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Walmart

Agenda:

Introduction: Walmart

Why go Global?

PEST Analysis

Porters 5 Forces

Walmart in Germany

Reasons for Walmart's failure in Germany

SWOT Analysis

Walmart in India?

Introduction- Walmart:

Walmart was founded bySam Waltonin


1962, incorporated on October 31, 1969

By 1988, Walmart was the most profitable


retailer in the US

Walmart has over 11500 stores across the


world & more than 50% of these were
outside USA

Only 30% of revenue is accounted by its


international operation

Walmart operates
different names:

Walmart

globe

Mexico

with
Best
Price

ASDA

Walmex
United
States,
Puerto
Rico

across

United
Kingdom

India

Walmart Success
Formula:

Everyday Low Price

Sophisticated logistics and inventory


management techniques

Strong emphasis on customer services

Dedicated and committed work force; employee


directly tied to market value of companys stock

Why Go Global?
Expansion of
information
technology
Emerging
markets

Increasing
cultural
homogenization

US accounts for
only 4% of
worlds
population

Saturated
Domestic
Market

Lowered trade
barriers

Go
Global

Walmart expanded into Germany in 1997

It could exploit
its tremendous
buying power

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PEST Analysis:
Political:
Policies in Germany were not conducive to the entrance
of big retailers in the country
Number of maximum hours allowed per week was
amongst the lowest in the world
Stringent policy against price cut

Economic:
Retail industry in Germany is very competitive and low
margin industry
Germany is the biggest retail market in Europe
GNP of the country in 2000 was 2 trillion Euros with the
total population of 80 million people

PEST Analysis:
Social:
Germans were very price conscious
Culture in Germany was very different than that in US
Many more people considered themselves as price conscious
rather than quality and service conscious

Technological:
Technology used by German retailers was among the best in
the world
German labors were highly skilled, use technological logistics
application and complex network coordination

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Porters 5 Forces
Competitors:
Retail industry in Germany was least profitable
The profits were less than one percent of sales for most of
the retailers
The market during early 2000 was consolidating at that point
with percentage of revenues by top players in the industry
increasing

Customer power:
Customers were very price conscious
Customers have high buying power over retailers since there
was no switching cost
Most of the customers were influenced by prices rather than
quality and service

Porters 5 Forces
Supplier power:
Manufacturers enjoyed much higher power in Germany
Suppliers preferred retailers who would give them high volumes
Relationship between suppliers and existing big players being very strong

Threat of substitutes:
Little threat of substitute for retailers
No threat from e-tailors at that time

Barriers to entry:
Difficult for a new entrant to enter in the German retail industry
Supplier relationship and cultural integration proved to be big barriers in the
industry

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SWOT

Largest cooperation (3 times the next competitor)


Strong relations with suppliers
8.4 mn. transactions update/minute
Strong distribution centre and logistics
Cross docking and effective inventory management
Huge database

Low adaptability to different country formats


Low International market expertise
Minor in International retailing
Poor expansion plan implementation in Germany

SWOT

Growing Middle class in emerging


economies
Competitors for sale at lower than book
value
Ecommerce sector growth
Anti-globalisation movements
Presence of local established retailers
Culture differences with acquired retailer
EDLP pricing and predatory pricing not
permitted in some countries

Why Walmart entered


Germany

The retail market in United States was getting saturated

The population of US was not increasing much

Some small players were trying to make an entry.

The competition amongst retailers was intense in US.

No growth opportunity from that as well.

Entry barriers were not high in retailing industry due to increasing


globalization

Having expanded in all the parts of US, the company had to look
towards international expansion in order to maintain growth.

Competitors like K-mart were giving stiff competition to Walmart and


market share was under pressure.

Walmart wanted to leverage its successful strategy of EDLP in


other countries

They believed that this strategy could be successfully replicated to


foreign countries.

Entry Strategy of
Walmart

Walmart entered the Germany with two


consecutive acquisitions

It bought two struggling German Retail chains

1997

21 Wertkauf stores

1998

74 Spar hypermarkets

Fundamentally flawed
Entry by Acquisition Strategy

Spar was considerably the weakest player in German market

Run down stores which were heterogeneous in size and format

Most of them were located in lass well-off inner city residential areas

Walmart paid 650 million Euros for the subtenant status

The real estate value was far less than this amount

After the lease expires, Walmart could be forced to give up those stores

The network of stores was not appropriate

80 % of the German population did not had a Walmart store in their vicinity

Other Reasons for Failure


of Walmart in Germany

Failure with Cultural Integration

Walmarts employees are unhappy about the low pay in the company

Walmart forced the usage of English as the official language

Walmart was not able to lay down employees in Germany as easily as


it did in US

Failure of Everyday Low Prices Strategy

Price cut was matched by competitors

The goods made available were not at high discount

Walmart was unable to achieve cost leadership since it was unable to


attain economies of scale and control over retail network

Lack of Customer Satisfaction

Walmart was unable to tweak its services according to the German


preferences like self servicing

Key Challenges in India

FDI Restrictions

Social & Political Resistance

FDI Restrictions of 51% on Multi-brand Retail


Protests from political parties, local retailers, dealers.

Negating penetration of Mom & Pop Stores

In local cities, the network of Kirana Stores is


extensive

Features like sales on credit facility is available

Poor Infrastructure will cause inefficiency in value


chain

Indian roads, ports & freight facilities are way below


global benchmark

Should
Should Walmart
Walmart enter
enter
India
India

Decision on Entering India

Yes

No

Acquiring a local player

Operational and Cultural


Issues
Not Recommended

Organic Growth

Regulation Issues
Not Recommended

Greenfield Venture

High Risk
Not Recommended

Joint Venture

Recommended

Growth Opportunities

More Downside Risk

Competition of Walmart
Names

Category

Target Segment

Big Bazar

Diversified
Merchandise

Middle Class

Pantaloons

Apparels, Accessories

Upper Middle Class +


Lower Middle Class

Shoppers Stop

Apparels, Accessories

Upper Class

Star Bazaar

Diversified
Merchandise

Upper Middle Class +


Lower Middle Class

More, D mart

Merchandise

Middle Class + Upper


Middle Class

Effects due to entry of Walmart


in Indian Retail Industry
Negative Effects

Positive Effects

Loss of business for


small scale department
stores
Low pricing wars
Excessive Competition
Affects Local traders and
small retail shops

Profit realization of
farmers
Improvement in supply
chain and infrastructure
Inflow of massive capital
More jobs across supply
chain
It will bring the global
best practices, quality
standard and cost
competetiveness in India

Survival of Walmart in
India

It adapts to Indian consumer preferences and


cultural values

It takes advantage of the competition landscape

It uses its influence to aid economic reform in


India.

Walmart can independently operate as a cash and


carry or wholesale operation and hold a 51 percent
stake in a multi-brand retailing operation in select
cities

Thank You
!!!