ConfidentialForInternalCirculationOnly CaseStudy WalMartstumblesinitsGlobalExpansionStrategy 2006 marked the most significant retrenchment for WalMart since it undertook its international

expansion in the early 1990s in an effort to rejuvenate sales growth. WalMart, the worlds largest retailer, admitted defeat in its long standing effort to penetrate successfully German retail market. On July 30, the behemoth announced that it was selling its operations in Germany to German retailer Metro AG. WalMart had been trying to make it German stores profitable for 8 years. Wal Mart announced a pretax loss on the sale of USD 1 billion. WalMart had previously announced in Maythatitwouldsellits16storesinSouthKorea. WalMart had apparently underestimated the ferocity of German competitors, the frugality of Germanshoppers,andtheextenttowhichregulations,culturaldifferencesandlabourunionswould impede its ability to apply in Germany what had worked so well for it in the United States. German discount retailers offer very low prices and German shoppers have shown they can be very demanding. Germanys shoppers are accustomed to buying based primarily on price. They are willing to split their shopping activities among various retailers, which blunt the effectiveness of the superstoresofferingonelocationforalltheshoppersneeds.Employeesfiledalawsuitagainstthe retailers policy against romantic relationships between employees and supervisors. Accustomed to putting their own groceries in shopping bags, German shoppers were alienated by clerks who bagged groceries. Moreover, German regulations have limited WalMarts ability to offer extended and weekend hours, as well as to sell merchandise below cost in an effort to lure customers with so calledlossleaders.Strongunionsalsolimitedthefirmsabilitytocontainoperatingcosts. WalMartalsoexperienceda lossofseasoned executiveswhen it acquiredseveral German retailers. The two retailers were headquartered in different cities. Following the mergers, WalMart consolidated the two headquarters in one city, prompting many executives to leave rather than re locate. Perhaps reflecting this braindrain, WalMarts German operations had four president in 8 years. WalMart has not been alone in finding German discount market challenging. Nestle SA and Unilever are among the large multinational retailers that have had to change the way they do businessinGermany.FrancesCarrefourSA,WalMartslargestcompetitorworldwidehaddiligently avoidedGermany. WiththewithdrawalfromtheGermanandSouthKoreanmarkets,WalMartiscurrentlyoperatingin 11 countries. This compares to Carrefour of France (29 countries) and Metro of Germany (30 countries), the second and third largest global retailers, respectively. WalMarts international ambitionsarenowcentredinAsiaandLatinAmericawithIndiaandChinathefirmsmostpromising growth markets. However, WalMart can expect to experience similar growth challenges in these countries. For example, India does not permit foreign firms to establish stores unless they sell only one brand. In late 2006, WalMart agreed with Chinas state run union to set up unions at its 60 stores inthatcountry.Moreover,Chinais limiting thesizeof largescale retail outletswhichis likely tolimitWalMartsplanstointroducethesuperstoreconcept. 1

ConfidentialForInternalCirculationOnly CaseStudyDiscussionQuestions 1. WalMartsmisstepsinGermanymayrepresentanexampleofthelimitationsofintroducing what works in one market (so called best practices) in another. To what extent do you believe that WalMarts failure represented a strategic error? To what extent did the firms lackofsuccesspresentanimplementationerror? 2. Basedonthisexperience,doyoubelieveWalMartshouldlimititsinternationalexpansion? 3. WhatcriteriashouldWalMartemployinselectingotherforeignmarketstoenter? 4. WhatshouldbeitsstrategyforIndiashouldFDIinretailbeallowed? You may make reasonable assumptions for information not provided. You may also use the internettobrowsethroughadditionalinformationrelatedtothecase,companies,industries,etc.
Source:Mergers,AcquisitionsandOtherRestructuringActivities,DonaldM.DePamphilis,ElsevierInc,FourthEdition