Walmart's Strategy through the World

Anil Gupta, in his book The Quest for Global Dominance (co-authored with Vijay Govindarajan and Haiyan Wang), explored Walmart’s globalisation journey.

“They were not the smartest globaliser and also not the dumbest globaliser,” says Gupta. Excerpts from the interview with Forbes India:

Mexico: Walmart, which is No 1 here, entered through a 50:50 joint venture with the leading retailer. They soon acquired the partner completely. In their business, local marketshare is critical. So what Walmart sells in Canada, which is right next to the US, over 85% of it is sourced from Canada. It is all about local economies of scale, local purchasing power and local logistics. Discount retailing is a very “multi-local” business.

When Company A competes with Company B, local scale and local market power determine the cost structure, branding and retail presence in eyes of customer. Wherever Walmart did not pursue this logic they ran into trouble. In the 1990s when Walmart opened its first store in Mexico, they had a huge American-style parking lot. They found all the shopping carts were piled at far end of parking lot – because customers came in via buses not cars and went to one side which was closer to the bus stop. They made mistakes in terms of the product mix. They were selling the same thing as in the US.

There was a story about them selling golf balls to customers whose income levels were low. The mistakes they made in Mexico were relatively early and non-fatal. They recovered from them very quickly. That was really the first non-US foray so they were learning on the fly. Today Mexico is a fantastic story for Walmart.

Brazil: In Brazil it took them more time to become No 1 because they had tough competitors like Ahold and Carrefour. As the competitors stumbled, they acquired the Ahold stores. Over time Walmart strengthened in Brazil. They made mistakes again with regard to localization of the product mix.

Argentina: Argentina hasn’t been a high priority market for Walmart. They entered in 1995 by setting up 100%-owned greenfield stores. They were pretty tiny: by 2007 they had only 13 stores. Argentina is a small economy compared to Brazil and Mexico. In 2007, according to a Citigroup report, Walmart’s marketshare of organized retail was 4% and the combined marketshare of the two biggest players was 22%. No 3 is not a desirable position in discount retailing because it requires local scale and local marketshare. One could ask: what are you doing in Argentina? Become No 1 or get out.

Costa Rica, Guatemala, Honduras, Nicaragua: All these came through the acquisition of Central American Retail Holdings Company in 2007. This company had operations in these economies. These are small markets, not strategically critical. But from Day One Walmart was No 1 in these markets because the acquired businesses were already No 1. They were already adapted to the local economy and there was a high degree of localization.

Hong Kong: Hong Kong was their first foray into Asia. It was a brief disaster. Walmart knew nothing about Asia. They entered Hong Kong through a joint venture with a Thai conglomerate. This was unwise because instead of picking a Taiwanese or Hong Kong company as a local partner, they picked a Thai partner. They opened three stores and shut them down very quickly. Hong Kong is a very compact place and they didn’t factor in how customers would get to the stores. There was nothing wrong with the product mix.

They did not factor in the broader ecosystem – how customers will come and go. They chose a very inconvenient location for customers. In 1995, they had 2,900 stores worldwide and if three bombed, it didn’t matter so much. It shows that Walmart from time to time, hasn’t been the smartest company in terms of joint venture partners.

Indonesia: I wouldn’t fault Walmart’s strategy here. They went to Indonesia in the days of Suharto, and then you couldn’t do anything in Indonesia, unless you worked with someone from Suharto’s network. There was political unrest.

They entered via a non-equity route – there was no money in the agreement with the Lippo group. There were riots in Indonesia and the store was burnt down. Walmart didn’t own or run the store. So it was not so much of an issue. The agreement with Lippo fell apart after Suharto went out of power.

Korea: Walmart entered Korea in 1999. They entered by acquiring four units from Macro (a Dutch chain, now owned by Metro). Korea is fairly mature market and there was a local company called Emart, which is the market leader. Emart warned Walmart that this is a very local industry and it doesn’t matter that you are the biggest retailer in the world – we are the biggest retailer in Korea. Walmart made an acquisition offer to Emart which Emart rejected. Walmart entered as a small player and could never become big. Seven years later they sold their stores to Emart and got out.

China: Walmart is still too early in the game in China. It’s a respected retailer in China. They do a good job in terms of localization of the product mix and store format. There have been no big mistakes. Carrefour entered at roughly same time as Walmart – but it is growing faster, has double of the number of stores and is much more profitable than Walmart. Walmart appears to be looking at China as one big national market – the same way it views the US. Carrefour looks at China as a portfolio of regional/local markets. Unlike Carefour Walmart has centralised sourcing and a centralised distribution centre.

Carrefour gives greater autonomy to store managers. It is not even relying on local economies of scale, forget global. China’s infrastructure is better than India’s but it is in the process of being built up – when you have weak infrastructure for consumer goods, you have national manufacturers and not local manufacturers. In terms of food products, Chinese like to buy fresh meat so local sourcing is much smarter than centralised sourcing. Just like any developing economy, heterogeneity across China in terms of what people want to buy is very high.

Carrefour can open one store in the middle of the city and tell the local store manager you are an independent profit manager – so you decide what you want to buy, from whom. Your competitor is the small mom and pop store in the city. It’s a perfectly fine strategy. In retailing, local government bureaus become very important so if you give store managers high degree of autonomy it makes it easy for them to understand how to work with local governments. Carrefour is looking at China as a portfolio of local markets.

India: When you enter a new market, a lot depends on the kind of a partner you have. If you have a partner that itself has ambitions to be a major retail powerhouse in India, there is a strategic conflict. Sooner or later India will permit foreign retailers to have direct equity ownership in India. Then what will Walmart be left holding? Bharti has retail ambitions – it will want to buy Walmart’s shares then, rather than sell.

If stores are branded BestPrice, what is Walmart getting in this deal? One could argue that Walmart should have thought of India as a portfolio of regional markets and work with smaller regional partners. It’s hard for them to have much bargaining power or have national ambitions. They would have been happy to brand them as Walmart and when regulations change, Walmart would be able to buy them out.