Journal of Project and Operations Management, 1(1), 9-16, 2014

ISSN:
Readers Insight Publishers

Wal-mart in Germany: what we know, what we should know?

Tahira Nazir a , Syed Fida Hussain Shah b , Khalid Zaman b
a

Department of Management Sciences, COMSATS Institute of Information Technology, Wah campus, Pakistan
b

Department of Management Sciences, COMSATS Institute of Information Technology, Abbottabad, Pakistan

Abstract
Wal-Mart is US based chain of stores which is very successful in US. It performed its
operation almost for ten years in German market but faced continuous failure and finally it
left this market because of various reasons. These reasons and factors are ovulated in this
study. This paper is under objective of analyzing and discussing the different factors which
contributed to the failure of Wal-Mart in Germany. These factors are need to be analyzed
on the theoretical bases of different contexts including convergence, differences in cultures
of home and host country, and other differences in home and host and their impact on the
organizational or business strategies. The study outcome shows that two of the most
reasons behind this failure were non-adherence and non-conformance of the Wal-Mart to
cultural and social values of Germany.
While developing the strategies many
environmental factors like German (host country) law & regulations, business ethics,
national values of Germans were neglected and were not considered properly. Because of
negligence regarding taking into account the consumer (German) habits Wal-Mart failed to
get in not considering the German customers habits U.S. retail giant Wal-Mart failed to get
a grip on the German market - first and foremost because management didn't take into
account German consumer habits. The further findings indicate that Wal-Mart failure in
Germany for reasons like, economic environment is positive for the shareholding form of
investments in Germany but not in US markets, as per cultural dimensions by Hofstede the
Germany believes in long-term orientation while the US economic system is short term
oriented, human freedom differences, difference ethical values etc. Top management of
Wal-Mart did not considered these differences and not adopted a rational behavior
regarding the adoption of local setups for which company has to withdraw operations from
Germany. Many factors have created negative attitude like decisions for replacing the local
mangers with foreigners was considered as reduction of the local people employment. No
autonomy to the subsidiaries, intentions for imposition of standardized HRM practices all
contributed for creating dissatisfactions. Because the standardization of policies can be
performed if the home country and host country business environments are same but in
Case of US and German markets there are many differences and this standardization was
not good decision at all.
Keywords: Wal-Mart; Business ethics; Economic environment; Germany.
1.

Introduction

Wal-Mart is the largest, US based chain of, retailing stores, Sams clubs, and super centers.
It is having successful business operations in many countries. Basic attractiveness in
making investments in Germany was the size and location of this market. Wal-Mart went
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Journal of Project and Operations Management, 1(1), 9-16, 2014

to start its operations in Germany in 1997. It acquired 21 Werkauf ' hypermarkets in 1997
and 74 Spar-Handels German Hypermarkets in the year 1998. For this acquisition WalMart used the strategy based upon brown filed investment, growth of Wal-Mart was very
fast in German market due to this acquisitions (Aoyama & Schwarz, 2006).. In spite of the
fact that Wal-Mart is the largest retailer, it faced the failure in German and French markets
(Fernie and Arnold 2002).
In German market the profit margin for the retail food product is very low; therefore even
the everyday low price policy was not sufficient enough for the survival of the Wal-Mart in
this market. Wal-Mart faced many difficulties while operating in Germany. Major
competitors for Wal-Mart in Germany were Aldi and Lidl. Because of high labor cost
German retailer stores avoid IT based facilitation; local people are having habit of
purchasing the local products preferably and make the payments through cash instead f
credit cards.
We have analyzed the Wal-Mart in Germany from various perspective including,
convergence theories, cultural and institutional variations and pressures in house and
abroad and other associated factors which contributed to its failure in the German market.
The conclusion drawn and certain recommended actions are based upon the analysis of the
business operations of Wal-Mart in German market, its strategy adoption, reasons of its
failure and relevant literature in the area.
2. Convergence aspects and fifficulties
The convergence of HRM practices of companies operating in international businesses
varies from culture to culture and in different institutional setups. Native culture, traditions,
political and institutional framework of host country can influence the companys choice
for the convergence option. Universal best practices can be easily transferred from home to
host country and thus companies can perform the convergence for such practices (Pudelko
and Anne, 2007). Similarly the practices which dont have any influence by the host
country culture and institutional framework can be transferred from home to host country.
The success of retailing for Wal-Mart was based upon the on confidence, low price
competition and financial soundness of the company in terms of investment in objective to
attain long term benefits (Beard et al. 1999). With the emergence of price based
competition in the host country based companies tried to create the supply chain
difficulties for the Wal-Mart stores. US based executives of Wal-Mart adopted the abrupt
change process for replacing the local nationals with expatriates in German market.
Besides this the management forcefully imposed the management practices. Wal-Mart
based ethics and rules in its subsidiaries in the Germany and didnt bother to check the
preferences of the local market. These actions were sort of underestimation regarding the
host country players (Elfers, 2000)
Organizations mostly emphasize that the subsidiaries should rely on the headquarter for
guidance and should be given low autonomy but to have effective business in different
environments this should be the case and companies should try to attain the balance
between the standardization and localization of the practices a per new environmental
requirements. The ethnocentric strategies of MNCs were not sustained in standardised
corporate context (Bartlett & Ghoshal, 1989). The legal institutions in Germany opposed
the convergence of management practices to safeguard the interests of stakeholders and
wanted the Wal-Mart to adopt the localized practices.
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Journal of Project and Operations Management, 1(1), 9-16, 2014

3.

Assessing the variations in Germany and US in cultural context

While operating in different countries, MNCs face two types of the differences in home
and abroad which are institutional and cultural differences. These differences are the source
of variation in structure, policies, operations of the firms at home and abroad
(Noorderhaven & Harzing 2003). To analyze the factors that contributed towards failure of
Wal-Mart lets look at the differences in cultural values of Germany and US as per Hofstede
(1980) cultural dimensions i.e.,
3.1.
Long term Orientation: As per Hofstede presented model the US society is low in
long-term orientation which is reflective in the business practices as well. But contrast to it
in German culture is adhered to long-term orientation, having long term commitments and
low turnovers. These differences were ignored and the company tried to impose the home
based practices to entirely new environment.
3.2.
Uncertainty Avoidance: undertaking the short term business plan reflect the low
uncertainly avoidance in US business. The change adoption and implementation processes
are very fast in US organizations as compare to German companies. In contrast to US the
uncertainty avoidance in the German context is high. Abrupt changes are not the part of the
practices and are usually avoided. Similar is the case with short term plans they are also not
considered positive
3.3.
Collectivism / Individualism: German society is collectivist, workforce here is
having long term relations with companies and practices used to retain the employees are
also of long term orientation which is characteristics f networking and strong relationships.
Organizations believe in more coordinated performance, where performance appraisals are
mostly for the betterment of the employee. Union plays effective role in Germany and are
way to protect the rights of employees while in USA employees are given dictations and
unionizations are opposed. At the same time the performance feedbacks are sometimes
used as to harm the employees because of personal likings and disliking.
3.4.
Power Distance: High power distance among different levels is very much
reflective in the US society. Top management enjoys most of the power as compare to low
level of hierarchy. The employees concerns are not given importance. Oppose to it the
German society possesses low power distance. The companies mostly possess less level of
hierarchy and more flat structure. Every level of the organization enjoys the required level
of autonomy and all the power regarding decisions making is not concentrated at the top
level only.
3.5.
Masculinity/Femininity: Germans prefer work environments with feminine values.
They prefer work life balance, respect, holidays with family etc in contrast to their US
counterparts who are high in masculinity. They concentrate on work and put efforts to gain
the pride by achieving challenging goals and concern for people is low.

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4.

Institutional framework

Germans possess world class apprenticeship scheme based on competence first model. As
a result of this, technical skills are considered very important and are supposed to be
improved with induction of new technology, process, techniques etc. (Glunk et al. 1997).
German managers because of their proficiency in technical skills apply wide span of
control and employees are given greater work autonomy as contrast to US mangers (Glunk
et al. 1997).
For the survivals corporate need to show conformance to the prevailing rules and
preferences in environment they are operating (Scott 1995) Because of not considering the
various differences in cultural, institutional and many other areas, the Wal-Mart in
Germany faced the failure. One of the outcomes for not considering these differences and
local references is the lawsuits registrations due to forced imposition of home based
practices to German market. While planning the business to markets other then the home
countries, companies need to take into account the legal environment, values, code of
conduct, social preferences prevailing in the host country. Sometimes issues not related to
corporate but regarding host country rules and people preferences if not given importance
can create difficulties for the companies (Talaulicar 2009). Opposite to US managers, the
strong reliance on labor unions to manage many workforces related issues make the
German managers to have more time to give high productivity and use low energy in
managing the disputes (Glunk et al. 1997).
Standardization of HRM polices can put the companies into high pressures and difficulties
in case where the home country and host country cultures are not same (Taylor, et al.
1996). Adaptation of local strategic HRM framework is better if the level of differences in
culture of host and home country is very high. Only core competencies of HRM should be
transferred to new setups and others should be designed in accordance with the new
environments (Taylor, et al. 1996). Because of not analyzing the institutional differences
and their importance the Wal-Mart had to face many adversities while starting its
operations in retailing in German market. Germany. Non trust on the government polices,
imposing unionization, restriction in business hours, neglecting the people freedom and
social norms were the main reasons behind failure f Wal-Mart in Germany (Shugan, 2007).
4.1.
Institutional Isomorphism
Institutional isomorphism refers to the similar traditions and resemblances of one unit to
another (DiMaggio & Powell, 1983) and the organizational legitimacy is that the
organization is accepted by its external environment, while in case of Wal-Mart that
homogeneity approach was highly missing.
4.2.
Factor of Corporate Governance (CG) System
Companies mostly to avoid complexities (like institutional variations, legislation related
problems) in international businesses adopt the host country based HR and other
management practices Kostova (1999). Hall and Soskice (2001) presented that German
society is collectivist society practicing the business based upon the legal values and more
formal agreements.
US based approach towards corporate governance was not effective in Germany, because
the Germany has the corporate driven governance system while the US is having the
converged marker driven corporate governance system (Carati, G. et al 2000). If the home
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Journal of Project and Operations Management, 1(1), 9-16, 2014

and host countrys institutional setups are having correlation with each other then they can
apply standardization in the practices but as it was not the case in US and Germany so WalMart had to quit the market.
Voss & Blackmon (1996) argues that German business beliefs are based on the German
workforces capability to acquire, development and application of the manufacturing skills.
They therefore are considered to have high technical and engineering skills, it is in
contradiction with the US counterparts which rely more on marketing excellence. Germans
companies are believed as to be social institution not the profit generators, they focus on
people, planet and profit (Harzing et al., 2001), which reflects that the organization shows
responsibility for stakeholders not shareholders. Therefore we can say that the corporate
governance mechanism in German companies is focused on stakeholders and long-term
performance of the company and can be called insider system of CG. But the corporate
governance in the US markets is market oriented.
International competition in the German market is strongly influenced by the strong
cultural values and institutional framework and the German companies nor exactly rely
upon the ethnocentric approach neither the polycentric approach in management practices
rather it uses the middle way of both the approaches while in the USA ethnocentric
approach is in use.
4.3.
Other relevant factors contributing to failure
Because of the institutional impact in respect to international practices, performance and
requirement company the HRM practices may not be same in all the subsidiaries (Ferner et
al., (2005), whereas the Wal-Mart tried to adopt the standardization policy. Adoption of
brown filed investment was not the right choice because of the stakeholders and long-term
based economy like that of German market Ferner (1997).
German management style is based on competence first model. Technical knowledge and
engineering skills are highly valued and all employees are continuously challenged with
new techniques, tools and procedures. This ensures swift happening of retooling i.e.
adapting to new technologies, products and services. Germans prefer technical skill more
as compare to formal education in contrast to US, compulsion for the mangers to train their
respective replacements mangers shows more transparent organization and also help
building the networking and trustier environments but this is not the common practice in
US (Glunk et al., 1997).
Respect for technical expertise, the skills and competencies possession of make the people
more autonomously with more independence but this is not the case in US business
practices (Glunk et al., 1997). This feature makes the organization to practice wider span of
control with low monitoring required by mangers for the subordinates and at the same
times provides the employees at all level for making new experiences for more innovative
practices and performances. Labor relations management by unions is of core importance
in the organizations but US business practices oppose these style of labor management, this
leads to saving the time of German mangers from dispute resolution of employees.
Due to rigid behavior for not adapting the practices suitable in the German market, WalMart even after 10 years of operations was not able to create sustainability Christopherson
(2007). Language plays very important role in adjustments to new culture but, due to
unwillingness to learn German by top management Wal-Mart was unable to get
acquaintance to the social setup of the German market. Ignoring the human freedom and
not observing the German code of ethics gave rise to interpersonal rivalries of workforce at
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Wal-Mart and it had to face many lawsuits in this context ((Talaulicar, 2009).
5.

Conclusion

Wal-Mart continued its operations in Germen market for 10 years, but was not succeeded
and ultimately was left with single option of quitting the market. The basic reasons behind
this action was operational difficulty in Germany, incapability to adapt to cultural and
social setup of the Germany and rigidity of the firm to transfer management practices from
the home to host country without the compatibility of the environments.
Institutional framework of the German market was not analyzed in proper way and the
practices were nod designed to have the compliance with this framework. Institutional
pressures in form of laws, working timings, pricing strategies, employee freedom, supply
chain management were faced by the Wal-Mart. US organizations are shareholders
centered while the German companies show responsibility to the stakeholders it creates the
incompatibility of profit generating sources of US and German companies where they are
short term and long term oriented respectively
One of the remarkable reasons behind the failure of the Wal-Mart is the US top mangers
behavior related to replacement of the host mangers with expatriates and the forceful
imposition of ethics on both the host country and expatriate mangers. These impositions
resulted in the litigation processes in German courts due to violation of the human freedom
rights. At the same time restrictions on unionizations also resulted in the failure of
business.
Facing failure in German market was unavoidable for Wal-Mart. It was the result of its
incapability and ignorance regarding the internationalization of business and cross cultural
management of business. It needed to shake up the highly competitive market of Germany
through innovative business strategy but it relied on the existing practices and came across
with miserable failure. There are few recommendations for Wal-Mart for their future
prospects in Germany i.e.,
a) Wal-Mart faced the failure in Germany because of certain external cultural and
Institutional differences in Germany and US. Management did not considered for
the adoption of localized setups and cultural values and tried to impose the home
based practices in Germany. In order to avoid these failures in future top
management should go for careful analysis of international markets and modify the
organizational practices in accordance to the host country environment.
b) Although the corporate culture and company culture are nit the same but even the
company can have the influence of national culture, like US culture on Wal-Mart,
so instead of straight away replication of Corporate culture of Wal-Mart in German
market it should have modified in accordance with the German cultural attributes
c) Unionization is one of the important aspects of organization in German markets so
it should not have neglected and German people who are part of collectivist society
should be allowed for the process of unionization.
d) In order to avoid the litigation process the local ethical values of German people
and human freedom should be given importance
e) Employment options should be provided to local nationals in order to attain the
positive attitude of German people for organization and replacement of the
nationals with expatriates should be made in very vital requirements only.
f) While planning the international business, company should not neglect or under
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estimate the host country workforce and should considerably given importance to
the local working practices in order to lead the business effectively even in new
environments.
g) Adoption to local setups is better option instead of the standardization of the
practices in environment which is totally different in home country and the host
country.

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