Published on: November 19, 2003
While Wal-Mart has successfully moved beyond US borders to a number of countries around the world, there remain plenty of markets for it still to conquer.
Retail Forward, the global consultancy, recently published a new study of the subject entitled Wal-Mart International: The Challenge Abroad
in which it explores the Arkansas retailer's global future.
(To get a copy of the report, go to: http://www.retailforward.com/freecontent/Walmart_global.asp
To find out more about Wal-Mart's global intentions, and the mood of the world that it no doubt wishes to conquer, we conducted an exclusive e-interview with Retail Forward's Steve Spiwak.MNB: Wal-Mart sometimes is criticized (as in the new Fast Company cover story) for putting an obscene amount of pressure on manufacturers, even putting them in a position where they are hooked on Wal-Mart’s size and sales...even though, in the long-term, it isn't healthy for their businesses. Does this same situation exist presently with global sourcing? Steve Spiwak:
There is some evidence this is also occurring in some foreign markets. Importantly, Wal-Mart may be squeezing some suppliers in China, which is facing a growing domestic supply glut. As a result, large global retailers such as Wal-Mart and Carrefour are able to exert more pressure on suppliers to extract the lowest price. This is putting intense pressure on factory margins, which is forcing Chinese manufacturers to keep a lid on wages and employment levels – the same issues faced by US domestic producers. In other markets, such as Brazil and Germany, a lack of operating leverage and technical issues with its Retail Link system are dampening Wal-Mart’s ability to lean on suppliers. In Japan, where it has a minority stake in Seiyu, Wal-Mart is only now plugging in its Retail Link system and has had very little impact so far.MNB: Wal-Mart clearly wants to stay non-union in all the markets where it operates, despite pressure from countries like China to accept unionization. Do you see this wall breaking down anytime soon? Would it be your expectation that Wal-Mart would get unionized outside the US before it happens inside the US? Steve Spiwak:
I would expect that Wal-Mart would become unionized outside the US long before it would in the US. Bigger unions with more backing from governments exist in some other countries, such as China. Don’t hold your breath though. The key component of Wal-Mart’s offer – EDLP – is driven in part by its control over wages. It will defend its position vigorously in court if need be. Indeed, Wal-Mart has seen some success in changing labor laws and store hours in Germany.MNB: How would you characterize Wal-Mart’s relationship with its employees in the various countries where it operates? Do you think it is spreading its culture too thin? Steve Spiwak:
Wal-Mart encountered problems early on in its foreign ventures when it relied too much on expatriate management, which hurt its relations with employees and slowed cultural adaptation. Wal-Mart is taking steps to remedy this by increasing the number of local managers and bringing them to the US for intensive training to acclimatize them to Wal-Mart’s corporate culture. Wal-Mart’s recent shake up of its European management structure has cast a spotlight on this important issue. Other foreign retailers such as Carrefour, which has been a strong global player longer than Wal-Mart, have had more success recently employing local management.MNB: What has Wal-Mart learned from its troubles in Germany and its successes in the UK, besides the fact that the British and the Germans are as different as night and day? Steve Spiwak:
Not only are the British and Germans different as night and day, the retail structure is as well. Wal-Mart entered both countries with an acquisition. But the German operations Wal-Mart purchased were woefully underinvested and required a significant amount of money to upgrade, which caused Wal-Mart to abandon expansion plans in that country. Overall investment in the retail sector in Germany has been hurt by government restrictions on labor deployment, prices, and new store expansion opportunities. Technological problems, supply chain issues, and management defections have also slowed progress. In contrast, ASDA in the UK was a strong performer at the start, with a loyal following and modern stores.
The lesson: be realistic about market opportunities. Countries in the same region, such as the UK and Germany, can have vastly different market needs. Today, Wal-Mart is learning to capitalize on its opportunities in the UK through best practices and is adjusting its expectations in Germany. Indeed, Wal-Mart’s short-term goal in Germany appears to be simply to turn a profit rather than expand as quickly as possible. The retailer is applying these lessons in Japan, where it is taking a go-slow approach in order to implement its Retail Link system and learn about the Japanese market.MNB: You quote Wal-Mart CEO Lee Scott as saying, “Simply put, our long-term strategy is to be where we’re not.” So based on what you know of the company’s strategies and plans, where is next? Steve Spiwak:
It’s not clear at this time where Wal-Mart will move first among the untapped major markets. It will depend on a number of factors, including the addition of new distribution centers and the existence of available acquisition targets. Spain could be the most attractive market in Western Europe right now, whereas Poland looks like the most likely candidate in Central Europe. Prospects in Russia may be dampened by the recent political turmoil. In Asia, the Philippines are an attractive market, which has relatively low retail saturation. In the short term, the most likely new country would be Peru, which is part of Wal-Mart’s bid for Ahold’s Latin American assets.MNB: Finally, put into context how Wal-Mart represents the US abroad. Is it perceived as part of the “ugly American” trend? Is it seen as the best of American exports? Or is there an ambivalence about the Bentonville Behemoth’s power and influence? And how does the global perception of America dovetail with and affect the global acceptance of Wal-Mart?Steve Spiwak:
Again, this is something that depends on the country - in my view there is no “global perception” of America. There are more than six billion individuals in the world making their own decisions. And while there is much disagreement on US foreign policy right now, many global consumers prefer Wal-Mart’s offer of lower prices and good service. The global economic slowdown is helping drive that trend. In Canada and Mexico, Wal-Mart is very popular and many communities are clamoring for their own Wal-Mart store, for instance. Puerto Rico has turned in Wal-Mart’s best store productivity in terms of sales/store among the retailer’s global operations. Growth in China is accelerating. The Japanese have become more price sensitive over the past decade and will likely respond to lower prices generate by Wal-Mart’s Retail Link system. And though German performance has lagged, this has been driven in large part by a dislike for quality service and the strong hard-discount competition rather than a rising backlash against America.