recession at the moment. For starters, the Indian market is dominated by a huge number of local retail shops, which cater to the consumer buying patterns. Moreover, the future presents competitors like TESCO and Carrefour to Wal-Mart in India. However, Wal-Mart has a clear strategy in hand. “India is not a homogeneous market, so ours is not a cookie-cutter approach from the U.S…Wal-Mart is in no hurry to unfurl the Wal-Mart flag nationally. The easiest thing is to roll out stores, but the most difficult is to sustain and feed them” (President of Wal-Mart operating in India, Raj Jain, 2009). Wal-Mart’s formula of success has always been its low prices. However, due to India’s restrictive policies it has entered with the 50-50 strategic alliance with Bharti enterprise. The Indian retail market is characterized by mom-and-pop businesses and poor distribution channels, yet retail market has a lot of potential which can be exploited (Verma, 2009). The director of Wal-Mart, Michael Bergdahl exclaimed that the retail sector of India is complex as compared to the rest of the world. As there is the availability of a lot of alternatives, it becomes difficult to make a conventional retail store strategy of “one-size-fits-all” work, as it cannot give fruitful outcomes. Wal-Mart is likely to face many obstacles in India. Apart from the cultural, religious and languages barriers, the government is stringent in its policies and does not facilitate Wal-Mart in any way (Hussain, n.d.). The politicians are not convinced that retail chains can bring any benefits, and even contemplate a ban on foreign retailers entering in the retail trade industry. Wal-Mart, and its front-end stores, Easy Day, will have to operate under strict compliance on the Indian retail law (Casestudy inc., 2010). Conclusion India is a tremendously huge market whose consumer spending is growing due to aids such as the credit cards, and GDP per capita on the rise. Such statistics indeed present a very favourable picture especially for an organization like Wal-Mart that strategizes capture its markets aggressively (Lakshman, 2009). With its supply chain and logistics systems which are technically efficient, and a right marketing plan to accompany them, Wal-Mart can conquer any international market (Bartels, n.d.). It also has the strength and resources to bear a lapse in strategy, and if the proposed strategy does not work in India, Wal-Mart can go back to its front role, and operate with its original business model and strategies. Overtime, the government and consumers of India will see for themselves the benefits of a true low price store in their midst, and will be more willing to support Wal-Mart in their earnest. Recommendations As Wal-Mart is passing through crucial and risky phase in India, following recommendations can be of great value: 1. It has to avoid stirring any cultural bias among the clients. Local items must be the highlighted products. 2. If introduced, Wal-Mart has to change its logo in India. Traditional colours and designs can be really attractive. 3. It should befriend local retailers through inter-business ventures. Bibliography Casestudyinc.com. Wal-Mart in India. [online] Available at: [Accessed date: March 5, 2011] Bartels, C. “Wal-Mart has eye on global expansion”. [online] Available at: [Accessed date: March 5, 2011] Hayden, P., Lee, S., McMahon, K., and Pereira, M., 2002. “Wal-Mart: Staying on Top of the Fortune 500”. [online] Available at: [Accessed date: March 5, 2011] Hussain, S. “Wal-Mart in India – Is India Ready for the Retail Revolution?” [online] Available at: [Accessed date: March 5, 2011] India Knowledge, 2006. “Will Wal-Mart Succeed in India? Perhaps...But It Won't Be Easy”. [online] Available at: [Accessed date: March 5, 2011] Lakshman, N., 2009. “Why Wal-Mart's First India Store Isn't a Wal-Mart”. [Online] Available at: http://www.time.com/time/world/article/0,8599,1898823,00.html [Accessed date: March 5, 2011] Peng, Mike W. 2009. Global Strategy. New York: Cengage Learning Rataul, D., 2009. “Wal-Mart makes its India entry”. [online] Available at: [Accessed date: March 5, 2011] Roll, M., 2007. “Wal-Mart and India - an ideal couple! But what about branding?” [Online] Available at: [Accessed date: March 5, 2011] Tice, C., 2010. Wal-Mart’s Huge Overseas Expansion Distracts from Its Domestic Saturation Problem. [Online] Available at: [Accessed date: March 5, 2011] Verma, R., 2009. “Wal-Mart's India opening prompts mixed reaction” [online] Available at: [Accessed date: March 5, 2011] Read More