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    Entry Mode - Walmart

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    Phan Dara
    1) Walmart entered the German market in 1997 by acquiring stores but withdrew 9 years later, unable to succeed with the American model. 2) Key reasons for failure included cultural misunderstandings between American managers and German employees/customers, and inability to adapt to German regulations and shopping preferences. 3) Walmart also faced fierce competition from established German discount chains like Aldi and Lidl and did not achieve necessary economies of scale with its relatively small number of stores in the country.

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    Entry Mode - Walmart

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    Phan Dara
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    1) Walmart entered the German market in 1997 by acquiring stores but withdrew 9 years later, unable to succeed with the American model. 2) Key reasons for failure included cultural misunderstandings between American managers and German employees/customers, and inability to adapt to German regulations and shopping preferences. 3) Walmart also faced fierce competition from established German discount chains like Aldi and Lidl and did not achieve necessary economies of scale with its relatively small number of stores in the country.

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    1) Walmart entered the German market in 1997 by acquiring stores but withdrew 9 years later, unable to succeed with the American model. 2) Key reasons for failure included cultural misunderstandings between American managers and German employees/customers, and inability to adapt to German regulations and shopping preferences. 3) Walmart also faced fierce competition from established German discount chains like Aldi and Lidl and did not achieve necessary economies of scale with its relatively small number of stores in the country.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    46 views1 page

    Entry Mode - Walmart

    Uploaded by

    Phan Dara
    1) Walmart entered the German market in 1997 by acquiring stores but withdrew 9 years later, unable to succeed with the American model. 2) Key reasons for failure included cultural misunderstandings between American managers and German employees/customers, and inability to adapt to German regulations and shopping preferences. 3) Walmart also faced fierce competition from established German discount chains like Aldi and Lidl and did not achieve necessary economies of scale with its relatively small number of stores in the country.

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    of 1

    CHAPTER 12 HIERARCHICAL moDES 411

    are sold off or shut down. On the other hand, if the subsidiary is a good economic per­
    former, the owners may see an opportunity to obtain a good price for the unit while it is
    performing well.
    ● Growth. Economic growth in the host country would normally make FDI even more
    attractive, thereby increasing the barriers to exit from such a country. However, the attrac­
    tiveness of the location would make such operations more likely targets for takeovers by
    other investors.

    EXHIBIT 12.2 Wal-mart’s withdrawal from the German market

    Wal-mart (www.walmartstores.com) was founded by Sam Walton in 1962, with the opening of the first
    Wal-mart discount store. Today there are more than 8,100 retail stores under 55 different store brands in
    16 countries (Argentina, Brazil, Canada, Chile, China, Costa Rica, El Salvador, Guatemala, Honduras, India,
    Japan, mexico, Nicaragua, Puerto Rico, UK and the US). With fiscal year 2009 sales of US$401 billion (only
    20 per cent outside the US), Wal-mart employs more than 2.1 million associates worldwide. Wal-mart had
    high hopes for Germany (the world’s third-largest retail market after the US and Japan) when it entered the
    market in 1997 by acquiring Wertkauf GmbH with its 21 hypermarkets. one year later Wal-mart aquired a
    further 74 Interspar stores of Spar AG.
    However, nine years later Wal-mart had to withdraw from the German market. What happened?
    There are several explanation for this withdrawal:
    1. Wal-mart appointed a CEo for Germany who spoke no German. Not only that, he insisted that his managers
    work in English. The next CEo, an Englishman, tried to run the show from England. The men at the top
    misunderstood both the employees and the customers. other surprises for Wal-mart were Germany’s
    short shopping hours, including almost no Sunday trading. Wal-mart Germany was frustrated by German
    shopping regulations – the feared Ladenschlussgesetz which regulates store opening times – and restrictions
    on discounting.
    2. Wal-mart’s American managers pressured German executives to enforce American-style management
    practices in the workplace. Employees were forbidden, for instance, from dating colleagues in positions
    of influence. Workers were also told not to flirt with one another.
    3. The German Wal-mart management threatened to close certain stores if staff did not agree to work longer
    hours than their contracts foresaw and did not permit video surveillance of their work. As a consequence
    Wal-mart Germany had several conflicts with the trade union.
    4. There were some cultural misunderstandings too: German Wal-mart shoppers didn’t like having their
    purchases bagged by others and German shoppers like to hunt for bargains on their own, without smiling
    assistants at their elbows.
    5. Some of the American products did not fit into the German homes: for example, American pillowcases are
    a different size from German ones. As a consequence, Wal-mart Germany ended up with a huge stock of
    pillowcases that they could not sell to German customers.
    6. Wal-mart did not reach ‘critical mass’ in Germany. Its infrastructure in Germany, which involved two HQs
    (for a while) and three logistics centres, piled up costs without achieving economies of scale. With its
    relatively low number of stores, it only reached 2 per cent of the German food market. It was up against
    fierce competition from Aldi and Lidl, two German discount chains. For example, Aldi had a network of
    4,000 stores, compared with Wal-mart’s approximately 100 stores.
    After nine years of trying to make a go of it, in July 2006 Wal-mart sold its 85 stores to German rival metro.
    Wal-mart’s attempt to apply the company’s proven US success formula in an unmodified manner to the
    German market turned out to be a fiasco. This case shows how important is is to address cultural differences
    when setting up international operations.
    Sources: The Economist ‘After struggling for years, Wal-Mart withdraws from Germany’, US Edition, 5 August, 2006; The Independent ‘Mighty Wal-Mart
    admits defeat in Germany’, 29 July 2006, London; www.walmartstores.com.

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