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Walmart’s Growth and International Experience
Globalization has become an important strategy for firms to expand their operations. Normally, businesses go global to either escape from threats in their domicile locations or to take advantage of opportunities in the global markets.
Walmart is one company that internationalized its operations due to threats in the local market brought about by the recession in the US in 1990s. In addition, the company had grown tremendously and there was need to venture into other markets to diversify its operations.
Generally, companies go global through various means including franchising, exporting, joint ventures and foreign direct investments.
Walmart’s initial strategy was to enter into joint venture with foreign market companies and prioritized on nearby countries like Mexico, Canada, Brazil and Argentina, where it easily implemented its low-price model targeting low-income groups.
This success prompted the company to venture into Asian and European markets.
However, despite smooth sailing in UK, cultural differences and language barrier worked against the company in China, while government restrictions and non-responsive consumers affected its success in Japan, Korea and Germany.
Understanding the foreign market’s culture and undertaking environmental assessment are important for successful entry in international markets.
This is what made Walmart to later succeed in China by adopting to the Chinese way of doing business and engaging Chinese to run its operations in the country.
Strategies for Massmart’s Growth in Africa
Massmart’s success in African market emanated from its low-price business model and viable strategies it adopted. The retail chain had several wholesale and retail stores across Africa built around four core operation groups with dedicated lines of business.
This division of businesses to separate units or groups enhanced decentralization of decision making process based on each division’s operation needs.
Moreover, the chain capitalized on high volume of sales by setting low-margin policy and low-cost distribution of branded goods across its market portfolio.
Massmart also believed in technology as a driver to improved service delivery to its customer. Lastly, the company invested heavily on business expansion, which acted as a catalyst for its growth.
Walmart’s Acquisition of Massmart
Being one of the largest chains in international markets and with the experiences faced when venturing to those markets, Walmart had identified African market as very promising.
The company identified Massmart as the best channel to enter into African market, more so given that both companies had identical business model of low price. Generally, Massmart was a giant chain in Africa, with stores in South Africa and other African countries.
Walmart’s intention was to acquire Massmart and take control of operations, but that was not an easy task, as resistance was witnessed from the local stakeholders, more so from the labour unions and shareholders.
The former were concerned with whether Walmart would respect their rights, while the latter were more concerned with the listing of Walmart in stock market.
This did not dampen Walmart’s plans, and a compromise had to be reached, with Walmart acquiring majority shareholding of 51% while the local stakeholders taking the remaining 49%.
This move seems advantageous to Walmart, as it has a clear opportunity to penetrate in the African retail market, more importantly considering that Massmart had already established itself in those markets.
Moreover, its partnership with governments and labour unions places the company at a strategic position to expand, as the latter seek to gain from the deal.
Challenges Walmart will face in Africa
Despite high growth prospects, African market poses a big challenge to Walmart’s expansion. One of the challenges is poor infrastructure in African countries due to low empowerment and underdevelopment. Another challenge is cultural differences in different African countries.
Moreover, different countries have different rules and regulations that the company has to comply with. Finally, most countries have ineffective legal systems and security policies, posing a threat to safety of the company’s property and staff.
Walmart’s Operations after Deal with Massmart
With the 51% deal signed between Walmart and the local stakeholders, there was apprehension as to whether Walmart would benefit.
However, Walmart’s operations improved greatly, as it took the advantage of its low-price business model, lessons learnt in China and its association with government and labour unions to easily expand to the local markets.
The company also benefited from Massmart’s knowledge of the market to expand to different African countries.
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