Mercado Walmart

Wal-Mart Entering Germany

Wal-Mart has traditionally been able to set the standard in the retailing industry, especially in the US. However, there are certain advantages that may not be fully transferable to other countries. And Wal-Mart’s venture into Germany is no exception to this fact.
Rather than engaging in acquisitions as Wal-Mart has done to gain presence in Germany, Wal-Mart shouldhave considered the other options prior to entry: 1) greenfield investing, 2) licensing and franchising with retailer, and 3) creating joint venture with local partner.
Greenfield investing would subject Wal-Mart to similar risks (if not more risks) associated with the acquisition of Wertkauf. Therefore, this option should be ruled out. Franchising and licensing with local retailer would notcontribute too much value to a German retailer since Wal-Mart’s brand has failed to demonstrate a strong perceived reputation of low prices in the eyes of German customers. The final option would be to launch a joint venture with a local retailer. This would have allowed Wal-Mart to have time to adjust to the steep learning curve associated with the German market.
Since Wal-Mart’s competitorslearned from the US retailer and selectively utilized new scanning systems upon Wal-Mart’s entry, the retailer might as well have worked with a local partner to create a German venture under the terms of a 50-50 equity stake. Wal-Mart could bring its expertise in improving retailing efficiency while its partner could provide Wal-Mart its local supplier and labor union relationships, brand recognized bycustomers for low prices, and local market and legal knowledge.
The joint venture would greatly reduce the risk profile of the foray into Germany and provide Wal-Mart a better platform on which to analyze the German market, which greatly differs from the UK market despite their close proximity. The risks of working with a partner could include the partner learning Wal-Mart’s core competencies andimplementing them beyond the joint venture project to capture a dominant foothold of the market. However, as seen in the case study, this has already been the case when Wal-Mart entered the market. The competitors quickly adapted and adjusted their infrastructure to incorporate certain strengths that Wal-Mart demonstrated such as controlling inventory well through advanced scanning systems.Furthermore, Wal-Mart does not necessarily have to provide its German partner with the entire inner workings of the IT technology that drives Wal-Mart’s logistics. The US retailer can simply implement the technology into the store in a way that allows the venture to reap the benefits but also prevent its partner from easily imitating its intellectual property behind Wal-Mart’s logistics.Unfortunately, Wal-Mart had decided that its successful track record in US, Mexico, and the UK would serve as a sufficient prerequisite in entering Germany through acquisition. Also, it assumed that its country-dependent advantages would be able to transfer over such as supplier relationships and consumer market knowledge. As a result, the company’s German stores are facing shrinking margins and thus lowprofitability. However, Wal-Mart has several options to deal with this dilemma: 1) continue expanding in Germany through acquisitions/organic growth to gain economies of scale, 2) halt expansion but attempt to adjust its current assets to the industry landscape in Germany, and 3) divest its German assets.
Considering the fact that it has already spent a considerable amount of time, effort, and moneyin Germany, Wal-Mart may continue expanding in Germany in hopes of gaining economies of scale. These investments should be considered sunken costs and thus should not bias decision making.
Wal-Mart has already demonstrated that they have been destroying shareholder value through acquiring German retailers and expecting to turn them around. Thus, investing additional capital in hopes of turning...