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Analysis of Walmart

Essay by   •  November 12, 2012  •  Case Study  •  459 Words (2 Pages)  •  1,044 Views

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Do you think Wal-Mart was right to expand into Germany?

Well, looking at both sides of the argument with additional research, I would not agree it's a wise choice to expand into Germany.

FOR EXPANSION

Read the notes.

While all these may seem like expanding into Germany was a rational choice, further research have shown that Wal-Mart had failed to conduct a thorough country risk analysis as several risks such as economic, political and cultural risks played a detrimental role in Wal-Mart's Performance.

AGAINST EXPANSION.

Economic Factor

While Germany is indeed one of the world's largest economy, Germany's retailing industry was experiencing slow growth at that time, with retailers engaging in price war. As such, implying low demand and high competitiveness if Wal-Mart enters.

In addition, Germany was experiencing high inflation with high labor and high real estate costs. The combination of low demand as a result of intensive price war and low economic growth and high operating costs is likely to have a detrimental effect on profitability and sustainability in the long run.

Political Factor

In addition to the undesirable economic conditions, it was also obvious that the German government was restricting the growth and entry into the retail market based on its' refusal to grant licenses for food and grocery retailing. This could be an effort to prevent greater competition and intensive price wars in the retailing market. The combination of an unattractive economy and poor political support should have been enough to prevent Wal-Mart from entering the market. But still, Wal-Mart decided to continue on, by acquiring WertKauf and Interspar.

Based on the following factors, it had been made even more obvious that Wal-Mart had not done the necessary country research to understand its operating environment better.

Problems

Entry problems.

As a result of inability to attain licenses for food and grocery retailing, the only way was through acquisitions, where Wal-Mart acquired WertKauf and Interspar. While the quick acquisitions within a year had propelled Wal-Mart as the 4th largest retailer in Germany, both supermarkets were not popular with the German Consumers. As such, one of the first and major challenge for Wal-Mart was to change customer perception.

However, it was easier said than done. While Wal-Mart was indeed the 4th biggest hypermart in Germany, most of its stores were located in the South-West and interior areas of Germany, thus failing to provide the required market penetration in the German Market. In addition, Wal-Mart had difficulty

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