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CASE STUDY: MBA Workshops in Marketing: "Case Study: Examining

Walmart’s International Market Entry Strategy and Tactics"

Conference Paper · October 2009

DOI: 10.13140/2.1.2370.6568

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D. Anthony Miles, Ph.D. Candidate

Case Study:
Wal-Mart’s International Market
Entry Strategy and Tactics
BINT 6361: International Marketing
AGENDA
• Background of the Firm.
• Retail Industry Trends: “The Rise of
Category Killers”
• International Market Penetration Strategies
• Current Situation
• Key Success Factors (KSFs)
• Critical Observations and Conclusions

2
Background of the Company

• Wal-Mart slowly emerged as the number one discount

retailer in the U.S. surpassing K-Mart and other competitors
• Wal-Mart’s domestic dominance prompted an interest in
global markets.
• Wal-Mart began penetrating foreign markets in the early
1990’s
• First foreign expansion was Mexico in 1991.
• Entered Asia in 1996.
• 1998 entered Korea.
• 2002 entered Japan through an acquisition.
• Asia was a difficult market for Wal-Mart.
• Japanese consumption patterns.
• Japan’s complex supply system.
• Emphasis on fresh foods.

3
 Paradigm Shift in Retailing Industry:
“The Rise of Category Killers”

“Category Killer (CK)” CK Characteristics:

•
definition: Massive square footage. CK stores have
massive square footage: 20,000 - 100,000
– A big box retailer that sq ft.
• Deep product line
specialize in a distinct • Goal is to dominate the category.
classification of • Aggressive in mass market of discount
merchandize; retailing.
• Aggressively drive down the price of
– Product line is so deep goods and services.
that small mom and pop • Consumers are no longer brand loyal.
Brand loyalty to a particular store has
retailers cannot compete. become a casualty of our changing
consumer culture.
• “Retail Darwinsim” CKs have caused
the rise of retail Darwinism.

Source: Spector, R.(2005) Category Killers: The Retail Revolution and Its Impact on Consumer Culture 4
 Category Killers
Everywhere?
SAM’S CLUB
HOME DEPOT BORDERS

LOWE’S
OFFICEMAX

COSTCO BARNES &

NOBLE

TOYS-R-US

PETSMART

STARBUCKS
BED, BATH & BEYOND
Source: Spector, R.(2005) Category Killers: The Retail Revolution and Its Impact on Consumer Culture 5
Walmart’s Product Line
Portfolio

• Walmart Discount Stores (base unit discount store).

• Walmart Supercenters (mass merchandising store with
specialty shops).
• SAM’S CLUB (membership clubs).
• Walmart Neighborhood Markets (grocery stores).
• Walmart.com (internet sales website)

Retrieved 9/9/2009 from http://walmartstores.com/FactsNews/NewsRoom/9084.aspx

6
Walmart’s Current Situation

International Sales 1995 - 2008

Sources: 2008, 2007, 2006 Walmart Annual Reports

7
Walmart Corporation’s International
Expansion Map

Source: Retrieved on 9/9/09 from http://walmartstores.com/AboutUs/246.aspx

8
Walmart’s Timeline and
History of Global Expansion
Mexico Puerto Rico Canada Brazil China United
Argentina Kingdom

1991 1992 1994 1995 1996 1999

1,262 stores 56 Stores 312 stores 359 and 32 258 stores 364 stores
to date to date to date stores to date to date
to date
Japan Costa Rica Guatemala Nicaragua Chile India
El Salvador Honduras

2002 2005 2005 2005 Jan 2009 May 2009

371 stores 170 and 75 164 and 53 54 stores to 229 stores to 1 store to
to date stores to stores to date date date
date date

*International Market Failures: Germany and South Korea

Retrieved 9/9/2009 from http://walmartstores.com/FactsNews/NewsRoom/9084.aspx

9
Walmart’s International
Expansion by Percentage

Guatemala
El Salvador
4% Honduras
2%
Costa Rica 1%
Japan
5% Nicaragua Chile
10%
1% 6%
UK India
10% 0%

China
7%
Argentina
1% Mexico
Brazil 34%
10%
Canada Puerto Rico
8% 1%

Retrieved 9/9/2009 from http://walmartstores.com/FactsNews/NewsRoom/9084.aspx

10
 Wal-Mart International Sales 1995-2000

32,100
40,000
22,728
30,000

12,247
20,000
5,002 7,517

10,000 3,712

0
1995 1996 1997 1998 1999 2000
*Sales in billions
Years

Source: Wal-Mart Annual Reports 1995-2008

 Wal-Mart International Sales 2001-2008

90,640
100,000
77,117
66,623
80,000
58,563 59,237
44,142 49,523
60,000
37,616

40,000

20,000

0
2001 2002 2003 2004 2005 2006 2007 2008

Years
*Sales in billions

Source: Wal-Mart Annual Reports 1995-2008

 Six Market Entry Concerns for Firms:
The Market Environments Analysis Model
ECONOMIC
ENVIRONMENT POLITICAL
DEMOGRAPHIC
ENVIRONMENT ENVIRONMENT
Income
Geographical Distribution Legislation
Shifts
Special Interest
Worldwide Groups
Population Growth
Corporate
Core Values Environmentalism

Technological
SOCIO-CULTURUAL Change NATURAL
ENVIRONMENT
ENVIRONMENT
TECHNOLOGICAL
ENVIRONMENT
Source: Kotler, P. & Keller, K. (2009) “Chapter 3: Understanding Markets, Market Demand, and Marketing Environment” A Framework for Marketing 13
Management”
 Michael Porter’s Three Generic
Competitive Strategies

Analysis of Walmart’s COMPETITIVE ADVANTAGE

Competitive Strategy Lower Cost Differentiation

Broad
Target 1. Cost Leadership 2. Differentiation

COMPETITIVE
SCOPE

Narrow
Target 3A. Cost Focus 3B. Differentiation Focus

Firms stuck in the middle:

•Possesses no competitive advantage.
•Often competes at a disadvantage.

Source: Porter, M. (1985) Competitive Advantage: Creating and Sustaining Superior Performance 14
Positioning Map: Analysis of Walmart’s Competitive Market Position in
Domestic/International Retail Market

High Price

• BORDERS •TARGET
• BESTBUY • COSTCO
• OFFICEMAX
• eBAY
• STARBUCKS
• TOY-R-US
Narrow Mass
• *SEARS *KMART• *JCPENNY
Market Market
• AMAZON

• WALMART

*Firms stuck in the middle:

Low Price •Possesses no competitive advantage.
•Often competes at a disadvantage.
15
 FOUR TYPES OF GENERIC MARKET
ENTRY STRATEGIES

PRODUCT MARKET STRATEGIES

Existing New

Existing 1. Market 2. Market

Penetration Development
Offerings

New
3. New Offering 4. Diversification
Development

Source: Davied, D., Marketing Strategy class lecture 6/24/09; Kern, R. & Peterson, R. (2007) Strategic 16
Marketing Problems: Cases and Comments
FOUR TYPES OF GENERIC MARKET
ENTRY/ PENETRATION STRATEGIES

1. Market Penetration 2. Market Development

• Objective • Objective
– Increase current buyer’s – Increase usage by
usage or consumption introducing new product to a
rates. new market.
– Attract buyers from – New geographic area
competitors – New segment
• Tactics • Tactics
– Lower prices – New distribution outlets.
– Increase promotions – Minor modifications
– Expand coverage in existing (package)
market – 4 forms of international
expansion.
Source: Davied, D., Marketing Strategy class lecture 6/24/09; Kern, R. & Peterson, R. (2007) Strategic Marketing Problems: Cases and
Comments 17
MARKET DEVELOPMENT
STRATEGY: FOUR BASIC FORMS OF
INTERNATIONAL MARKET ENTRY
STRATEGIES

(1) Exporting (2) Licensing

(3) Joint
Ventures (4) Direct
Investment

Source: Davied, D., Marketing Strategy class lecture 6/24/09; Kern, R. & Peterson, R. (2007) Strategic Marketing Problems: Cases and
Comments 18
 FOUR TYPES OF GENERIC MARKET
ENTRY/ PENETRATION STRATEGIES

3. New Product Offering 4. Diversification

• Objective • Objective
– Develop new – Acquisition or development
product/services that appeal of new offerings and
to current market introduction to market not
• Tactics being currently served by an
organization.
– Product innovation
– Product augmentation
• Tactics
– Line extension – Acquisition/merger with
another firm.
– Joint ventures
– Purchase technology
patents
– Internal R&D of product
Source: Davied, D., Marketing Strategy class lecture 6/24/09; Kern, R. & Peterson, R. (2007) Strategic Marketing Problems: Cases and Comments
19
 WALMART’S GLOBAL MARKET ENTRY/
PENETRATION STRATEGIES

2. Market Penetration 4. Diversification

• Tactics • Tactics
– Lower prices – Acquisition/merger with
– Increase promotions other firm
– Expand coverage in existing – Joint ventures
market – Acquisition of a weak
competitor

Source: Davied, D., Marketing Strategy class lecture 6/24/09; Kern, R. & Peterson, R. (2007) Strategic Marketing Problems: Cases and 20
Comments
 FACTORS THAT WALMART
MUST CONSIDER

Market Penetration Diversification

• Market growth (easiest in • Social, legal environment
high growth markets) concerns in foreign nation.
• Competitor retaliation • Market success
• Capacity issues for attaining requirements
market growth. • Firm’s distinct competency
• Costs of gaining buyers may be incompatible with
(price penetration points). expansion.
• Possible incompatible
relationship with strategic
partner in foreign expansion

Source: Davied, D., Marketing Strategy class lecture 6/24/09; Kern, R. & Peterson, R. (2007) Strategic Marketing Problems: Cases and 21
Comments
Wal-Mart’s International
Expansion 3 Tactical Strategies:

1) Acquisition: two tactical 2) Joint Ventures: Wal-Mart’s

strategies: formed a 50-50 joint venture
a) Acquire Weak with Cifra, Mexico's largest
retailer.They counted on Cifra’s
Competitor Walmart
operational expertise in the
acquired Woolco in
Mexico market.
Canada; was available for
a bargain price. 3) Frontal Attack on Incumbents.
• When Wal-Mart entered
b) Acquire Strong
Brazil in 1996, they took on
Competitor: In 1997,
Carrefour (French retailer)
acquired Wertkauf and other competitors with
hypermarket chain of 21 an aggressively pricing
stores; one of the most strategy.
profitable hypermarket • This strategy backfired.
chains in Germany. Their competitors countered
with price cuts, thus a price
war.

Source: Retrieved on 9/8/09 from, Govindarajan, V & Gupta, A ( 2004), Taking Walmart Global Lessons From 22
Retail Giant, website: http://www.bus.iastate.edu/kpalan/Taking%20Walmart.doc.
 WALMART’S KEY SUCCESS
FACTORS (KSFs) for Entry

KFS: • Strategic bargaining power

with suppliers
• Market entry by acquisition
• Strategic ability to use private
• Competitive advantage of labels, proprietary brands and
efficiency exclusives.
• Significant investment in IT. • Brand extension and build
• Strict controlling of inventory more brand equity
• Strong emphasis on self- • Strong category management.
service • Price-driven marketing
• Local adaptation • Stay away from “headquarters
• Conservative management knows best” thinking

Source: Spector, R.(2005) Category Killers: The Retail Revolution and Its Impact on Consumer Culture 23
Conclusions and Critical Observations
on Walmart
 Strategic acquisition.
Primarily enters markets
through strategic acquisition
 Successful foreign entry
strategy. Strategy has been
successful in most countries.
 Manages international
market as separate
segment.
 Conservative management.
 Competitive advantage
through globalization
capability
 Emphasis on global
standards. Rather than
American standards of
operating a store unit.
 Strong local adaptation
strategy. Capability for a
strong adaptation to the local
market.
 Global dominance as a CK
is maturing.
SUMMARY
• Background of the Firm.
• Retail Industry Trends: “The Rise of
Category Killers”
• International Market Penetration
Strategies
• Current Situation
• Key Success Factors (KSFs)
• Critical Observations and Conclusions

25
Thank You!

Thank You!

26
 D. Anthony Miles, Ph.D. Candidate

Case Study:
Wal-Mart’s International Market
Entry Strategy and Tactics
BINT 6361: International Marketing

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