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Wal-Mart Market Entry Essay

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Wal-Mart Stores Inc. is an American international retailing company that runs a global network of retail and wholesale stores in a variety of formats. Sam Walton founded the company in 1962, it was incorporated on October 31, 1969, and it went public on the New York Stock Exchange in 1972. Bentonville, Arkansas is the company's headquarters. The company's operations are divided into three divisions: Wal-Mart US, Wal-Mart International, and Sam's Club. Via its supercenter, grocery, and Sam's Club chains, the company provides shopping, wholesale, and other services. Currently, Wal-Mart operates over 11723 units under 59 banners in 28 countries.("Wal-Mart Stores Inc, WMT: NYQ Profile - FT.Com") The company has hugely diversified its operations offering a range of products and services. The Wal-Mart stores and supercenters offer general merchandise such as family apparel, health and beauty products, household needs, electronics, toys, fabrics, crafts, lawn and garden, jewelry and shoes. The company also runs a pharmacy department, tire and lube express and a photo processing center.("Our Locations") . The Sam's Club offers members-only warehouse services and is the largest of its kind in North America. Grocery is the company's major source of revenue accounting for 51 % as of 2016.
Despite being the world's largest company by revenue, Wal-Mart relies heavily on its U.S. segment and has expanded its operations internationally with varying degrees of success. The company is well established in Latin America where it has stores in Brazil, Chile, Argentina, Costa Rica, El Salvador, Guatemala, and Honduras. Most importantly, the company has seen tremendous success in the United Kingdom, Mexico, Japan, Canada and South Africa.("How Big Can It Grow?") The domestic market which accounts for 87% of the company's profit saturated with little room for future growth, and there is fierce competition from Amazon. Wal-Mart can no longer depend on U.S. Markets alone for growth; it has to venture into the international market to find growth. As a result, the company is researching the emerging markets which will be essential as the company continues to expand.
Wal-Mart business model
There is no doubt that Wal-Mart is the most successful discount retailer and a model to be admired by its peers. Wal-Mart has been successful in the U.S for some reasons. If this success is to be replicated beyond, it is vital that we understand the business model that Wal-Mart operates under.
Ever since the first store opened in 1962 by Sam Walton, Wal-Mart has rigorously implemented discount merchandising at the core of its business strategy. Wal-Mart offers lower price goods at low prices to its customers, resulting in low-profit margins while selling a high volume of commodities (Teece, David). Wal-Mart can buy directly from suppliers at much lower prices which helps offset the cost of discounts to customers. The overall business model of Wal-Mart is a combination of different cost-reduction strategies.
Wal-Mart's economies of scale give it the freedom to determine the prices of their products and set them according to their preferences. Sam Walton dubbed his low price strategy: “Everyday low prices.” Instead of offering promotional discounts, Wal-Mart offers its customers the lowest price possible for merchandise. Wal-Mart has benefited from this and did not depend on advertising to boost sales.
1. Wal-Mart can reach favorable terms and condition with vendors and has established mutually beneficial relationships with suppliers like the one it has with Proctor and Gamble. The company has the negotiating power to negotiate better discounts with vendors for purchasing a high volume of products.
2. The company has invested in technology to facilitate its operations. Wal-Mart set up its satellite in 1982 to enhance communication and coordination between offices, suppliers, and stores.
3. Wal-Mart has sound human resource practices that appeal to talent outside the organization. The company has put in place many incentives to attract employees from other agencies.
4. Wal-Mart has diversified the range of products it sells. Wal-Mart has promoted national brands at steep discounts supported by innovative and lean purchasing logistics and IT systems. These have made the Wal-Mart business model trying to imitate (Teece, David).
5. Wal-Mart is aware of the costs of operations and works towards limiting overhead expenses to boost profits.
6. The company has adopted many practices to enhance the customer experience and retain its customer base.
Wal-Mart global business strategy
Wal-Mart manages its international operations through its subsidiary, Wal-Mart International. The company currently has over 6189 stores spread across 27 countries ("Walmart Is Looking for Growth in International Markets - Market Realist"). Overseas markets provide the primary source of growth for the company.
International revenue grew at an annual compound growth rate of 7.3% for the fiscal year 2009 to 2014 compared to overall growth rate of 3.4% over the same period. The most significant source of this growth comes from Brazil, United Kingdom, Canada, Mexico, and China. ("Walmart Is Looking For Growth In International Markets - Market Realist")
Source: statistic
Since venturing into Mexico in 1991, Wal-Mart’s overseas expansion marked with mixed results. Although Wal-Mart has had success in several foreign markets such as Mexico, United Kingdom, and Canada, this success has been far from universal; tainted by considerable failures in Germany and South Korea. (Walmart’S Global Strategies).
Wal-Mart had hoped that its business model would result in the same success it had enjoyed at home. The uncertainties of operating in the international market and the apparent challenges therein mean the company is expanding overseas with little enthusiasm and high levels of caution (Wal-Mart’s Global Strategies). Wal-Mart is expanding its global operations logically while using lessons learned from previous market entries as the foundation of future expansions.
Wal-Mart owns a chain of neighborhood stores in Brazil, bodegas in Mexico under ''Wal-Mex'', the ASDA supermarket chain in Britain and Japan's nationwide network of Seiyu shops. To offset the huge overhead costs of operating in the international market, Wal-Mart sources most of its products from the low-cost Chinese suppliers (Wal-Mart’s Global Strategies).
Part of Wal-Mart's global strategy has been to enhance the already existing subsidiary operations by acquiring and putting up new supermarkets. Wal-Mart certainly has the financial firepower to increase its international reach. With a market capitalization of $ 260 billion, Wal-Mart can quickly gain access and sustain International ventures. Wal-Mart International is planning aggressive investments in emerging and growth markets such as Brazil, India, and China. The focus should be on expanding existing banners as well as entering new markets.
Wal-Mart gives autonomy to its constituent stores by operating a decentralized form of management. Wal-Mart International which works more like a separate entity plans to allocate resources by country and by format in improving company returns (Wal-Mart’s Global Strategies). In a press release of October 2009, Wal-Mart International CEO stated that the company would continue with its organic growth strategy with robust optimization of the portfolio of formats and brands around the world. (Walmart’s Global Strategies).
Analysis of target markets
Few companies can afford to enter all markets open to them. Wal-Mart International track record shows that picking the most attractive foreign markets- and determining the best time to join them, selecting investment partners and determining the level of investment is challenging, especially when the market in question is an emerging one like China and Russia ("Target Markets And Modes Of Entry").
These are four key factors to be considered when selecting a global market.
1. Population density and geography of the region or country
Wal-Mart prefers that its stores be close to one another, a strategy known as location density. The topography of the target country ought to be one that permits easy access to all nearby Wal-Mart stores. The compact nature of Wal-Mart stores is necessary to economize shipping and make it easier to deliver products than, let us say, would be the case if the shops were sparsely distributed ("Target Markets And Modes Of Entry").
The country should, therefore, have the capability to accommodate a dense network of stores to facilitate the logistics of deliveries. This arrangement would also make the transfer of staff more efficient to simplify management and coordination of stores.
2. Market size and growth rate
The location should have a proven track record regarding growth as well as have an attractive market base. The United Nations has readily available data on the market information of all countries alongside the statistics of the rate of market expansion over the years. Still, credible information is hard to come by ("Wal-Mart Looks At Many Partners For Russia Entry").
Analysis of the market size is expensive, but that should not be a deterrent since Wal-Mart International has the resources to do so. The market size is of particular importance when growth is factored in. A large market with high potential is attractive for we can leverage the costs of entering the market with future profits.
3. The competitive environment of the region
In choosing our target market, we need to understand the number, size, and quality of competition in that particular market. Analyzing the competitive nature of emerging markets is not easy since there is little raw data available to ascertain the level of competition
4. The state of the country's institutions
A country's political system affects its labor, product and capital markets. When choosing a state, the labor market is of particular importance. Some countries like China forbid trade unions which significantly impacts the wages and the worker's morale. Other countries have instituted protectionist laws to promote local companies which can make discount retailing unprofitable in the long run. Most emerging markets also have small capital markets which make lending and borrowing services difficult. Free market economies have favorable laws but are much harder to succeed in considering the level of competition already established there ("Wal-Mart Looks At Many Partners For Russia Entry").
Based on the factors outlined above, Wal-Mart should establish its new facilities in Russia and Malaysia. The two countries are arrived at after considering the market potential and Wal-Mart's overall global business strategy.
Russia
Market base
Moscow is the country's capital and largest city. Having a large market base makes Moscow the apparent target for Wal-Mart's expansion. Other cities to consider when starting out in Russia include St. Petersburg, Murmansk, Vyborg and Volgograd. Relatively harsh weather conditions of the country would make Wal-Mart's store location density very attractive to the local populace.
Market size and growth rate
The retail market in Russia is extensive with over 145 million consumers. Russia has a $300 billion-plus market, and the retailers there are having growth rates of 30% as they expand to Russia's less wealthy provinces. Russian shoppers have now overcome the suspicions of freshness and quality, a habit of the communist era and are now embracing supermarkets and malls ("Wal-Mart Looks At Many Partners For Russia Entry").
The incredible growth rate enjoyed by the country's retailers is enviable, and Wal-Mart low price strategy can thrive in this market.
The competitive landscape of the country
The Russian retail market highly fragmented with the top 10 players controlling 20% of the market. The market can comfortably accommodate two or three international players while still promising growth rates of close to 30% (Wal-Mart.com).
The competitors in this market would include Transasia which just happens to buy products from our leading supplier Proctor and Gamble. Russian food retailers Perekrestok, Kopeyka, Diksi, Megamart, would offer domestic competition that would be matched with Wal-Mart's low price products. French company Auchan and Metro are the third and fourth most significant players in the market and would be the only real foreign competition in the market.
State of the country's institutions
The Russian government has not been particularly welcoming to foreign companies, but that is slowly changing. The country has the legal framework that has to be adhered to establish there. That is not to mean that permission to operate there would be denied outright. As a company Wal-Mart has a history in Russia having opened an office in Moscow that staffed 35 people. The post was closed down in 2010 meaning that Wal-Mart has the experience of dealing with the Russian Authorities (Wal-Mart.com).
Malaysia
Market base
Malaysia has a market of 30 million and the capital Kuala Lumpur is ideally situated to accommodate Wal-Mart's store location strategy. Other locations Wal-Mart should consider starting out include Ipoh City, Johor Bahru, Malacca City and Kuantan.
Market size and growth rate
Malaysia is considered the third best place for retail industry in the world according to the consulting firm AT Kearney Partner. The company states that the retail market grew by 3.1% in 2016 and projects the market to perform even better in the future ("Overview"). The retail industry is being driven in particular by government spending, the influx of tourists and high disposable income. Wal-Mart can perform well in this market with low price strategy and the appeal of an international brand.
Competition in the retail market
Competition in this market offered by Chinese Retailer Alibaba, Japanese retailer Aeon and Jaya supermarket, Tesco and Ocean Capital. The market remains attractive to international retailers with many like French Firm Lafayette and Japanese Takashimaya looking to enter. Our company should also seize this opportunity and join this market before the dynamics change.
State of Malaysian institutions
Malaysian government values foreign investment as a driver of continued national development. Malaysian labor force is highly skilled and very productive ("Overview"). Wal-Mart won't have to hire foreign nationals to manage their assets in the country. With minimum legal constraints, Malaysia is perfect for Wal-Mart.

The economic profile of Russia
Russia is a vast resource-rich country stretching from Eastern Europe to the Far East. The Russian economy has withstood both low oil prices and economic sanctions in recent times. The economy is still mostly state-owned despite the privatization of major industries. Russia has a GDP of $1.286 trillion as of 2016 and a GDP per capita of $8769- The seventh largest economy in the world ("Overview").
Russia relies on energy revenues to fuel its economic growth. Russia blessed with abundant reserves of natural resources including oil, natural gas, and precious metals; which make up the majority of Russia's exports. Oil and gas alone account for 16% of the GDP and 52% of budget revenues. Russia also has a large high tech arms industry, accounting for $15.7 billion in revenue in 2013 ("Russia Economy | Economy Watch").
The population of Russia is 144 million. Though much of the country’s immense outback is virtually uninhabitable on an urban level due to the subarctic climate, the bulk of the European and warmer Steppe and taiga regions are well populated. The population is concentrated in the western part of the country which includes cities such as Moscow, accounting for over 18 million, St. Petersburg, with a population of 6 million, Volgograd, Kazan, and Ufa. Russia's southern border with Manchuria and the Far East is also well populated.
Russia is a vast country with a transport infrastructure relatively less developed than the west. Russia's great expanses and the rugged terrain have hindered the development of nationwide transport system ("Russia Economy | Economy Watch"). Virtually all transport of economic importance is Moscow centered.
Commercial transport is majorly by rail; being the most extensive rail network in the world. Railway covers some 90% of total commercial haulage. Trucking system is less developed and concentrated around the major cities. Russia also has a good waterway transport system with ports in Kaliningrad, Moscow, Rostov, Volgograd, and St.Petersburg. Internet penetration is high, making online retail a fast-growing sector.
Russia is a federated republic with a semi-presidential form of government in which the president and the prime minister share responsibilities as head of state and head of government respectively. With the fall of communism in early 1990, Russia has slowly liberalized its markets and privatized some of its major industries. Those industries primarily obtained through corrupt means by the few oligarchs who now own a significant share of the Russian economy ("Russia Economy | Economy Watch").
Malaysia economic profile
Malaysia is a middle-income country located in Southeast Asia. Malaysia is an emerging multi-sector economy with sustained investments in the fields of biotechnology, service sector, and the high technology sector. Malaysia has a GDP of $296 billion, Purchasing Power Parity (PPP) of $886 billion in 2016.(world bank). Malaysia reported a GDP growth of 5.5% in 2015.
Malaysia is an oil and gas exporter and alongside palm-oil, electronics, textile, wood products, solar panels and rubber-based industries, are a significant part of the economy. Oil and gas account for 32% of government revenues. Malaysia has foreign exchange reserves that limit the economy's exposure to dropping oil prices. The government has diversified the economy to curb over-dependency on oil revenues.
The population of Malaysia is 31 million in 2017. Malaysia is a densely populated country that is highly urbanized. The capital city Kuala Lumpur has a population 1.7 million, and other major urban areas include; Johor, Kuching, Ipoh, Jaya and Kota Kinabalu.
Malaysia has a well-developed transport system backed by substantial infrastructure investment by the government. The government has also played a key role in encouraging modern forms of communications such as satellite communications and the internet. The well-developed transport system connects Kuala Lumpur to Singapore, the major shipping hub in the Pacific (Kramer, Andrew). The major ports include; Kelang, George Town, and Pinang. The ports make Malaysia highly accessible by the sea.
Malaysia is a federation of 13 states operating as a constitutional monarchy with a parliamentary system and a government headed by the prime minister. Malaysia is a representative democracy and power shared among the three arms of government. The government is welcoming to foreign investment into the country, and large sectors of the economy are privately owned.
Benefits of entering Malaysian market
A mature and competitive economy which boosts Wal-Mart's chances of entering into a partnership or acquiring new stores.
Excellent infrastructure that can make management of stores less costly
High GDP growth of averagely 3%
High disposable income due to government spending which can accelerate growth and profit.

Risks of entering Malaysian market
Geopolitical risk is that the region is in a complicated relationship with the giant Asian economies like China and Japan.
The country is prone to political and electoral issues which can hurt the economy.
Benefits of investing in Russia
High consumer market of 140 million that has abundant of rooms for growth.
The highly educated workforce will make it easier for Wal-Mart to obtain skilled workforce.
GDP growth
of 3% in 2016 means the economy has a positive outlook shortly.
Risks of investing in Russia
Bureaucracy might make establishing a business here somehow tricky.
Russia has an unclear legal environment; the state is controlled by the few elite.
The Russian currency, the Ruble is unstable; usually affected by oil and gas prices as well as economic sanctions.
Mode of entering the market
With regards to the two markets discussed above, Wal-Mart should consider joining either of the markets through a joint venture with local or international companies already established there.

A joint venture with one of the large Russian retailers like Megamart would be more appealing to the government and the overall business community. Even in Malaysia, such a move would be welcome and would allow Wal-Mart to capitalize on the enormous gains made by the current company like Aeon (Kramer, Andrew). The success of such a venture would ultimately depend on the willingness of the industry players to do business.
The benefits of a joint venture would be:
It would facilitate entry into the market by limiting the bureaucracy in a country like Russia.
Wal-Mart would share the risks and rewards with the local partner.
Wal-Mart could use its technological prowess to facilitate operations of the new venture.
Joint product development would offset the costs of discounts offered by Wal-Mart.
Minimizes legal risks by conforming to government regulations.
Analyzing the market context of the two countries
Comparing retail culture of Russia and Malaysia
Russia has a flat 13% income tax, most people own their homes, and the healthcare is socialized, and it is why Russians spend almost 60% of their pretax income on retail purchases. Retailing accounts for 40% of total private spending. Most Russian supermarkets have an accompanying grocery store meaning most neighborhoods lack grocery stores- a real opportunity for Wal-Mart. (Kramer, Andrew)
On the other hand, Malaysia, a predominantly Muslim nation with low taxes and public health care system. It has a growing retail industry which has embraced stores such as supermarkets and hypermarkets. Government expenditure in infrastructure and a tourist boom from other Asian countries mean that most Malaysians have high disposable income.
Comparing the political risks of doing business risks in Russia and Malaysia
Political risks associated with doing business in Russia include:
Corruption in Russia is endemic and is a major concern for companies conducting business there.
There is systemic favoritism offered to domestic companies.
Human rights violation is also a problem in Russia.
Political risks of doing business in Malaysia.
Human rights violation.
Bribery and favoritism.
Ethnic tensions between the Malays, Indians, and Chinese can cause instability and hurt the economy.
Legal challenges of operating in Malaysia and Russia
Malaysia is particularly strict on the hiring undocumented workers. If Wal-Mart hires foreign expertise, they should ensure that they get an expatriate visa from Malaysian Immigration Office. Home-based workers are required to file their earnings for taxation purposes. The company should also file its returns accordingly to keep with the legal requirements and pay all the employee benefits and bonuses accrued to its employees.
Russia does not allow private investment in its credit organizations, air transport, and Gas Supply. Obtaining a business permit in Russia can also usually take longer than expected. As a foreign company, Wal-Mart would have to file its returns to avoid the authorities which can terminate business permits at the slightest of provocations.
Labor relations
Russian businesses have a severe form of management in which the employees have very little say in decision making. Even though Russia has trade unions, they do so little in advocating for the rights of workers fearing government crackdown. The Russian worker is more dangerous, formal and reserved. Casual behavior in the workplace treated as disrespect. Russians are also not warm to strangers so Wal-Mart would have to staff their stores with local talent to boost worker morale. Wal-Mart, an American company, would have to do more to involve and assure their Russian employees that their say is critical in moving the business forward.
Malaysian employees have the very high work ethic, and the relationship with the management is usually very formal. Malaysia has many public paid holidays owing to the country's cultural and religious diversity. The total number of festivals is 14 which could have some little effect on profit. Malaysia has trade unions which cater for workers’ rights and ensure that they are not exploited. Malaysia has a high immigrant labor force from neighboring countries such as India and Nepal which drives wages down.
Recommendation
Of the two countries, I would like to recommend Russia as an ideal market for Wal-Mart to venture into. There are a large market base and room for more retailing companies to enter. Russia also offers Wal-Mart an opportunity to study the Eastern European market and device a strategy to launch stores there. The bureaucracy associated with starting a business in the market should not be a problem since Wal-Mart has dealt in the exchange before. The Russian government is stable and has economic goals that it can only achieve through foreign investment. Malaysian market, on the other hand, is relatively saturated and with a much smaller market base. The political upheavals that engulf Malaysia during electioneering period are of particular concern coupled with the fluctuation of oil prices.
Conclusion
The future of Wal-Mart may yet depend on its international subsidiary, Wal-Mart International. Wal-Mart International should invest aggressively in emerging markets through joint ventures and partnerships.

References
"Wal-Mart Stores Inc, WMT: NYQ Profile - FT.Com." Markets.Ft.Com, 2017, https://markets.ft.com/data/equities/tearsheet/profile?s=WMT:NYQ.
"Our Locations." Corporate.Walmart.Com, 2017, https://corporate.walmart.com/our-story/our-locations.
"How Big Can It Grow?." The Economist, 2017, http://www.economist.com/node/2593089. Teece, David. Business Models, Business Strategy And Innovation. Elsevier, 2017,.
"Walmart Is Looking For Growth In International Markets - Market Realist." Marketrealist.Com, 2017, http://marketrealist.com/2015/02/walmart-looking-growth-international-markets/.Walmart’S Global Strategies. 2017,.
"Target Markets And Modes Of Entry." Saylordotorg.Github.Io, 2017, https://saylordotorg.github.io/text_fundamentals-of-global-strategy/s07-target-markets-and-modes-of-en.html.
"Wal-Mart Looks At Many Partners For Russia Entry." U.S., 2017, http://www.reuters.com/article/us-walmart/wal-mart-looks-at-many-partners-for-russia-entry-idUSTRE6525O020100603.
"Overview." World Bank, 2017, http://www.worldbank.org/en/country/russia/overview#1.
"Russia Economy | Economy Watch." Economywatch.Com, 2017,
http://www.economywatch.com/world_economy/russia/.
Kramer, Andrew. "With A Mall Boom In Russia, Property Investors Go Shopping." Nytimes.Com, 2017, http://www.nytimes.com/2013/01/02/business/global/with-a-mall-boom-in-russia-property-investors-go-shopping.html. 2017,https://infographic.statista.com/normal/ChartOfTheDay_1230_Walmart_s_Wealth_of_Worldwide_Outlets__n.jpg.

November 11, 2021
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