The lucrative nature of the global market is irresistible to every company. However, some companies are not able to survive on the global market despite the fact that they are the leaders in their local markets. Various international business models can be used to explain how such companies can perform better globally (Freeman et al., 2011). Most companies decide to enter into global market thinking that success is guaranteed. However, the reality is that success varies widely and it is very hard for companies to make adequate profits from investments abroad. In order to get a clear picture of the global market, it is important to focus on a single industry if possible assessing each company independently. Cross-industry analysis has always indicated that success in the global market is guaranteed (Goetz, Rupasingha and Loveridge, 2012). However, this approach is very wrong especially if the company lacks appropriate strategic plans. The purpose of this article is to evaluate how Wal-Mart can boost its performance on the global market.
Research has shown that Wal-Mart is the second largest retailer in the world. The company is also performing very well in its local market in the United States. Analysis of Wal-Mart’s performance on the global market is relevant because it belongs in grocery retailing industry (Goetz, Rupasingha and Loveridge, 2012). Through this assessment, it is easier for one to notice how retailing groceries finds it hard to penetrate the global market. Through research, it has been established that local players are still dominating grocery retailing in most countries. This seems to be the case even in developing countries, which in most cases seems to be the most attractive markets. In fact, it has been established that every retailing company that has ventured abroad has failed often just as it has succeeded (Freeman et al., 2011). This implies that success of retailing companies is just a fifty-fifty opportunity especially if the company lacks a reliable strategy.
For instance, Wal-Mart is the most famous shopping center such that it has turned to become the Americas apple pie. Chances are that this might be the major source of problems whenever Wal-Mart attempts to invest abroad (Freeman et al., 2011). It is not as if Wal-Mart has failed in every international market, however, as stated earlier, its success is just as limited as its failure is elevated. The major cause of Wal-Mart’s failure has always been attributed to the company’s failure to understand the foreign markets. The company has always wanted to use same strategies used to lure the American market in every country. Unfortunately, there are great cultural differences between Americans and people from other nations hence the need to understand and replicate this (Goetz, Rupasingha and Loveridge, 2012). Thus, the company is required to fine-tune the shopping experience such that it meets the local cultures in foreign countries.
Among the notable examples, is Wal-Mart’s failure to tap the opportunities in the South Korean market (Hicks, 2015). The company was not able to convince the local market buying small packages from local stores due to various reasons local stores were highly completive because they could offer their products at discounted prices. Secondly, Wal-Mart failed to meet the aesthetic preferences that Korean natives required. These same issues resulted in the failure of Wal-Mart to serve the local market in Germany as buyers could access groceries from local stores at cheaper prices. Wal-Mart’s failure due to the mentioned factors can be explained using the national 'competitive advantage' international business model. Through this model, it is easier to understand why local companies tend to be more successful in certain industries hence overpowering foreign investors (Mottner and Smith, 2009). As presented in porter’s diamond, it is evident that foreign markets are usually made up of complex and sophisticated customer base.
Therefore, research has revealed that in satisfying such markets, a company must be highly innovative such that it produces higher quality products during its earlier stages. Adopting this strategy gives the company a competitive advantage even over the local stores because the company is perceived as a change initiator on the market (Mottner and Smith, 2009). Unfortunately, Wal-Mart failed to understand this concept hence its immediate failure in the countries mentioned above. Wal-Mart could have borrowed from the provisions of new trade theory to enhance its product diversity. Under this theory, it is held that trade is supposed to increase product varieties that customers can access. However, it is also essential that the same trade reduces the average costs of those products created in order to be acceptable in the market (Hicks, 2015). Wal-Mart was unable to make good use of the economies of scale as a means of facilitating cheaper production costs to reduce the prices of its products in the market. Eventually, it was forced to loose to the local players who offered products at lower prices.
Another good example of Wal-Mart’s failure to tap international markets is the investment it made in Japan. The company management thought it is not possible to stand solely in a foreign country and hence decide to acquire shares from Seiyu Ltd (Mottner and Smith, 2009). However, the company insisted on using the same marketing strategy that had proved success in the United States. There were no attempts to conduct research to understand the implication of such a strategy in this new market. Unfortunately, culturally Japanese associates low price with low-quality products. Thus using the marketing slogan "every day low prices" meant that the company was offering products of poor quality. This implies that Wal-Mart neglected to the power of cultural diversity in the international market. Failure to clear out cultural misunderstandings in the Japanese market is responsible for the company’s ineffectiveness (Mujtaba and Maxwell, 2011). As a result, existing players who seem to be highly competitive even internationally overpowered the Wal-Mart.
On porter’s diamond, this failure can be explained using the firm strategy, rivalry and structure pivot. This section provided that countries differ in management ideologies (Mujtaba and Maxwell, 2011). Similarly, it stipulates that if a country has a stronger domestic rivalry, then there is a high level of efficiency thus enhancing the company’s ability to compete internationally. It is evident that retailing and other supporting industries struggles so much in the international market. According to research based on this model, it was established that if suppliers are present in home countries that are internationally competitive, then there is a high level of competition in new industries. This is evident in the case of Japanese market that is dominated by companies such as 7-eleven Japan co. Ltd, ito-yokado co. Ltd and Aeon co. Ltd among others (Goetz, Rupasingha and Loveridge, 2012). These competitors understood well the management ideologies in Japan while Wal-Mart failed to let Seiyu take control of the situation.
From the case analysis, it is also evident that the bargaining power of customers is normally together in the international market. Since customers are in their native countries, they have the power to reject the prices set by foreign companies (Hicks, 2015). As a result, the company is usually forced to offer its products at reduced prices. In most cases, the company is likely to incur losses due to higher operational costs that translates into increased expenditure and reduced revenues. It is also evident that the bargaining power of suppliers is higher compared to the ability of Wal-Mart. Wal-Mart, as a grocery supplier is required to get products from within the host countries (Mujtaba and Maxwell, 2011). However, it is very difficult hence, the company is forced to get products from suppliers in its native country. Suppliers in host countries want to exploit Wal-Mart because it is new in the market.
The previous paragraphs show that Wal-Mart has failed to take advantage of the benefits that come with being a member of a highly empowered country in the world. This is clearly stated under the international business model of absolute advantage (Mujtaba and Maxwell, 2011). This model provides that a company should international success is guaranteed only if the company is able to remain efficient in its production. This strategy can assure Wal-Mart success n global market in less than two years. The company should adjust its production such that they are in line with the expectations and requirements in the host market. It is important to pay specific attention to cultural differences between the United States and the respective host countries. While implementing this, it is also important for Wal-Mart to understand the provisions of comparative advantage (Mottner and Smith, 2009). Comparative advantage enlightens Wal-Mart that the success of the market does not solely depend on its productivity. These countries are also able to produce similar products even though it might not be as efficient.
In order for the company to be successful in the next five years, it is essential that it enter into mergers with market leaders in respective countries. This must be accomplished properly so that it does not fall a victim of frauds on the market (Mujtaba and Maxwell, 2011). The company can also identify upcoming and promising firms and acquire them. This helps in expanding its assets and reduces the amount required to own land and develop personal properties. Through this, it will also be easier for the company to gain acceptance in the markets. Similarly, the company will be able to reduce the bargaining powers of its customers and potential suppliers. Management of these subsidiary branches should be left to the native of the respective countries (Freeman et al., 2011). They have proper understandings of the operations in their countries and they will help the company to maintain the networks that are already created.
Wal-Mart’s’ case shows that there are various factors that lead to barriers of the new entrant in the foreign market. For instance, local companies are not always ready to help firms from abroad as depicted in the case of Wal-Mart when it tried to acquire Seiyu. Foreign companies also find it hard to grow organically in host countries due to the higher costs in terms of real estate, inappropriate sites and high competition (Goetz, Rupasingha and Loveridge, 2012). Therefore, Wal-Mart requires developing a strategy that will enable it to secure and own assets in its target countries first before venturing into business. This implies that the company should target to realize its success in tough market conditions after ten years. By owning assets, the company will be able to reduce operational cost. Similarly, this is adequate duration for the company to study and understand the cultural conditions of the target nations.
This is in line with Heckscher-Ohlin theory, which postulates that a company is only advanced if possess land, capital, and labor. Some countries have maximum land tenure, which means that in order for one to own land, he must have possessed it for a certain number of years. Therefore, ten years is a reasonable period for Wal-Mart to secure victory on the international market. This duration is approved for Wal-Mart to secure land and other important long-term assets and strategically position them at the appropriate places to tap the market in the respective countries (Freeman et al., 2011). Through this move, the company will be able to reduce the effects of threats of substitutes. The Firm will also be able to produce diversified products that are in line with the cultural demands of the natives in these host countries. Thus, it will be able to ensure that customers buy its products instead of looking for their substitutes because the company is able to satisfy market demands.
Conclusion
In summary, grocery retailing is a critical industry and the company must have properly laid strategies in order to succeed in the global market. Good performance in the local market is never an assurance that the company will be successful internationally. As illustrated above using Wal-Mart, it is evident that even big corporations usually lack reliable strategies for growth and survival on the intentional market. Thus, it is necessary to have a proper comprehension of the requirement of international management. It is also evident that Wal-Mart has great chances to improve because the mistakes that led to its failure are petty and manageable with proper decisions.