Wal-Mart is a US-based multinational corporation. Critically discuss the likely costs and benefits of its takeover of Asda, a UK-based company.
When a company decides that it is time for it to grow from a national into a multinational company (MNC) there are cost and benefits involved. A multinational corporation is a company that has productive assets, which they own and control in countries other than their own. An MNC is unlike an enterprise, which exports products and services, but the MNC directly invests into developing countries, where it can benefit from producing products at a lower cost, while increasing its market share. Whether this has a positive or a negative impact for the company and its host state, is dependent on the growth strategy created by the MNC and how well this is perceived and welcomed by the host state. In this essay I will analyze the impact of a takeover by an MNC on a UK-based company, its work force and local businesses in the area.
First we will look at a US-based company founded by an entrepreneur and innovator Sam Walton in 1962 in the south-western corner of the US called Wal-Mart. (Open University, 2008 p. 53) Sam Walton started the company as
a small self-service store which grew nationally across the United States to become the largest retail chain in America by 2002 and now recognized as one of the largest multinational companies in the world. Wal-Mart’s focused on “everyday low prices” (EDLP) and providing everything under one roof, giving its customers with the ultimate shopping experience.
Its rapid growth did not come without its problems and objections towards their marketing strategies form local businesses and competitors. They were accused of moving into areas and destroying the local businesses by undercutting them on prices, putting them out of business. Even though their stores provided jobs for people in the area they were still considered to have a very aggressive growth strategy, which also posed problems for them with host economies when they went multinational. However Wal-Mart believed that their approach was successful, which was proven by becoming the largest retailer in the US.
They expanded into Mexico in 1991 and then into Canada in 1994, which proved to be highly productive for the firm. This was mainly due to buy-outs and joint ventures with well-known businesses in the host countries. This encouraged them to enter different foreign markets within Europe to achieve a global success.
Even after such success in the US could Wal-Mart achieve or exceed the same results using the same strategy in a new country?
In Europe one of the largest receiver of direct investment is UK offering a high quality labour to multinational companies to invest. In 1999 a British supermarket chain named Asda was approached by Wal-Mart with aim of a take-over, allowing Asda to benefit from extra finance and Wal-Mart to have a foothold in the UK market. Founded by farmers in 1965 Asda operated effectively until 1991 when they tried to sell too much of a wide range of items causing them to be financially stretched leading them to ask for money from their shareholders to avoid bankruptcy. At the beginning it seemed like a positive move for Asda to join Wal-Mart retail brand embracing its American style and sales growth strategy. They increased the number of stores and job opportunities within the first five years operating under the name ‘ Asda-Wal-Mart Supercentres’. (Open University, LB160, 2008, p. 55) The plan was to focus on building market share as opposed to loyalty schemes like its competitors. They did this by going back to basics cutting costs on products, implementing the Wal-Mart low price (EDLP) and marketing campaigns Asda became known as the most affordable supermarket in the UK. The negative side was that they were criticized by main rivals, Tesco, on the basis of false advertising for not including other low
cost stores like Aldi and Lidl,...
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