1. How does expanding internationally benefit walmart?

Wal-Mart is well-known American company that operating retail stores including

grocery stores, discounts warehouse clubs and combination of general
merchandise store. Expanding globally allows firms to increase their profitability
and rate of profit growth in ways not available to purely domestic enterprises. The
firm that operate internationally are able to expand the market for their domestic
product offerings by selling those product in international markets.
Beside that, realize location economies by dispersing individual value
creation activities to those locations around the globe where they can be
performed most efficiently and effectively also be able when the firms that
operate internationally. Firms that pursue such a strategy can realize what we
refer to as location economies, which are the economies that arise from
performing a value creation activity in the optimal location for that activity,
wherever in the world that might be transportation costs and trade barrier
permitting. Locating a value creation activity in the optimal location for that
activity can have one of two effects. It can lower the costs of value creation and
help the firm achieve a low-cost position, and it can enable a firm to differentiate
its products offering from those of competitor
Other than that, the firms can realize greater cost economies from
experience effects by serving an expanded global market from a central location,
thereby reducing the cost of value creation.
When do the expanding internationally business the firms can earn a
greater return by leveraging any valuable skills developed in foreign operations
and transferring them to other entities within the firms global network of
operations.

Those have more benefit when the firms expand their business
internationally such as the firms can grow their business. For example, When
trading internationally the universe of potential clients and suppliers will

increase significantly. Just imagine increasing the number of potential clients by

100 percent each time you start selling in a new country. In all likelihood, this will
probably be much easier than trying to expand your market place in your home
country.
Beside that, diversify risk also the benefit when the firms expand their
business. For example, The idea that a business relies solely on one market and
directs all its resources into a single currency may prove to be more risky than it
may first seem. Just look at the number of unprecedented global disasters
(financial meltdown, earthquakes and unrest in the Middle East) over the last few
years and the drastic impacts these have had on markets. Your home market
could contract or even disappear, but your business may be saved by the
revenue it generates overseas.
Other than that, the benefit is can get better margin. As well as seeing
increased sales, you may well enjoy better margins. Sterling which is currently
weak may give you a head start when exporting. Pricing pressure could be less
and it could also reduce seasonal market fluctuations.
Earlier payments also the benefit when expand the business in
internationally. When working with companies overseas, both you and your
customer will want to execute the transaction in the safest and most efficient
manner possible. One of the many advantages when trading internationally is
that overseas payers often pay upfront. This reduces payment risk and may well
help your working capital.
And the last benefit the firms can get is less competition. For example,
The ability to stand out amongst competitors is a crucial factor in business. When
there are fewer competitors, this task is made easier. Your business, which may
be viewed as comparable to others in the UK, may, when placed in a larger and
more diverse environment, turn out to be a unique product or service not to be
missed. By making the product or service available to worldwide buyers, you
instantly create another life line for the business by being in less competition and
increasing the possibility of standing out. This will in turn boost sales potential
and allow your business to flourish.
Benefit walmart when their expanding internationally. After its beginning in
1962 Walmart ever since had constant growth rates and successfully gained

market share in the merchandise and food retailing markets. By 1990, however,
Walmart realized that its opportunities for growth in the United States were
becoming more limited. To keep steady growth rates and profits the company
decided to expand globally. The core competency of Walmart is the price. Selling
merchandise and food for low prices made them earn market shares and
continue the growth rates. Going global gives companies the opportunity of using
location economies to secure the quality, use economy of scale to lower the
productions costs per unit and benefit from learning effects. A global supply
chain and global markets will lower the production costs since more volume is
ordered following a higher demand trough international markets. Especially for
Walmart expanding internationally supports and secures their core competency:
Selling everyday life goods at a low price.

2. What are the risks that walmart faces when entering order retail markets? How
can these risks be mitigated?
The strategy for success worked very well in the United States. That does
not mean that it works very well in other countries. There are different
preferences and consumer patterns in different countries. Walmart had begun
expanding internationally in the early 1990s in an effort to rejuvenate sales
growth. This global expansion has enabled Walmart to become the largest retail
operator spanning over 7300 retail units worldwide (Dowling et al 2009).
Nonetheless, the growth has not been without costs and still encounters a range

of ongoing risks when entering other retail markets. Such risk include political,
financial, and economical, local responsiveness.
Firstly, the risk that walmart faces is local regulations, such as land-use or
employment, unrest social situation, like strikes, government corruption in some
countries can be considered as a serious obstacle for expansions. Germany is a
critical market to Walmart, however, it withdrew in 2006 after an eight-year
attempt to make it profitable. One of the big reasons is that the land-use
regulations which were unfavourable to Walmart development approach,
because the inabilities to scale effectively make it hard to decease fixed costs.
Secondly, local responsiveness also puts a lot of pressure on Walmart.
The differences and the likelihood of changes in consumer tastes, preferences
and distribution channels create critical aspects .For example, Walmart entered
South Korea in 1990s and Korean consumers had preferences for fresh food
and were also willing to make daily trips to local retailers for the purchase of
groceries, given their limited storage space. On the contrast, Wal-Mart offered
dry-food with its layout aimed to serve infrequent bulk shopping leading to
financial drawbacks.

Thirdly, There are different preferences and consumer patterns in different

countries. Adding to that Walmart may face strong competition from already
established retailers that have a better understanding in local needs and
demands of the customers. Competition in overseas market can be fierce as
well, since competitors like Carrefour has penetrated in those markets earlier
and outperformed Walmart.
The next, could be a strict government that protects the local economy or
an instable government/economy. Through strong market research or cooperation/acquisition of local retailer companies Walmart could gain critical

knowledge of the local market and its consumers. Especially a co-operation with
an established company could lower the barriers from a strict government since
both companies could gain from such a trade-off, increase revenue and
eventually pay more tax. In a situation where the government or the economy is
not stable it is favorable to stay out of the market since the own rights are low
protected and the overall performance is hard to predict.
And the lastly, economic and financial risks are both dangerous. The East
Asian Financial Crisis during 1997 caused countless Asian currencies to fall by
50-60%, and property values to drop (Cnelson, 2008). However, in 1998,
Walmart had announced its purchase of a majority stake in 4 stores and 6
additional development sites in Korea, and expansions in other Asia countries.
Although this was one year following the crisis, it was still seen as a serious
problem for Walmart in which it had assets in Asian countries because the growth
rate (GDP) and the risk of further currency depreciation would result the value
of receivable cash flows to fall. This kind of exposure had clearly played a part in
Walmart sales figures which was just 6.4% of overall sales during the 1998 fiscal
year (Reference for Business 2011). Moreover, an analysis of the case revealed
that the initial missteps of Walmart in Mexico were due to the costs pressures
with local suppliers. Such kind of cost pressures is common for international
businesses in competitive global markets (Dowling et al, 2009)
And then, how can these risks be mitigated firstly, finance, investment and
money mismanagement are crucial economical risks of international business.
Therefore, to manage foreign exchange exposure effectively, Walmart must
exercise hedging activities, forecast future exchange rate movements and use
tactics such as forward contracts and currency swaps.
Moreover, it is recommended for Walmart risk and assurance managers to
undertake deep research on the countrys political and economical status, and
consider capital flows across borders and the different business activity norms
when making decisions on how to best manage the firms assets and protect it
from adverse consequences.

A further reasonable suggestion for Walmart is analyse and learn from

local competitors experiences and to hire local employees. Understanding the
customer and the market is highly important, because customers have unique
peculiarities for tastes and buying preferences, and therefore Walmart should
make adjustments to its American formats .Furthermore EDLP strategy of
Walmart can not always be the best choice in some areas of the countries, since
it has great chances to trigger price wars and harm its reputation.

3. Why do you think that walmart first entered Mexico joint venture? Why did it
purchase its Mexican joint venture partner in 1998?
A joint venture is a contractual business undertaking between two or more
parties. It is similar to a business partnership, with one key difference: a
partnership generally involves an ongoing, long-term business relationship,
whereas a joint venture is based on a single business transaction. Individuals or
companies choose to enter joint ventures in order to share strengths, minimize
risks, and increase competitive advantages in the marketplace. Joint ventures
can be distinct business units (a new business entity may be created for the joint
venture) or collaborations between businesses. In a collaboration, for example, a
high-technology firm may contract with a manufacturer to bring its idea for a
product to market; the former provides the know-how, the latter the means.
Walmart entered in Mexico by using the strategy of joint venture with its local
player, CIFRA, who was the largest player in Mexico.

This was the first time that Walmart operated internationally under a CEO
who spent most of his life in the United States. Sam Walton was known as an
indigenous business man who wanted all of his employees to think how to
improve and develop the company. There was no reason to change this mind set
and go arrogantly into a new market not paying attention to the Mexican
customers needs and preferences. Henry Davis, the CEO of Cifra, was a born
Mexican who was sent by Cifra to study at Harvard University. Therefore he knew
both life styles the US and the Mexican. Moreover, Mexico was an emerging
market and whilst the development costs in a foreign market are high, Walmart
could share these costs and risks with a local partner.
In 1991 when Walmart negotiated with Mexicans biggest retail market
Cifra there where political negotiations ongoing weather there will be a free-trade
agreement between the United States. Cifras president, Henry Davis, said that
the prospect of free trade between the two countries helped make the deal
attractive. By founding the joint venture Walmart avoided to compete against an
already established local company that had highest market shares. Walmart now
had a local guide who showed them how to sell products in Mexico and a direct
reach to Cifras costumers.
Conversely, Walmart American retailing practices initially did not work
efficiently in Mexico as it was dominated by several large regional retailers and
had infrastructure, supply chains, consumer tastes and preferences that were
different. As a result, prices at Walmart Mexico were 20 percent above prices for
comparable products in US stores, which limited its ability to gain market share.
There were also problems with merchandise selection such as ice skates, riding
lawnmowers, leaf blowers and fishing tackle.
On the other hand, in an effort to extend its reach and profitability in
Mexico, Walmart announced to take a controlling stake in Mexican joint-venture
partner Cifra in 1998. The North American Free Trade Agreement (NAFTA) also
played a significant role in this acquisition and provided Wal-Mart with good

prospects for further development such as lowering trade barriers and tariffs
between the two countries. Another reason for the acquirement was due to the
dramatic peso devaluation in 1994-95 which offered Walmarts unique opportunity
to buy the controlling share of Cifra at an extremely low price. Therefore Walmart
with its expertise knowledge and full control adapted its operations to match the
local environment
The difficulties of operating as a joint venture could also have been seen
as a reason to alter the ownership structure of Walmart in Mexico. In term of joint
venture disadvantages, it could lead to conflicts and battles for control between
the investing firms if their goals and objectives change or if they take different
views (Dowling 2009). These conflicts tend to be greater when the venture is
between firms of different nationalities which often end in the dissolution of the
venture.
After the initial joint venture Walmart had set up several other joint
ventures with its Mexican partner []. In 1998 all these joint ventures merged
with Cifra. Walmart then took a controlling, 51 percent stake in Cifra for $1.2
billion. The company thereby held a majority stake in the largest retailer in
Mexico [] and the name changed to Walmart de Mxico y Centroamrica
which can be seen as an expansion into the whole Central American region.

4. What strategy is Walmart pursuing a global strategy, localization strategy,

international strategy, or transnational strategy? Does this strategic choice make
sense? Why?
Global strategy as defined in business terms is an organization's strategic
guide to globalization. A sound global strategy should address these questions:
what must be (versus what is) the extent of market presence in the world's major
markets? How to build the necessary global presence? What must be and
(versus what is) the optimal locations around the world for the various value
chain activities? How to run global presence into global competitive advantage?
While the localization strategy refers to increasing profitability by
customizing the firms goods or services so they provide a good match to tastes
and preferences in different national markets. Localization is most appropriate
where consumer tastes and preference differ substantially across nations and
cost pressures are not too intense. By customizing the product offering to local
demands, the firms increase the value of that product in the local market.
International strategy taking product first produced for their domestic
market and selling them internationally with only minimal local custominization.
The distinguishing feature of many such firms is that they are selling a product
that serves universal needs, but they do not face significant competitors, and
thus unlike firms pursuing a global standardization strategy they are not
confronted with pressures to reduce their cost structure.
And than the transnational strategy trying to simultaneously achieve low
costs through location economies, economies of scale, and learning effects.

Differentiate their product offering across geographic markets to account for local
differences and foster a multidirectional flow of skills between different
subsidiaries in the firms global network of operations.
From this case study, it is clearly evident that Walmart pursued not only a
localization strategy but also a transnational strategy from the periods of 1962 to
2008. Specifically speaking, before the mid-1990s, Walmart took an international
strategy to operate the business. After the failure in the Mexico market, Walmart
shifted towards a transnational strategy to expand overseas.
Before 1991, Walmart was confined to the United States; its high
productivity resulted in low operation costs and successfully dominated the
retailing market. Initially, Walmart did not pay enough attention to the different
infrastructure, various consumer tastes and preferences and cost structure in
Mexico. As a result, Walmart considered that its successful market strategy could
be replicated in Mexico market. According to Dowling et al. (2009) claimed that a
international strategy is appropriate when cost pressures are low as well as
pressures for local responsiveness are low. This means that a firm can reduce
costs through scale economies in the local market without enough consideration
of local customization. Therefore, Walmart chose international strategy at the
beginning when it accessed into Mexico retailing market.
There are some evidences that can support this idea. In 1991, Walmart
established its first store as a joint venture in Mexico. Additionally, Walmart had
problems such as poor infrastructure and lacking of leverage with local suppliers
in the same period, which made Walmart commodity too expensive to gain the
market share. Moreover, Mexico had lower income levels than America and
Walmart offering of higher priced products and unpopular items in Mexico
contributed to the failure of gaining the market share. Less than one in three
international retail expansions succeed when expanding overseas.(Bain& Co
2007) Consequently, Wal-Mart transformed from an international strategy to a
transnational strategy. Therefore, Walmart addressed these barriers by taking
learning effects. For instance, by the mid-1990s, Walmart improved the
distribution system and matched the local environment (Dowling et al. 2009).

Moreover, their products which in Mexican stores offered products to meet the
local market demands, and many factories were built near its Mexican
distribution centers by its suppliers. By this location economy fixed costs such as
labour salaries can be usually lowered. Consequently, achieving low costs of
location economy makes Walmart pursued a transnational strategy more
effectively.
Does this strategic choice make sense? Of course it does. In fact it is the
only possible strategy for a retailer as Walmart. When people buy there they are
in their cultural comfort zone and not willing to try exotic products on a daily
basis.
And the last recommendation, The first thing for Walmart to do before
entering a new market is to ask itself the question, whether it is an appropriate
time to enter the market. The reason is that at the time policies and regulations in
this area can make it difficult for Walmart to be successful. Such as land-use
regulations in some of the countries is a serious problem for its big-box model
and without sufficient scale Walmart cannot reduce its fixed cost. Thorough
research is the second important thing for Walmart to do. Understand the
customers will make sure Walmart can have the right strategies, merchandise
mixes and formats to satisfy different tastes and preferences.

Reference :
Bain & Co, Wal-Mart Goes Abroad for Growth,
Business Week , viewed 21 February2007

Chris T, 2005,Wal-Mart in Mexico: the limited of growth, 1 st ed, Nelson

Lichtenstein, New York
Cnelson, 2008, East Asian Economy, viewed 6 April 2011
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Colla, E & Dupuis, M 2001, Research and managerial issues on global retail
competition: Carrefour and Wal-Mart, International Journal of Retail &
Distribution Management , vol 30, no. 2, pp. 103-111
Dowling, PJ, Liesch, P, Gray, SJ, & Hill, CHL 2009, International business: AsiaPacificedition, 1st ed, McGraw-Hill Australia Pty Ltd, Sydney
Kim, RB. 2008, 'Wal-Mart Korea: Challenges of Entering a Foreign Market',
Journal of Asia- Pacific Business, vol.9, no. 4, pp. 344 357
Luhnow, D 2001, Lower tariffs, retail muscle translate into big sales for wal-mart
in Mexico, Staff Reporter of the Wall Street Journal, viewed 31 August 31
2001,http://www.wright.edu/~tdung/Walmart_in_mexico.html
Reference for Business (2011) Wal-Mart Stores, Inc. - Company Profile,
Information, Business Description, History, Background Information on Wal-Mart
Stores, Inc, viewed6 April 2011
http://www.referenceforbusiness.com/history2/20/Wal-Mart-Stores-Inc.html