The Global Path of Walmart

As the world's largest retailer, Wal-Mart's revenue reached US$165 billion in 2000 and US$217.8 billion in 2002, ranking first among the world's top 500 companies at that time.

Walmart has been vigorously promoting globalization since it began expanding overseas from the United States in 1991. In 1993, the number of Walmart's overseas stores accounted for only 1% of all stores. By 2000, it had grown to 25%, and two years later, it had increased to 27%. From 1996 to 2000, 27% of the company's sales growth came from overseas operations. Even in 2001 and 2002, when the global economy was sluggish, overseas operations contributed 17% to the company's sales.

Why is Walmart going global? Because the domestic market is saturated, because the international market is vast, and because emerging markets provide huge development space for cheap discount retail.

Walmart's experience in successfully expanding overseas markets can be summed up as six major decisions.

Corporate globalization is not something that can be achieved overnight by grand plans, nor by incremental numbers and random decisions. If a company is going global like Walmart, it must consider six important issues:

1. Product selection: Select a product line or a small number of product lines to be the spearhead of globalization.
2. Choose a market: Select a suitable market to enter through careful analysis.
3. Choose the way to enter the market: After selecting the target market, the enterprise should determine the ratio of export products to local production.
4. Transplant corporate culture and experience: Bring the business model of the company into the target market.
5. Occupy the local market: Estimate the requirements and actions of local customers, competitors and the host country government and make corresponding adjustments and responses.
6. Speed of global expansion: Including assessing whether the management capability of the enterprise meets the global expansion of the enterprise.

Only by carefully analyzing these six issues can enterprises carry out the process of globalization in an orderly manner.

Choose the right product and market breakthroughs

In the initial stage of globalization, it is best to select one or a small number of product lines as the vanguard to open up the market. This is because global expansion requires companies to have at least three competencies: the ability to understand foreign markets, the ability to manage foreign branches, and the skills of people. Without these three capabilities, it will be difficult for the company to be accepted by the local environment, and the company's overseas expansion will also face high risks.

The selection of the market must adhere to the two basic principles of "maximizing profit and minimizing risk". For companies, the initial phase of action is a lot of experience-learning experimentation. Moreover, the cash flow from success provides the impetus for further globalization.

In its globalization journey, Walmart has taken advantage of two key resources obtained through the US domestic market. First, Walmart maintains close supply and marketing relationships with supplier giants such as Procter & Gamble, Campbell Soup, Clorox, Colgate, General Electric, Hallmark, Kellogg, Nestle, Coca-Cola, Pfizer and 3M, thus providing Walmart’s overseas chain stores with efficient supply channels. Second, Wal-Mart can also provide guidance and assistance to overseas branches by using its comprehensive domestic information base and rich experience in store management, business skills and logistical support.

Walmart first chose Mexico (1991), Brazil (1994), Canada (1994) and Argentina (1995) as a breakthrough point for overseas development. This is, of course, because these countries are relatively close to the US compared to Europe and Asia, but also because these countries are also the four largest economies in the Americas, offering huge growth prospects for the retail sector.

By 1996, Wal-Mart was ready to enter the Asian market and locked its development direction in the Chinese market. It's a wise choice, as the relatively low purchasing power of Chinese consumers gives cheap discount retailers like Walmart huge room to grow. At the same time, considering China's cultural, language, geographical distance and other barriers, Walmart decided to use the two markets as beachheads and gradually enter the Asian market.

First of all, Wal-Mart entered the Asian market for the first time in 1992 and 1993, respectively, with two Japanese retailers Ito-Yokado and Yaohan signed the purchase and sale of low-priced goods. As a condition, the two Japanese retailers sell these low-priced items in Japan, Singapore, Hong Kong, Malaysia, Thailand, Indonesia and the Philippines. Then in 1994, Walmart successfully entered the Hong Kong market by forming a joint venture with CP Pokphand Group headquartered in Thailand, and opened three Value Club membership discount stores in Hong Kong.

In 1997, Wal-Mart finally entered the European market with the acquisition of the Wertkauf superchain system of 21 stores. Due to the stable value of the German mark, the high purchasing power of German consumers and the large scale of the consumer group, as well as Germany's geographical center in Europe, Walmart's entry into the German market provides a solid foundation for future expansion on the European continent.

The entry model changes according to the "market"

After identifying the market it intends to enter, the next decision that Walmart faces is to formulate a corresponding market entry model. There are several options for this decision: either acquire an existing local business, join forces with a local business, build an independent operating system from scratch, or use a combination of all three. Walmart's experience in entering different markets suggests that the pattern of market entry should vary from market to market.

For example, in 1994, Walmart entered the Canadian market entirely through an overall acquisition. The rationale for this choice comes from three main reasons: First, Canada is a mature market, creating an independent operating system from scratch is not profitable, and adding new stores will only increase the already very fierce local competition. Second, the U.S. and Canadian markets are so close in terms of income and culture that Walmart needs little new experience. Third, there was a poorly run retailer Woolco in the Canadian market at that time, which could be bought at a low price.

When entering the Mexican market, Walmart took a different approach, taking into account the differences in income and culture between the U.S. and Mexico markets. At that time, companies needed to have a deep understanding of the local market conditions and adjust their business methods according to the local environment. Therefore, Walmart and Mexico's largest retailer, Cifra, formed a joint venture through peer-to-peer investment, relying on the operating experience provided by Cifra to cope with the volatile business environment in Mexico.

The experience of Walmart's acquisition of Woolco shows that if the culture and business model accumulated in the domestic market of the United States are successfully transplanted to the overseas business department, it will be able to occupy a great advantage in the competition with local competitors.

In 1994, Woolco in Canada was dragged down by high costs and high productivity and was on the verge of bankruptcy. Walmart took the opportunity to buy the company. Walmart made a decision based on the similarity of the market situation in the US and Canada, and completely transformed Woolco according to its successful US business model, thus reversing the passive situation of Woolco. This shift is reflected in four core areas: people, stores, customers and business models.

Among the four areas, personnel problems are the most prominent, and cultural transformation is urgently needed. Therefore, after the two parties signed the acquisition agreement, Walmart immediately sent a team to Canada to train 15,000 Woolco employees and instill Walmart's business philosophy, especially the purpose of "serving customers wholeheartedly". The task force successfully transformed these "new partners" into identifying and embracing Walmart's core culture and experience.

At the time of the acquisition, Woolco's 122 stores were in terrible shape. Wal-Mart has made all its stores up to operating standards in the shortest time possible with unprecedented speed. On average, it takes only 3 to 4 months to renovate each store, and another 3 to 4 months to restock each store.

In addition, Walmart has successfully transplanted other excellent experience gained in the United States to its operations in Canada. These experiences include a wide range of products, excellent customer service, well-structured inventory, and theft rates tied to employee incentives. Walmart's transplant of corporate culture in Canada has been very effective. From 1994 to 1997, sales per unit area nearly tripled and market share doubled. By 1997, Walmart had surpassed Zellers and Sears to become the largest discount retailer in the Canadian market.

Responding flexibly to localization and competition

For Walmart, winning the local market requires two steps: understanding the local situation, determining the scale and content of localization adjustments; Competitors' actions and reactions respond. In order to gain a foothold in a newly entered market, companies must first understand the particularities of the local market, so as to determine which parts of the company's business model can be kept intact, which need to be localized, and which must be thoroughly Change. Walmart's experience in entering the Chinese market is a proof.

Walmart has made many attempts in the Chinese market to find the most popular store format for customers. One of them is the Shenzhen Super Shopping Center, which adopts a hybrid form that combines the characteristics of a commercial center and a warehouse shopping store. It adopts a membership system for sales and provides "same day specials" for non-members. In addition, Wal-Mart has also opened some smaller satellite stores for experiments, trying to grasp the development trend of transportation and shopping in China and adapt to the shopping habits of Chinese people.

Another area that needs to be adjusted is product restocking. In terms of purchase, Walmart has three options: one is to purchase goods from international suppliers in other parts of the world, the other is to purchase goods from factories located in China by international suppliers, and the third is to purchase goods from local Chinese manufacturers. Walmart finally chose 85% of its purchases from the Chinese market. In this way, on the one hand, it satisfies the desire of local customers to buy high-end consumer goods produced in the United States, and on the other hand, it relieves the pressure on stores brought by the local government to encourage the purchase of domestic products.

When any company enters a new foreign market, it must not only face competition from local competitors, but also guard against threats from multinational companies that have already entered the market. In order to gain a firm foothold in the local market, it is necessary to effectively anticipate and respond to the threats of these competitors. How Walmart deals with local competitors varies according to the specifics of the market, sometimes acquiring a relatively weak business, sometimes acquiring a successful business, and sometimes launching a direct frontal attack on the leader in the local market .

When Wal-Mart entered the UK market, the UK retail market had already matured and had to enter through mergers. In 1999, Walmart acquired the UK-based Asda Group. This is a powerful and well-managed supermarket chain group, one of the giants in the UK retail industry. Especially Asda is very close in style to Walmart. In fact, Asda Group has been borrowing Walmart's business purpose and business model for a long time, so there is almost no need for any corporate cultural transformation. Some of Asda's business philosophies are the same as those of Walmart: for example, specials of the day, no promotions, active sales of unique brand products, emphasis on customer service, calling employees "colleagues", etc. Even the service slogan "helpful" is similar to Walmart The "customer first" is very similar.

Only when a multinational company has a huge competitive advantage in the host country can it go head-to-head with its well-positioned local competitors. Walmart's experience in entering the Brazilian market has profoundly demonstrated the pros and cons of head-to-head competition. French retailer _Love has been operating in Brazil since 1975. When Walmart entered the Brazilian market in 1994, it took the lead in cutting prices to compete with its rivals. This tactic failed, and Carrefour and other local competitors also cut prices one after another. The result was a price war. Walmart was disadvantaged and suffered losses. The company soon discovered that the biggest selling item in Brazil’s shopping malls was food, which was mostly sourced locally, so the company’s global sourcing system did not help the company create a price advantage at all. Competitors such as Carrefour can benefit from local purchases by virtue of their old relationship with local suppliers.

Walmart then changed course. Instead of trying to outbid local rivals on price, Walmart found a way to differentiate itself in two ways. First of all, strive to surpass Jia_refu in customer service. Second, work on the breadth and precision of products you choose to sell, and shift the focus of improvement from the U.S. to the local area. Through these two efforts, Wal-Mart finally succeeded in overpowering Carrefour and many small local competitors, consolidating its position in the Brazilian market.

Controlled Globalization

Could Walmart Globalize Faster? Walmart's entry into emerging markets is seen by some as slow and conservative. However, keep in mind that going aggressively into a developing emerging market like China or India requires a completely different approach. Take India as an example, where only a very small percentage of consumers earn more than $20,000 a year, but these consumers are very partial to and able to buy products from internationally renowned brands. Walmart can make full use of its influence among international suppliers to provide satisfactory service to these customers.

Implementing a global strategy and turning a global network into a competitive advantage is inseparable from systematic analysis, special operations research and precise coordination. Without a scientifically rigorous approach, globalization can easily become an overextended front, resulting in fragmented management, waste of resources, and ultimately even the loss of a competitive advantage in the domestic market. In this case, if the globalization of the enterprise is not effectively controlled, the overall performance of the enterprise will not advance but retreat.

Original text excerpted with permission from The Quest for Global Dominance: Transforming Global Presence into Global Competitive Advantage, co-authored by Vijay Govindarajan and Anil K. Gupta, copyright 2001 by John Wiley & Sons. Translated by Zhu Xiaofan.