As Matthew Boyle writes for Business Week in “Wal-Mart’s Painful Lessons,” the company’s international expansion has faced immense challenges at nearly every stage, and the numerous difficulties the retailer has encountered reveal how a massive organization can retain its flexibility. While Wal-Mart’s US growth has not been without its difficulties (recall opposition in Vermont, or more recently, Orange County, VA), its domestic challenges provide valuable experience as it expands into countries such as Japan, Russia, India, and Chile. Mr. Boyle’s article is extensive and well-worth reading, but below are some highlights:
- In Japan, consumers equate low prices with poor quality, while much of the country’s city-dwelling population live in small apartments that make storing bulk items difficult. Were it not for the current recession, Wal-Mart’s efforts to renovate its stores and revitalize the reputation of its Japanese brand Seiyu may have failed as shoppers found no reason to revisit stores described as “messy.” Now, by focusing its marketing budget on price comparison, Wal-Mart’s Seiyu stores can show shoppers exactly what they’re saving.
- In India, government restrictions severely limit foreign investment, forcing Wal-Mart to partner with local conglomerate Bharti Enterprises. In a country where chain stores account for less than 5% of retail sales, Wal-Mart’s Best Price Modern Wholesale venture operates cash-and-carry stores targeted to merchants and small businesses. The company’s approach is paying off, as 30,000 members signed up for its first location. Jaideep Singh, son of a merchant targeted by Wal-Mart, now travels 25 miles by tractor to purchase items for resale in his father’s store, which has seen a 20% increase in profits.
- Wal-Mart’s foray into the Chilean marketplace followed a path similar to its Japanese expansion by acquiring an interest in an established retailer. Perhaps learning from the experience of previous retailers such as Home Depot and Carrefour, Wal-Mart acquired a controlling interest in D&S, the country’s largest grocer and third-largest retailer. The move is a logical one considering D&S modeled itself after Wal-Mart. Beyond groceries and consumer goods, D&S also has a strong financial services operation, a common arrangement in Latin America. As Wal-Mart has tried unsuccessfully for years to establish its own bank in the United States, its experience in Chile could prove quite useful.
- In Russia, Wal-Mart has made the least amount of progress, largely due to widespread corruption. After more than five years of effort, the company has only a 30-person development office and no stores. As it has successfully done in Japan, India, and Chile, Wal-Mart plans to enter the Russian market by acquisition or partnership, if it can identify a suitable retailer. However, as Russia ranks 147th out of 180 on Transparency International’s corruption index, Wal-Mart faces substantial difficulties.
For a detailed look at how flexibility is leading Wal-Mart to international success, and for more on the challenges it faces, read Matthew Boyle’s “Wal-Mart’s Painful Lessons,” appearing on BusinessWeek.com.