WAL-MARTS GERMAN MISADVENTURE

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a.

Rahul Menon

When Wal-Mart announced that it would be entering the German markets, analysts
were surprised. Usually, the cultural affinity between the US and the UK prompted
American companies to target the UK first before entering the rest of Europe. Do you
think Wal-Marts decision to enter the German market was correct? Justify your
stand.

The first Wal-Mart store was established by Sam Walton in 1962 in Rogers Arkansas. His
business was defined and the policy still continues by three Basic Beliefs (Wal-Mart,
2008). The first one is respecting the individuals, which means to push Wal-Marts employees
to excel in what they do. The second belief is service to our customer, where the stores
respect a pricing philosophy to always sell items as cheaply as they can, while they provide
excellent customer service. And the third belief is striving for excellence that is to expand the
stores, innovate, be creative and reach further into new markets. At first expansion was steady
with 24 stores by 1967. The initial focus for Wal-Mart operations was small town, rural
America. The company grew to 276 stores by 1980 and the Wal-Mart empire reached 670
stores by 1984. The company currently has around 4100 stores in USA and by 2003 it was the
worlds largest retailer, 3 times as large as it s near rival Carrefour. It was also the worlds
largest employer with 1.9 million employed worldwide in 2007. The success of Walmart was
.based on 4 factors
a) Low prices
b) Focus on Customer service
c)
IT driven logistics and inventory management involving large centralised
warehouses.
d) A strong corporate culture and employee commitment
A number of actors influenced Walmart management to expand outside USA. The company
had perhaps reached the limits of expansion in USA. There was strong competition from
Target and K-Mart. Furthermore management believed that the success formula of the US
.operation could be replicated elsewhere
The first international store was operated in 1991 in the suburb of Mexico city and the
company developed rapidly in both Mexico and in Canada. Mexico remains Wal-Marts
biggest international operation with over 900 stores. The company also opened stores in
Puerto Rico, Argentina, Brazil, Japan, South Korea and Indonesia and in Europe in Germany
.and in UK
Some analyst believed that Wal-Marts decision to expand into Europe via Germany instead
of UK was a strong decision given the cultural links between USA and UK. However the
German market was attractive as the worlds 3rd largest economy with 80 million people who
were Europes largest retail spenders. Furthermore, management saw Germany ideally
located at the heart of Europe and an important member of EU. Unlike UK Germany was part
of Eurozone. The Germany country side was littered with carcasses of other retailers,
therefore Wal-Mart knew that its non brand named items, service and low prices would
.succeed
Walmart entered the German market at the end of 1997 with the purchase of 21 stores from
Wertkauf and added to this in 1998 with a purchase of 74 Interspar stores from the French
company Intermarche. After only 4 years of operation in Germany it was clear that Walmart
was struggling with estimated losses of around 1 billion although only estimates were
available because the company published no accounts. The estimated losses continued at the

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same rate and by 2005 the company had cancelled its expansion plans, closed 2 stores and
laid off 1350 staff. The failure was not unique to Germany. In Indonesia and South Korea all
Walmart stores has been either closed or sold. The company was not doing well in Japan and
.Brazil, countries were it had large number of stores
By 2006 Walmart had 85 stores remaining in Germany. In july that year this was sold to a
rival company Metro. In typical fashion no financial details was disclosed but the detail is
estimated to have been concluded at less than the value of assets with a loss to Walmart of US
$ 1 billion. Just after the conclusion of the deal in Germany Walmart sold all its stores in
South Korea and in 2007 operated in only 13 countries. Its international rival Carrefour
operated in 29 countries. In UK Walmart trades as ASTA, which is rare success contributing
.43% of Wal-marts international revenue
Wal-Marts difficulties on the highly competitive German market can, after five years
.of extremely disappointing results, no longer be discarded as mere teething problems
Widely perceived now as a mediocre retailer with no particular strengths and weaknesses, let
alone any particularly attractive and credible value proposition. Wal-Marts failure on the
German market has been the inevitable result of its inability caused by an astounding degree
of ignorance of key principles of internationalization strategies and intercultural management
to select and implement an adequate entry and business strategy. Instead of shaking up the
extremely competitive German retailing sector with an innovative approach to doing
business, as it has so convincingly done in the USA, in Germany the company seems to be
the prey rather than the hunter. Wal-Marts attempts to apply the companies proven US
success formula in an unmodified manner to the German market, however turned out to be
nothing short of a fiasco.Wal-Marts attempts to apply the companies proven US success
formula in an unmodified manner to the German market, however turned out to be nothing
.short of a fiasco

WAL-MARTS GERMAN MISADVENTURE

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b.

Rahul Menon

Even after five years of doing business in Germany, Wal-Mart had failed to make an
impact on the German market and had been incurring losses year after year. Analyze

WAL-MARTS GERMAN MISADVENTURE

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Rahul Menon

the reasons for Wal-Marts problems in the German market. To what extent did the
lack of understanding of German culture affect the companys performance?
Wal-Mart started its global operations in the early 1990s when it opened its first inter-national
store in Mexico. To be successful, the Wal-Mart's decision to go global supposed a
commitment of the company to work on its understanding of different kind of non-US
culture. When Wal-Mart entered the German market in 1997, assumption has been made that
all the techniques that made Wal-Mart the US #1 retailer would be as efficient everywhere.
The facts prove that it's not necessarily true: in 2006, after a decade of loss, Wal-Mart
announced its decision to leave the German market. Two months before, Wal-Mart was
...deciding to retreat from South-Korea for the same reason
If economic and marketing factors have to be taken into account, a general misunderstanding
of the German culture was a major reason in Wal-mart's failure to take over the re-tail market
of Germany. Such errors are not limited to a lack of research in delimiting the local
.consumer's behaviour but involve incomprehension of the German work culture too
:Organizational behaviour challenges for Wal-Mart
:I) Within the organization
a) Relationship with employee: Organizational behaviour for company is used to improve
relationship of collaborator in order to provide effectiveness for the organization. Directed
from the Bentonville (USA) headquarter, Wal-Mart Ger-many has faced several problems
trying to integrate non-American employees to Wal-Mart's corporate culture. The company
.initially installed American executives, who had little feeling for the German way of working
Language: When Wal-Mart entered Germany, US managers didn't want to learn German. They simply decided that English would become the official language of the company in
Germany. This obviously resulted in several communication problems for the German
.employees
The Wal-Mart ethic, rules and regulations: Too many rules of Wal-Mart weren't adapted to German work culture. For example: the day Wal-Mart translated its internal ethic code in
German was a bad day for the management. A caution against supervisor-employee
relationships was seen as a ban on interoffice romance, while a call to report improper
behaviour was taken as an invitation to trouble the co-workers by employees. It created anger
among workers and unions. The German management of the company explained that the
choice to adopt this American code was made after increasing requests by their American
counterparts to do so. On the same level, executives from acquired German firms were
shocked to learn that they should henceforth share rooms during business trip, which is
.unconceivable to the German culture
Wal-Mart's work regulation suffered only small adaptation like the end of the famous
morning Wal-Mart chant by staff members, which was really out of the German culture.
Some other improvements were made with years of experimentation, but those was oriented
to obtain customer satisfaction.As a result, Wal-Mart, already known for paying low wages,
.was accused of not providing good working conditions
Shortage of workers: The bad relationship with employees leaded to a bad reputation for WalMart as employer. It caused problem to the retailer when it needed to hire workers for its

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stockroom. Due to the low wages it was offering, Wal-Mart was unable to stop a shortage of
.workers that delayed the movement of goods, leading to excessive stockpiling
Relationship with unions: There are many differences in relationship with unions between the
US and the EU. Wal-Mart didn't understand these differences quickly enough. The company
never established comfortable relations with its German labour unions. The first problem was
that the retailer tried to discourage the formation of unions as it did in US. For the German
market, such policy is impossible to implement, unions there have strong relationship with
company and are important in the eyes of the workers. Such attitude explains that Wal-Mart
refused in 2002 the centralized wage-bargaining process, accepted in the whole German retail
industry. The company even announced in the same time employees lay-offs and store
closures for cost efficiency. Because of this attitude, Wal-Mart employees went on strike and
.organized a walk-out from Wal-Mart stores
The best example to show Wal-Mart's misunderstanding of the German situation was a suit in
the state court filed by the trade unions. Wal-Mart was reluctant to give them access to
financial data such as balance sheet and profit and loss account statements on its operations in
Germany. Such infraction is unforgivable for unions, which have the legal right to have those
.informations
Integration of two companies: Integrate Wertkauf and Interspar to Wal-Mart's structure was a
major problem for the US retailer. The Wal-Mart's decision to shut down the headquarters of
one of the chains infuriated employees who opted to quit rather than move. Such a decision
surprised the US executive, for who moving was a big part of the Wal-Mart culture. In
Germany, it led to an exodus of talented executives. Meanwhile, Wal-Mart had to deal with
companies that had completely different work cultures: Interspar had decentralized operations
with independent regional units, Wertkauf was centralized with the head office making all
decisions.After acquiring Interspar and Wertkauf, Wal-Mart prohibited members of the work
councils of the separate companies from meeting each other which is probably not the best
.way to make people work efficiently together
Outside the organization: Understanding the culture of a market could be an example of how
to cope with diversity. Moreover, several of those facts influence directly Wal-Mart
.organization
Consumer's behaviour: As Germany was considered a price-sensitive market, analysts felt
that Wal-Mart's philosophy would be successful in the country. Such assumption without any
deeper analysis of German consumer's culture led Wal-Mart to a dead-end in at least two of
.its international projects
The name: The German public had difficulties to pronounce Wal-Mart's name: maybe an
adaptation to the local culture would have been profitable. Seventy percent of Wal-Mart's
international sales come from outlets with names like Asda in Britain, Seiyu in Japan or
Bompreo in Brazil, stores that have adapted their name to the country or conserved the
.prior-to-the-acquisition name
Employees relationship with customers: But even subtle differences in shopping habits have
tripped up the company. In Germany, Wal-Mart stopped requiring sales clerks to smile at
customers a practice that some male shoppers interpreted as flirting.For instance, German
Wal-Marts adopted the U.S. custom of bagging groceries, which many German consumers

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find distasteful because they tend not to like strangers handling their food. Wal-Mart's famous
Ten-Foot Rule ( As per the Ten-Foot Rule of the company, whenever an employee comes
within 10 feet of a customer, the employee should look up to the customer, greet him and ask
him if he needs any help) was not implemented in Germany, as German customers did not
like strangers interfering with their shopping. For the same reason, Wal-Mart also did away
with the idea of greeters at German stores. In the US, Wal-Mart used to employ greeters at all
its stores to welcome customers as they entered. However, in Germany, the company found
that customers did not appreciate this idea at all. Apart from this, the German consumers
realized that they were the ones who would be paying more because of the guy standing at
.the door' which is why they did not appreciate it
Relationship with providers: Some of Wal-Mart's missteps in its understanding of non-US
market are well-known: selling golf clubs in Brazil, where the game is unfamiliar, or ice
skates in Mexico.The lack of strong vendor relations also affected Wal-Mart's operations in
Germany. Wal-Mart's success in its home market was mainly due to its efficient supply chain
and vendor relations. Unlike in the US, where the company and its suppliers were
accustomed to the centralised distribution, in Germany suppliers were not comfortable with
the centralised distribution system that Wal-Mart adopted. As in the US, Wal-Mart in
Germany wanted to rely on inputs from suppliers in order to decide on product
assortments.However, in Germany, Wal-Mart's relationship with its suppliers was not mature
enough to make this possible. Thus, Wal-Mart ended up trying to sell goods which its
.customers did not want but which suppliers wanted to push
In August 2006 Wal-Mart, the worlds largest retailer, announced that it was exiting operations
in Germany. Bentonville based retail giant announced it was selling all the 85 of its
hypermarkets to Metro. This marks the end of Wal-Marts German adventure which began in
.1997 with the acquisition of Wertkauf

WAL-MARTS GERMAN MISADVENTURE

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Rahul Menon