Wal-Mart Operations in Brazil: an Emerging Giant

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Kotabe/Helsen, Global Marketing Management, 5e

Case 9 Case 9

Wal-Mart Operations in Brazil: An Emerging Giant

___________________________________ This case was prepared by Professor Masaaki Kotabe, Louie Pranic and Richard Smith of the Fox School of Business at Temple University and Kleber G. de Godoy and Moacir Salzstein of Fundação Getúlio Vargas, São Paulo, Brazil, and updated by Dan Zhang under the supervision of Professor Masaaki Kotabe for class discussion rather than to illustrate either effective or ineffective management of a situation described (2008).

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Kotabe/Helsen, Global Marketing Management, 5e

Case 9 Introduction In September 1994, Brazil was experiencing a new thrust in its economy. After several years of hyperinflation, the "Real Plan", implemented in March, 1994, an economic stabilization program that indexed the Brazilian currency to the U.S. dollar, began to reduce inflation to reasonable levels. In February 1994, the annual inflation rate was 40%, whereas by September of that same year, it was a relatively low 3%. A lower inflation rate was viewed as a viable step in improving the purchasing power of the Brazilian people, particularly in the lower socioeconomic segment of the population. The optimistic scenario encouraged many foreign companies to make new investments in Brazil. If Brazil is the leading economy in Latin America with a population of more than 170 million, why not invest there, now that a better business horizon lies ahead in this continental country? Wal-Mart Stores, the world leader in retailing, announced on May 9, 1994 that it had decided to invest heavily in Brazil through a partnership with Lojas Americanas, Brazil's leading department store chain. Later in 1997, Wal-Mart Stores purchased back the full minority interest in its Brazilian joint venture from Lojas Americanas to own and manage the whole Wal-Mart operations in Brazil. Following the implementation of “Real Plan” in 1994, and subsequent stabilization of Brazil’s economy, appreciation of the U.S. dollar in the late 1990s and global economic slowdown due to the Asian crisis forced the country to float its currency in January of 1999. As a result, the inflation increased moderately from 3% to 8.9%, but has steadily declined since, with an 8% inflation rate at the beginning of 2005 and around 4.7 percent as of March 2008. Additionally, with estimated economic growth of 5% for

Kotabe/Helsen, Global Marketing Management, 5e

Case 9 2005, Brazil was viewed as a viable investment opportunity by foreign investors. As an illustration of Brazil’s economic prospects, it must be pointed that the year 2000 showed a record amount of direct foreign investment in Brazil from abroad, amounting to U.S. $30 billion. However, a recent energy crisis presents significant problems to Brazil’s economy and its retail industry, in lieu of changes in consumers’ purchase behavior and income allocation.

Wal-Mart Operations Sam Walton entered the retail business through a small store in Newport, Arkansas, in 1945, as a variety store franchisee. Six years later, Walton decided to open his own stores with the name “Walton's Five and Dime,” referring in the name to the coins that could have value to the customers. As of August 2008, there are more than 8,200 Wal-Mart units around the world, with more than 4,100 located in the United States, 1,074 in Mexico, 392 in Japan, 346 in the United Kingdom, 318 in Brazil, 309 in Canada, 206 in China, 154 in Costa Rica, 147 in Guatemala, 74 in El Salvador, 55 in Puerto Rico, 47 in Honduras, 46 in Nicaragua, and 24 in Argentina. With $374.5 billion in sales for the fiscal year ending January 31, 2008, Wal-Mart is the world’s largest retailer. In December 2005, Wal-Mart acquired a majority interest in Seiyu, making Seiyu a Wal-Mart subsidiary, and on December 5, 2007, Wal-Mart announced its tender offer to acquire all of the issued and outstanding shares of Seiyu was successful, raising...
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