Walmart Debacle of Germany

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Wal-Mart in Europe

Table of Contents

Executive Summary2
Wal-Mart Background2
Wal-Mart’s Culture2
Wal-Mart’s Strategy3
Problems/Criticism faced by Wal-Mart3
Wal-Mart in Germany4
Key Issue: Wal-Mart’s Failure in Germany4
Situation Analysis5
Porter’s 5 Forces Model5
Wal-Mart: Germany vs. Britain6
Challenges in Germany7
Evaluation of Alternatives10
Recommendations10

Executive Summary
The world economy has undergone a drastic revolution in the last three decades through globalization. This has made the world economy more efficient and competitive, by enhancing product quality, increasing the product variety and lowering price. With successful expansion in locations like Mexico and Canada, in 1997, Wal-Mart entered German retail market by acquiring Wertkauf chain (24 stores) and Interspar chain (74 stores). Wal-Mart attempted to replicate the company’s proven US success strategy, which resulted in by Wal-Mart’s mistake of misunderstanding Germany’s competitive retail sector. Their failure to distinguish the cultural differences between US and Germany combined with their inability to communicate properly with the German suppliers and customers led to a poor image and low market share in Germany. Moreover, they broke certain German laws and regulations which damaged their reputation. Unlike USA, they were unable to attract local customers with their innovative approach to retailing. Walmart did not seem to be able to offer customers any compelling value proposition in comparison with the local competitors in Germany.

Wal-Mart Background
Wal-Mart was founded by Sam Walton in 1962 in Bentonville. 1970 marked the opening of the first Wal-Mart distribution centre and in the 1980s, it transformed from into a national discount retailer by adopting an aggressive diversification strategy. In 1991, Wal-Mart became the world’s largest retailer with net sales of 43.9 billion. In 1997, it entered the German retail market by acquiring Wertkauf chain (24 stores) and Interspar chain (74 stores). Wal-Mart’s Culture

The three key principals of Wal-Mart’s culture are:
* Respect the individual
* Provide superior customer service
* Strive for excellence
Other Wal-Mart business practices include:
* Wal-Mart cheer for employee harmony. This encourages productivity and unity among employees. * Sundown rule which states that all business concerns should be addressed on the day they were presented. This emphasises the company’s dedication to efficient and timely customer service. * Ten Foot rule encourages staff to offer assistance to customers within a ten foot radius Wal-Mart’s Strategy

* Everyday Low Prices (EDLP) – price leadership by low cost * Good relationship with suppliers - aggressive bargaining * Efficient inventory control – using Retail link satellite/computer, managers/suppliers can track products and vendors, can access point-of-purchase information * Centralized distribution - distance between stores and distribution centres are within a day’s drive * Adopted Radio Frequency Identification (RFID) – track inventory as it moved through distribution centres to stores * Efficient supply chain management

Problems/Criticism faced by Wal-Mart
* Low salary of employees
* Legal suits regarding hiring practices – failure to pay overtime, underpaying hourly workers, sexual discrimination, non-compliance with the Americans with Disabilities Act, underpaying immigrant workers and locking in overnight workers * Strikes by unions for better health benefits

Wal-Mart in Germany
In 1997, it entered the German retail market by acquiring Wertkauf chain (24 stores) and Interspar chain (74 stores). Wal-Mart immediately became the country’s leading retailer with a turnover of around €2.9 billion. However, its market share in Germany remained negligible at just 1.1%. Wal-Mart attempted to replicate the company’s proven US success formula in...
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