Table of content 1. Introduction 2. Distance Still matters 3. Four Dimensions of Distance 3.1 3.2 3.3 3.

4 Cultural Distance Administrative or Political distance Geographic Distance Economic Distance

Page 2 2 4 4 5 6 6 7 7 8 9 11 11 11 12 12 12 13 13 14 14 15 16 16 18 19

4. Globalization Vs Regionalisation 4.1 4.2 4.3 Emergence of Globalization Multinational Enterprises Global Strategy Multinational and Regional Blocks

5. Classification of Regional Strategies 5.1 5.2 5.3 5.4 5.5 The Home Base strategy The Portfolio strategy The Hub Strategy The Platform Strategy The Mandate Strategy

6. Regional Strategy contribution to the global success 7. Service Industry and Regionalisation 8. Case Studies (Wal-Mart) 8.1 8.2 8.3 Background of Wal-Mart Regional Based Wal-Mart How do Regional factors affect Wal-Mart

9. Conclusion 10. References

11. Appendices

1.

INTRODUCTION Not one size fit all, Professor Pankaj Ghemawat

During the last half of the twentieth century, many barriers to international trade fell and a wave of firms began pursuing global strategies to gain a competitive advantage, to grow, prosper and maintain stability in domestic and international market. The interest of a few powerful nations and corporations are shaping the terms of world trade. Their brands like Coca Cola, Nike, Toyota, and so on demonstrate their presence around the world. However, some industries benefit more from globalization than do others and some nations have comparative advantage over other nations in certain industries. Some argues that the world is flat while the others still argue that it is round. Although the world is considered becoming more globalised, the current form of globalisation, neo-liberalism, free trade and open markets are coming under much criticism both for their business ineffectiveness and failure of its strategies. Global business strategies have emerged as a result of globalisation and internationalisation of established domestic companies which is purported to increase the value of the company in question. Increasing pressure of globalisation and the rising global competition have prompted managers and academician to rethink the formulation of global business strategy. Some scholars like Ghemawat and Rugman advocate that regional strategy which stands half way between the domestic and international market help succeed Multi Nationals Enterprises in their globalisation strategy to reach the world by adopting their strategy to the regional one since there is no one size fit all through standardization from the centre. This paper briefly discusses the development of globalisation and the gradual succession of regionalisation and their respective strategies and the importance of the Phrase Distance Still Matters. It also attempts to highlight regional strategies as a response to their quest of internationalisations. Wal-Mart, the top 500 on Fortune Global is taken as a case study to explain the success of regional strategy. 2. DISTANCE STILL MATTERS

In many, if not most cases, companies see globalization as a matter of taking a superior (by assumption) business model and extending it geographically, with necessary modifications, to maximize the firms economies of scale. From this perspective, the key strategic challenge

is simply to determine how much to adapt the business model, how much to standardize from country to country versus how much to localize to respond to local differences. Recently, as at Coke, many companies have moved toward more localization and less standardization. Despite globalization, regional distinctions (cultural, political, legal, and economic) arent disappearing. Global powerhouses, including GE, Wal-Mart, and Toyota, capitalize on regional differences, crafting strategies that complement their global and individual country tactics. Companies routinely overestimate the attractiveness of foreign markets. They become so dazzled by the sheer size of untapped markets that they lose sight of the vast difficulties of pioneering new, often very different territories. The problem is rooted in the very analytic tools that managers rely on in making judgments about international investments, tools that consistently underestimate the costs of doing business internationally. The most prominent of these is country portfolio analysis (CPA), the hoary but still widely used technique for deciding where a company should compete. By focusing on national GDP, levels of consumer wealth, and peoples propensity to consume, CPA places all the emphasis on potential sales. It ignores the costs and risks of doing business in a new market.

Most of those costs and risks result from barriers created by distance. By distance, we dont mean only geographic separation, though that is important. Distance also has cultural, administrative or political, and economic dimensions that can make foreign markets considerably more or less attractive. Just how much difference does distance make? A recent study by economists Jeffrey Frankel and Andrew Rose estimates the impact of various factors on a countrys trade ows. Traditional economic factors, such as the countrys wealth and size (GDP), still matter; a 1% increase in either of those measures creates, on average, a 0.7% to 0.8% increase in trade. But other factors related to distance, it turns out, matter even more. The amount of trade that takes place between countries 5,000 miles apart is only 20% of the amount that would be predicted to take place if the same countries were 1,000 miles apart. Cultural and administrative distance produces even larger effects. A company is likely to trade ten times as much with a country that is a former colony, for instance, than with a country to which it has no such ties. A common currency increases trade by 340%. Common membership in a regional trading bloc increases trade by 330%. And so on. (Jeffrey Frankel and Andrew Rose, An Estimate of the Effects of Currency Unions on Growth, unpublished working paper, May 2000) Much has been made of the death of distance in recent years. Its been argued that information technologies and, in particular, global communications are shrinking the world,

turning it into a small and relatively homogeneous place. But when it comes to business, thats not only an incorrect assumption, its a dangerous one. Distance still matters, and companies must explicitly and thoroughly account for it when they make decisions about global expansion. Traditional country portfolio analysis needs to be tempered by a cleareyed evaluation of the many dimensions of distance and their probable impact on opportunities in foreign markets. 3. THE FOUR DIMENSIONS OF DISTANCE

Distance between two countries can manifest itself along four basic dimensions: cultural, administrative, geographic, and economic. The types of distance, inuence different businesses in different ways. Geographic distance, for instance, affects the costs of transportation and communications, so it is of particular importance to companies that deal with heavy or bulky products, or whose operations require a high degree of coordination among highly dispersed people or activities. Cultural distance, by contrast, affects consumers product preferences. It is a crucial consideration for any consumer goods or media company, but it is much less important for a cement or steel business. Each of these dimensions of distance encompasses many different factors, some of which are readily apparent; others are quite subtle. The CAGE Distance Framework for an overview of the factors and the ways in which they affect particular industries.

3.1

CULTURAL DISTANCE

A countrys cultural attributes determine how people interact with one another and with companies and institutions. Differences in religious beliefs, race, social norms, and language are all capable of creating distance between two countries. Indeed, they can have a huge impact on trade: All other things being equal, trade between countries that share a language, for example, will be three times greater than between countries without a common language. Some cultural attributes, like language, are easily perceived and understood. Others are much more subtle. Social norms, the deeply rooted system of unspoken principles that guide individuals in their everyday choices and interactions, are often nearly invisible, even to the people who abide by them. Take, for instance, the long-standing tolerance of the Chinese for copyright infringement. As William Alford points out in his book To Steal a Book Is an Elegant Offense (Stanford University Press, 1995), many people ascribe this social norm to Chinas recent communist past. More likely, Alford argues, it ows from a precept of Confucius that encourages replication of the results of past intellectual endeavors: I transmit rather than create; I believe in and love the Ancients. Indeed, copyright infringement was a problem for Western publishers well before communism. Back in the 1920s, for example, 4

Merriam Webster, about to introduce a bilingual dictionary in China, found that the Commercial Press in Shanghai had already begun to distribute its own version of the new dictionary. The U.S. publisher took the press to a Chinese court, which imposed a small ne for using the Merriam Webster seal but did nothing to halt publication. As the lm and music industries well know, little has changed. Yet this social norm still confounds many Westerners. Most often, cultural attributes create distance by inuencing the choices that consumers make between substitute products because of their preferences for specic features. Color tastes, The Japanese, for example, prefer automobiles and household appliances to be small, reecting a social norm common in countries where space is highly valued. Sometimes products can touch a deeper nerve, triggering associations related to the consumers identity as a member of a particular community. In these cases, cultural distance affects entire categories of products. The food industry is particularly sensitive to religious attributes. Hindus, for example, do not eat beef because it is expressly forbidden by their religion. Products that elicit a strong response of this kind are usually quite easy to identify, though some countries will provide a few surprises. In Japan, rice, which Americans treat as a commodity, carries an enormous amount of cultural baggage. Ignoring cultural distance was one of Star TVs biggest mistakes. By supposing that Asian viewers would be happy with English-language programming, the company assumed that the TV business was insensitive to culture. Managers either dismissed or were unaware of evidence from Europe that mass audiences in countries large enough to support the development of local content generally prefer local TV programming. If they had taken cultural distance into account, China and India could have been predicted to require signicant investments in localization.

3.2

ADMINISTRATIVE OR POLITICAL DISTANCE

Historical and political associations shared by countries greatly affect trade between them. Colony-colonizer links between countries, for example, boost trade by 900%, which is perhaps not too surprising given Britains continuing ties with its former colonies in the commonwealth, Frances with the franc zone of West Africa, and Spains with Latin America. Preferential trading arrangements, common currency, and political union can also increase trade by more than 300% each. The integration of the European Union is probably the leading example of deliberate efforts to diminish administrative and political distance among trading partners. (Needless to say, ties must be friendly to have a positive inuence on trade. Although India and Pakistan share a colonial history, not to mention a border and linguistic ties, their mutual hostility means that trade between them is virtually nil.) 5

Countries can also create administrative and political distance through unilateral measures. Indeed, policies of individual governments pose the most common barriers to cross-border competition. In some cases, the difficulties arise in a companys home country. For companies from the United States, for instance, domestic prohibitions on bribery and the prescription of health, safety, and environmental policies have a dampening effect on their international businesses. More commonly, though, it is the target countrys government that raises barriers to foreign competition: tariffs, trade quotas, restrictions on foreign direct investment, and preferences for domestic competitors in the form of subsidies and favoritism in regulation and procurement. Such measures are expressly intended to protect domestic industries.

3.3

GEOGRAPHIC DISTANCE

In general, the farther you are from a country, the harder it will be to conduct business in that country. But geographic distance is not simply a matter of how far away the country is in miles or kilometers. Other attributes that must be considered include the physical size of the country, average within-country distances to borders, access to waterways and the ocean, and topography. Man-made geographic attributes also must be taken into account most notably, a countrys transportation and communications infrastructures. Obviously, geographic attributes inuence the costs of transportation. Products with low value-to-weight or bulk ratios, such as steel and cement, incur particularly high costs as geographic distance increases. Likewise, costs for transporting fragile or perishable products become signicant across large distances. Beyond physical products, intangible goods and services are affected by geographic distance as well. Interestingly, companies that nd geography a barrier to trade are often expected to switch to direct investment in local plant and equipment as an alternative way to access target markets. But current research suggests that this approach may be awed, Geographic distance has a dampening effect, overall, on investment ows as well as on trade ows. In short, it is important to keep both information networks and transportation infrastructures in mind when assessing the geographic inuences on cross-border economic activity. 3.4 ECONOMIC DISTANCE

The wealth or income of consumers is the most important economic attribute that creates distance between countries, and it has a marked effect on the levels of trade and the types of partners a country trades with. Rich countries, research suggests, engage in relatively more cross-border economic activity relative to their economic size than do their poorer cousins. Most of this activity is with other rich countries, as the positive correlation between per capita GDP and trade ows implies. But poor countries also trade more with rich 6

countries than with other poor ones. Of course, these patterns mask variations in the effects of economic disparities, in the cost and quality of nancial, human, and other resources. Companies that rely on economies of experience, scale, and standardization should focus more on countries that have similar economic proles. Thats because they have to replicate their existing business model to exploit their competitive advantage, which is hard to pull off in a country where customer incomes, not to mention the cost and quality of resources are very different. Wal-Mart in India, for instance, would be a very different business from Wal-Mart in the United States. But Wal-Mart in Canada is virtually a carbon copy.

4. 4.1.

GLOBALIZATION VS REGIONALISATION EMERGENCE OF GLOBALISATION The globalization of markets is at hand. With that, the multinational Commercial world nears its end, and so does the multinational Corporation . . . The multinational corporation operates in a number of countries, and adjusts its products and processes in each, at high relative cost. The global corporation operates with resolute constancy . . . it sells the same things in the same way everywhere. Ted Levitt, The Globalization of Markets, 1983

Globalisation which essentially refers to growth of trade and investment, accompanied by the growth in international businesses, and the integration of economies around the world, advanced in 1990s and in the twenty first century. The globalisation of business is easy to recognise in the spread of many brands and services spreads around the world. For example, Japanese electronics and automobiles are common in large part of the world. Moreover, companies have become transnational or multinational those are based in one country but have operations in others. For example, Japan/based automaker Honda operates the largest single factory in the United States, while U.S. based Coca-Cola operates plants in other countries including France and Belgium with about 80% percent of that companys profits come from overseas sales. Nevertheless, the rapid growth of globalisation that was considered as a success particularly due to the rapid economic growth and success of Asian Tigers and Taiwan in early 1990s, was undermined by these countries major economic setbacks in the late 90s. A number of rallies of anti-globalization forces attempted to portrait that globalization is not a panacea for

the world's problems. Their demonstration in all fronts during the Seattle meetings of the World Trade Organization that turned into a fiasco is an example. Thus, globalisation continues through its agents, i.e. MNE by changing strategies to internationalise their businesses. Prof Ghemawat, (2007) believed that the above definition of Levitt still reign the world, he however, challenges it and redefined globalisation as it will be explained later. 4.2. MULTINATIONAL ENTERPRISES GLOBAL STRATEGY Multinational enterprises (MNEs) are the key drivers of globalization, as they foster increased economic interdependence among national markets. The ultimate test to assess whether these MNEs are global themselves is their actual penetration level of markets across the globe, especially in the broad triad markets of NAFTA, the European Union and Asia. It will need three steps to become a global company from a local one. MNEs will build upon the strong home base diamond characteristics of the United States, the European Union, or Japan and use the appropriate triad market as a staging ground for activities in other markets, (Rugman, 2001). Companies may enter the global market through various kinds of international investments. Companies may choose to make foreign direct investments, (FDI) which allow them to control companies and assets in other countries. Indeed, the largest 500 MNEs account for over 90% of the world stock of foreign direct investment (FDI) and they, themselves, conduct about half the worlds trade, (Rugman, 2004). In addition, companies may elect to make portfolio investments, by acquiring the stock of companies in other countries in order to gain control of these companies. They may participate in the international market by either licensing or franchising. Another way companies tap into the global market is by forming strategic alliances with companies in other countries. While strategic alliances come in many forms, some enable each company to access the home market of the other and thereby market their products as being affiliated with the well-known host company. This method of international business also enables a company to bypass some of the difficulties associated with internationalization such as different political, regulatory, and social conditions. The home company can help the multinational company address and overcome these difficulties because it is accustomed to them. These forms of companies strategy contributed to the standardization approach that brought consumers need more homogenous through the world. This argued to have provided high quality and low prices over advanced features and functions of product by reducing 8

companies expenditures for instances using the same

ads, design,

packaging,

manufacturing, distribution, customer service, and software development that leads business to succeed. However, Rugman (2002,2001, 2003,2005,7 & Ghemawat (2005,2007) counter argue that global standardisation does not respond necessarily to local needs as the world is far from being a single market rather, they suggest that business take place in regional blocks. 4.3. MULTINATIONAL AND REGIONAL BLOCKS The development of regional trading blocs has promoted an emphasis regional strategy as companies develop plans to take advantage of the conditions within various trading blocs such as the North American Free Trade Agreement (NAFTA), the European Union, the AsiaPacific Economic Cooperation (APEC) and the Association of Southeast Asian Nations (ASEAN). Rugman and Verbeke (2004) have indicated that most of the worlds largest 500 companies pursue regional, rather than global strategies. Very few are successful globally. For 320 of the 380 firms for which geographic sales data are available, an average of 80.3% of total sales are in their home region of the triad, which indicates that the worlds larger firms are not global but regionally based. Zhaowei Qi, (2008) further elaborated using the following table that MNEs do not easily penetrate the three triads evenly, and intra-regional sales are easier than inter-regional sales. Obviously, he stated that there are some regional factors affecting a MNE to become global. Table.1. Classification of the top 500 MNEs Type of MNEs No of MNEs Percentage 500 of Percentage 380 of Percentage intra/regional sales Global Bi-regional Host oriented Home oriented 15 Insufficient data 9 3.0 3.9 40.9 region 320 64.0 84.2 80.3 9 25 1.8 5 2.2 2.4 6.6 2.9 38.3 42 30.9

region 11

No data Total

120 500

24 100 100

NA 71.9

Data are for 2001, Source: Brainturst Research Group, the regional nature of global Multination Activity, 2003 According to Rugman (2001,2003,2008.), multinational enterprises (MNEs) largely operate within their home region of the triad, or, at best, are bi-regional (competing only across two of the triads of the EU, NAFTA and Asia. Most of the largest 500 MNEs are interested in the deepening of regional trade and investment agreements in Europe, the Americas and Asia. This is a high end niche of the commonality viewpoint in which they argue that the world is clearly becoming more unified and homogeneous. However, basically every aspect of their arguments wrong. Instead of one language, one thirst, one food, one car, etc. there are strong regional differences within each part of the triad. Despite their global nature, some argues that companies must customize their products or services to meet the needs of various international markets, and hence must use a multidomestic strategy at least in part. For example, a US fast food companies such as KFC, McDonalds although have a standard approach globally, they adapted their strategy to the preference of regions or countries like in China, Japan, Middle-East. KFC introduced smaller pieces of foods to cater to a Japanese preference, and located restaurants in crowded areas along with other restaurants, moving away from independent sites. As a result of these changes, the fast-food restaurant experienced stronger demand in Japan. As Grant, 2008, indicated, for instance McDonald carefully blends of global standardization and local adaptation in most countries. Its menus feature an increasing number of locally developed items like McVeggie Burger in India, McArabia in Kofta in Saudi Arabia, Kosher food in Israel by still maintaining globally standardized items, i.e. the big Mac and potato fries. Car industries like Toyota adapt their product also as per region. Product for the US market and other part of the world is different. Thus, the development of regional trading blocs has promoted an emphasis regional strategy as companies develop plans to take advantage of the conditions within various trading blocs such as the North American Free Trade Agreement (NAFTA), the European Union, the Asia-Pacific Economic Cooperation (APEC) and the Association of Southeast Asian Nations (ASEAN). Consequently, companies have been establishing regional strategies designed around these trading blocs. 10

5:

CLASSIFICATIONS OF REGIONAL STRATEGIES

Professor Pankaj Ghemawat, (2005) states that the successful companies employ five types of regional strategies in addition to--or even instead of--global ones: home base, portfolio, hub, platform, and mandate. Some companies adopt the strategies in sequence, but some also switch from one to another and combine approaches as their markets and businesses evolve. At Toyota, for example, exports from the home base continue to be substantial even as the company builds up an international manufacturing presence. And as Toyota achieves economies of scale and scope with a strong network of hubs, the company also pursues economies of specialization through interregional mandates. 5.1 THE HOME BASE STRATEGY

The Home based strategy is a strategy that is focusing in serving nearby foreign market from home base, which is efficient and permit rapid interactions with other departments, especially work well when economics of concentration. However, it limits a company to its local region. According to Ghemawat, (2005), a focus on home region is a matter of neither default nor devolution but, instead, the desired long/term strategy. Zara, the Spanish fashion company is able to respond rapidly to Europe market according to the change of the season in a more competitive price due to low cost of shipment involved. 5.2 THE PORTFOLIO STRATEGY

It is a strategy that involves setting up or acquiring operations outside the home region that report directly to the home base. As leads to lots of favourable performances and outcomes in non-home regions, it is among the first preferences of companies wishing to work outside of their home, but it takes time to implement and require the abilities to compete with outside rivals. By acquiring the stock of companies in other countries, it gains control over these companies. A successful example cited by Ghemawat was Toyotas initial investment in the United States. Portfolio is regional growth in foreign regions but the strategy consumes time. 11

The main advantage of this strategy is it leads to faster growth in non home regions, better home positions lead to large capital and give the opportunity to survive economic shocks. Carrefour is looking at China as a portfolio of local markets. 5.3 THE HUB STRATEGY

It is a strategy of building regional bases or hubs to support local operations. It is simply a multiregional version of the home base strategy to share resources and add value at the regional level. Hub strategy involve transforming a foreign operation into a standalone unit, and could be several and independent of one another, according to Ghemawat. For instance, Toyota began producing a limited number of locally excusive models in its principal foreign plant. Each plant had its own platform with products designed for sale within region. However, it adds values at the regional level by catering to regional preferences, but risks sacrificing cross regional economies of scale. The more regions differ in their requirements, the weaker the rationale for hubs to share resources and policies. It is also a challenge to balance between customization and standardization as Dell relative standard products was forced to adapt to regional operations by modifying its plan in Chain to respond to local companies competing aggressively on cost by producing less/sophisticated, lower quality products. It is also considered spreading of fixed cost across countries within region. 5.4 THE PLATFORM STRATEGY

It is the strategy that utilizes the common platforms to delivery variety that more costeffectively and achieve greater economies of scale and scope through customization. Reducing basic product platform of worldwide by allowing customization as to find a common platforms engineered for adaptability. However, greater economies of scale in design, procurement, and other functions, can be achieved in delivering variety more cost/effectively but taking platform standardisation too far can backfire if regional customization crates excessive disparity across regions. Hubs help to spread fixed costs

across countries within a region. Interregional platforms go a step further by spreading fixed costs across regions. 5.5 THE MANDATE STRATEGY

It is giving of certain regions mandates to supply particular products of perform certain roles for the entire organisation. Economies of specialisation as well as scale, but broad

mandates cant have variations in country, national, or regional conditions. While it is related 12

to the platform strategy it focus on economies of specialization as well as scale. Broad mandate is given to the companies adopting this strategy under their region. 6. REGIONAL STRATEGY CONTRIBUTION TO THE GLOBAL SUCCESS

As the rising tide of globalization, some companies may lost the way or make mistakes to set out to create a worldwide strategy. In fact, better results come from strong regional strategies, which is the bridge that connect the local and global initiatives, and can significantly boost a companys performance. As indicated earlier, an increasing number of companies regard regions as enabler of cross-border integration because high level of cross-border integration usually accompany with high level of regionalization. Besides the geographic proximity, the cultural, administrative and economic proximity also become an important competitive advantage in regionalization and contribute a significant weight of sales. Embracing regional strategies requires flexibility and creativity. Managers must be conscious that markets, supplies, investors, locations, partners, and competitors can be anywhere in the world. Successful businesses will take advantage of opportunities wherever they are and will be prepared for downfalls. Successful managers, in this environment, need to understand the similarities and differences across national boundaries, in order to utilize the opportunities and deal with the potential downfalls. Once this analysis is complete, managers must establish strategic goals, which are the significant goals a company seeks to achieve through a particular pursuit such as entering a new regional market through considering the above five regional strategy model. International strategies refer to those that address competition in each country or region on an individual basis, whereas global strategy refers to addressing competition in an integrated and holistic manner across country and regional boundaries. Hence, multi-domestic international strategies attempt to appeal to the needs of customers in different countries or regions, while global strategies attempt to standardize products and marketing to work across boundaries. Rugman (2001), Khan (2006) and Gemhwat, (2005,2007) discredit the multi-domestic and global strategies and argue that successful multinationals now design strategies on a regional basis or semi globalized to enables the development of a distinctively global approach while unsuccessful ones pursue global strategies. While globalisation is business with regions, regionalisation is intra-region and at the macro level both do not seem to be contradictory process. 7. SERVICE INDUSTRY AND REGIONALISATION 13

Rugman & Verbeke, (2008), discuss service industry as good examples of success for regional based business internationalisation. For instance, for a large number of the worlds largest 500 firms that also shows assets as well as sales to make their arguments that services are more home-region oriented than manufacturing across both sales activities and production activities. They further stated that the services MNEs are significantly more home-region based, averaging 83.9 percent of sales in their home region, in contrast to manufacturing firms with only 65.6 percent. Clearly, these summery date indicate that there are very few global firms, whether in services or manufacturing. Therefore, both sets of firms can benefit from the analysis of regional strategy and structure, rather than from an analysis of focusing primarily on alleged global strategy and structure. Even if hotel chains follow the globalisation process, they still develop their regional strategy as to adapt to the local needs. Wal-Mart that represent service industry, is not global business and did not have global strategy (Rugman,2003), yet, tops the Fortune Global 500 for the 2010 as it has done a couple of times in the past according to Fortune Global 500.

8.

CASE STUDIES (WAL-MART)

We have discussed that many MNEs are more regional than global. We are going to see how the regional factors affecting Wal-Marts strategy and structure and contributes to its success.

8.1

BACKGROUND OF WAL-MART

Wal-Mart is the worlds largest retailer. Sam Walton found the first Wal-Mart store in Rogers, Arkansas in 1962. Wal-Marts international expansion began in 1991, when it entered into a joint venture with Cifra S.A., a successful Mexican retailer. Since then, it has also expanded into nine other international markets: Argentina, Brazil, Canada, China, Germany, Puerto Rico, Japan, India and the UK and seven other countries in Latin America. It is also on the process its first entry in Africa through South Africa, which is the largest Sub-Saharan

14

economy. In the year ending of 2010, its revenue was almost $ 405 billion. Wal_Mart is known as one of the success stories in the retail industry the management strategies that the organisation has employed became on other most popular strategies in the retail industry today a considerable number of retail stores have emerged in different parts of the world following the retail format of Wal Mar. Its often a mistake to set out to create a worldwide strategy. Better results come from strong regional strategies, brought together into a global whole.

8.2

REGIONAL-BASED WAL-MART

Wal-Mart is a regional, not a global business. There are two arguments to back up this conclusion. First, most its stores located in NAFTA triad region. For example, according to its Wal-Mart 2011 report, at the end of 2010, it had a total of 8,970 stores. A total of 7838.- of its stores are in the NAFTA region, with 4,358.- in the domestic US market, 1,730 in Mexico and another 328.- in Canada. Only 1132.- are truly internationaloutside Wal-Marts home triad region, only about 13 percent of its stores.

Distribution of Wal-Mart Stores

Distribution of Wal-Mart Stores

Locations NAFTA US Mexcico Canada

No of stores 5, 780 1,730 328 1,132 8,970

Percentage of Total 64.44 19.29 03.66 12.61 100

Other regions Total

Second, although Wal-Mart became the largest company in term of sales revenues in 2010, its most revenue came from NAFTA. For example, Wal-Marts revenue was almost $405 billion for the year ending in 2010, ahead of Royal Dutch Shell and Exxon Mobil. But about

15

80.5 percent is from United State and only 20.5 percent is from international sales. The NAFTA market stands at an estimated 87.39 percent, and only 12.61 percent was from EU and Asia regions, although its international sales has gradually shown growth. 8.3 HOW DO REGIONAL FACTORS AFFECT WAL-MART STRATEGY AND

STRUCTURE? Wal-Mart is NAFTA-base business. The locus of its business model strategy and structure is regional and home-based. Its success can be attributed to a scale strategy based on cost reduction, steadily generating its always low prices formula and increased physical growth of market share (Rugman, 2003). Each week, about 200 million customers visited a WalMart at more than 9230 retail unites in 15 countries. The company employed more than 2.1 million associates. Wal-mart has also been in the spotlight this year (2011) for a gender discrimination suit involving 1.5 million of its current and former female employees. The Supreme Court threw the case out on the grounds that the women couldn't pursue it as a single class, but the retail giant will likely have to face these claims in smaller groups in the months and years to come. And while Wal-Mart may be the biggest company in the world, it has suffered from a sales slump back home: U.S. same-store sales have declined for eight straight quarters. (http://money.cnn.com/magazines/fortune/global500/2011/snapshots/2255.html) Wal-Marts structure and management system is based on region. Each store constituted an investment center and was evaluated on its profits relative to its inventory investments. 9. CONCLUSION

Most of MNEs are home regional -based companies rather than global companies. One of important reason is influence of regional factors. Home regional factors can bring more advantages than host regions. And MNEs can easily transfer FSAs into regional FSAs. Therefore, MNEs should follow home countryhome regionhost region model. MNEss manager must think regional and act local, and design regional strategy and organization structure that develop triad-based internal know-how capabilities and organizational competences. However, it is a fascinating paradox. GM (GM, Fortune 500) slid from domination of the Western automotive world in three decades, yet made itself into a leading automotive producer in China in less than two while it is disaster on one continent. The answer has enormous consequences for car buyers on both continents. China, the world's single largest auto market, has become GM's largest market, too. GM sold more cars in China in 2010 than it did in the U.S., and the difference will only grow in coming years. In any case, the predication of Ghemwat, 2007, that semi-globalisation is likely to present for

16

next decade, the next two decades and probably beyond. Ghemawat suggests choosing from a menu, depending on your circumstances. For example, use the home base strategy, locating your R&D and manufacturing in your country of origin, if the economics of concentration outweigh those of dispersion. Or use the portfolio strategy, establishing operations outside your home region that report to home base, if you need to average out economic cycles across regions. Shift among the five regional strategies or combine them as circumstances evolve. By creatively blending regional strategies, Toyota surpassed Ford as the worlds second-largest automaker in 2004. Hence we can conclude that, Its often a mistake to set out to create a worldwide strategy. Better results come from strong regional strategies, brought together into a global whole.

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REFERENCES: Alan M. Rugman and Richard M. Hodgetts. (2001). The end of global strategy. http://www.referenceforbusiness.com/management/Str-Ti/Strategy-in-the-GlobalEnvironment.html.an Alan M. Rugman and Alain Verbeke. (2003). Regional and Global Strategies of Multinational Enterprises. Kelley School of Business, Indiana University. Alan M Rugman and Alain Verbeke. (2004(. A perspective on regional and global strategies of multinational enterprises. Journal of International Business Studies, 35, PP 3 18 & 2004 Palgrave Macmillan Ltd. Freyssenet . Alan M. Rugman and Alain Verbeke. (2008). A New Perspective on the Regional and Global Strategies of Multinational Services Firms. Management International Review, Vol. 48, Q 4th. Pankaj Ghemawat. (2005). Regional Strategy for Global Leadership. December. Harvard Business Review, Harvard University, USA. Pankaj Ghemawat. (2007). Redefining global strategy: Crossing border is a world differences Still maker. Harvard Business School Publishing Corporation, USA. Zhaowei Qi. (2008). The Model of Expansion from Local Enterprises to Multinational Enterprises. August, International Journal of Business and Management. Omar J.Khan. (2006). Retrieved on 01.07.2011 from http://0proquest.umi.com.oasis.unisa.ac.za/pqdweb?index=2&did=1232401421&SrchMode=2&sid= 5&Fmt=6&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1309544974&clientId=27 625. Elitsa R. Banalieva & Ravi Sarathy. (2010). The Impact of Regional Trade Agreements on the Global Orientation of Emerging Market Multinationals. Manag Int Rev (2010) 50:797 826 DOI 10.1007/s11575-010-0060-1, Gabler-Verlag 2010, North-eastern University, Boston, USA. Robert M.Grant. (2008). Contemporary Strategy Analysis. 6th Edition, Blackwell publishing company Ltd, Oxford. UK. http://walmartstores.com/sites/AnnualReport/2011/financials/Walmart_2011_Annual_Rep ort.pdf, 16.07.2011 http://www.qfinance.com/business-strategy-best-practice/globalization-and-regionalbusiness- trategy?full http://www.businessinsider.com/wal-mart-regional-breakdown-2011-3#ixzz1QtJvKDL1 www.walmartstores.com. Retrieved on 27.07.2011. http://money.cnn.com/magazines/fortune/global500/2011/snapshots/2255.html
Distance Still Matters, The Hard Reality of Global Expansion by Pankaj Ghemawat Beyond Off shoring: Assess Your Companys Global Potential by Diana Farrell, Harvard Business Review, December 2004

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APPENDIX-1 : CAGE FRAMEWORK

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APPENDIX-2 Jeffrey Frankel and Andrew Rose,An Estimate of the Effects of Currency Unions on Growth, unpublished working paper, May 2000

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