a.

When Wal-Mart announced that it would be entering the German markets, analysts were
surprised. Usually, the cultural affinity between the US and the UK prompted American
companies to target the UK first before entering the rest of Europe. Do you think Wal-
Marts decision to enter the German market was correct? Justify your stand.

Worlds largest retailer, US-based Wal-Mart has more than 8,500 stores in 15 countries, under
55 different names. It's the largest private employer in the United States, the largest in Mexico
(as Walmex), and the third largest in Canada. In fact, it's the biggest private employer in the
whole world. It has 108 stores in China alone, and operates another 100 Chinese outlets under
the name of Trust-Mart.

Still, for all of Wal-Mart's conspicuous success, the retailing giant, after having set up shop
in Germany in 1997, was forced to withdraw from the country in 2006, abandoning Germany's
lucrative $370 billion retail market. The Metro retail chain took over Wal-Mart's 85 German
stores. The tenure cost Wal-Mart about $1 billion.

Wal-Marts world success but withdrawal from Germany

From the beginning, Wal-Mart found its American approach to business did not quite
translate into German. Wal-Mart focused efforts on where it could have the greatest impact on
growth and return on investment strategies. It was becoming increasingly clear that in
Germany's business environment, it would be difficult to obtain the scale and results Wal-Mart
desired.

Wal-Mart mentioned it screwed up due to putting their name up before giving services and
lowering the prices. They accept they disappointed Germans and they did not have
infrastructure to support what they were trying to do or achieve. Mainly they failed on their
customer services satisfaction being 7
th
out of 10 in major German retailers. Smaller stores and
bringing down capital costs were the only available options they were working on in last years.


b. Even after five years of doing business in Germany, Wal-Mart had failed to make an impact
on the German market and had been incurring losses year after year. Analyze the reasons for
Wal-Marts problems in the German market. To what extent did the lack of understanding
of German culture affect the companys performance?


Wal-Marts problems
Wal-Mart entered into the German market unprepared. It was Europes most price-
sensitive market. Wal-Mart underestimated the competition, culture and legislative
environment.







Lack of understanding of German retailing

Entry strategy

Wal-Mart could have entered Europe via UK for its US like language, cultural and legal
environment. But it considered Germany for it was 3
rd
largest economy in the world and could
provide a central base from where Wal-Mart dreamt to expand in all direction on the continent.
Germany had high labor cost, high real estate prices and very inflexible business
environment and its retail industry already experiencing slow growth rate, retailers indulged in
price wars that eroded price margins. Wal-Mart thought its EDLP and customer focused service
would turn the market in its favor.
As German government was refusing new licenses for food and grocery retailing, Wal-
Mart had to acquire unpopular Wertkauf with 21 stores and another Inerspar of poor brand
image and heavy loos for its 74 stores. It spent $150 million to bring them to own standards.

Operational environment

Due to Wal-Marts wrong anticipations, and misreading retail environment it rain into many
issues like, by the time it realized it would have lay-off, German unions stood against it and
even walked out for its bad publicity. And why not, U.S. did not have culture of employee
unions and Wal-Mart too rarely consulted elected representatives as it supposed to happen in
Germany. On top of that employees went on 2-day strike. Other issues were

EDLP (Everyday low pricing, lower than its competitor) did not work as they also
slashed down their prices and even publicized it.
Due to bad supplier relationships, Wal-Mart was selling as push-market in a pull-
market.
Due to low wages, it did not have enough employees for its only stockroom. Bad
working conditions added to existing employee unrest. It refused to work on centralized
wage bargaining (same wages across the stores)

Regulatory problems

Wal-Mart was accused of breaching various German laws. E.g.
Win
Wal-Mart sold sugar, milk and margarine in prices lower than it bought them. Section (IV)
(2) of 'Act against Restraints of Competition' - (Gesetz gegen
Wettbewerbsbeschrankungen or GWB) forbids any big player from selling on lower prices to
beat small players in competition. Due to inconsiderable market share and market capitalization,
Wal-Mart wasnt considered as big-player and it did decreased price temporarily so despite







court warned it, it turned out to be legal.
Loss
In Germany even limited partnership firms like Wal-Mart were supposed to publish their
financial statements as per Section 335a of the 'Commercial Act' (Handelsgesetzbuch or
HGB).

Cultural problems

This seemed to be the biggest problem of all and Wal-Mart had to learn a lot on the field
after disappointing many of its customers and employees. Many of its signature schemes to
please customer like ten rule and loyalty card or greeters were all in vein.
With employees, cultural differences reached up to the extent that their moral went down
when only liberal expenses were given to executives and they had cultural shocks like for
sharing rooms in business trips.
Wal-Mart couldnt integrate Wertkaufs and Interspars cultures with each other or with its
own. One was highly centralized and headquarters making all the decisions and the other
was highly decentralized with each regional unit working independently.
Wal-Mart faced language issues but did not bother to learn German and kept English as its
official language while Germans couldnt even pronounce the store name better than Vawl-
Mart. Employees started feeling outsiders and getting frustrated.
Ten-Foot rule (smile-eye contact-greet with name-offer assistance whenever an associate
comes within 10 feet of any customer) did not work as Germans did not like strangers
interfering with their shopping.
Greeters (on welcome doors) were also unwelcome as Germans thought they would have to
pay more for this.
Loyalty-cards (offering discounts and in return store would know customers buying
pattern) were banned in Germany.

All in all Wal-Marts decision to go global wasnt bad and thats shown by its success
records. But it could have entered in UK through England and that too after carefully studying
cultural differences and other regulations etc. If at all Wal-Mart was well prepared, it would
have done quite well in Germany too. At least Wal-Mart believes so and I second this opinion
considering Wal-Marts success worldwide.