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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-
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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
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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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