CROSS CULTURAL CASE STUDY: WALMART IN GERMANY
Name
Course
Instructor
Institution
Date
Introduction
Walmart Stores Inc. is categorized as the world’s leading retailer. The company is also ranked as the second largest organization in the world in terms of the size of its operations. It is also the leading employer in the United States’ private sector. It has retail stores in all states in the U.S. In China, Walmart runs 108 stores (Ryu & Simpson, 2011, p. 8). The American multinational runs retail stores in more than 27 countries across the international market. Walmart runs its business through three operational segments. These are grocery stores, hypermarkets and departmental stores. Since 1962, when it was started by Sam Walton, Walmart has registered continuous growth within the local and international markets. Its growth is attributed to the implementation of an effective leadership philosophy and style and winning global business strategies (Pioch, Gerhard, Fernie & Arnold, 2009, p. 206). Regardless of the apparent success of this multinational, it has in the past faced significant cross cultural issues and problems within the international retail market. Walmart’s cross cultural problems and issues within the German retail market is specifically notable and informative for companies that are entering foreign markets. This essay presents a critical evaluation and analysis of Walmart’s cross cultural difficulties in German with a goal of drawing helpful and evidence-based recommendations and an action plan for running effective operations within new international markets.
Cross Cultural Issues and Problems
Walmart adopted and implemented acquisitions as the preferred entry strategies into the German retail market. In 1997 and 1998, the multination implemented its international strategy by acquiring Wertkauf chain and Interspar chain respectively (Norton, 2006, p. 10). The acquisition of the two German retail chains enabled Walmart to grow exponentially into one of the leading hypermarket chains within the German retail industry and market. However, Walmart’s market share within the retail market in Germany stagnated at 1.1%. The giant retailer also incurred losses of over € 1 billion within the German retail market. Critical analysis of the difficulties which Walmart experienced in Germany attributes them to cross cultural issues and problems (Hamstra, 2006, p. 6). Since Walmart successfully expanded into international markets in China, India, Brazil and Canada within the same period, it becomes necessary to analyze and understand the cross cultural troubles which led to its failure within the German market (Talaulicar, 2009, p. 350). The main cross cultural issues and problems which contributed to Walmart’s failure in the German market are analyzed, evaluated and discussed in the following sections.
Cultural Insensitivity
Walmart’s cultural insensitivity in Germany is cross cultural problem which is demonstrated by the fact that the multinational ignored three important elements of culture in the implementation of its new operations within this new market (Ewing, 2005, p. 54). Walmart ignored the local culture of Germans, their buying habits and the importance of using local managers. Hofstede's theory on cultural dimensions can be used to demonstrate the cultural mistakes that Walmart made, which contributed to its failure in Germany. This theory provides that cross-cultural communications should be guided by an understanding of the cultural values of a specific society (Grose, 2006, p. 56). Therefore, Germany’s inability to recognize the cultural values of Germans in the implementation of its business strategies led to cross cultural problems in communications.
On the basis of Hofstede's theory on cultural dimensions, the cultural values of Germans and Americans are divergent. For instant, Americans are strongly self oriented and individualistic while Germans are generally collectivists (Pioch, Gerhard, Fernie & Arnold, 2009, p. 207). This means that the inability of Walmart to recognize and appreciate these cultural differences impacted negatively on its communications and development of professional and business relationships in German. In addition, Germans have low uncertainty avoidance, a factor which contributed to cultural problems in developing effective working relationships with Walmart’s American expatriates who are generally risk embracing (Norton, 2006, p. 10). Therefore, Walmart’s inability to align its operations with the cultural values of Germans created unnecessary cultural problems which would have been avoided through the use of local managers. The implementation of the divergent American cultural values in running Walmart’s operations in Germany made it difficult to align retail services with the buying habits of German consumers.
Poor Acquisition Strategy
The acquisition of Wertkauf chain and Interspar chain by Walmart was a poor strategy and a cross cultural problem for the multinational because the combined market share of the two chains was at 3% (Berggoetz & Laue, 2002, p. 6). Therefore, the two acquisitions were not aligned with Walmart’s international expansion goals of expanding its market share in significant proportions. Walmart needed at least 400 retail stores in order to gain a momentous share of the retail market in Germany (Talaulicar, 2009, p. 355). However, the acquisition of the two retail chains would only contribute 85 stores into Germany’s new international operations in Germany. In this sense, Walmart was not able to adequately penetrate into the target retail market segments in Germany (Zillman, 2014, p. 1).
Walmart’s acquisition of Wertkauf chain and Interspar chain was based on subtenant status or leases rather than actual ownership of property. This means that Walmart would not adequately utilize the acquired resources to support its internationalization strategy and goals (Pioch, Gerhard, Fernie & Arnold, 2009, p. 209). In addition, Walmart’s new acquisitions did not have uniformity in the running of retail operations. This contributed to inefficiencies in its supply chain. Furthermore, Wertkauf chain and Interspar chain were situated in poor locations, which would not attract the desired number of consumers (Fernie, Hahn, Gerhard, Pioch & Arnold, 2006, p. 249). The implementation of an effective international market entry strategy is the perquisite to cultural compliance and the success of an international company within new foreign markets (Grose, 2006, p. 57).
Bad Publicity
Media reports that Walmart was violating German regulations and laws on business practices led to bad publicity or negative public image. For instance, Walmart did not comply with the regulatory frameworks on disclosure (Advertising Age International, 1999, p. 3). This made it difficult for the company to be accepted within the new cultural environment. In addition, Walmart was accused of violating regulations on employee representation. This is attributed to the fact that the company’s management failed to recognize and understand the employee representation organizations, such as work councils and trade unions. The inability of Walmart to engage with the trade councils and unions limited its ability to address the concerns of its employees (Spahr, 2000, p. 67). As a result, Walmart was entangled with legal cases in Germany, which further contributed to a negative public image of the company. Therefore, Walmart’s failure in Germany can be attributed to failure to understand the cultural and legal frameworks of this new market and inability to align its business operations with the cultural values of the German society. Media reports on unusual practices within Walmart Germany contributed to the negative publicity because the company was viewed as foreign and not aligned with the local cultural practices and values (Norton, 2006, p. 10).
Inefficiencies of Top Management
The inefficiencies of Walmart’s top management within its operations in Germany are attributed to their lack of cultural awareness and the implementation of business strategies which were not aligned with the cultural values and business practices of the German society (Talaulicar, 2009, p. 358). Walmart Germany’s top management was incompetent because they lacked experience in addressing cultural issues and problems which characterize the international business environment or operating within a foreign country. The top management of the company also failed to use German managers to run its retail operations in Germany (Zillman, 2014, p. 1). Therefore, their inexperience and lack of cultural awareness was not supplemented by local managers who have adequate knowledge of the German culture and business practices.
The human resource management strategy that Walmart Germany adopted was also not effective because they failed to recognize the councils and unions that represented their employees. This means that the management of human resources within the company’s operations in Germany was not adequately aligned the rights and needs of employees (Christopherson, 2007, p. 453). Therefore, the top management did not employ effective strategies of improving the public image of the company, such as through engagement with employees, the community and other stakeholders. The top management specifically failed to implement an effective strategy for engaging with trade unions and workers’ councils, which contributed to the legal suits it faced in Germany and the resultant negative image within the new market (Grose, 2006, p. 56). This challenged the company’s ability to compete favorably with local retailers whose operations were compliant with the cultural and legal climate in Germany.
The inexperience of the Walmart top management is attributed to their lack of understanding or appreciation of legal frameworks on disclosure in Germany. Therefore, the company lost favor within the new market, which limited its growth and expansion of its market share within the German retail market (Advertising Age International, 1999, p. 3). Furthermore, the company’s top management had limited knowledge on consumer behavior within the German retail market. They ignored the fact that consumer behavior is driven by cultural values and norms. As a result, the business strategies that the top managers adopted were not appropriate for this new market (Talaulicar, 2009, p. 53). The business philosophy that was adopted by the top management for its German retail operations was also not effective. The top management adopted a people-centered philosophy which was based on the American culture rather than the German culture. This means that the people centered philosophy was not able to meet the needs of the German people (Pioch, Gerhard, Fernie & Arnold, 2009, p. 206).
Recommendations and Action Plan
The management team within Walmart should understand that cross-cultural or cross-border business operations are challenging, even for large multinationals. This will allow them to appreciate the importance of gaining cultural awareness of the cross-border markets into which they seek to expand their international retail operations (Hamstra, 2006, p. 6). Walmart must be appreciative and sensitive to the local values, norms and practices of doing business in order to prevent business failure within new international markets. It is through this that the company’s business operations and offerings would be tailored to meet the cultural preferences of local consumers (Fernie & Arnold, 2002, p. 92). Therefore, a localization strategy of entry into the global business environment is recommended for Walmart. This is opposed to the standardization strategy which it implemented in the management of its human resources in Germany.
Walmart should carry out a comprehensive cultural assessment of any international market into which it needs to expand its retail business (Talaulicar, 2009, p. 50). Cultural assessment is important before engaging acquisition strategies for entry into the international market because it allows multinationals to implement culturally relevant and appropriate communications and human resource management strategies. Cultural assessment practices are recommended for Walmart before any international expansions are executed because it will allow it to measure the effectiveness and appropriateness of its localization strategy to specific international markets (Christopherson, 2007, p. 452).
In addition to economic, social and political analyses of new international markets, Walmart should ensure that it conducts an effective cultural analysis of countries which it wishes to expand into. This is important in preventing the company from expanding into specific countries, such as Germany, solely for their economic attractiveness rather than cultural considerations (Zillman, 2014, p. 1). More importantly, Walmart’s top executives should participate in cultural training programs in order to become culturally aware of the new international markets that the company needs to expand into. This will allow them to become effective in adopting winning and culturally relevant business strategies that would boost the image of the company in its cross-border markets and drive the growth of market share and profitability (Talaulicar, 2009, p. 49). Walmart should therefore act on the recommended cultural assessment strategy and cultural awareness program for its top executives so that it would prevent failures of cross-border businesses as it experienced in Germany.
Conclusion
Walmart’s failure in Germany is attributed to cultural insensitivity, bad publicity, the incompetence of its top executives and the implementation of a poor acquisition strategy. Walmart should realize that a global strategy which works within one international market is less likely to work in another international market. It is through this understanding that Walmart will conduct comprehensive cultural assessment of new cross-border markets and engage its top executives in cultural awareness programs which will make them competent in running culturally sensitive businesses within new international markets. A cultural awareness that is based on Hofstede's theory on cultural dimensions is important for Walmart’s future cross-cultural ventures because it will allow it to implement a localization strategy that is aligned with local practices and values rather than the standardization of its practices.
References
Berggoetz, R, & Laue, M 2002, 'Wal-Mart's Market Entry into Germany from an Intercultural Perspective', European Retail Digest, 34, p. 6
Christopherson, S 2007, 'Barriers to 'US style' lean retailing: the case of Wal-Mart's failure in Germany', Journal of Economic Geography, 7, 4, pp. 451-469
Ewing, J 2005, 'Wal-Mart: Local Pipsqueak', Businessweek, 3928, p. 54
Fernie, J, & Arnold, S 2002, 'Wal-Mart in Europe: prospects for Germany, the UK and France', International Journal of Retail & Distribution Management, 30, 2, p. 92
Fernie, J, Hahn, B, Gerhard, U, Pioch, E, & Arnold, S 2006, 'The impact of Wal-Mart's entry into the German and UK grocery markets', Agribusiness, 22, 2, pp. 247-266
Grose, TK 2006, 'Wal-Mart's Rollback', U.S. News & World Report, 141, 14, pp. 56-57
Hamstra, M 2006, 'Wal-Mart Plans to Exit Germany', SN: Supermarket News, 54, 32, p. 6
Norton, K 2006, 'Wal-Mart's German Retreat', Businessweek Online, p. 10
Pioch, E, Gerhard, U, Fernie, J, & Arnold, S 2009, 'Consumer acceptance and market success: Wal-Mart in the UK and Germany', International Journal of Retail & Distribution Management, 37, 3, pp. 205-225
Ryu, J, & Simpson, J 2011, 'Retail internationalization: Lessons from "Big Three" global retailers' failure cases', Journal Of Business & Retail Management Research, 6, 1, pp. 1-10
Spahr, W 2000, 'Will Wal-Mart Germany apply aggressive pricing to music?', Billboard, 112, 4, p. 67
Talaulicar, T 2009, 'Barriers against Globalizing Corporate Ethics: An Analysis of Legal Disputes on Implementing U.S. Codes of Ethics in Germany', Journal of Business Ethics, 84, pp. 349-360
Talaulicar, T 2009, 'Global retailers and their corporate codes of ethics: the case of Wal-Mart in Germany', Service Industries Journal, 29, 1, pp. 47-58
'Wal-Mart to expand `Great Value' in Germany' 1999, Advertising Age International, p. 3
Zillman, C 2014, 'In battling German unions, will Amazon emulate Wal-Mart?', Fortune.Com, p. 1
