International Business

Group Project

Prepared by
Min Seok Choi
Adegbenga Keleko
Alfredo De La Cruz
Austin Cline
Hyun Keun Cho
Thy Luu
Table of Contents

Executive Summary2
Problem/Analysis/Recommendation
Resource Based view......3-7
Problem/Analysis/Recommendation
Institution Based view.......8-12

Learning Outcome.....13
Work Cited.....14

Executive Summary
Wal-Mart was founded by Sam Walton in 1962 in Bentonville, Arkansas. It continues to
grow as a retailer while others have struggled with inflation and recession periods. In 1980, WalMart became the youngest US retailer to exceed $1 billion in net sales. During the 1980s, WalMart continued to expand operations and pushed some retailers to close some of their regional
stores. The company engaged in diversification by creating membership stores such as Sams
Club to expand its operations. In 1991, Wal-Mart became the worlds largest retailer when it
expanded its operations and became an international retailer.
Wal-marts initial entry into German market was through the acquisitions of renowned
stores in December 1997. The German market is a highly attractive market for retailing firms
because it is the third largest market in the world, and it works as a gate into other European

markets. In other words, the German market is not only attractive on its own size but also serves
as a platform to extend a retailers reach into other lucrative European market regions. However,
contrary to its high hopes, Wal-Mart struggled in Germany. Wal-Mart had many obstacles which
can be categorized into institution-based and resource-based view. One of the issues it faced was
pricing controls due to the German laws that prohibit extreme competition. The differences
between the United States and German cultures were significant hurdles that Wal-Mart had to
encounter.

Problem/Analysis/Recommendation
Resource-Based View
How did Wal-Marts acquisition strategy contribute to the failure in Germany?
Wal-Mart expanded its presence into Germany through acquisition with the 21hypermarket stores of Wertkauf in 1997. Their sources advised that Wertkauf stores would
provide the necessary footage in the German market for Wal-Mart to properly expand. However,
as Wertkauf covered only southwestern Germany, it failed to provide the required market
penetration that Wal-Mart required for a successful venture. In 1998, Wal-Mart acquired
Interspar's 74 hypermarket stores to raise the total number of Wal-Mart stores in Germany to 95.
With the acquisition of Interspar's stores, Wal-Mart became the fourth largest
hypermarket retailer in Germany. However, Wal-Mart made a fundamental mistake with its
initial strategy of entering a highly mature retail market by acquiring small companies with a
relatively low combined market share of roughly three percent. Interspar was considered to be
the weakest player in the German market due to its heavily run-down stores. It also had the
majority of its stores located in the less prosperous inner-city residential areas. Additionally, WalMart was so cash-poor that it could not move quickly to refurbish the stores it acquired. Another
noteworthy fact is that around 80 percent of the German population had no Wal-Mart store
within their vicinity.
Wal-Mart should have approached its acquisition strategy with more caution and should
have reconsidered the decision to acquire Interspar. If they would have conducted a deeper
analysis of Interspar they would have realized that the company was not going to benefit their
expansion efforts in Germany. The acquisition of Wertkauf was an intelligent play by Wal-Mart

because the company had excellent earnings, competitive locations, and competent management.
Wal-Mart should have chosen a company similar to Wertkauf to be the second company of its
acquisition strategy. A proper acquisition would have allowed Wal-Mart to expand its presence in
more regions without having to worry about repairs or alterations to buildings.

Why was Wal-Mart not able to establish itself in the retail market share?
One of the extreme strategy promote Wal-Mart becomes world's largest retail is an
everyday low price; however, Wal-Mart in Germany is unsuccessful to attract customer attention,
for it everyday low price is not sufficient compare other competition. Wal-Mart is assuming its
product price will be the extreme in German base on the successful in United State. There are
further low price local retails around neighbored in German. One of Wal-Mart major retail
competition in German is Aldi. Aldi is found in German, and its been in German more than half
the century, comparable to Wal-Mart, a foreign supermarket. Aldi recognizes the requirement of
Germany, so it contributes lower prices and higher qualities of food than Wal-Mart. Wal-Mart
does provide few product low price than Aldi; however, the overall check out of the same item in
Aldi is 22% lower than comparable to Wal-Mart (Kelly). Wal-Mart greatest technique of the
retail market in the US is a commence technique in German.
Even Wal-Mart offers a special sale to attract customers, but its process is destroyed by
its ineffective organizes skill. Wal-Mart pushes the entire sale item on bottom or top shelf, it is
out of customer eyes level. The customers do not knowledge the special offering Wal-Mart
provides. The special sale out of eye level may achievement in United State, for Wal-Mart
original price already low. The sale price is astonishing when customers discover it, but this
system fails in Germany for Wal-Mart isnt leading the retail market.

Amount of items is an alternative conflict Wal-Mart has to face in Germany. Wal-Mart is

successful in the United State for a large volume of item for a product, but this process does not
appropriate for German. Germany is grocery shopping every day; they are buying a small
amount of food last for a day or two. One of the retail competition methods in German is small;
its meant the customer selects the retail with minor amounts of product. Most of Germany has
small kitchen and refrigerator, so they are looking for supermarket provides minimum units of
food.
A recommendation to Wal-Mart low price, organization, and number of item problem in
German is Wal-Mart can retail its own brand manufactured goods. When Wal-Mart produces its
own product; it will reduce the authorize expense, the shipping cost, and the amount item for a
product. Wal-Mart does not need extra funds for supplies chain and shipping cost. Wal-Mart can
control the number of items per quantity of a product. Wal-Mart can redesign the system of
organization and the store layout to make the sale item or product eye catching. Wal-Mart can
boundary out different department manage different store. Food depart consumes its own store,
and clothes department consumes its own store.
Effects of Wal-Mart Management Localization in Germany?
Compared to other retailing businesses, Wal-Mart has created a successful way it
conducts its distribution process in the United States, along with the way the management is
structured. Wal-Mart employees are embedded with a mentality that focuses on saving money
and limiting budget spending. The leaders of the company hardly used their revenue to purchase
expensive or luxurious things. They even go out of their way to stay at cheap hotels and sleep in
the same room to save those extra few dollars. Employees of the company understood the
culture and were willing to sacrifice a little to get a lot in return. This culture and vision,

however, did not work when Wal-Mart stretched its wings to Germany without doing much
research beforehand. The question you will come to understand the answer to is, Why was WalMarts localization with the same management structure not successful? The employment
structure to keep the culture within the American boundaries did not prove positive when only
American senior managers were hired.
In the United States, the language that is spoken by the majority is English. Everyone is
expected to learn it or attempt to speak it since it is the native language. Most businesses have
been engineered with the language in some form or fashion and tend to have the same pattern in
the way things are said or done. The German culture and language do things a little differently.
Wal-Mart hired American senior managers and made English its official language, which was
totally uncomfortable for the German employees; even after higher German CEOs, the level of
their expenses has been cut down and they were asked to share rooms on overnight stays for
company meetings (Shurrab). This created bad relationships between Wal-Mart and Germany.
The low minimum wage laws and limited store hours of operation rules already made it difficult
to push the Wal-Mart culture and vision. This did not mean Wal-Mart could not have succeeded
with such opposition; it just needed to adapt and grow on German terms.
These are a list of a few recommendations that could correct the failure of Wal-Mart
management structure. First would be to hire a German CEO that is not driven or affected by the
Wal-Mart culture. This would give him or her, the advantage to take their retail experience and
merge Wal-Marts effective logistics within the bounds of German culture. Do not force the
language in Wal-Mart to be English. Along with hiring a native German CEO, he or she should
have hired German employees who know how to address other Germans. The mission statement,
Save Money, Live Better still can be their goal to achieve; but it will have to be done within

the time German rules are currently being run. A final recommendation that would help is to
become close friends with the government. Just because Wal-Mart feels like saving money will
make life better for everyone, doesnt mean it will for everyone or every country. The expansion
of Wal-Marts vision can be beneficial, but not always is success achieved through the same
methods.

Institution-Based View
How did a different code of conduct work against Wal-Mart in German culture?
All of us have an experience of encountering greeting employees with smiles at WalMart. When Wal-Mart expanded its operation into Germany, it also brought its code of conduct
which seems natural and welcoming. However in the eyes of a German person, it must have been
awkward. In German culture, smiling at a stranger could imply that they are silly or make a
mistake. Thus, when German customers walked in Wal-Mart, they felt uncomfortable and
awkward because it violates their social norms. At the same time, on German employees side,
these codes of conduct also worked as a hindrance on their performance.
Wal-Mart also failed to understand the shopping patterns of German customers. One of
the main themes of Wal-Mart store is that customers can shop for everything they need in one big
store. However, many German customers like to go to many different stores to buy different
products on their way back home. They do not necessarily want to go to one big store to buy
everything at once. It takes a lot of money and effort to change the consolidated concept of
German customers.
The key solution for the issues would be localization. The primary goal is to gain
acceptance of the local customers and lead them into Wal-Mart stores, but Wal-Mart failed to
fully understand the local culture and customers shopping patterns. It was important for WalMart to listen to its low-ranked German employees. Employees have repeatedly expressed their
issues with the code of conduct. However, the top management team had not implemented any
actions to reflect these complaints. Wal-Mart should have alternated its code of conduct so that it
could fit German social norms better. Also, Wal-Mart should have changed its operation style to
better suit German customers shopping patterns.

How Wal-Marts anti-union attitude affected its business?

Wal-Mart is famous for its anti-union stance. One of Wal-Marts cost reduction strategies
is related to its personnel policies. In the United States, Wal-Mart keeps their labor force
consistently on part-time jobs. About 40% of the employees get benefits such as health care.
Another portion of employees is only earning slightly above the minimum wage and very limited
benefits. This style of management is at the opposite side of the table compared to the German
labor world. In Germany, companys interests and employees interests often go together. Labor
unions often participate in the decision-making process. These symbiotic relationships between
firm and employees are widely accepted social agreements in Germany.
However, Wal-Mart underestimated the understanding when it entered the German
Market. Although Wal-Mart agreed to pay German employees more than the agreed contract, the
company declined them to participate in its decision-making process. Wal-Mart was advised by
major German labor unions and the Works Councils to follow their practice, but the company
often miscalculated the influence and power of those organizations in German society. Basically,
Wal-Mart had violated the underlying social norms. As a result, German employees at Wal-Mart
demonstrated a protest against the company. Despite the fact that employees had relatively weak
power, they brought public attention to the matter. Their protests generated negative brand
images toward Wal-Mart. It was very critical because it affected individual behaviors like
shopping at different retailing stores. Wal-Marts dogmatic attitude toward German employees
was also problematic because they are both employees and the main target customers.
In order to overcome these obstacles, Wal-Mart should have operated differently. Firstly,
Wal-Mart should have reached to the labor union. Even though Wal-Marts culture is highly antiunion, when it decided to enter a union-friendly market, it should have embraced the culture.

Even if the company failed to listen to them initially, Wal-Mart would have gotten another
opportunity when the union and employees protested. At that point, Wal-Mart needed to sit down
at a table and negotiate with the union. Additionally, Wal-Mart should have consulted with major
German unions and the Works Council. Wal-Marts top management team in Germany was
mostly American. Because of this, there were certain cultural differences that the top
management team failed to recognize. Under this situation, they should have paid attention to the
German unions advice. Considering the influence of those organizations, it was a crucial
mistake to not acknowledge their advice.

How did German governments regulations limit Wal-Mart operation?

With regard to operation hours in Germany, the government prohibits operating more
than 80 hours per week, which are the lowest hours in Europe. (e.g. 144 hours in France, and 168
hours in U.K) Wal-Mart has been operating 24/7 in the U.S and it could bring profit anytime. The
lack of operation hours reduced the economies of scale in Germany. It failed to offset the
operating expenses due to limited hours. That is why the company had to set the higher price to
its product compared to the U.S. It eventually lost its positive image of "Everyday Low Price.
Additionally, German Federal Cartel Office always supervised Wal-Mart as a possible
cost-dumping store. In 2000, the German government finally charged Wal-Mart with selling
staples below cost price. Wal-Mart had spent a lot of time and money dealing with a legal suit in
Germany. These legal issues damaged Wal-Marts brand image. Contrary to the favorable and
friendly images in the U.S, German people regarded Wal-Mart as a problematic foreign big mart,
rather than just a simple mart.
In addition, the bad relationship between Wal-Mart and the German government had a
negative influence on the reporting financial statement issues. Wal-Mart was fined repeatedly for
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failing to fit the standard of German regulations of disclosure of financial information. Wal-Mart
failed to meet the standards of reporting their financial statement under the tighter supervision of
German government.
The main problem of Wal-Mart according to institution-based view is that it conducted its
business in a way that it operated in the United States. It failed to adapt to the formal institutions
including limited operating hours, dumping regulations, and reporting procedures. Before
making these problems, it should have done more preliminary investigation to build more
positive and amicable relationship with the German government. This would have allowed it to
better handle other restrictions it would face, as well as its operation strategies. Furthermore,
based on the result of the investigation, it should have hired local public relationship experts who
can manage its reputation and cope with its problems without violating cultural implications.

Why did Wal-Mart fail to analyze the local market practices and the needs of German
customers?
Wal-Mart failed to consider the German market practice before the introduction of its
business in Germany. The focus was based on low competitive price to create a price war against
the local market. The local market and other existing retail chains in Germany have the trend of
having a particular item on sale at a particular period with a highly competitive price to help
drive customers into their stores. This was the strategy of the local store before the arrival of
Wal-Mart and should have been included in the study. Additionally, contrary to the modern
German economy which is characterized as High Wages and High Price, food retailing
industry in Germany is highly competitive with extremely low margin. In German food retailing,
the profit margins are as low as 3% which is quite low compared to 6% in the United Kingdom.

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Subsequently, most of the local stores have a personal relationship with their customers
which were difficult for Wal-Mart to break in. Wal-Marts business ideas also create a friction in
winning most of the Germans over to its side to shop in its stores. Wal-Mart thought the loyalty
of the German customers can be bought with its everyday low price business model, but it
failed miserably costing the company over $1 billion in the process.
When considering entering very developed and competitive foreign markets in retails industry,
proper details of the local people have to be studied because it will play a vital role in how to
operate and cost leadership strategies. Although Wal-Marts everyday low price business
model had succeeded in the United States, considering the competitive price and low-profit
margins in the German food retailing industry, Wal-Mart needed an extra business plan to
enhance its sales.

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Learning Outcome
Wal-Mart's failure in Germany has left us with many learning outcomes. Firstly, WalMart underestimated the importance of conducting proper preliminary research before it entered
the host country. It is safe to say Wal-Mart conducted some kind of research, but the company
failed to apply that research accordingly. More thorough research and thoughtful execution could
have reduced Wal-Mart's mistakes. It could have avoided mistakes such as wrong timing for
entry, negative relationships with labor unions and supply chains, and misunderstanding of
German culture. It is highly crucial to adapt and change under different cultural conditions and
context.
Additionally, Wal-Mart should have been more careful with its target market. It is clear
that Wal-Mart and Germany have quite the opposite cultures. If Wal-Mart was not going to
change its culture, it should have chosen a different market with a similar culture. From WalMarts perspective, changing its operations and standards would have been costly so it was a
contributing factor why it chose to operate the same in Germany. However, in reality its
decisions cost it around $2 billion and 10 years in the process. It is of utmost important to
choose the right target market.

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Work Cited
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Misadventure. N.p., 2014. Web 17 July 2015.
Peterson, Hayley. This Rapidly Expanding Grocery Chain Is Shockingly Cheaper Than WalMart. Business Insider. http://www.businessinsider.com/this-grocery-store-has-the-lowest-prices2015-1
Knorr,Andreas and Andreas Arndt. Why did Wal-Mart fail in Germany. Institute for
World Economics and International Management, 13-20. http://www.iwim.unibremen.de/publikationen/pdf/w024.pdf
Pioch, E., Gerhard, U., Fernie, J., & Arnold, S. J. (2009). Consumer acceptance and market
success: Wal-Mart in the UK and Germany. International Journal of Retail & Distribution
Management, 37(3), 205-225. doi:10.1108/09590550910941490
Christopherson, S. (2009). Barriers to 'US Style' Lean Retailing: The Case of Wal-Mart's Failure
in Germany. In N. M. Coe, N. Wrigley (Eds.), The Globalization of Retailing. Volume 2 (pp. 511529). Elgar Reference Collection. Globalization of the World Economy series, vol. 22.
Cheltenham, U.K. and Northampton, Mass.: Elgar.
ICMR India (2004). Wal-Mart's German Misadventure/Business Strategy/Case Study/Case
Studies. Retrieved 18 Jul 2015, from http://www.icmrindia.org/casestudies/catalogue/Business
%20Strategy2/Business%20Strategy%20Wal-Mart%20German%20Misadventure.htm
Gardner Inc. (2006). Wal-Mart's Germany Exit Reflects on Its Market Entry Strategy. Retrieved
17 Jul 2015, from https://www.gartner.com/doc/494685/walmarts-germany-exit-reflects-market

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