Wal-Mart Stores Essay
The internet revolution and the ability to transfer technology and information to remote destinations has facilitated a new age of globalization at the start of the new millennium. This new age of technology has meant that data and information could be transferred easily from one location to another and work could be completed from multiple locations and no longer depend on the availability of labour and workers in a single location. In a bid to secure more profits and save on labour costs most American Corporations have sought to venture into foreign markets.
Foreign direct investment in international markets has enabled American companies discover new markets for its products and also avail cheaper cost options to retain competitive advantage. (Korbin 1997)In recent years this has translated into greater profits and market leadership for corporations However the quest to set up international operations in a Foreign Market is not easy and involves a multitude of factors which must be considered for the venture to be successful.
This includes variables such as the foreign country’s legal political and cultural environment which may pose a hurdle for Foreign Operations. (Griffin, and Pustay 2006) Before entering the International market it is essential therefore that the Global
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It also analyses the changes that the company should make in its operational strategy to adapt to the cultural legal and environmental differences in order to prove successful in these emergent nations. Lecture Review The paper utilizes concepts available from a huge array of published literature Lectures to build an analysis of various factors that cause a Global Corporation to seek entry into Emerging foreign markets these factors which were covered in the literature review include the following elements 1. Seeking cheaper sources for Production.
Globalization has enabled foreign corporations to take advantage of international difference in the cost and quality to their advantage. (Korbin 1997)Firms have found that they can now save on labour expenses by setting up factories in emerging countries were the cost of labour is low for example in China, India and Vietnam . The concept behind this move is to attain competitive advantage by producing a good quality product at low cost. Many sport manufacturers and Garment manufacturers have utilized this strategy to secure competitive advantage in a quality and price conscious market.
Nike a leading producer of athletic shoes and apparel has reaped the advantages of this strategy in the past by establishing overseas factories which have successfully manufactured superior quality products at lower costs (Griffin, and Pustay 2006) 2. Easing of Barriers to Trade and Investment: In the past decades the international foreign policy doctrine of cold war had alienated countries such as China Vietnam, Taiwan and Russia from establishing international trading relations with the US.
But the demise of the cold war in the early 1990s and the adoption of a more economic liberal trade policy by countries such as India, china and Vietnam opened up the economic sector of these countries to foreign direct investment by US corporations. (Cateora, 2007). China which had found itself on the receiving end of various US Tariffs, and barriers in the previous decades was now awarded the most favoured trade status by the US. China’s large population and low wage rates provided the US with the cheap labour force that the US companies needed to attain competitive advantage.
It also provided it with a large consumer market for its finished products. 3. Technological Innovation: Technological changes have enabled data and information to be transferred easily from one location to another and work completed from multiple locations remotely. In a bid to secure more profits and save on labour costs most American Corporations have sought to outsource core operations on emerging countries (Griffin, and Pustay 2006) These outsource centres rely on cheaper foreign labour to complete jobs and operations once performed by the American workforce.
Thus a large chunk of white collar and blue collar jobs are now conducted at a cheaper price by foreign workers sitting thousands of miles away. The result has been a mushrooming of outsource centres in countries such as India and China in particular which both have the low labour costs and high literacy levels to accommodate such centres. The economy of China and India and particular has benefited a lot from outsourcing and these two countries have now become the largest emergent economies in the world Methodology
This paper will utilize primary research techniques in order to explore the various factors that influence the global operations of companies in emerging economies. This primary research is drawn from a vast amount of literature available on the subject. It will seek to explore the various debacles that have occurred in the past when multinational organizations have sought to enter foreign emerging markets. One particular case that the paper will consider would be Wall mart’s initial foray into the Brazilian Market and how the company initially lost millions because of a lack of understanding of the country’s culture and business practices.
It will also cite the example of a successful foray into the International market and how the JW Marriott Hotel has successfully adjusted to local culture in the United Arab Emirates. The paper will also analyze all the various factors that need to be taken into consideration before deciding to venture into an emerging market and how a firm can adopt its operational policies in accordance with these factors. Justification and Purpose of the Study This paper will explore the need to implement a strategy of entry into emerging markets that conform to the social economic industrial and cultural practices that exist in the country.
In establishing a manner in which this can be achieved the paper focuses on the following objectives 1. Conducting an in-depth Country analysis of the emerging economy that the company is targeting. This includes analyzing the cultural political, economic, legal, religious and industrial factors which influence the operation of a multinational in these countries 2. Identifying the differences in culture, business practice, legal and religious environment which exists between the two countries and the compromises that may have to be made by the Corporation to conduct business effectively in this country
3. Devising a plan to adopt these differences in a manner which facilitates the successful operation of the company in the country and also conform to cultural standards and local business practices. Expected Contribution The paper aims to establish a guideline which can be referenced to facilitate the transfer of practices between the Parent country and the emerging country with ease. It hopes to provide a framework which foreign corporations can follow to both identify and investigate the various cultural political, social and economic factors which may impact their operation in the foreign country.
By analyzing what went wrong with Wall Mart’s entry into foreign market of Brazil the paper hopes to establish a precedent for what strategies should be avoided when contemplating into foreign markets and what pitfalls might await the foreign investor if an in-depth analysis of the market is not conducted before entry. By examining how J. W. Marriott have adopted cultural and religious factors to bolster its business in the UAE the paper presents how these factors can be positively employed by Corporations
. The paper concludes by helping to provide a reference base for what factors influence the strategies of Companies seeking to establish operations in foreign markets. It also examines how these should be adopted for successful perusal of business in these markets. There are many lessons to be learnt from the analysis presented in the paper The most prominent ones include conducting extensive research into the various business practices, cultural practices as well as the economic , industrial and legal environment before deciding to launch business operation Analysis Common Interests
An emerging economy benefits from foreign investment through the creation of more jobs, more economic activity and an increase in the countries foreign reserves. Foreign investment also leads to more goods and services being produced in the economy and therefore an increase in exports and foreign trade (Korbin 1997) The benefits incurred by US business that wish to conduct business in a Foreign country can be analyzed by using the Eclectic Theory This theory developed by John Dunning focuses on The OLI Paradigm and is a mix of various theories on foreign direct investment.
The OLI paradigm can be explained as follows: (Gibson, 2003,) O”- Ownership Advantages (or FSA – Firm Specific Advantages). This advantage is usually intangible and can be transferred within enterprise at low cost these may include technology brand name and economies of scale. However a multinational company might face some costs of attaining these advantages. These include a failure of knowledge about local market conditions, as well as legal, institutional, cultural and language diversities. (Gibson, 2003,)
“L” – Location Advantages (or Country Specific Advantages – CSA). These advantages are accorded by the location of the company . Therefore the location advantages of different countries play a key role in determining their eligibility in becoming host countries the country specific advantages (CSAs) can be categorized as E – Economic advantages these are derived in terms of the quantity and quality of the factors of production available, transport and telecommunications costs, as well as scope and size of the market, and etc.
P – Political Advantages: these include government policies that encourage that Foreign Direct Investment flows like the removal of all trade restrictions or the setting up of free trade zones S – Social, cultural advantages these may include ease of adaptation to cultural and language diversities as well as an open and accommodative social structural settings which favor foreign investment. (Gibson, 2003,) “I” – Internalization Advantages (IA). The Multinational enterprises may enter the market by utilizing two main choices.
These include ranking from the market (arm’s length transactions) to the hierarchy (wholly owned subsidiary). The Multinational enterprise may choose an option in response to the peculiar market conditions and also on the basis of the costs involved in either option (Gibson, 2003,) Based on the above analysis we can determine that a number of factors makes the transfer of practice from the U. S. to foreign countries appear attractive to prospective investors these factors include: 1) The prospect of capturing new and larger markets on foreign ground. The U.
S. markets are over saturated at the moment with lots of competitors vying for a chunk of the market. The International market on the other hand has a huge demand for foreign goods and services. A new entrant seeks to earn a lot of profit by catering to the tremendous potential demand (Cateora, 2007). 2). Entry into the foreign markets also gives the company a vantage point to enter other neighboring markets where demand for such foreign goods and services are equally high 3. Entry into Foreign markets will give US based companies access to cheep labor.
This will help them reduce overall production costs and sell their products at lower prices thus helping tem to achieve competitive advantage. (Korbin 1997) Before starting its operations in a foreign country it is essential that the Corporation conduct a Country analysis which examines the economic, political, cultural, legal and industrial factors which effect the operations of the company. Let us what factors are essential in conducting each of these analysis in a country. Economic Analysis . This is conducted to determine how conducive this environment is to accommodate overseas operations and FDI by the Multi national company
The economic environment of a country reflects the freedom that the foreign investor may enjoy in operating their business in this particular country. When conducting this analysis it is essential consider what economic ideology the country follows and whether it is a socialist infrastructure or a capitalist infrastructure. In recent years a number of economic reforms in many socialist countries such as China and Vietnam have made the economy conducive to accommodate the needs of foreign investment. (Cateora, 2007). This analysis will also examine if the country has set up set up free zones to accommodate foreign investors.
These free zones incorporate a series of laws which enable companies to own their own premises and operate freely in an environment which is conducive to their needs. There are a number of free zones in countries such as the UAE, Croatia and Singapore to attract and accommodate Foreign Direct investment. In the United Arab Emirates many free zones representing diverse industries have been setup to attract foreign entities to set up their base in the country. These include the Jebal Ali Free Zone, the Internet City, Media City and the Dubai Internet City. (Ahmed, 2007)
Another important economic factor is to analyse the workforce of the country and whether it can help the company achieve competitive advantage by offering a cheaper labour option. Thee are many countries which have a hugely talented skilled and educated labour force and great levels of unemployment as there are not enough jobs to go around for the large number of people in the country. Examples of such countries include China and India where there is massive unemployment among the nation’s educated youth. It is these countries where foreign companies can find the cheap source of labour they are looking for.
There are also some nations where the workforce may be oddly distributed. In the UAE for example only 13% of UAE Nationals comprising the workforce. (Ahmed, 2007) 87% of the country’s workforce is composed of foreigners known and referred to as the expatriate population. Other countries in the Gulf such as Qatar, Saudi Arabia, Bahrain and Kuwait have a similarly constituted workforce. Companies might want to take advantage of such a culturally diverse workforce and benefit from the multi dimensional skill set that such an international work force may possess.
Another important factor to consider in this analysis is the availability of adequate infrastructure to facilitate the transport of goods and commodities from the parent company to its foreign subsidiary. These include an adequate and modern network of roads, ports railways and other amenities to help fulfil transportation of raw materials and finished goods from subsidiary company to parent company. Another equally important factor is the availability of modern technological amenities such as high speed internet.
This is particularly important to facilitate communication between the Parent company and its subsidiary. It is also important where the firm wants to establish an outsourcing operation and wants to transfer data and information over the internet. When analysing the economy important statistical figures such as GDP estimates and per capita income should be considered but what should be given paramount importance are figures pertaining to the level of foreign direct investment (FDI) in the economy. This indicator will signify how conducive the economy is to foreign direct investment. Political Analysis
The political scenario in a country also influences the level of foreign direct investment it attracts. If the government is headed by a dictator or keeps toppling frequently foreign companies will be deterred from investment due to the uncertainty caused by frequent changes in Government. (Korbin 1997) Many emerging countries are plagued and internal strife often resulting in violence and frequent changes in Government. One example of this is Pakistan which in recent years has lost a lot of foreign investment because of its unstable political situation and struggle with Islamic extremists.
Sometimes a country’s political ideology creates a barrier to international investment. An example of this is the two emerging economies of China and Vietnam. Both countries follow a socialist political ideology and did not see much direct investment till they implemented massive reforms and up hauled the economic system from a traditional communist economy which deepens on the State for everything to a modern socialist republic which accommodates and invites foreign investment.
Before conducting operations in these countries companies must remember that despite the reforms these countries are essentially structured as Communist bureaucracy and they might have to face a lot of paperwork and red tape in getting contracts passed and other essential government related paperwork approved. This might be something which they might not be familiar with in their own country. The same applies to a country like Saudi Arabia which is a state following the strict Islamic and political ideology of Shariah and has very strict rules regarding how business operates in the country.
Companies operating in the country would have to ensure that they comply with the rules of the Shariah in their operations. This includes closing operations at the time of prayers, and refraining from interest or ribaa as it is called in their financial dealings Legal Analysis The lack of Laws or the presence of two many laws may effect a foreign firm’s operation in the emerging economy The lack of laws governing the firms operation for example in a free zone might be good news and an additional attraction for a company wishing to set up operation in the region.
On the other hand adherence too many laws may lead to red tape and burecracy and hamper every day operations. This may actually be deterrence to a foreign company wishing to set up operations in an emerging country. Another deterrent could be frequent fluctuations in the laws and regulations governing business practice in the emerging country. (Griffin, and Pustay, M. W 2006) This factor would make the country a very unpredictable environment to conduct business in.
Another important consideration when evaluating the legal environment of the country is to ensure that it doesn’t impose any legal restriction to the repatriation of funds to the parent company. If there are legal restrictions as to how much funds could be transferred back to the parent company it would act as a major deterrent to the foreign investor. Cultural Analysis Each country has its own unique culture based on the religious social and traditional patterns followed by society. The culture differs from country to country and region to region.
The culture of Taiwan and the culture of India vary differently even tough both countries are in Asia. Culture is influenced heavily by the system of values and morals passed down in society. These values may be derived from religion or they may be etched in the traditional practices that are passed on from one generation to the other. (Korbin 1997)In general societies which follow the same religion adopt the same religion and speak the same language will have similar cultural systems.
For example the culture of the UAE and Saudi are quite similar due to physical proximity , the use of the same language, adherence locality and religion However if a foreign company ventured into the Saudi market thinking that its cultural dimensions as the same as that of the UAE it would be a severe miscalculation. The UAE is a modern Islamic Arabic speaking country. Its culture is a mixture of liberal modernity and traditional values. The culture focuses heavily on Muslim values UAE citizens have a very high standard of living, and have adopted liberal lifestyles with western amenities.
The multicultural nature of the country allows for many foreigners to live ad work there in an open liberal and tolerant environment. Liquor can be sold freely in the country and women free to work drive and not wear hijab if they choose not to. Though the culture in Saudi is quite similar it differs by one major aspect. Saudi Arabia is not a liberal Muslim country, it is a very conservative and strict Muslim country Liquor is not allowed to be sold in the country, women are not allowed to drive, work only in certain professions and also wear hijab at all times.
Though the UAE follows Shariah only on Family matters, Saudi Arabia follows the Shariah strictly in all realms of life. A foreign investor must keep these cultural differences in mind when choosing which country to base its operations in. One essential tool which can be used in understanding the cultural aspects of the Foreign Country is Hofstede’s cultural dimensions. This concept breaks culture into four distinct dimensions explained as follows (Gibson, 2003, 55-58,) • Power Distance: this is the extent to which the culture accepts unequal distribution of power.
A higher power cultures, indicates a wider gap between the powerful and the powerless. • Uncertainty avoidance: the extent to which the culture tolerates ambiguity and uncertainty. In certain societies the notions of uncertainty and ambiguity have no place as society is structured according to a certain sets of rules and doctrines • Individualism: This determines how individuals or closely-knit social structures such as the extended family become the basis for forming social systems.
Individualism often results on the reliance on one’s self and a focus on individual achievement rather than the society’s achievement. • Masculinity: This can be defined as the extent to which assertiveness and independence from others is valued. In certain cultures masculinity has lead to a high sex-role differentiation with men taking the more assertive and responsible roles and the females being relegated to more traditional and supportive roles (Gibson, 2003, 55-58,) Industry Analysis When analyzing industry practices it is important to note what kind of hierarchy the businesses in the industry follow.
Is it an industry dominated by a large number of small competitors or is it a monopoly with a single powerful supplier and barriers preventing other companies from entering(Griffin, and Pustay, M. W 2006). In certain industries governments impose barriers to the entry of foreign competitors to protect local business The UAE’s telecommunications sector is an example of such a scenario where the government has imposed barriers preventing the entry of foreign competitors. In the UAE telecommunications market there are only two dominant players Etisalat and Du.
Etisilat commanded a virtual monopoly over the telecommunications industry till Du made an entry on the scene in 2006. If a new foreign investor wants to enter the country’s telecommunication market they would not be able to enter directly and would have to do so by partnering with the existing players. Individual industry analysis is necessary if the foreign investor is to determine what mode of entry it should adopt in the foreign market, what channels of distribution it should subscribe to and what kind of pricing strategy it should adopt in line with the level of competition in the industry.
To enter the foreign market without a proper industry analysis would lead to a gross miscalculation which could end up costing the foreign investor dearly in the end. Conflicts The United States is one of the biggest Capitalistic economies in the world. Business in the United States has the freedom to conduct its activities in an environment devoid of government interference. However in many emerging economies particularly in Socialist countries or in dictatorships the government plays a very important part in the growth and development of business.
(Griffin, and Pustay, 2006) In the United States business organizations are free to form labour unions in every realm and industry. These labour unions are free to conduct strikes, negotiate labour regulations and often work on their own agenda to benefit labour union itself as opposed to the workforce in general These Unions exercise a great deal of power and influence in the US. However in many emerging economies labour unions don’t exist or exercise a great deal of power.
This is particularly true in the UAE and the gulf countries where trade unions are not allowed to exist by law and also Vietnam and China where their power is curtailed The business environment in many emerging countries is still prone to a lot of censorship and is not as heavily competitive as the business environment in the US. In the US competition is the driving force of the economy in the U. S. Business in the U. S exists for one purpose only: to make a profit.
As the economy grows and more firms enter a particular industry they try to distinguish their product and prices to sustain competitive advantage. (Griffin, and Pustay, 2006) Where the product has similar attributes and is difficult to distinguish competition focuses on reducing prices to attract more customers. The result is cut throat price competition which eventually results in some companies being run out of business.
This scenario doesn’t occur in many emerging countries like where the industry is protected against the forces of competition by policies policies to protect local business. Even though competition exists government does not let it turn into a force which harms the growth of its small business enterprises The emphasis in the US is on innovation and development of new products. This is especially important in the growth of entrepreneur and Small business that are formed into being to sell a new idea.
In emerging economies like India China Vietnam the focus is on labour intensive services. (Korbin 1997)These include garment manufacturing, shoes manufacturing and other agricultural related industries Though Small to medium enterprise plays an integral role in both economies the US has a greater segment of Large Corporations which exercise greater control on the economy than SME’s and is not as dependent on the growth of these enterprises as compared to an emerging country. Businesses in the US are structured to make a profit.
Culture and religion though significant in business don’t play as prominent a role as the drive to make a profit. The business environment is highly informal and frank. In the US elder colleagues though treated with due respect are not given any special privileges because of their age and experience unlike n many parts of Asia and the Middle east In the U. S rather than your age or education a person achieves a title or progression based on the contribution they make to the company’s bottom line. Women and men share equal positions of responsibility.
The US doesn’t have a male dominated workforce with women relegated to only certain kinds of roles like in an emerging country In the US all labour intensive jobs are paid minimum wage as per the labour regulations. This concept doesn’t exist in many emerging economies where labour may sometimes be exploited and paid lower wages. (Korbin 1997) Cultural Adoption In order to enable a smooth transition of business practice between US and the foreign country certain implications exist for the US based business. These include: 1.
Differences in Language and culture if a new product is introduced in the foreign country promotion and packaging of the product should be conducted in English as well as the national language of the country. To give its product wider acceptability and understanding the foreign company must include an instructional manual published in both English and the local language (Griffin, and Pustay, 2006) The Foreign Company will also have to promote its product in both English and local language All kinds of promotional campaigns which appear in print, television, and outdoor media will have to be bilingual.
The company can initially used reward based campaigns to attract new users. Also to facilitate smooth business practice it is advisable to translate all formal written business documents into the local language Also to ensure that business partners and clients do not misunderstand the objectives of the foreign company it is also wise to hire a translator. This is particularly necessary to facilitate communication in the local area. 2.
Hiring personal with experience in the local market that is familiar with local trends and market conditions. This will enable the company to gain knowledge about the local conditions which it can use to negotiate in a new and foreign marketplace. The company would also have to train new recruits on the technical aspects of selling products in a new market. They would require people who probably have previous experience in the foreign market and have a prior base of clients that they can start by selling to. 3. Repatriation of Funds.
Contrary to operations in the US where it had a 100 percent right to the profits generated by the company now has to consider local laws and regulations before repatriating funds home If there are certain restriction imposed by the Foreign country’s law companies in the US cannot repatriate all the income it generate. This places a restriction on the funds that the company can repatriate home. 4. Understanding the Consumer Segment The Company must understand its target market, and must know what they think feel and perceive about the product they will be manufacturing.
Consumer’s preferences and needs must be taken into account to alter the product or strategy used to distribute or promote it. Analysis Wall Mart in Brazil Wal-Mart Stores, Inc. is one of the largest retail stores in the world. It operates chains of retail stores in various formats throughout the US. These retail stores are structured as discount stores, Supercenters, and Neighborhood Markets all over the United States. (Wall mart 2004) Another popular format known as Sam’s club is intended for bulk buyers and is operated using a warehouse membership.
After over saturation in the domestic Market the company decided to go global and open stores in various parts of the world. Today the company successfully runs retail stores in Argentina, Mexico, Canada, China, Germany, Japan, Korea, Puerto Rico, Brazil and United Kingdom (Rock 2001). However the going has not been all that smooth for the giant retailer particularly in relation to cultural adoption. Perhaps the biggest loss the company faced was in its initial foray into the Brazilian market in 1995.
The company opened a large number of supermarket retail stores but faced a lot of trouble actually selling to the Brazilian customers The reason was the adoption of a tried and tested standardized product which was a hit in the domestic market to a local market without considering cultural factors and consumer buying patterns. The company initially faced disaster with its Sam club’s chain of stores because it could not attract or persuade local customers to buy from the store Wall marts biggest folly here was not the core nature of the product but rather the manner it was distributed to the consumer (Rock 2001).
The distribution format and the whole concept of a warehouse store was not received well in a culture that is not used to bulk buying. Brazilians are not accustomed to subscribing for membership to a grocery store and balked at the idea of paying an extra cost above the price of groceries. Also most Brazilian’s don’t have enough space in their homes to the storage of items bought in bulk.
In the US where most people live in houses and have ample storage space the concept of bulk buying and consumers do not mind paying the extra membership in order to avail the discount of buying in bulk. However in Brazil the concept simply failed to work and Wal-Mart was left to incur a colossal loss. The result was a shift in strategy and the development of a re-aligned strategy Not only did the chain alienate customers it also alienated local suppliers by laying down the same blanket terms that it used with suppliers in the US. (Molin 2004). However contrary to the sce