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Why Walmart Failed in German Market: A Critical Analysis

Nyamweya is a Kenyan scholar who has done many years of research on a diversity of topics

why-walmart-failed-in-german-market-analysis

Introduction

Wal-Mart is considered to be the largest retailer and grocery store globally with a presence in different parts of the world. The giant firm has recorded immense success in some countries such as China, Canada and the United States of America. However, the same company has terribly failed in some other countries such as South Korea and German where it was forced to close business after massive losses (Walmart, 2015). This essay seeks to employ Wal-Marts overtures in German to analyze the basic principles associated with product deletion and failure. Furthermore, Wal-Mart’s experience in German also provides important lessons for other international businesses when entering new countries.

Challenges Wal-Mart Met In German

The first challenge Walmart met in German is lack of understanding of the local culture. This company found it a problem providing compelling value proposition to its customers owing to cultural differences, as compared to local competitors who understood these features (Subhadra, 2004). In particular, the Germans found it strange that people who did not know them could smile and attempt to flirt arbitrarily when they were doing their shopping (Subhadra, 2004). The staff’s behavior raised cultural issues whereby; most of the local shoppers were not reluctant to accept the company’s culture where its sales staff and packers were supposed to accord customers with hearty greetings at every check out (Nizam, 2016). Particularly, Walmart requires its employees to smile at customers when they are making purchases at their stores. However, this behavior is against the culture of Germans who frown smiles from total strangers. The spectacle of employees at Walmart stores in German dishing out unwarranted smiles not only unnerved customers but also failed to impress them. Many German consumers took this as flirting.

Walmart’s choice of location for its stores in German was also a challenge. Unlike their American counterparts, German consumers preferred smaller neighborhood stores as opposed to impersonal chain typical of Wal-Mart (Landler and Barbaro, 2006). Apparently, most of its stores were located on the edge of town making it inaccessible by many customers. In spite of some of these stores being unnecessarily large, most o them were in places where traffic connections were poor while rents were extremely high. In fact, sales were said to be operating at 40 percent below plan (Dawson, 2009). This meant that there were low turnover of customers hence earnings yet the company had to incur high rents, subsequently leading to loss.

There were also employee relation challenges. Walmart’s management in German never appreciated the need to establish a positive relationship with the German unions. Walmart’s organization culture was unfriendly to the German unions which saw Walmart as an alien among them. This company failed to comprehend that in German, companies and unions are supposed to work together and get along with one another (Clark, 2006). In Walmart’s culture, employees were micro-managed and this entailed forbidding any form of relationship at the workplace. More worse was Walmart’s regulation that required all employees to report those they had caught breaking the rules. An employee risked being fired if he or she failed to report such an incident. This is despite the fact that workplace relationships are a normal practice not only in German but also in many other places of the world (Landler and Barbaro, 2006). These and other practices did not only make Walmart to appear uncondusive to German workers, but also went against the culture of the local people who considered relationships as a normal practice. Employees also regarded Walmart’s practice as heartless employer whose focus was about generating profits rather than the general happiness. This system was rejected both by the employees who also felt demoralized and hence less productive as well as the unions who were against the organization’s activities. Again, the practices were considered extreme until the matter concerning these “alien” practices was taken up to the German industrial court which subsequently ordered the company to stop these practices at the workplaces (Jui, 2011).

The Unique consumer needs and preferences was also a notable challenge for Walmart. Most managers and executives in German were Americans who did not comprehend the specific consumer needs and preferences in the market. To succeed in international markets, Walmart found it necessary to adjust their products in a way that meets the tastes of consumers in this particular region. Again, the company required to change the tastes of its products, as well as creating unique logistics, packaging, and marketing campaigns in the area (Mayureshnikam and Patil, 2018). However, this was costly for the firm to transform their product designs, packaging, logistics and even corporate culture to meet consumer tastes. This is why many of the multinationals opt to maintain their strategies and brand albeit to their disadvantage (SCHAEFER et al, 2017).

Why Walmart Failed in German Market

Apart from the challenges discussed above, Wal-Mart’s entry in German market also faced stiff competition, high street; low margin environment where many operators existed, some of which were more established operated warehouses that were similar to that of Wal-Mart in terms of products and market strategy (Subhadra, 2004). The company also found out that shoppers were very price conscious and as much as they came up with a low price strategy, however, there were many other stores that were offering even lower discounts (Landler, and Barbaro, 2006). The four 4 Ps of marketing (which includes Product, Place, Promotion, and Price) are considered to be the pillars of any retail business. In order to succeed, a company has to strategize effectively all the 4 Ps of marketing (Kotler, 2012). Evidently, Walmart’s penetration price strategy was questionable. The strategy entailed setting lower prices for its products so as to gain a market share and win potential customers. However, these caused ripples among local competitors who took the company to court for violating the nation’s competition laws. Further, the low pricing also meant that employees were to be paid lower wages compared to the local firms, against causing friction with the local labor unions. They were unable to cope with the high level competition (Hayden et al, 2002).

From Walmart’s case, it is apparent that the company employed an equity entry model when establishing its presence in German market. This is because apart from retaining its name, it also invested its resources in its own physical stores, employees, branding among others. However, direct investment worked against the company since its operations did not match the local culture while also exposing it to high risks in the face of failure (Durand, and Wrigley, 2009). Ietto-Gillies, (2012) admit that foreign direct investment is a risky strategy for multinationals. This is because it requires a complete comprehension of business environment, culture and customers in the foreign country. Similarly, Walmart’s entry strategy did not allow it to understand the local culture, business environment, consumer needs and behavior. This may work to explain why its marketing strategy did not tally with the local culture, consumer behavior and customer tastes (Durant and Wrigley, 2009).

In the face of Walmart’s experience, the internationalization strategy that it deployed when entering German did not work for the company. According to Christopherson (2007), the model employed by Walmart did not give them an opportunity to understand the specific features comprising of the industry in which they were operating it.

Lessons of Walmart from German Experience for other international markets

The implementation of the low-price/high-service business model in German by Walmart proved unproductive. As the company found out, the combination was not appreciated by the market. This implies that in future expansion to an international market, it would be prudent for Walmart to study the market environment and trends before settling on the appropriate and relevant business model. This is because although a given business mode may prove successful in a given region, this may not always be so in a certain region owing to the different market, industry and cultural features. Similarly, Boyer and Freyssenet (2000) postulate in their Hybridization of productive models the need for companies the need to understand the local business environment and work out on the best strategies and business models to be applied. Boyer and Freyssenet (2000) argue that before systems and strategies are transferred, they need to be reshaped to fit the local context.

Walmart’s practice of employees being required to greet customers at the door and at the counter, smiling and flirting with them backfired on them. This was the same case with the requirement of prohibiting relationship and romance at the workplace as well as the issue of morning workouts and the odd habits of employees chanting Walmart slogans before commencing on work. These did not only demoralize employees and reduce output but also put the company at loggerheads with the labor unions and even the government authorities for working against the established culture of the nation (Barbaro, 2006). In future, it is crucial that Walmart studies the culture of the local population and align its practices and organizational culture accordingly. In this way, it will be able to draw support from the employees, customers, unions and even the authorities. According to the multidimensional embeddedness approach by Coe and Wrigley (2007), companies venturing abroad must learn to embed the structural, political, cultural and cognitive dimensions inherent in the local environment. The authors argue that if a company is unable to balance the four dimensions in its culture, then there is likelihood of it failing to achieve sustainable growth.

Mihaela (2018) points out that an organization’s culture ought to be in concord to that of the mainstream culture. This is in the sense of time management, attitudes/perceptions and orientation. In this sense, an organization which is culturally competent should be able to understand different groups of people and transform that knowledge into practices, policies and standards which should then be incorporated into their operations. The author continues to explain that in Cultural Competency, a company needs to validate and acknowledge who people are. On their part, Michael et al (2015) explains that being culturally competent focuses on aligning practices and policies with the objectives while also engaging everyone in the process. The author continues to argue that cultural competency is an “inside-out “model which relieves excluded groups from the mandate of having to acclimatizing themselves to the company practices. Therefore, it is important that Walmart and other international companies to become culturally competent by acknowledging and validating the local culture for a positive reception.

Conclusion

From this analysis, a number of issues can be noted for Walmart’s case. First and foremost, its direct investment in the foreign country proved to be disadvantageous as the company suffered immense risks when the business failed to work out. Had the company partnered with a local store or used licensees/agents, then the risks could have been minimized perhaps to sustainable levels. Furthermore, it is also apparent that the company did not well understand the German market environment features, trends and culture hence; its business model flawed. In essence, Walmart’s experience in German provides vital internalization lessons not only to Walmart but also to other multinationals regarding approaches to foreign markets. The first and foremost is the need to understand the local market and adopt a suitable and relevant business model. Second, it is critical to learn the local societal and business culture and align their strategies accordingly for a positive reception among customers, employees and authorities. It would also be prudent for foreign market entrants to consider partnering with local market players or consider using agents/licensees since they understand the local business dynamics. This is also important in minimizing the potential risks should the business fail to work out for any reason.


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