Case Study: Wal-Mart in Germany

- Ashwin Joseph

Objectives of the Case

This case will illustrate that researching and implementing effective cross-cultural communication strategies is critical for global success. Organizations must understand how national culture impacts corporate values and adapt constituent communications appropriately. When leadership can understand their international constituents and constituents can understand their parent company, cultural gaps diminish.

Summary of the Case

In 1997, Wal-Mart continued a strategy of global expansion and purchased two German retail chains for $1.6 billion. Eight unprofitable years and 85 stores later, WalMart backed out of Germany in July 2006 and sold the entire lot to Metro AG at a garage sale price. The failure to recognize cultural differences and communicate properly with their German employee, supplier, and customer constituencies contributed to Wal-Marts poor image and inability to gain sufficient market share for profitability.

Wal-Mart Enters Germany

Wal-Mart purchased the 21 store Wertkauf hypermarket chain in December 1997 and the 74 unit Interspar hypermarket chain in January 1998. With 80 million people, Germany represented Europes largest economy - lots of customers. The discount retail industry in Europe was already mature with a number of successful players. German discounters were extremely no frills, similar to American warehouse stores like Costco and BJs. Big stores with cheap prices werent a new idea. Aldi had 4000 stores and a 19% market share. For Aldi, location provided consumer convenience.

The trouble starts.

Wal-Mart proudly implemented trademark customer service like grocery baggers. German customers, however, didnt like strangers handling their food. Store clerks, like their American counterparts, were trained to smile at customers. Greeters welcomed customers into the store. German males interpreted this as flirtatious and found it offensive. Germany was described as the ultimate non-service culture by Stephen Arnold, professor at the School of Business at Queens University, Kingston, Canada. Customers quickly developed a negative image of Wal-Mart as out of touch with their customs and traditions.

Issues with the Employees

Employees, like the reserved customers, didnt care for WalMarts public displays of corporate moral such as the morning cheer. Wal-Mart also angered German employees over policy and language in the newly translated ethics manual, distributed in 2005. According to German press, employees were told to follow the guide or lose their jobs. Employees were forbidden take gifts from suppliers, forbidden to have romantic relationships between employees and superiors, and required to report co-workers who didnt comply with the code. In Germany, the ethics code was seen as an intrusion into private lives and encouraging spying on co-workers.

Issues with the Employeescontd

In Germany, unions are extremely active, and frequently are involved in corporate decisions involving working conditions. Hans-Martin Poschmann, secretary of the Verdi union said They didnt understand that in Germany, companies and unions are closely connected Wal-Mart initially refused to have labor unions and as a result for which they faced huge strikes and eventually had to relent. Complete lack of understanding of German language and culture from the top leadership of Wal-Mart who were mostly American. Office closures and relocations, though a mainstay of U.S. Wal-Mart culture, annoyed Germans. When Wal-Mart shut-down the Wertkauf corporate headquarters, executives quit rather than move 180 miles north to the Interspar office

A Review of Hofstede
PDI - Power distance is defined as the extent to which the less powerful members of institutions and organizations within a country expect and accept that power is distributed unequally. IDV - The fundamental issue addressed by this dimension is the degree of interdependence a society maintains among its members. MAS - The fundamental issue here is what motivates people, wanting to be the best (masculine) or liking what you do (feminine). UAI - The extent to which the members of a culture feel threatened by ambiguous or unknown situations and have created beliefs and institutions that try to avoid these. LTO - The extent to which a society shows a pragmatic futureoriented perspective rather than a conventional historical shortterm point of view.

Communication Styles

Cognitive Styles
BASIC OUTLOOK OPENING QUESTION ACQUIRING KNOWLEDGE Germans
tend to be more cautious, conceptual

Americans
tend to be more optimistic, pragmatic

Do we really need?

Can we have?

Structured way of knowing

Want solid theories, coherence

Hypothesis, testing way of knowing

Speculate with probabilities, risk taking

Deductive: acting on the basis of ones thorough understanding of the situation

Declarative thinking: focusing on description and explanation of situation Gather information from experts, logical analysis of ideas Importance of background information (historical context, Zeitgeist:, sociology)

Inductive: understanding a situation through experimentation

Procedural thinking: focusing on how to get things done Active experimentation: learn from peers, brainstorming, think out of the box Importance of measurement data, and facts (how tall, how much, statistics, etc.)

APPLYING KNOWLEDGE

Development of strategic analysis

Systematic planning Decisions are binding

Ability to get things done

Trial and error, learn by doing, can do Decisions are guidelines

Project Management
Germans tend to. PROJECT IDEA PROJECT MEETINGS
...collect information get down to business present detailed plans

Americans tend to think

Why are they doing this? They are cold and unfriendly. How can they discuss the details at this stage? They dont like each other. They dont communicate or work as a team.

Americans tend to.

chat informally about an idea begin with small talk begin with brainstorming

Germans tend to think

Why arent they doing anything? They are wasting time. They are not prepared for the meeting. They are not sincere. They are too many meetings; we cant get our work done.

express criticism openly

be enthusiastic about all the ideas hold frequent meetings; change tasks as circumstances change believe continuous contact guarantees coordination

PROJECT PROCESS

work individually on the tasks assigned to them

believe clearly defined milestones guarantee success

Basic German Values

1. Strong sense of group welfare: Sozialmarktwirtschaft 2. Confidence to do the job right due to thorough training 3. Extremely fair towards others; have vision what is right and wrong 4. A serious and factual attitude toward life 5. Excellent listeners 6. Meticulous about deadlines and appointments 7. Perfectionism: very neat and orderly, pay attention to details 8. Precise execution of activities and products; brilliant organizers 9. Hchste Leistung bringen: obsession for high performance with passionate intensity 10. Durchsetzungsvermgen: very thorough and effective in work

Basic American Values

1. 2. 3. 4. 5. 6. 7. Very proud of political system and the American way of life High self-confidence; rely on own strength and capability Volunteerism: very engaged in community services Trust in people; relaxed friendliness and spontaneity A can-do optimism: openness to improvement and change Anti-authoritarian attitude: dont bow to a higher authority Equality and the rule of law: every person is equal before the law 8. Individualism: everyone has the right to self-actualize 9. Restlessness and impatience: desire to move up the social ladder 10. Pragmatism: prefer the concrete over aesthetic and conceptual

Other Aspects that led to Wal-Marts demise in Germany

Unable to compete with location based strategy of smaller retailers like Aldi. Repetitive brushes with the German law and Labor authorities. American quality standards looked upon as inferior. Lack of mature vendor relationships. Wal-Mart was not familiar with German merchandising tastes, and often ended up with products that were unwanted by customers. For example, Wal-Mart sold pre-packaged meat, although Germans prefer to purchase meat from a butcher. The yield returns in Germany are less than 2 percent, often even only at 1.5 percent. Against this backdrop, presenting German consumers with unfamiliar U.S. brands was doomed to failure.

Thank You