A CA5E 5TUDY OF WAL-MABT5 FAILUBE IN CEBMANY

lmporLance of lnLegraLlng CorporaLe values and naLlonal CulLure

Sidhartha.M
Contu... Page

INTRUDUCTIUN
ln 1962 Lhe fuLure of modern ulscounL reLalllng was born as Sam WalLon parLnered wlLh hls broLher
8ud and Lhe flrsL WalMarL ulscounL ClLy all opened Lhelr doors for buslness Sam WalLon found hls
markeL nlche ln small Lowns caLerlng Lo Lhe needs of rural and suburban famllles 1he prlmary
conLrlbuLlng facLor Lo Lhelr lnlLlal success was selllng name brands aL dlscounLed prlces
8y Lhe end of sevenLles 276 sLores were spread across eleven sLaLes 1he resL ls hlsLory 8uslness
was boomlng for WalMarL durlng Lhe 1980's and WalMarL domlnaLed Lhe markeL wlLh 1400 sLores
across Lhe unlLed SLaLes wlLh a serles of acqulslLlon's and furLher reflnlng of Lhe company's
compeLlLlve advanLage ulscounL reLalllng had become hlghly compeLlLlve lnLernaLlonally due Lo
favourable condlLlons llke reduced Lrade barrlers (nAl1A's cosL reducLlon) and advances ln
lnformaLlon Lechnology ln addlLlon new markeLs wlLh less dlsposable lncome were rlpe for
dlscounL reLallers ln 1990's WalMarL began an aggresslve globallzaLlon efforL Pavlng a saLuraLed
unlLed SLaLes markeL Lhe company felL pressure Lo explore oLher CpporLunlLles 8eglnnlng ln
Mexlco ln 1991 WalMarL spread llke a wlld flre Lo counLrles across Lhe world llke 8razll Chlna
ArgenLlna lndonesla Canada and Pong kong WalMarL's sLraLegy eplLomlzes Lhe caplLallsLlc
aLLlLude Lowards global expanslon wlLh a serles of !olnL venLures and acqulslLlons wlLh local buslness
and ln mosL of Lhe cases rose Lo become one of Lhe largesL conLenders ln Lhe counLrles Lhey
enLered lnvesLors and employee shareholders expecLed sales and proflLs Lo conLlnue lncreaslng
AfLer Lhe overwhelmlng response Lhey recelved from Lhe Amerlcas and Asla Lhe focus shlfLed
Lowards Lurope Cermany was Lhe plck conslderlng Lhe cenLral geographlc locaLlon and economlc
slze whlle Lhe counLry was faclng a recesslon hlgh unemploymenL and slow growLh raLes 8elylng
on Lhelr success formulae execuLlves assumed Lhls enLry as a cake walk 8uL Llme proved as
company had Lo be on Lhelr back fooL as Lhe Achllles heel proved Lo be Lhe acqulred companles and
Cermany's culLural dlfference comblned wlLh labour lssues 1he markeL was hlghly ollgopollsLlc and
Lhe company had Lo flghL lLs bad repuLaLlons Loo 1opplng Lhe charL wlLh a dlfferenL legal
envlronmenL WalmarL was ln a wrong corner
kC8LLM IDLN1IIICA1ICN

ln 1997 WalMarL conLlnued a sLraLegy of global expanslon and purchased Lwo Cerman 8eLall
Chalns WerLkauf and Spar LlghL unproflLable years and 83 sLores laLer WalMarL backed ouL of
Cermany ln !uly 2006 and sold Lhe enLlre loL Lo MeLro ACWlLh worldwlde success ln locaLlons llke
Mexlco 8razll and Canada WalMarL was noL prepared for Lhls flasco WalMarL enLered Lhe
Cerman markeL wlLh exlsLlng compeLlLlon and a gloomy economlc envlronmenL ln 1997 1he fallure
Lo recognlze culLural dlfferences and communlcaLe properly wlLh Lhelr Cerman employee suppller
and cusLomer ConsLlLuencles conLrlbuLed Lo WalMarL's poor lmage and lnablllLy Lo galn sufflclenL
markeL Share for proflLablllLy

A CA5E 5TUDY OF WAL-MABT5 FAILUBE IN CEBMANY
lmporLance of lnLegraLlng CorporaLe values and naLlonal CulLure
Sidhartha.M
Contu... Page

WalMarL's sLraLegy Lo exporL Lhe successful packaged corporaLe formula resulLed ln slgnlflcanL
crossculLural communlcaLlon lssues wlLh consLlLuenLs ln Cermany LxecuLlve managemenL falled Lo
anLlclpaLe Lhe clash of culLural dlfferences beLween Cerman LradlLlons and Lhe WalMarL way
8acked by Lhe confldence of lnLernaLlonal success ln Mexlco 8razll unlLed klngdom and Canada
WalMarL sLayed ln Cermany unLll 2006 (WalMarL lacLs) desplLe Lhe absence of a poslLlve cash flow
WalMarL'sprlnclpal mlsLakes on Lhe Cerman markeL may be summarlzed as follows

1 A fundamenLally flawed enLrybyacqulslLlon sLraLegy

2 A managemenL by hubrls and clash of culLures"approach Lo labour relaLlons

3 A blaLanL fallure Lo dellver on lLs legendary we sell for less always everyday low prlces" and
excellenL servlce" value proposlLlon and

4 8ad publlclLy due Lo lLs repeaLed lnfrlngemenL of some lmporLanL Cerman laws and regulaLlons

IAC1S ANALSIS AND LVALUA1ICN
German keta|| Market
A hlghly saLuraLed and ollgopollsLlc markeL wlLh Lhe Lop Len reLalls companles accounLlng for 84 of
Lhe markeL share Cf Lhese Len ma[or companles Lhe Lop flve brlngs ln more Lhan 64 of Lhe
revenue LxhlblL 1 shows an approxlmaLe deLall abouL WalmarL and oLher Cerman reLallers
Cerman reLaller's revenue was small when compared Lo an lnLernaLlonal company llke WalmarL
uaLa as of (2001)
LxhlblL 18eLaller llsL and 8evenues
Rank Company Country Revenues
($ billion)
1 Wal-Mart Inc. USA 217,8
2 Metro Germany 44.3
3 Rewe Group Germany 33.6
4 Aldi Group Germany 29.0
5 Edeka/AVA Group Germany 25.1
6 Tengelmann Group Germany 23.1
7 Schwarz Group Germany 16.7


1he enLry was a problemaLlc one Lhrough acqulslLlons of WerLkauf and Spar 1he former wlLh a
compeLlLlve managemenL skllled workforce and overall 3 proflL ln earnlngs buL only resLrlcLed Lo
souLh wesLern reglon whlle Lhe laLLer boughL for approxlmaLely(360 mllllon Luros) was consldered as
Lhe weakesL reLaller wlLh a bad repuLaLlon needed renovaLlon ln a large scale as Lhe cosL came Lo
nearly 130 mllllon Luros (for 74 sLores)and Lhe headquarLer relocaLlon clalmed Lhe servlces of many
A CA5E 5TUDY OF WAL-MABT5 FAILUBE IN CEBMANY
lmporLance of lnLegraLlng CorporaLe values and naLlonal CulLure
Sidhartha.M
Contu... Page

skllled employees creaLlng personal managemenL problems 8oLh Lhese organlsaLlons had
confllcLlng
CrganlsaLlonal sLrucLures WalmarL's sLraLegy Lo mlx Lhese Lwo corporaLe culLures wlLh and
addlLlonal lmpregnaLlon of Lhelr own culLure bombed aL Lhe very flrsL place as one was of cenLrallsed
culLure and anoLher one was decenLrallsed lnLernal mlsundersLandlngs fuelled Lhe spaL leadlng Lo
sLocklng problem and bad cusLomer feedbacks
Cu|tura| D|fference
WalMarL and oLher reLallers conslderlng globallzaLlon musL develop sLraLegles for lncorporaLlng
Lhelr corporaLe culLure and ldenLlLy lnLo an lnLernaLlonal culLure WalMarL belleved LhaL Lhe
legendary focus on enLhuslasLlc cusLomer servlce and dlsplays of employee devoLlon would wln over
Cermans AfLer all Lhese elemenLs were all parL of Lhe corporaLe ldenLlLy LhaL had been well
recelved elsewhere ln lnLernaLlonal locaLlons
lnLernal culLure problems llve dlfferenL CLC's ln elghL years suggesL Lhe sLruggle LhaL WalmarL
experlenced lnlLlally an Amerlcan CLC unable Lo communlcaLe ln Cerman found lL dlfflculL Lo deal
wlLh Cerman legal sLrucLure leadlng Lo Lhe exlL of seasoned execuLlves LxecuLlve's eLhnocenLrlc
declslon maklng paved way Lo company's plLfall 1he declslon Lo make Lngllsh as Lhe offlclal buslness
language creaLed frusLraLlon and communlcaLlon problems as power dlsLance ls low ln Cermany
managemenL should have been lnLeracLed wlLh employees ln a medlum comforLable for Lhem 1hls
demonsLraLed a lack of culLural empaLhy and enLhuslasm Lo learn Cerman
1he Lop execuLlves refused Lo accepL cenLrallsed wage bargalnlng and dlssuaded employees from
[olnlng unlons Lhere by noL respecLlng Lhe Cerman worklng world culLure and use of hlgh
codeLermlnaLlon 1hese acLlons resulLed ln employee walkouLs and layoffs WalmarL earned Lhe bad
repuLaLlon for low wages and less prlvacy for employees say on buslness Lrlp managers sharlng hoLel
rooms
WalMarL also angered Cerman employees over pollcy and language ln Lhe newly LranslaLed 33 page
eLhlcs manual dlsLrlbuLed ln 2003 Lmployees were Lold Lo follow Lhe gulde or lose Lhelr [obs 1he
pollcles reflecLed Lhe conservaLlve leadershlp of Lhe Amerlcan corporaLlon Lmployees were
forbldden Lo have romanLlc relaLlonshlps beLween employees and superlors and requlred Lo reporL
coworkers who dldn'L comply wlLh Lhe code (uarsow 2003) ln Cermany Lhe eLhlcs code was seen
as an lnLruslon lnLo prlvaLe llves and encouraglng spylng on coworkers lrusLraLed employees
broughL Lhls case Lo Local Labour courL ln WupperLal addlng anoLher Lhorn Lo WalmarLs saga
LxLernal culLural roblems 1radlLlonally Wal MarL has lnfllcLed a full scale prlce war on
lncumbenLs on every slngle markeL lL has so far enLered ln order Lo credlbly communlcaLe lLs
legendary every day low prlce"pledge Lo local consumers Whlle exLremely successful almosL
everywhere else Lhls sLraLegy badly backflred ln Cermany largely due Lo lgnorance lack of
experlence
WalMarL'sLradlLlonal uS vlew of cusLomer servlce enshrlned ln someof lLs famous/noLorlous baslc
bellefs and rules ls only parLly compaLlble wlLh Lhe expecLaLlons of Cerman consumers 1hls ls ln
A CA5E 5TUDY OF WAL-MABT5 FAILUBE IN CEBMANY
lmporLance of lnLegraLlng CorporaLe values and naLlonal CulLure
Sidhartha.M
Contu... Page

parLlcular Lrue of Lhe famous LenfooLrule and Lhe lnsLlLuLlon of Lhe greeLer" Cerman consumers
have been accusLomed for decades Lo shopplng aL selfservlce formaLs wlLhouL any sLaff asslsLance
Lhe addlLlonal personnel requlred Lo perform Lhese servlces efflclenLly are Lhe cause why Wal
MarL's labour cosLs conLlnue Lo remaln above Lhe lndusLry's average Zonlng regulaLlons posed a
serlous problem for WalmarL as consLrucLlon of larger sLores means pushlng Lhe sLore Lo a seml
rural area
llnally Cermany's resLrlcLlve shopplng hour regulaLlons prevenL WalMarL from offerlng lLs
cusLomers Lhe addlLlonal convenlence and superlor shopplng comforL assoclaLed wlLh 24/7
operaLlons
Legal roblems
WalmarL eager Lo esLabllsh Lhelr low prlce Lag sLarLed selllng producLs below Lhe buylng prlce whlch
creaLed legal problems from 1he Cerman lederal CarLel Cfflce (lCC)
vlolaLlon of SecLlon 20(4) of Lhe AcL AgalnsL 8esLralnLs of CompeLlLlon whlch sLaLes Cerman
anLlLrusL leglslaLlon bans all from selllng a range of goods noL merely occaslonally below lLs cosL
prlce unless Lhere ls an ob[ecLlve [usLlflcaLlon for Lhls Whlle Amerlcan lederal AnLlLrusL law vlews
such low prlclng measures as supporLlve of consumer and compeLlLlve lnLeresLs
Locklng Porns wlLh unlon
ln Cermany unlons are exLremely acLlve and frequenLly are lnvolved ln corporaLe declslons
lnvolvlng worklng condlLlons WalMarL lgnored Lhese codeLermlnaLlon rules by refuslng Lo [oln Lhe
employer's assoclaLlon whlch resulLed ln Cerman Commerce Lrade unlons (P8v uAC) calllng sLrlkes
ln !uly 2000 A slmllar walkouLs was done ln 30 Cerman sLores by verdl unlon when WalmarL
declded Lo lay off 1330 workers owlng Lo reduce personal cosL from 169 Lo 10 whlle verdl
demanded WalmarL Lo slgn collecLlve agreemenLs raLher Lhan Lo lay off workers whlch resulLed ln
cemenLlng lLs noLorlous unlon basher cap

CINICN AND kLCCMMLNDA1ICN

Conslderlng Lhe lmpacL of naLlonal culLure on reLall globallzaLlon WalMarL and oLher companles
should lmplemenL a plan for culLural communlcaLlon analysls Lo avold slmllar scenarlos 1he maln
ldea ls Lo prevenL problems raLher Lhan [usL respondlng ln oLher words llrms should proacLlvely
respond Lo Lhe slLuaLlons raLher Lhan reacLlvely
A SoluLlon can be recommended whlch wlll decrease Lhe exLenL of culLurally based CommunlcaLlons
problems beLween Lhe parenL organlzaLlon and an overseas local unlL 8efore plannlng an enLry lnLo
a forelgn markeL Lhe sLeps can be followed Lo avold fuLure seLbacks
1 Ceographlcal Analysls
Cverseas locaLlon scouLlng should Lake place over an exLended perlod of Llme wlLh uLmosL cauLlon
Lxplore Lhe pollLlcal soclal and culLural amnesLles ln WalMarL's case Cermany was selecLed
prlmarlly because of a cenLral Luropean locaLlon and economlc aLLracLlveness of Lhe WerLkauf
acqulslLlon Superflclal research would have shown LhaL Cermany had sLrong naLlonal values
reslsLanL Lo change posslbly Lhe mosL deeply rooLed reLall LradlLlons and cusLomer loyalLy ln
WesLern Lurope 1he company lLself can do Lhe research or can seek Lhe help of professlonal
consulLlng flrms who can do away wlLh Lhe survey and reporLs from Lhe parLlcular counLry
llrms should ldenLlfy all posslble groups lncludlng consumers suppllers employees unlons
pollLlclans and Lhe medla and lasL buL noL leasL Lhe naLlonal law sLandards
2 8elaLlonshlp wlLh ConsLlLuenLs
llrms should bulld a sLrong relaLlonshlp wlLh local represenLaLlves prlor Lo openlng doors for
buslness WalMarL's merchandlslng problems were parLlally due Lo lmmaLure relaLlonshlps wlLh
local suppllers and buyers rlor Lalks wlLh Lrade unlons and oLher assoclaLlons would have been
helpful Lo esLabllsh expecLaLlons and a sLrucLured look lnLo Lhe company vlslon and goals and
markeL expecLaLlons A company should focus on Lhelr cusLomers buL equal care should be glven Lo
A CA5E 5TUDY OF WAL-MABT5 FAILUBE IN CEBMANY
lmporLance of lnLegraLlng CorporaLe values and naLlonal CulLure
Sidhartha.M
Contu... Page

Lhelr employees Loo as Lhey are Lhe real ones champlonlng Lhe cause
3 Closlng Lhe culLural Cap
Assemble a Leam of corporaLe and local experLs Lo revlew communlcaLlons prlor Lo dlsLrlbuLlon
Cr oLher acLlon Lnsure sure LhaL revlewers check for any culLural gaps affecLlng consLlLuenL needs
values or aLLlLudes use feedback gaLhered Lo conducL a deLalled comparlson of corporaLe values
and naLlonal culLure Whlch aspecLs of ldenLlLy need Lo be modlfled for culLural accepLance wlLhouL
sacrlflclng Lhe overall corporaLe mlsslon? lnclude a revlew of employee manuals adverLlslng
Merchandlslng work eLhlcs and oLher maLerlals 1hls sLep wlll also force organlzaLlons Lo
Clearly deflne globallzaLlon goals 1he company may move buL Lhe culLure wlll never move
Whlle enLerlng a consumer markeL prlorlLy should be glven Lo Lhe consumer and noL Lhe company
eLhlcs

4 1he CrganlsaLlonal SLrucLure
An effecLlve cross culLural communlcaLlons sLraLegy doesn'L sLop when buslness beglns
CorporaLlons have a responslblllLy Lo conLlnue ongolng analysls of Lhelr communlcaLlons and
ConsLlLuenL responses Whlle sLarLlng an operaLlon ln a forelgn land Lhe organlsaLlonal sLrucLure
should be deflned 1he besL avallable opLlon ls Lo appolnL a local person Lo lead Lhe operaLlons who
ln Lurn wlll be reporLlng Lo Lhe company head ln unlLed SLaLes A non Cerman speaklng CLC can
never be accepLed ln a Cerman speaklng envlronmenL Laklng lnLo accounL LhaL day Lo day
communlcaLlon was carrled ouL only ln Cerman 1hls ls agaln a key facLor whlch accounLs Lo Lhe
company brandlng and lmaglng Loo


Conc|us|ons

Cermany LaughL Lhe company Lough buL valuable lessons abouL Lhe CorporaLe CloballzaLlon
SLraLegy WlLh greaLer focus on sLraLeglc communlcaLlon concernlng ConsLlLuenLs and Lhe reLall
culLure ln Cermany WalMarL would have lncreased Lhelr chances of success Lhe Company learned
Lo use local managemenL who undersLand Lhe cusLomers WalMarL now LreaLs acqulslLlons wlLh
greaLer senslLlvlLy and ls careful wlLh consolldaLlons WalMarL's fallure on Lhe Cerman markeL has
been Lhe lnevlLable resulL of lLs lnablllLy caused by an asLoundlng degree of lgnorance of key
prlnclples of lnLernaLlonallzaLlon sLraLegles and lnLerculLural managemenL Lo selecL and lmplemenL
an adequaLe enLry and buslness sLraLegy lnsLead of shaklng up Lhe exLremely CompeLlLlve Cerman
reLalllng secLor wlLh an lnnovaLlve approach Lo dolng buslness as lL has so convlnclngly done ln Lhe
uSA ln Cermany