WALMART’S FAILURES IN ENTERING

THREE DEVELOPED MARKETS

OVERVIEW

WALMART'S FAILURES IN ENTERING THREE DEVELOPED MARKETS

For nearly three decades, Walmart has been pursuing an aggressive global expansion strategy,
with international operations now accounting for approximately 30 percent of the organization's
total revenue. As the world's largest retailer, with its proven success in the United States built on
everyday low prices and efficient supply chain management, Walmart seemed well-positioned to
replicate its business model globally. However, the retail giant has encountered significant
challenges and experienced three notable failures in developed markets: Germany, South Korea,
and Japan.

The story of Walmart's global expansion begins in 1991 with its entry into Mexico through a joint
venture with Cifra. This initial international venture was relatively successful, benefiting from
geographic proximity to the United States and similar consumer behaviors. Encouraged by this
success, Walmart accelerated its global expansion plans throughout the 1990s and early 2000s,
entering various markets through different strategies including acquisitions, joint ventures, and
wholly-owned subsidiaries. The company's global strategy was built on several fundamental
beliefs: that everyday low prices would have universal appeal, that its efficient supply chain
management system could be replicated anywhere, that its corporate culture and management
practices would translate across borders, and that its big-box retail format would be universally
accepted. These assumptions would be severely tested in the developed markets of Germany,
South Korea, and Japan.

Walmart's entry into Germany in 1997 represented its first major push into the European market.
The company invested heavily, spending $1.04 billion to acquire Wertkauf's 21 stores and
another $750 million to purchase Interspar's 74 locations. Despite this substantial investment,
Walmart encountered numerous challenges that would ultimately lead to its withdrawal from
the market. The company found itself unable to replicate its efficient U.S. supply chain model in
Germany, where suppliers had long-established relationships with local retailers and showed
little interest in offering Walmart preferential pricing. The company's centralized distribution
system clashed with Germany's decentralized approach, and its relatively small market presence
made it impossible to achieve the economies of scale necessary for its low-price strategy to
succeed.

The regulatory environment in Germany proved particularly challenging. Strict labor laws limited
operational flexibility, while powerful works councils and unions complicated management
decisions. Zoning laws restricted store locations and operating hours, and price regulations
prevented the company from implementing its usual competitive pricing strategies. Perhaps

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most significantly, Walmart's corporate culture failed to resonate with German employees and
customers alike. American-style customer service practices, such as greeters and mandatory
smiling, were perceived as artificial and intrusive. German shoppers, accustomed to discount
stores with minimal service, found Walmart's approach off-putting. The company also failed to
recognize that German shopping patterns differed significantly from American ones, with
customers preferring frequent small purchases over bulk buying.

In South Korea, where Walmart entered during the Asian financial crisis by acquiring four stores
from Korea Makro, the company faced a different set of challenges. The timing of entry seemed
opportune, but Walmart fundamentally misunderstood Korean consumer behavior. Korean
shoppers typically make small, frequent shopping trips and place a strong emphasis on fresh food
quality. They view shopping as a social activity and resist the concept of bulk purchasing.
Walmart's warehouse-style stores, often located in less-trafficked areas, failed to attract
customers. The company's limited fresh food offerings and poor integration with local supply
chains further hampered its success.

The Japanese market has presented yet another set of challenges for Walmart since its entry in
2002 through a partnership with Seiyu, which eventually led to full ownership in 2008. In Japan,
Walmart encountered a fundamental disconnect between its low-price strategy and local
consumer preferences. Japanese consumers tend to associate low prices with poor quality, a
perception that has proven particularly problematic in a market where customers are notably
quality-conscious and willing to pay premium prices for superior products. This has forced
Walmart to invest heavily in store renovations, merchandise mix adjustments, and supply chain
restructuring, yet success remains elusive.

The financial impact of these missteps has been substantial. Walmart's exit from Germany in
2006 resulted in a $1 billion loss, including $374 million in write-offs and restructuring costs. The
withdrawal from South Korea, also in 2006, cost hundreds of millions of dollars. Even in Japan,
where operations continue, the company has faced years of declining sales and has had to invest
significantly in remodeling stores and adjusting its merchandise mix to better align with local
preferences.

The consequences of these failures extend beyond mere financial losses. Walmart's reputation
for global expansion suffered, particularly in Europe, where the German failure effectively ended
its continental ambitions. In Asia, the Korean withdrawal raised questions about the company's
ability to compete in sophisticated retail markets. The ongoing struggles in Japan serve as a
constant reminder of the challenges of adapting a successful domestic model to foreign markets.

These experiences have yielded valuable lessons about international retail expansion. Success
requires deep cultural understanding and careful adaptation of retail practices to local
preferences. Companies must recognize that shopping habits, customer service expectations,
and the relationship between price and quality vary significantly across cultures. The importance
of local expertise in management cannot be overstated, nor can the value of gradual market
entry and pilot testing.

OBD - Reading & Discussion ©2024 Grazia Garlatti Costa

Operationally, these failures highlight the need for flexible supply chain management that can
adapt to local conditions. Companies must build strong relationships with local suppliers,
understand regional distribution systems, and adjust their inventory management practices
accordingly. Store operations, from location selection to service levels, must align with local
expectations and shopping patterns.

In terms of market positioning, these experiences demonstrate the importance of understanding

how a brand will be perceived in different cultural contexts. The relationship between price and
quality, competitive positioning, and marketing communication must all be carefully calibrated
to local conditions. Product mix decisions must reflect local preferences, and pricing strategies
must account for different value perceptions.

Walmart's experiences in Germany, South Korea, and Japan serve as cautionary tales in
international retail expansion. They demonstrate that even substantial financial resources and
proven business models cannot guarantee success without proper adaptation to local conditions
and careful consideration of cultural factors. The lessons learned from these market entries
continue to influence Walmart's international strategy and provide valuable insights for other
retailers considering global expansion. Success in international markets requires a delicate
balance between maintaining core competencies while adapting to local market conditions, a
balance that Walmart struggled to achieve in these developed markets.

DISCUSSION QUESTIONS

1. How do you think it is both an advantage and a disadvantage to be as big as Walmart

when entering a foreign market?
2. What were Walmart’s assumptions about Germany, Korea, and Japan that turned out to
be wrong? Explain.
3. What mistakes might managers make expanding internationally when applying
assumptions based on success in their home country?
4. What modes of entry did Walmart use for expanding international? Do you think some
modes are more likely to succeed for a huge retail company like Walmart? Explain.

OBD - Reading & Discussion ©2024 Grazia Garlatti Costa