Wal-Mart Failure in Germany , Japan , and South Korea . Then , TESCO Failure in Japan , and TESCO...

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ContentsChapter One........................................................3

1.0 Introduction...................................................32.0 Wal-Mart’s Failure in Germany..................................4

2.1 Germany’s cultural attitudes.................................42.2Customer Service..............................................5

2.3 Market structure and business model..........................63.0 Wal-Mart’s Failure in Japan....................................7

3.1 Cultural misunderstanding....................................73.2 Supply chain inefficiencies..................................8

3.3 Pressure from competition....................................94.0 Wal-Mart’s Failure in South Korea.............................10

4.1 consumer preferences and culture............................104.2 Location....................................................10

4.3 Marketing...................................................115.0 Conclusion....................................................12

Chapter Two.......................................................131.0 Introduction..................................................13

2.0 TESCO Failure in Japan........................................142.1 Deviated from hypermarket strategy..........................15

2.3 Strong competition..........................................152.4 No acquisition..............................................16

3.0 TESCO Success in South Korea..................................173.1 Buy successful companies abroad, not ones that need turning around..........................................................173.2 Market synergies and market share...........................18

3.3 High quality production at low cost.........................194.0 Conclusion....................................................20

5.0 References....................................................21

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Chapter One

1.0 Introduction

Wal-Mart was founded by Sam Walton in 1962; it was

incorporated on October 31, 1969, and listed on the New York

Stock Exchange in 1972. It started with a single store in

Rogers, Arkansas in 1962 and has grown to what is now the

worlds largest and arguably, the most emulated retailer. Some

researchers refer to Wal-Mart as the industry trendsetter.

Today, this retailing pioneer has annual revenues of over $100

billion, 3,000 stores and more than 750,000 employees

worldwide. Wal-Mart operates each store, from the products it

stocks, to the front-end equipment that helps speed checkout,

with the same philosophy: provide everyday low prices and

superior customer service. Lower prices also eliminate the

expense of frequent sales promotions and sales are more

predictable. Wal-Mart has invested heavily in its unique

cross-docking inventory system. Cross docking has enabled Wal-

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Mart to achieve economies of scale which reduce its costs of

sales. With this system, goods are continuously delivered to

stores within 48 hours and often without having to stock them.

This allows Wal-Mart to replenish the shelves 4 times faster

than its competition. Wal-Mart's ability to replenish their

shelves four times faster than its competition is just another

advantage they have over competition. Wal-Mart leverages its

buying power through purchasing in bulks and distributing the

goods on it' own. Wal-Mart guarantees everyday low prices and

considers them the one stop shop, (Wal-Mart, 2014).

Wal-Mart operates in Mexico as Walmex, in the UK as ASDA,

and in Japan as Seiyu. It has wholly owned operations in

Argentina, Brazil, Canada, and Puertorico. Wal-Mart's

investments outside North America have had mixed results: its

operations in South America and China are highly successful,

while t was forced to pull out of Germany and South Korea when

ventures there were unsuccessful, (Wal-Mart, 2014).

2.0 Wal-Mart’s Failure in Germany There are many reasons why Wal-Mart’s business model

failed in Germany, such as Cultural attitudes, Customer

Service, and Cultural arrogance all contributed to what one

economist referred to as a failure. But under these basic

economic decisions were a host of basic cross-cultural

mistakes that fuelled the company’s poor strategic planning.

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2.1 Germany’s cultural attitudes Wal-Mart failed to take into account Germany’s cultural

attitudes, especially with regard to such matters as labor law

and the role of unions. While the company’s anti-union stance

has been core to its US success in holding down costs and thus

its ability to offer discount pricing, Germans generally see a

closer link between labor unions and democracy. When Wal-Mart

“exported” its domestic labor and cultural attitudes

regulations that discourage or stop fraternization among

employees, this was considered in Germany to be anti-

democratic and an impermissible involvement into the private

lives of employees. Europeans, in general, tend not to

generally accept corporate work rules that regulate their

private lives. In Germany, companies typically enjoy a close

connection with their unions. Wal-Mart’s failure to appreciate

and adjust to this attitude was the start of its adverse image

in Germany. Worse than the damage done to its employee

relations was the spread of this negative image through the

media to the German society and thus to German consumers.

Some of Wal-Mart’s employee practices may have been

standard practice among companies in the US but they served to

exasperate Workers Councils in Germany, and were quickly

challenged. The challenges included costly and well-publicized

litigation damaging to the Wal-Mart image.

A labor court in Wuppertal ruled in a lawsuit filed by

local employees that parts of Wal-Mart Germany’s ethics and

cultural attitudes code contravened German law. The code of

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conduct included a ban on relationships at work and provided a

hotline for employees to report on rules violations by co-

workers. Wal-Mart also runs afoul of requirements that

workers’ representatives be consulted before introducing

changes in working conditions.

2.2Customer Service Wal-Mart failed to appreciate whether and how American

consumer habits and expectations might differ from those of

consumers in new markets. It is not difficult to understand,

for example, that what is considered “customer service” in one

country may be wholly inappropriate or even offensive in

another. Thus, Wal-Mart’s German competitors gleefully

observed Wal-Mart offend its new customers by bagging their

purchases. These competitors knew that thrifty German shoppers

prefer this task not be done by strangers. While more affluent

German shoppers might appreciate this “service”, German

discount shoppers regarded this as an intrusion into their

privacy for which they were paying a hidden labor cost. Wal-

Mart’s gaffe was compounded by its use of plastic bags in a

society highly sensitive to issues of sustainability and

matters of ecology. Thus, for reasons of both privacy and

ecology, Germans will take their own large bags to

supermarkets to bag and carry their own purchases. This

example is representative of Wal-Mart’s failure to appreciate

its customers. The company’s use of greeters and its

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employment of the “ten-foot rule” whereby employees would

offer support to shoppers were counter-productive choices in a

discount market environment. Many shoppers were unnerved by

these practices. Some even felt molested.

For example, grocery store chain, Aldi, which originated

in Germany, is a good example of what Germans expect from a

discount store. At Aldi, customers bag their own groceries,

shopping carts are available with the deposit of a quarter,

and the store hours are reduced to save on operational costs.

The shelves are lined with products still in the boxes they

were shipped in, to cut down on stocking labor. Boxes are even

available for customers to use to carry their purchases to

their cars, in place of plastic bags.

Overall, the perception of Wal-Mart’s “targeted customer

group” was that the company did not deliver on its proposition

to offer the lowest prices and excellent customer service. In

its retreat, Wal-Mart admitted that its formula is not a fit

for every culture.

2.3 Market structure and business modelA retailer that wants to follow Wal-Mart's strategy of low

prices needs to expand rapidly. In Germany, there were not

enough appropriate locations to support such expansion. Wal-

Mart did not build their own stores, but took over existing[Type text] Page 7


supermarkets that had a completely different business model -

they were very small and had a limited range of goods. They

were also located far apart, which resulted in high logistical

costs.

With their strategy of "everyday low prices," Wal-Mart is very

successful in the United States and elsewhere. However, due to

the extreme competition, Germans are accustomed to the low

prices that are offered by numerous discount supermarket

chains. For this reason, Wal-Mart's low price strategy did not

create sufficient competitive advantage.

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3.0 Wal-Mart’s Failure in Japan

3.1 Cultural misunderstanding

Wal-Mart failed to grasp the consumer and retail

environment in Japan. With a population of 127 million, the

highest per capita income and the second largest economy in

the world, Japan is a very smart market for retailers. The

opportunity exists, but there is much more research and

planning that needed to be done before expansion began.

Instead of adapting business operations to the Japanese

culture, the company essentially assumed the Japanese would

readily adjust to Wal-Mart’s. For example, in Japan there is a

much larger need for local store customization. Consumer buyer

behaviour is much different than in the United States, with

purchasing patterns and product selection varying greatly

between regions. They have a trend to buy smaller quantities

in regular intervals rather than the more American idea of

“stocking up.” Similarly, the concept of large retail stores

is foreign. Retailers with the highest growth rate are small

specialty stores; quite the opposite of Wal-Mart. The culture

tends to buy more fresh produce than pre-packaged goods as

well.

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Lastly, the Japanese view high price as equalling high

quality. This mentality causes them to purchase 40% of the

world’s luxury goods annually. Packaging and appearance of

goods play a huge role in their purchasing decisions. When

looking at Wal-Marts product selection, it is obvious they do

not usually cater to luxury-brand customers. All of these

cultural misunderstandings lead Wal-Mart away from success in

Japan. Perhaps more research into their cultural values and

patterns could have helped avoid some of these mishaps.

3.2 Supply chain inefficienciesIn Japan there are strong and strong supplier webs that

provide retailers with their goods. This country puts a higher

value on close, local relationships, making it very difficult

for foreign firms to enter the industry. With so many changes

in products due to local store specifications, it forces firms

to deal with many different suppliers. This is not favourable

to large retailers, as they don’t have the time or national

presence to make the necessary relationships to do business.

Wal-Mart is not used to this high level of supplier power.

Their value usually comes from cutting costs with suppliers

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enough to pass onto their customers while using synergy to

increase efficiencies. Difficulties managing their supply

chain are another substantial reason Wal-Mart is struggling in

Japan.

3.3 Pressure from competitionThe types of competition in Japan include both domestic

and international players. Its biggest Japanese competitors

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are 7-Eleven Japan Co. Ltd., Aeon Co. Ltd., and Ito-Yokado Co.

Ltd. As of 2008, all of these companies drastically

outperformed Seiyu Ltd. (Wal-Mart). Although all of these

companies have different strategies, much of their success can

be credited to their experience in understanding how their

country buyers and sellers interact. Two main international

competitors are Carrefour from France and Tesco from the

United Kingdom. These firms had similar challenges to Wal-Mart

with their international expansions, but each faced them

differently. While Carrefour had complications so complex that

it exited the market in 2004, Tesco was able to gradually

expand and prosper. Tesco made large investments in market

research that allowed them to build stores that better met the

Japanese consumer’s needs. Their cautious expansion and well

thought out plans have helped them succeed in the Japanese

retail industry. It is imperative for Seiyu and Wal-Mart to

recognize their competition’s advantages and formulate better

ways to respond.

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4.0 Wal-Mart’s Failure in South Korea

4.1 consumer preferences and culture Most individuals believe that Wal-Mart failed to

understand South Korean’s consumer preferences. Wal-Mart had

relied on its proven business model and its strategy in

offering low prices for products. However, low prices alone

were insufficient to make a successful business case in South

Korea. South Koreans have different consumer preferences than

Americans do; they are not necessarily interested in the same

products. For instance, South Koreans like fresh vegetables

and fresh food rather than dry products and the type of

clothing that Wal-Mart sells. The South Korean culture is also

very tied into its markets; they are one of the largest

countries that are deeply involved in local markets.

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4.2 Location Most Wal-Mart outlets in South Korea were placed outside

instead of in the cities. South Koreans expect easy

accessibility to shopping facilities within the larger cities

without the need to travel. Also, South Korean consumers shop

more frequently than most Americans do. They may not purchase

many things at once, but they will usually get at least one

item. Some individuals felt that Wal-Mart should have been

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located in the center of the cities where consumers felt more

comfortable with their shopping needs. South Koreans do not

distinguish between discounts and normal prices. Thus, they

may not see a compelling reason to shop at Wal-Mart.

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4.3 Marketing South Korean marketing professional observed, “Wal-Mart

put off South Korean consumers by sticking to Western

marketing strategies that concentrated on dry goods, from

electronics to clothing, while their local rivals focus on

food and beverages, the segment that specialists say attract

South Koreans to hypermarkets. South Koreans are also

visually-oriented customers. They tend to purchase products

not just because of the product itself, but also because of

its appearance or the service the customer receives in the

store. “In fact, some South Korean ladies do not like the

warehouse-like atmosphere of Wal-Mart, which the American

consumers seem not to mind since the products are still cheap.

They prefer the department store-like, neat, clean, and

sophisticated atmosphere. If you go to E-mart which is the

biggest South Korean supermarket, you never think of it as a

discount market.

These and other characteristics seem subtle and intricate

to the foreign observer, yet are obvious, even standard to

local marketers. As a result, local perspective among Koreans

is that Wal-Mart’s failure in South Korea was primarily due to

its inability to understand the shopping preferences of local

consumers and to adjust its business model to the prevailing

domestic culture.

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5.0 Conclusion When first Wal-Mart opened its doors in South Korea in

1998, it was sensational with mixed welcome by competitors and

consumers. Wal-Mart simply failed to deliver the basic

quality expectation so shoppers stop visiting as there is no

reason to come. A shopper says ‘Yes, it is low price. But, I

would rather pay for quality food in E-Mart. I will buy my

daily necessity when I am there to buy food. I don’t want to

make another shopping trip just to save a little more dollar

as it is too cumbersome and time is money”.

Many global managers who have tried to crack Japanese

markets would know how tough the market is. The biggest

challenge is highly sophisticated and demanding consumers. It

takes huge effort to understand, design and deliver to satisfy

its needs. It is even tough task for Japanese firms to do so.[Type text] Page 17


Foreign companies who enter into Japan will need to fight for

another barrier of their global practice and challenges caused

by lack of headquarters’ understanding of Japanese consumers

and unwillingness to be flexible to adjust their operation

strategy only to meet Japanese consumers. On top of that,

Japan has another layer of challenges to deal with. Japanese

perception of good value. If value equation is quality over

price, Japanese seems to put more weight on quality within a

certain price range. The quality is perceived quality, and

brand plays a critical role in providing the perception in

Japan.

Looking at Germany, there seem to be more macro reasons

of how to deal with such as entry model, labor union

relationship and competitive landscape. Wal-Mart tried to

apply its U.S. success formula in an unmodified manner to the

German market. As a result, they didn't have sufficient

knowledge about the market structure and key cultural /

political issues. In addition, structural factors prevented

Wal-Mart from fully implementing its successful business

model. The final outcome was that it had to abandon its

offerings in Germany. Had Wal-Mart paid careful attention to

these issues prior to entering the German market, it could

have had a very different outcome.

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Chapter Two

1.0 Introduction

Tesco is Britain’s leading food retailer and the third

largest in the world. Its first store was opened in 1929 in

London and by the early 1960s Tesco was a familiar feature of

most UK high streets. After joining the eighties trend for

large out-of-town supermarkets, in the 1990s the company

started pioneering many new innovations. It developed new

store concepts such as Tesco Metro, a city centre store

meeting the needs of local shoppers, and Tesco Express, the

first UK petrol station convenience store. In 1995 the company

introduced its Clubcard, the UK’s first customer loyalty card,

and two years later formed a joint venture with the Royal Bank

of Scotland to offer a range of financial services. 2000

marked the start of Tesco.com which was built on the back of

existing stores and, with low capital spend, was profitable

from the start – a key internal requirement. Tesco’s

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international operation, which started in 1994, has steadily

expanded and now accounts for half of its total retail space.

Since 2000 there has also been an increasing focus on building

non-food sales both in store and online with the result that,

for example, Tesco is now the UK’s largest CD retailer.

Tesco also aims to improve service and provide better value

rather than concentrate on pricing alone. These principles are

carried across the business into non-food, services and its

international operations. To enable this, the company pays

considerable focus on harnessing the creativity of its

workforce and encourages staff to come forward with ideas. The

company’s prowess in process management applies just as much

to its idea management as it does to logistics and store

layout.

A key ingredient to Tesco’s growth is the use of well-targeted

own-label brands including the up-market ‘Finest’ and low-

price ‘Value’ labels. To drive this Tesco has led the field in

market insight. Its Clubcard, the most successful loyalty card

in the sector, provides Tesco with a class-leading ability to

spot emerging trends, attract consumers and influence the

behavior of secondary customers to bring them into the fold.

2.0 TESCO Failure in Japan In the almost decade-long period (it entered in 2003

through acquisition of local player C Two-Network) it was

operating in the market, the retailer never seemed able to

gain scale and traction in a notoriously difficult retail

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sector. This was despite Tesco launching its private label

products (2006) and its Express format (2007) into the

market .

2.1 Deviated from hypermarket strategyElsewhere in Asia, Tesco has had most of its success

through establishing itself through hypermarkets. Thailand, S

Korea, Malaysia, China, these are all markets where Tesco

first built up a strong hypermarket chain before then filling

in the gaps with smaller stores. Japan was an exception, C

Two-Network operated small, value-orientated stores typically

trading from units of around 100-300 square metres in the

Tokyo metropolitan area. This was fine for Express stores, but

meant that Tesco could never gain the scale it needed quickly

that a chain of large hypermarkets would bring it. The revised

City Planning Law, which came into effect in 2007, restricted

large store growth anyway.

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2.3 Strong competitionJapan is a unique retail market as other global retailers

(such as Carrefour) have also discovered. Launching Tesco

Express seemed a logical move given the existing store

portfolio and the format’s success elsewhere. However, it

faced stiff competition from local c-store giants such as 7-

Eleven, LAWSON, FamilyMart and Ministop. In addition, these

players have also expanded into residential price-focused

supermarkets LAWSON STORE 100 for example. Tesco was also

banking on its private labels as giving it a competitive

advantage. However, rivals such as Seven & I and AEON have

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really invested in improving their own PL ranges in recent

years.

2.4 No acquisition C Two-Network’s small size meant that even with rapid

organic expansion, Tesco would have found it impossible to

become a major player in Japan. Tesco

management initially talked about plans to open a store a

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week, taking the total up to 500 stores by 2010. Clearly this

never happened store openings have remained relatively

stagnant in recent years, peaking at about 142. This begs the

question why didn’t Tesco acquire once it had a foothold in

the market. It acquired 27 Fre’c stores in 2004, but clearly

missed out on larger opportunities which would have given it

scale.

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3.0 TESCO Success in South Korea

3.1 Buy successful companies abroad, not ones that need

turning aroundThere followed a strong expansion overseas in the 1990s,

with ever more significant movement into growing markets such

as South Korea. Here Tesco was buying into successful

companies, but also ensuring neighboring markets were targeted

and that its expansion strategy included eventual market

domination. Hence the second lesson for internationalization

success.

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3.2 Market synergies and market shareOne of the chief concerns for retail strategists is

market selection. Tesco decided to enter into markets where

local competition was soft, hence the initial forays into

Eastern Europe and South Korea, away from the unkind look of

other expanding giants such as Wal-Mart. Tesco also adapted to

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opportunistic events, and decided on different entry modes in

order to develop knowledge.

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3.3 High quality production at low cost

Similarly high quality production at lower cost and

the availability of cheap labour is another pull factor

that attracts foreign investment. To look at South

Korea labour is very cheap and the country is capable

of producing high quality products at competitive cost,

there for it is very advantageous for Tesco to invest

in Koreans market. South Korea is the prime location of

sourcing for Tesco products within china and for its

business in the rest of the world.

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4.0 Conclusion

Japan’s retail sector has seen stagnant (and even

negative growth) in recent years. Sales growth has been hard

to come by even for the largest players, who have typically

relied on a series of acquisitions to keep growing. In this

climate is it any wonder why Tesco decided to cut its losses

and instead focus on faster growing markets with higher

potential.

Tesco is one of the largest retailers in the world. This

success has not come about by chance but is the result of

effective leadership and management in South Korea. The

setting of a clear vision is central to Tesco’s success,

supported by a commitment to establishing and monitoring

specific objectives and devising strategies to ensure these

are achieved. All aspects of the business are regularly

monitored and, when necessary, plans are adapted to ensure

targets are ultimately met. At the heart of all Tesco does is

a commitment to being a responsible retailer.

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5.0 References

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