Crossing Threshold Periods in the Retail Life Cycle:: Insights from Wal-Mart International

doi:10.1016/j.emj.2005.10.015

European Management Journal Vol. 23, No. 6, pp. 717–729, 2005

� 2005 Elsevier Ltd. All rights reserved.

Printed in Great Britain

0263-2373 $30.00

Crossing ThresholdPeriods in the RetailLife Cycle:Insights from Wal-MartInternational

MARK PALMER, Aston Business School

This article takes a broader theoretical perspectiveof the retail life cycle by incorporating thresholdperiods at important inflection points in the interna-tional growth process. Specifically, it considers onethreshold interval between an early phase of dis-jointed international expansion and amore focused,accelerated international growth programme. It con-cludes that executives need to consider a set ofthreshold periods during the development andgrowth of international store operations, under-stand why these events occur, and consider in whatways to respond to them to overcome and cross thethreshold. Salient lessons are extracted fromWal-Mart’s experiences during the threshold periodfor other international managers.� 2005 Elsevier Ltd. All rights reserved.

Keywords: Retailing, Internationalisation, Thresh-old periods, Life cycle, Wal-Mart

Introduction

One of the most significant trends in retailing todayis the growth of international retail firms. This trendis particularly prevalent among a relatively small,but emerging, elite group of well-capitalised retailinternationalists including Wal-Mart, Carrefour,Metro, Tesco and Ahold. On an unprecedented scalein the sector, for example, Tesco’s international store-expansion programme from 1998s onwards hasinvolved the development of 200 hypermarkets in

European Management Journal Vol. 23, No. 6, pp. 717–729, December 20

eastern European and Asian markets, which to-gether, account for fifty percent of the firm’s retailoperating space (i.e. almost 28 million sq. ft.) andgenerate GB£10 billion sales per annum. Further-more, the scope of international store operations hasincreased significantly, with the leading retail inter-nationalists having an operational retail presence infifteen to thirty countries. As international retailgrowth on this scale and scope implies, immensepressures and demands are placed upon manage-ment, resulting in new tensions and conflicts withinand between the firm and its stakeholders. Reflectingthe importance of this internationalisation process byretail firms, there is now an ever-expanding numberof research streams establishing:

v the geographical spread of expansion (Treadgold,1988; Treadgold and Davies, 1988);

v the motivations of internationalisation (Williams,1991; Alexander, 1995);

v international retail decision-making processesand performance (Clarke and Rimmer, 1997;Dawson, 2001; Evans and Mavondo, 2002).

Much of this research has concentrated on theprogress of international development rather thanany discussion of how growth is sustained. That is tosay, international retail growth has become, implic-itly, a taken-for-granted and unassailable issue. Asa result, international retail growth has becomedeproblematised and accepted as deterministicrather than indeterministic, and more continuousthan discontinuous. This is underlined by case

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CROSSING THRESHOLD PERIODS IN THE RETAIL LIFE CYCLE

studies of the retail internationalisation process. Forexample, almost all the studies on Wal-Mart havebeen written as though Wal-Mart’s corporate devel-opment and growth has been immune from the inter-nal pains of organisational growth (see Evans andBarbiero, 1999; Arnold and Fernie, 2000).

Various explanations have been put forward in thebroader management literature on the corporategrowth process. None more prominent than theconcept of the life cycle which has been used toidentify the number of stages of development, andthe characteristics of organisations that exist at thedifferent stages (Quinn and Cameron, 1983). Re-search or conceptual work on how firms actuallyproceed from one stage to another – what Greiner(1972) calls the ‘revolution’ and Miller and Friesen(1984) refer to as the ‘highly multifaceted transition’process is much less understood, particularly in rela-tion to the retail internationalisation process. An-other more recent study re-emphasised theimportance of understanding these ‘turning points’in growth, not least of which are the (unintended)consequences associated with premature withdrawalor excessive investments during different stages(Golder and Tellis, 2004).

One approach towards an understanding of inter-national retail growth is to integrate the theory ofthreshold periods into the theory of the retail lifecycle.

Applying this synthesis, there seems to be an oppor-tunity to cast more light on the actual path of expan-sion and ways in which retail growth unfolds andproceeds from one stage to another. More specifi-cally, this paper concentrates on the inter-stage ortransitional pressures before and after the inflectionpoints in the retail firm’s life cycle – an intervalwhich is termed the threshold period. Drawing upona database of sixty two (n = 62) in-depth interviewswith financial analysts, advisors and executives atWal-Mart, this study examines Wal-Mart’s experi-ences during a threshold period from the early phaseof the international expansion, towards a more fo-cused, accelerated international growth phase. It clo-sely interrogates the events at this threshold period,and how these shape, promote and govern the futuretrajectory of international growth.

The paper will firstly review the corporate life cycleliterature, alongside the retail life cycle model. Fol-lowing on, the paper grounds a discussion of thework of Clifford (1973) on threshold periods withinthe context of the retail life cycle. The study will thenexamine a threshold period in the internationalisa-tion process of Wal-Mart. The paper concludes witha discussion and extracts lessons from the thresholdperiod for other international managers. The nextsection of the paper situates the threshold periodwithin the broader life cycle debate.

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Theorising Corporate Growth

While the search for corporate growth generates anextraordinary amount of daily scrutiny in the popu-lar and business press, the dilemma of managing cor-porate growth has been long discussed and debatedby academics. Theories or explanations of corporategrowth range from cyclical and non-cyclical models,hybrids of both, and more recently network forms ofexpansion. One extensive literature adopts a lifecycle approach towards growth across a wide varietyof theoretical bases including, the product life cycle(Vernon, 1966) organisational life cycle (Quinn andCameron, 1983), technology life cycle (Kazanjian,1988), financial life cycle (EVCA, 2005), and theindustry life cycle (Klepper, 1997). Acceleratinge-commerce activities during the mid-to-late 1990s,and the subsequent events following the dot.comcrash, has encouraged a renewed interest in the lifecycle debate.

Whatever the theoretical context, all cyclical modelsand descriptions share a similar logic and trajectory;that is, inexorable advancement through a sequenceof stages. Variations exist, however, amongst thenumber and type of stages across theoretical con-texts: four stages (product life cycle), four-to-nine(organisational life cycle), eight (financial life cycle),four-to-six (technology life cycle) and five-to-eight(industry life cycle). Because of these unique organi-sational characteristics in life cycle models, Brown(1991) suggests that it may be more appropriate toconcentrate upon the evolution of individual firms.

Related to this work, a number of studies have con-sidered the different precipitating factors that shiftthe firm towards the ‘highly multifaceted transition’process and onwards to the next stage. For the pur-pose of this research, two studies should be pointedout. The first is the work of Greiner (1972) which pre-sents the idea that stage change is a result of internalcrisis related to leadership, autonomy, control andred tape. He maintains that each transition is bothan effect of the previous phase and a cause for thenext phase of growth. The second is the work ofKazanjian (1988) which maintains that firms arefaced with a series of problems that are successivein nature at any stage of growth in the firm’s history– what Kazanjian (1988) terms the ‘dominant prob-lem’. That is, solving one set of problems leads tothe emergence of a new set of problems. Both studiespresent different explanations for the precipitatingchange issues: Kazanjian’s (1988) ‘dominant prob-lems’ are foreseen in advance by management,whereas Greiner’s (1972) crises surprise or shockmanagement.

Although most investigations have concentrated onthe different stages, more recent contributions tothe study of the life cycle concept have sought tocombine the broader processes of growth and

an Management Journal Vol. 23, No. 6, pp. 717–729, December 2005


change. One theoretical development has been toexamine the shortening of the life cycles (Bayus,1994). A related debate maintains that, in an effortto disrupt the trajectory of the product life cycle, con-temporary marketers have been redefining theboundaries between product types and, in the pro-cess, rejuvenating categories and developing newmarkets (Moon, 2005).

From a retail standpoint, the retail life cycle is a well-established one in the retail literature (Davidsonet al., 1979). In comparative terms however, the retaillife cycle has received much less attention than othercyclical models. Unfortunately since StephenBrown’s work in this area (see Brown, 1987, 1991),cyclical retail change debates have seemingly fadedfrom research attention. Shim et al.’s (2000) recentexamination of the growth characteristics of smallhispanic-owned retail firms is a rare exception. Theretail life cycle posits that retail firms move througha four-stage evolutionary process that includes earlygrowth, accelerated development, maturity and de-cline (see Exhibit 1). A review of the retail life cycleliterature suggests there is potential to examine retailgrowth in new ways and several areas could benefitfrom further research.

Firstly, the retail life cycle underplays the pressuresfaced by executives during the turning or inflectionpoints between the various stages (as illustrated inExhibit 1). In other words, it does not account forthe types of pressures faced by retailers. Secondly,there is little indication of how firms break throughthe life cycle inflection points, and whether suchpoints are prolonged periods. Put differently, the re-tail life cycle does not indicate the processes bywhich the retailer will progress from one stage to an-other. It also assumes that all firms will pass througheach stage and successfully navigate the thresholdperiod. This may not be the case. Thirdly, there is lit-tle, if any, consideration of the length of time that re-tail firms remain in particular stages or in thetransition period. Finally, the retail life cycle doesnot provide any indication of the extent and type of

Exhibit 1 The Institutional Life Cycle in Retailing


the transformation required for the firm to movethrough and beyond different inflection points. Thisstudy seeks to address these limitations.

Broadening the Retail Life CycleThrough Threshold Periods

It is argued that situating threshold periods withinthe retail life cycle, and the work of Clifford (1973)in particular, theoretically helps explain how growthproceeds and is sustained. Clifford (1973) views thegrowth process as a series of junctures where thefirm becomes embroiled in re-aligning corporate re-sources with market opportunities. In making thistransition, Clifford (1973) argued that firms passthrough a defining moment which he labelled asthe threshold period.

Threshold periods may vary in occurrence duringthe evolution of the firm, but are especially notablein the transition of ownership. The initial focus forresearch in this area, for example, concentrates onthe transition from the founder managed firm(FMF) to professionally managed firm (Clifford,1973; Daily and Dalton, 1992). To obtain the re-sources needed to surmount the threshold, accordingto Daily and Dalton (1992), requires founders to cedecontrol to professional managers at this stage in thedevelopment of the firm. The threshold period maynot be exclusively concerned with a small firm how-ever. While Clifford’s (1973) initial work was basedon a group of small firms, he later acknowledgedin a subsequent study that his initial sample of firmswas, again, experiencing new threshold experiences.This suggests that threshold periods are temporal innature and may not be immediate. At what pointthen, do we regard it as a threshold period? Clifford(1973) distinguishes a threshold company by theunusual rapidity of change taking place. Thesechanges are grouped into five main categories (seeTable I).

From a retail standpoint, the first aspect of thethreshold period is the increase in market complex-ity. Geographical expansion adds further businessand cultural complexity and therefore increases theintricacy of decisions for management. Underpin-ning store operations, international sourcing initia-tives also increases the spatial complexity of theinternational supply chain, and this is made evenmore complex with variations in store size, the acqui-sition of different formats and/or even the develop-ment of new formats. Similarly, new markets maynecessitate product adaptation to accommodate gov-ernment regulations, consumer tastes, technical andlanguage requirements. Product adaptation, as wellas growing numbers of product categories and ownlabel lines, compounds the number and intricacy ofmanagement’s decisions and activities.

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Table I Threshold Issues in the Retail Life Cycle

Threshold Issues Activity

Market, Format and

Product complexity

As it grows, the retailer attempts to serve an increasing number of geographical

markets with a wider range of retail formats and products.

New Capabilities New capabilities must be introduced to manage the added complexity.

The new capabilities added will fall into two areas:

(1) general international management capabilities to lead to the overall development of markets and

(2) specialised or functional capabilities to meet demand for knowledge in specific areas.

Organisational Structure Changes in organisation structure are required to harness the broader array of capabilities and to

ensure control and flexibility with a diverse array of products, formats and markets.

Management Processes The company is required to face up to ‘people problems’ – retraining, recycling and

replacing executives.

Role of the CEO The entire change process depends on whether the chief executive can radically alter his or

her own role in the running of the business as it grows.

Source: Adapted from Clifford (1973).


During the threshold period, new management aswell as specialised or functional capabilities are re-quired for more market, format and product com-plexity. The general management of internationalretail operations is rendered even more difficult bythe varying degrees of vertical ownership in the dis-tribution channel, the spatial nature of retailing andthe multiunit chain contact occurring in the interna-tional retail market place. Therefore, retailers donot enjoy the advantages of single site firms in termsof the ways in which communication cascades andco-ordination is managed across functional areas.Specific operational capabilities, for example, areneeded for the process of market entry, and subse-quent international expansion.

The development of new capabilities coincides withthe creation of a new organisational structure to re-flect the change taking place in the internationalretailing operations. The development of overall re-tail brand architecture, specific countries and regions,international retail processes, executive recruitmentand the acquisition of retail operations all raise ques-tions whether such expansion can be effectivelyimplemented within the existing organisational struc-ture. Changes in organisational form, whether ethno-centric (centralised), geocentricism (decentralised), orhybrids of both, shape the control mechanisms, mar-ket responsiveness, corporate values and interna-tional responsiveness of the retail firm.

As firms enter the throes of threshold period, a seriesof pointed questions are also raised about the condi-tions under which the retail firm can grow, andwhether such expansion can be effectively imple-mented with the existing management. To success-fully develop the operations beyond the thresholdperiod requires executives to be demoted, retainedor recycled within the company (Clifford, 1973). Thismay result in executive turnover increasing duringthe threshold period.

Clifford (1973) found that the Chief Executive Officeruniquely influences the organisational processes and

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outcomes during the threshold period. This role isdistinct from other top management members be-cause all employees are ultimately accountable theChief Executive Officer. As the firm grows however,Clifford (1973) observed that top management’sfamiliarity and direct contact with the operationalfunctions of the business diminishes as the sheernumber of persons involved, the complexity of theorganisation, and the variety of interests both insideand outside the company concomitantly increases.Given this obfuscation, more direct intervention ini-tiatives are used by the retail firm’s leadership inthe implementation of important changes (e.g.weekly store visits).

Although our understanding of threshold periods isunder-developed, the concept itself helps to pro-mote a wider consideration of several importantfeatures of how international retail growth is sus-tained. Nowhere is the dilemma and, indeed,unavoidable stresses of managing growth been moresalient than in the largest corporation in the world –Wal-Mart Stores Inc. A case of Wal-Mart is thereforepresented.

An Illustrative Case

A Brief History and Descriptionof Wal-Mart Stores Inc.

Wal-Mart is the world’s largest retailer, with overUS$256.3 billion in fiscal year 2004 sales from tencountries. The company’s founder, Sam Walton,opened his first Wal-Mart discount store in 1962,and the Walton family retains a 39 percent equityinterest today. The company first issued shares tothe public in October 1970. Wal-Mart’s principalactivity is in non-food retailing through its Discountstore format (average size 94,000 square feet), whichit developed in 1962. In early 1983, Wal-Mart devel-oped its first warehouse club format called Sam’sClubs, and these offered a limited range (c.4000 stock



keeping units [SKUs]) of hard, soft goods, food(including fresh) and software/electronics in bulksizes at strongly discounted prices. In 1992 a new for-mat evolved through an experimental conversion oftwo Discount stores into the Supercenter format(average size 182,000 square feet).

Several key events occurred in the 1980s that fore-shadowed Wal-Mart’s expansion into grocery retail-ing, notably David Glass succeeding Sam Walton asChief Executive Officer. From an operational per-spective, the acquisition of Phillips Food Centers, amajor Arkansas grocery chain headquartered in Ben-tonville, coupled with the purchase of MacLaneCompany Inc, a food distributor for conveniencestores, resulted in the push into food through theSupercenter format, and galvanised Wal-Mart’s posi-tion as a significant US food retailer. In the late 1990s,Lee Scott later succeeded David Glass, after servingas Vice Chairman and Chief Operating Officer forone year – effectively ending the uncertainty overmanagement succession. The leading candidatescompeting to move into the role of David Glass wereBill Fields, CEO of Division 1; Dean Sanders, CEO ofSam’s Clubs; Joe Hardin, then CEO of the McLanewholesale division; and Bobby Martin, CEO ofWal-Mart International.

Internationally, Wal-Mart is a relatively late interna-tional retailer. Wal-Mart has only been operatinginternationally since 1991 when it entered the Mexi-can market through the Sam’s Club division. Overalmost a decade of internationalisation, Wal-Mart’sinternational investment totalled US$17 billion by2000 (see Table II).

Table II Wal-Mart International – Estimated Invest-ment (US$ Millions), Fiscal 1991 – 2000 (a)

Year Capital

Spending

Acquisitions Total Cumulative

Total

1991 14 – 14 14

1992 106 – 106 120

1993 198 – 198 318

1994 434 352 (b) 786 1,104

1995 57 – 57 1,161

1996 170 – 170 1,331

1997 100 3,065 (c) 3,165 4,496

1998 360 855 (d) 1,215 5,711

1999 450 10,800 (e) 11,250 16,961

2000 500 – 500 17,461

Notes: (a) Estimated in US$ millions; Wal-Mart reported inter-

national spending separately through fiscal 1996. (b) Acquired

the assets of Woolco Canada. (c) Acquired Wertkauf

(Germany) for an estimated US$1.865 billion and paid US$1.2

billion for tendered Cifra shares. Note that Wal-Mart’s Mexico

joint-venture assets had a book value of US$644 million when

the merger of the joint venture with Cifra accrued in 1997. (d)

Cash outlay for 74 Interspar stores (Germany), estimated at

US$600 million, plus estimated US$155 million for controlling

interest in 4 former Makro stores and 6 sites for development in

Korea. (e) Acquired ASDA (UK).


The company’s International division was onlyformed in 1993, two years after its initial expansioninto Mexico. Bobby Martin was named the first ChiefExecutive Officer in 1993. Within the space of tenyears, Wal-Mart accelerated its growth outside theUnited States into ten countries. Despite its move to-wards international markets, the domestic marketremains Wal-Mart’s most important market.

This section has provided a brief background to Wal-Mart. The next section describes the main insightsdeveloped from the interviews conducted by thisstudy pertaining to the pre-threshold period inWal-Mart’s internationalisation process.

Pre-Threshold Period

Market Complexity

Wal-Mart has made a number of distinct geographi-cal orientations, with initial emphasis being placedupon expansion into the contiguous markets ofMexico and Canada. Up to this point, Wal-Mart’sprogramme of international expansion had not beenunique or unrepresentative of the cautious behaviourof other international retailers moving into geo-graphically close markets. In 1995, Wal-Mart enteredBrazil establishing a joint venture with Logas Amer-icanas. This marked a shift in the direction of thecompany’s international expansion beyond its con-tiguous markets. In the process, Wal-Mart for thefirst time faced highly competitive, and well estab-lished, international competitors notably Europe’slargest retailer Carrefour. By the mid-1990s, anotherimportant spatial dimension of the company’sexpansion has been its foray into the Asian Pacific.The company first entered the region through alicensing agreement when Wal-Mart signed anagreement with the Ito-Yokado group to distributeprivate label products in Japan and southeast Asia.This was the first step to a larger involvement inthe region. Wal-Mart later entered the Chinese mar-ket. Other Asian markets where the company estab-lished a small operating presence were Indonesiaand Hong Kong, the latter in association with a localgroup, EK Chor. In 1999, the company acquired fourstores in South Korea from Makro.

Existing Expansion Capabilities

A high controlling acquisition and de novo method ofentry was widely operationalised because thesemodes allowed Wal-Mart’s management to closelyreplicate the operational dimensions of the successfulSupercenter format in the US market. This pro-gramme of expansion created yet another unex-pected problem for the company as the followinganalyst quotation suggests: ‘‘entering markets withjust a ‘toe-in-the-water’ presence convulses compe-tition and stimulates rapid consolidation before

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Wal-Mart can begin to gain critical mass.’’ From thestatements made by management and the analysts,it became clear that an added impetus was requiredto add greater critical mass to the international oper-ations. The small size of many of its internationaloperations provided ‘zoning’ opportunities forcompetitors to undermine Wal-Mart’s operations,particularly on price initiatives. Another moot con-sideration highlighted by the interviewees relatedto the company’s acquisition capabilities, specificallythe post integration process of newly acquired com-panies. With limited acquisition experience, Wal-Mart’s desire to closely follow the successful USretailing paradigm of driving performance with acombination of low prices (and costs), rapid squarefootage growth, and heavy inventory managementresulted in management radically changing manyof the existing operational procedures during thepost integration period. In undertaking these funda-mental changes, moderately profitable retail opera-tions would be reduced to loss-making ventures.

Organisational Structure

In the early years of operation, Wal-Mart’s initialorganisational structure was described as ‘gardenrake-like’ whereby a small group of individuals, act-ing largely independently, were responsible for theinternational retail operations. During the earlyperiod of expansion, the interviewees suggested thatWal-Mart International was run as a ‘project’, and assuch, local management did not have sufficientsupport in order to facilitate and implement manyof the critical operational decisions. This was exacer-bated by the fiefdom established by the number ofexecutives in Wal-Mart’s International division. Themove into Germany in 1997 with the acquisitions ofthe German chains Wertkauf and Interspar, and thesubsequent difficulties exposed this inadequateorganisational structure.

Management Processes

In contending the CEO promotional race, BobbyMartin began to develop a separate department withthe remit of building the company’s internationaloperations. Because of the division’s sequesteredstatus there was little, if any, interaction betweenWal-Mart International and Wal-Mart US. Effec-tively, Wal-Mart International was used to reinforcemanagement autonomy and ambition – rather thanfor the benefit of harvesting organisation-wide inter-national learning opportunities. Moreover, becausethe main operational departments serving the USmarket were independent and insulated from theWal-Mart International, both the retail offer and storedevelopment process was disjointed with excessivestandardisation in some countries, and also unneces-sary adaptation in other countries. Not surprisingly,Wal-Mart International was beset by a surprising

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level of executive turnover; sometimes resulting fromthe incompatibility or apparent frustration of local-country management.

Role of the CEO

During the pre-threshold period, David Glass’sattention was firmly locked into sustaining the com-pany’s domestic growth ambitions, particularly there-modelling of the Discount format to the more suc-cessful Supercenter format. The growth of the Super-center in the US market stretched resources andcapabilities to a point where the CEO was less ex-posed to the international issues. Much of the initialconversion of the Discount stores centred on thesmall rural markets of the Southeast and the MidWest that had made its traditional Discount store for-mat a success. However, Wal-Mart was also targetingthe northeast and far west regions of America, whichproved more challenging because of the level ofsupermarket competition and union representationpresent in these markets. The process of developingthe Supercenter format in the domestic market there-fore served as the main platform for yielding thecompany’s growth and return targets. According tothe management at the time, an entrepreneurialstart-up in the International division would providea meaningful way to experiment with internationalretailing, but also serve as a way of promoting inter-nal competition to determine Wal-Mart CEO DavidGlass’s eventual successor. As a consequence, theCEO had an overseeing role rather than one of activeinvolvement in the international decision-makingprocess.

The year 1998 proved interesting and the turningpoint had arrived in the latter part of 1998. At thisstage in the development of the international opera-tions, the entry into the German market in 1997 rep-resented the most significant defining moment in thedevelopment of Wal-Mart’s international operations.That is to say, it acted as a catalyst to end the uncer-tainty within Wal-Mart’s International division. Thecompany received considerable scrutiny in variousinternational markets, but especially in the Germanmarket. Wal-Mart first acquired 21 stores fromWertkauf in the south-west of Germany in the earlypart of 1997. Later that year, 74 smaller Intersparstores were acquired from Spar at the cost of DM1.1 billion. Geographically, the second acquisitionhad little over-lap with the Wertkauf stores, but thisacquisition gave Wal-Mart a very ‘thin’ nationalpresence. Four issues stand out from the interviewscripts:

v Pre-entry. By signalling its intention to enter theGerman market before securing the necessaryretail operations in the market place, Wal-Marthad to incur a significant market premium forentry. The unqualified expression of interest ledto an increase in the valuation of retailers, but also



real estate property across Germany and adjacentmarkets.

v Real estate legalities. Wal-Mart did not purchaseInterspar’s free holding real estate outright andconsequently became a Spar subtenant. In orderto depreciate renovation costs, Wal-Mart had tore-negotiate and extend lease-holdings, but thiswas complicated because Spar held leases withdifferent property owners, many of whomdemanded Wal-Mart pay higher rental chargesor improve the property.

v Inappropriate store format. As Table III shows, thesize of the acquired stores was far too varied forreplicating a uniform format. This in turn createdunnecessary inefficiencies and costs in the supplychain operations.

v Store remodelling. The space allocation betweenfood and general merchandise required signifi-cant alteration. As shown in Table IV, the largerWertkauf stores were under merchandised infood, which received only 20 percent of sellingspace. The Interspars were over merchandised infood, with a 45 percent allocation of selling space.

Rudimentary mistakes were made in Wal-Mart’s entryinto the German market even before managementcould direct attention towards growing market shareand developing critical mass in the store network.During this turnaround process, Wal-Mart’s manage-ment stressed to the financial institutions that suchexperiences were invaluable learning opportunities.However, while this financial distress may havegiven the company valuable experience, it was also

Table III Wal-Mart Germany – Distribution of StoreFormats

Selling Space (a) Units

40,000–59,000 19

60,000–80,000 27

81,000–100,000 17

101,000–150,000 23

Over 150,000 9

Total 95

Notes: (a) In square feet.

Table IV Wal-Mart Germany – Space Allocation toFood and Non-food

Former

Wertkaufs Interspars

Before

Food 20% 45%

General Merchandise 80% 55%

After

Food 30% 35%

General Merchandise 70% 65%


generating negative commentary in the financialmarkets and the popular press in general. Seriousquestions were being raised by the financial marketsconcerning the entire international retail strategy,resulting in legitimacy shifting towards an emerginggroup of active financial stakeholders. It was clearthat crossing this threshold period would be a timeconsuming process and one which could not neces-sarily be achieved by redrawing the lines on Wal-Mart’s international chart. A major rethink of theentire international retail strategy would be required.Shortly after this, Wal-Mart embarked upon a seriesof defining changes to address the growing level ofuncertainty within the International division.

Post-Threshold Period

Market Complexity

In addition to new cultural and regulatory complex-ities of international markets, three company-specificissues compounded market complexity. Firstly, itsstatus as the largest company in the world alteredthe dynamic of the market place through what sev-eral interviewees referred to as ‘Wal-Mart’s secondderivative effect’. Most notably, Wal-Mart’s entryinto new markets provoked various competitiveoperational responses from threatened retailers inthe market. Experimenting with pilot stores or othersmall nothing-to-lose operations would run the riskof stimulating defensive acquisitions and marketconsolidation. Secondly, the magnitude of the taskof sustaining double digit sales growth set by man-agement (as presented to the financial institutionsand other investors) appeared more complex andproblematic as the company grew even larger. As aresult, the company re-orientated the internationalexpansion back toward larger, more structurally ma-ture markets where consumer spending was suffi-ciently large to make a significant impact on acompany with in excess of US$200 billion sales.Thirdly, these combined peculiarities would requireWal-Mart to concentrate on fewer markets. Prior tothis, much of Wal-Mart’s international store opera-tions were relatively diverse in the region withlittle, if any, strategic direction or spatial connection.During the late 1990s the company decided to divestseveral local ventures after a relatively short timein the Asian region, including its Hong Kong andIndonesian operations, to focus on its Chineseoperations.

New Expansion Capabilities

The threshold period forced the company to reflectupon the way it operationalised the acquisition entrymode. The interviewees felt that a fundamentalrethinking of the turnaround retail process occurred.This was attributable to the time involved in turning

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around under-performing retail operations, withproblems in the German market in particular begin-ning to subsume management’s resources. This, inturn, would embolden Wal-Mart to move forwardwith ‘management accretive’ transactions where theretailer acquired a cadre of strong managementthereby reducing the demands on managers at themainstream US business. Noteworthy in this respect,the UK acquisition was very different from the typeof acquisition of those in either Canada or Germany.Unlike its previous European acquisitions, Wal-Martconvinced large institutional shareholders in the USthat Asda was a highly efficient and effective opera-tor, which would have an immediate positive impacton sustaining sales growth. Previous acquisitionsneeded significant changes in order to free themfrom a vicious circle of low efficiency and highprices, whereas Asda was a strong, ‘Wal-Mart-ready’competitor in the market place. In stark contrast, andas incredible as it seems, Wal-Mart’s German opera-tions required 150 expatriates from the firm’s domes-tic headquarters in Bentonville. Here, as is the casewith other relatively new retail internationalists,Wal-Mart’s human resource capacity and mobilitywas increasingly exposed.

Remoulding of Organisational Structures

The UK acquisition marked the beginning of the endof the ‘start-up phase’ of the International division. Inthe background, Bobby Martin, President and CEOInternational division, resigned from the companyon the day the bid for Asda was announced. Thisdeparture, along with that of the International’sCOO Criado-Peres and of Cifra’s CEO Robert Salvomarked a new direction for Wal-Mart International.With the departure of Bobby Martin, Wal-Mart beganto remould the organisational structure. He had beenreplaced by former CFO, John Menzer, who made itimmediately clear that a new structure would berequired to provide the framework within whichdecisions could be made more fluidly. The re-organi-sation of functions has decentralised certain func-tions, while also leading to the centralisation ofother functions, with a more flexible hybrid structureemerging. Core infrastructure support functionswere centralised. Global sourcing, systems develop-ment and implementation, administrative functionsand capital spending and profit and loss oversightwere included.

Significantly, as far as acquisitions and capital invest-ment were concerned, the CEO and CFO would be-come much more directly involved in the corporatedevelopment process. Following this organisationalrestructuring, Bentonville, Arkansas-based interna-tional, personnel have been reduced by 50 percentto approximately 200. A hybrid structure was formedwhich would allow Wal-Mart to integrate the inter-national operations with its operations in the domes-tic market.

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Changes in Management Processes

One of the unintended consequences of the ‘fortu-itous autonomy’, which prevailed during BobbyMartin’s rein, was to allow local management to takemore responsibility for the operational side of thebusiness and over time implement more localchanges. New innovations and retail practices weredeveloped through market insularity, and the resultswere enough to convince senior management of theimportance of distinguishing between the overseeingmanagement processes and actual managementinvolvement in the daily operations. Faced with con-flicting pressures of adaptation and standardisationin new markets, Wal-Mart gradually insisted thatthis process could only be developed by closely inte-grating the International business with the maindomestic business. Conscious efforts were made tochange the organisational climate in an attempt to re-pair the broken intra-firm relationships. Moreover,John Menzer, redefined upward the role of the over-seeing management process comprising of maximis-ing the benefits of global sourcing; ensuring thepositive transfer of knowledge (i.e. better practices)across the international operations, and finally, driv-ing the process of the Wal-Mart brand. At the sametime, operating and merchandising responsibilitywas pushed down to the local level. The internationalcorporate office now intended to play a ‘categorymanagement, consulting-type role in support of localcountry operations.’

Changing Role of the Chief Executive Officer

The evidence from the interviews with the analystsand management suggests that Wal-Mart’s Inter-national division appears to have been driven bythe uncertainty over Wal-Mart’s CEO David Glass’seventual successor. The initial decision to turnthe International division over to Bobby Martin, aspart of a competition for Wal-Mart’s CEO position,unintentionally positioned Wal-Mart’s interna-tional operations as a temporary fiefdom. This hadtwo main unintended consequences. Firstly, theInternational division became unnecessarily isolatedwithin Wal-Mart, impeding both the optimal lever-age of the domestic business overseas and theoptimal transmission of overseas learnings back tothe domestic and other markets. Secondly, in theabsence of a more direct top-management inter-vention, the International division was not alwaysmanaged strategically as part of an integrated portfo-lio of Wal-Mart businesses with a common globalidentity.

With the arrival of John Menzer in June 1999, theintegration of the various businesses and regions ap-pears to be put on hold with more power being con-veyed to the country management teams. Inundertaking these changes, additional commitmentfrom the highest level of the company was given to



the International division. In particular, Chairman,Rob Walton and CEO Lee Scott have subsequentlyoverseen significant capital commitments – notablyproperty and international acquisitions – moreclosely.

Discussion

In broad terms, the case of Wal-Mart’s internationalgrowth experiences provides some important in-sights into the difficulties of sustaining internationalgrowth. Three issues arise from the threshold periodin particular. First, the unfolding events in Wal-Mart’s International business were rooted in histori-cal intra-firm relationships between Wal-Mart’sbusiness divisions. Frequently external forces areused to explain Wal-Mart’s international progressionbut, contemporary questions of strategy and impactneed also to be considered in the light of our under-standing of the senior management succession processduring the 1990s. The choice of the Chief ExecutiveOfficer was a fundamental organisational decisionthat caused many subsequent events to happen, withimportant implications for Wal-Mart’s entire interna-tional retail strategy. Consideration as a contender inthe CEO promotional race sealed Bobby Martin’s ini-tial fate; a move out of the mainstream of the busi-ness into the new International business. Fuellinginternal or intra-firm competition in this way notonly served to multiply the problems in the interna-tional operations, but it also resulted in another,more ‘dominant problem’ emerging for executivesto deal with at a later point. Equally, we should notdisregard the fact that Bobby Martin built a fiefdomfor himself where the company’s international oper-ations were run as a separate business. Decisionsrelating to international development were thusladen with intra-firm, interpersonal conflict stemmingfrom the legacy of a promotional race. Ultimately,this gave rise to profound, internal breakthroughchanges in the management of internationaloperations.

Second, as operational patterns spatially emerged,pressures for legitimacy arose, mainly from the insti-tutional investor and financial institution, both ofwhich intervened directly with the firm to force-through investment performance requirements, thuscreating a new impetus for Wal-Mart to undertake afundamental rethink of its existing internationalmodus operandi. There were two aspects underminingthe legitimacy of management in the pre-thresholdperiod. One related to the disjointed nature (i.e.flag-planting phase) of the international expansionwhich resulted in question marks over the sustain-ability of small, marginal operations without sizableregional infrastructures to leverage existing retailoperations. The second concerned Wal-Mart’s desireto radically transform newly acquired internationaloperations to correspond with the dominant logic


of the US operating model. In such cases, growthwas pursued at the cost of profitability which in turnundermined and drained out investors’ faith in thecompany. The very fact that such ‘crisis’ discussionswere underway amongst a small, but importantgroup of institutional investors regarding Wal-Mart’sInternational business meant that the underlyingissue was forced out. Faced with immense pressuresto change, the company took immediate action bydismantling the fiefdom and installing a new execu-tive team for the international operations. John Men-zer would now work more closely with Lee Scott torevive the international strategy. Towards this end,Wal-Mart re-established legitimacy by demonstrat-ing goal-oriented action which adhered to the USgovernance system. Effectively, the governance sys-tem acted as a valuable way of closely interrogatingmanagement decisions, and prevented this processfrom undermining and even destabilising the wholegrowth strategy for the company. As Greiner (1972)put it, each quiet phase of growth ultimately breedsa ‘revolution’ or substantial turmoil. The criticalchoice question of who would lead the companyout of this confusion and solve the managerial prob-lems confronting it would ultimately be answered bythe installation of John Menzer.

Thirdly, Wal-Mart’s international expansion has notbeen without unintended consequences and compli-cations. Periods of Wal-Mart’s international expan-sion appeared to be episodic, disjointed andhaphazard. Arguably, Wal-Mart’s internationalacquisitions created a diverse collection of assets.But, as Brown (1987) noted, a corollary of overzeal-ous expansion is almost certainly going to be coun-terbalanced by escalating costs. The stresses fromover expansion then became highly visible, trigger-ing a critical mass debate. What was particularlyimportant during this turbulent threshold periodwas Wal-Mart’s anchor mass; that is, the companyhad sufficient investment and retail trading reputa-tion in the domestic market to absorb any interna-tional crisis occurring in the international retailoperations. Fortunately the success story of thedomestic market acted as a buffer: phenomenalgrowth and dominance in this market served as aplatform from which to absorb the internationalgrowth pains resulting from the financial conse-quences of making strategic market entries and/orcostly mistakes. However, uneasy questions concern-ing the sustainability of this ‘toe-in-the-water’ style ofentry would slowly destabilise this dominant anchorposition.

Not all of the (unintended) consequences of the fief-dom within Wal-Mart have been immediate. Thatwhich emerged saw a considerable ‘re-orientation’of Wal-Mart’s international operations towardsdeliberate major-market initiatives, but it is possiblethat others have yet to surface. This legacy may carryimportant implications for future growth. Theevent of Bobby Martin’s departure following the

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acquisition of Asda does not fully capture the extentof change in intra-firm relationships, it neverthelesshighlights the changing role of the Chief ExecutiveOfficer in directly setting the momentum and orien-tation of change for Wal-Mart international. Fromthe change, it was clear that the CEO would becomemuch more involved and active in the internationaldecision-making process.

Concluding Remarks and Lessons Learned

The study provides important support for the inclu-sion of threshold periods in the retail life cycle and, ifnothing else, it is a useful reminder that corporategrowth is neither assured, nor a straightforward pro-cess. As this integrative approach conclusively dem-onstrates, corporate growth is not only concernedwith progression, new opportunities, executiveambition and motivation, but also embodies notionsof instability, uncertainty, resistance, unnecessarycost, internal and external legitimacy struggles. Al-most inevitably, international expansion will bepunctuated by threshold periods and, accordingly,executives need to understand why these eventsoccur, and consider what ways to respond to themto overcome and cross the threshold. The study foundsupport for both internal and external factors playinga significant part in Wal-Mart moving through thethreshold period. The transition itself was precipi-tated by two simultaneous events: intense scrutinyregarding the company’s German operations; andthe fact that Kingfisher valued and subsequentlybid for Asda in the UK market. Both events providedthe opportunity for Wal-Mart’s management toregain legitimacy and control.

A number of lessons can be extracted. First, execu-tives must have an awareness of how historicaldomestic forces shape both the future direction andmomentum of the international strategy. In this re-spect, international success could lie from introspec-tively interrogating past intra-firm investmentdecisions in the history of the firm. This also involvesaccounting for the influence of senior executive suc-cession issues and legacies. Second, corporategrowth does not imply international organisationalprogress. The momentum in growth driven fromthe Supercenter format in the US market providedthe context in which internationalisation had taken‘a secondary position’ in the Wal-Mart’s corporatedevelopment agenda. It suggests that internationali-sation can neither be treated as a marginal, nor indi-vidualistic or isolated form of activity. Rather itrequires senior executives to fully engage with theinternational retail strategy and vision; integratingit fully into the existing organisational structure. Along delay between international strategy and thedevelopment of both an appropriate organisationalstructure and regional infrastructures will only serve

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to destabilise the retail operations. Third, it is impor-tant to develop an acute sense of the shifting poweramongst a revolving constellation of stakeholders atdifferent stages in the firm’s life cycle; otherwisethe firm will become embroiled in the legitimacy trapof reassuring others and taking unnecessary reactivemeasures. Fourth, the way in which Wal-Martcrossed the threshold period was dependent uponchange driven by the Chief Executive Officer – LeeScott. In the preceding case, John Mensor and LeeScott revived, and would ultimately drive the inter-national strategy forward through the threshold per-iod. Without the direct intervention of the seniorchange agent, it is questionable whether any retailerwill successfully navigate the threshold period andsustain growth in the international operations. Fifth,despite Wal-Mart’s immense success in developingretail capabilities in the US market, its ability toenvisage new uses for, or ways of exploiting, suchcapabilities was fundamental in progressing throughthe threshold period. Finally, an antecedent condi-tion for the successful entry, transition through,and exit from the threshold period is domestic mar-ket stability and control. Turbulent domestic marketenvironments may only serve to detract and drainfinancial and human (especially senior management)resources from international operations, and under-mine the ability to secure international anchormass, even if critical mass is achieved in marketselsewhere.

Consideration of the threshold period during theearly phase of international expansion sets this studyapart from other retail life cycle models. The study ofinternational retail growth is at a relatively earlystage of development and further work is now re-quired. This study considered one specific transi-tional interval. It is hoped that studies mayexamine in more depth other threshold periods inthe firm’s life cycle in further investigations. A simi-lar threshold lens could be applied to other life cyclemodels.

About the Research Methodology

This study employed an interpretative, qualitative-based methodology where the main data collectionmethod was a series of in-depth interviews. The find-ings draw upon a database of sixty-two (n = 62) inter-views which were carried out within the corporatefinance (i.e. with advisors) and the securities divi-sions (i.e. with analysts) of investment banks. Thisdata was then used to raise important issues directlywith the executives of the case company under inves-tigation. The triangulation of the views and opinionsof a number of different stakeholders was used todeconstruct ‘executive talk’ or ‘official policy state-ments’ and provide a more accurate portrayal ofthe issues under investigation.


Table V Summary of Transcribed Interview Excerpts for the Pre-and Post-Threshold Periods

Dimension of

Threshold

Transcribed Interview Excerpts for the




Market

Complexity

‘‘Wal-Mart’s development of an international

presence has been so swift that investors

have taken it for granted. That was until it became

a US$12 billion start up in 1998.’’

‘‘We were a little bit random when we started

moving around the world picking a spot here

and there. We have started to think more

strategically about what things look like five

years from today and are putting the building

blocks in place to get there.’’

‘‘I think our shareholders should be happy that

we are learning about international markets.

We are learning about culture and developing

the supply chain.’’

‘‘The fact that they played down their opportunities

in the UK and said that margins had to fall further

in the UK before they became interesting to them

was clearly to put people off the scent. Certainly

they played down the kind of upside they had

seen in Asda because they didn’t want to suggest

that it was a ‘basket case’.’’

‘‘They were very sensitive to the fact they had

bought a couple of ‘basket cases’ in Germany and

they needed to turn them around. US shareholders

were willing to tolerate those if they were a small

part of Wal-Mart’s overall international expansion.’’

Existing

Expansion

Capabilities

‘‘They are grappling with the fact that this model

was more difficult to replicate, and despite various

iterations in local management, headquarters found

it was not going to be able to make that same

return on capital employed as they

did in their home business model.’’

‘‘Management focused on how well run Asda was.

In effect a lot of shareholders were coming back

saying – well that’s fine but the EBIT returns on

the $10.6 billion is 6 percent and your domestic

market is making 23 percent on capital employed.

So what is the upside if this is such a good

business? What is apparently clear is that the

upside is less about just transferring the pricing

mentality to Asda, which already existed, and

much more about improving ways of

merchandising execution per se across all

departments, a major drive into non-food

accompanied by improved merchandising and

those two things would drive sales and at the

same time drive higher margins.’’

‘‘Management would have a tendency to buy an

asset and strip it back to the bare bones – send

it from making mild profits to mega losses during

the transactional post integration period. In our view,

that is not always acceptable business practice

for retailers. Sure they can afford to do it in

Germany because it’s small as a percentage of

the total sales base. But when management acquire

a larger asset and have the same mentality, then

that’s a worry - you soon realise that you can’t strip

it that easily.’’

Organisational

Structure

‘‘To be frank, Wal-Mart’s acquisition-led growth

internationally has created a diverse collection

of assets and, at this point in time, it is difficult to

view Wal-Mart’s International as anything more than

an umbrella organisation for the group’s non-US

assets. . .’’

‘‘Wal-Mart has learned to decentralise some

operational functions – pricing merchandising

approaches and there’s more responsibility at

ground level. On the other hand they have

centralised other functions and taken them out

of Wal-Mart International and into the Wal-Mart

group as a whole – finance.’’

‘‘We need to give more authority to our country

presidents in order to drive results in their country

and across their culture. At the same time, we also

merged many of the International home office

functions with Wal-Mart corporate to achieve

greater leverage. One example is store planning.

Store planning is now a world-wide effort instead

of a domestic function in each market,

likewise training.’’

Management

Processes

‘‘The ‘garden-rake’ management structure

frustrated country managers, who were forced

to wait for central approval before

implementing local operating initiatives.’’

‘‘We made several changes to the international

business operating model. You have to push

authority and responsibility down to the country

level. In some case we were a bit too hands

on in the past.’’(continued on next page)


European Management Journal Vol. 23, No. 6, pp. 717–729, December 2005 727

Table V (continued )

Dimension of

Threshold





‘‘Bobby Martin was ‘thorny’ and hard to deal with.

He failed in the CEO promotional race about 4 or

5 years ago. It seems that Bobby Martin was more

concerned with the ‘ego’ process of visiting distant

markets and setting up joint ventures.’’

‘‘The ‘rising stars’ within Wal-Mart will be

encouraged to view an International tour of duty

as sine qua non for executive advancement

instead of regarding International as just a way

station to domestic advancement.’’

Role of CEO ‘‘Senior management sponsorship would

currently appear somewhat spartan on the

international side of Wal-Mart’s business.’’

‘‘Wal-Mart CEO David Glass will knit the

International division more closely into the

greater-Wal-Mart fabric, with important implications

for his role in setting the strategic direction for the

international operations.’’


The data gathered for this case study only concernsthe threshold period under study, the years 1991 to2000, and thus reflects the conceptual framing ofthe study. Subsequent expansion years are not thefocus of this paper (i.e. 2002–2005). Inasmuch as thetimeframe for the study is essentially historical innature, it crucially draws upon evidence gatheredduring the threshold period. While Wal-Mart’s morerecent investment activities are important, the mostinsightful and relevant aspects of the company’sinternational growth occurred during the thresholdperiod.

The research used two separate interview protocolsfor the interviews with the retail multinational andthe investment banks. It was decided to make theinterviews structured in order to circulate the theo-retical threshold lens. Total interview time with theinvestment banks and the retail executives rangedbetween 40 and 180 minutes in length. All of theinterviews were conducted and tape recorded bythe author and the grounding process started withthe interviews. Data collection and analysis weretherefore simultaneous. The analysis was guided byHuberman and Miles (1994) framework of qualitativedata analysis and this analysis was deepened by thetriangulation method. As developed in the literature,the case analysis is clustered in the broadest possibleway under the headings of market complexity,new capabilities, organisational structures, manage-ment processes and the role of the Chief ExecutiveOfficer.

Table V provides verbatim examples from the inter-views in order to illuminate and contextualise rele-vant themes. For obvious disclosure reasons, theanalysts’, advisors’ and executives’ identities willnot be disclosed during the remainder of this paper.

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MARK PALMER,Aston Business School,Aston University, AstonTriangle B47ET, UK.E-mail: [email protected]

Mark Palmer is Lecturerin Marketing. Hisresearch explores theinternationalisation pro-cess of large multi-national retail companies

and the investment banks in this process.


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Clifford, D.K. (1975) Managing the threshold company intough times. McKinsey Quarterly Winter, 2–12.

Dalton, D.R. and Kesner, I.F. (1983) Inside/outside succes-sion and organizational size: the pragmatics of exec-utive replacement. Academy of Management Journal 26,736–742.

Day, G.S. (1981) The product life cycle: analysis andapplication issues. Journal of Marketing 45, 60–67.

Gedajlovic, E., Lubatkin, M.H. and Schulze, W.S. (2004)Crossing the threshold from founder management toprofessional management: a governance perspective.Journal of Management Studies 41(5), 899–912.

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Crossing Threshold Periods in the Retail Life Cycle:: Insights from Wal-Mart International

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