#114 Every Day Low Price becomes Best Price … in India
Whad’ya know? Wal-Mart is not only the company that had failed internationally before – readers of this blog know about the retail giant’s epic blunders in Germany or South Korea – it is also a company that seems to be able to learn from experience after all. Wal-Mart had long eyed the Indian market as it had seemed to offer great opportunities – a very fragmented retail sector and a huge number of current and emerging consumers. It was for that reason that Wal-Mart had entered a partnership with Bharti, and Indian conglomerate a number of years ago. In 2013, however, the marriage of the giants broke apart among allegations of bribery and a legal environment that was very unfavorable for foreign retailers. Rather than to pull out, Wal-Mart has learned its lessons and changed course. In August 2015, Wal-Mart will open its first new Best Price Modern Wholesale store – not a retail store for consumers but a wholesale store for retailers. There are no legal restrictions for foreign companies to operate wholesale stores, and there seem to be other benefits as well – Wal-Mart is being a good corporate citizen by not competing with small, independent retailers. Quite to the contrary, as the Los Angeles Times recently reported, Wal-Mart is actually making the lives of these stores easier by providing them with a one-stop-shop opportunity for all their sourcing needs. Wal-Mart has learned, and it believes that it can open around 50 of the new wholesale stores within the next five years in India. Well done, Wal-Mart!
November 29, 2015 @ 11:48 am
I think Wal-Mart made a reallly good decision and learned a lot from its mistakes. The huge power and big network they can provide through the size of the enterprise can enable a lot of benefits for retailers.
Refering to Hofstede the comportment of the enterprise can be interpreted regarding the huge power distance of america.
The american enterprise chances its vision and does not competitioning with the local retailers anymore.
Instead of that the are delivering the goods and influence the whole market in that way. They also position their enterprise on a higher level and can therefore achieve many advantages. Because of the network and the size of the enterprise they can provide better prices and a larger offer than little wholesalers also the needed infrastructure is already existing.
We can also face the situation from the point of view from individualism and collectivism in that context the enterprise also shows the american value of individualism. They do not fit into the market as retailer as all other food markets do but build a new powerful level above this retailing structure.
In my opinion this is a very gut strategy and I assume that it will be successful!
December 1, 2015 @ 12:28 pm
On one hand Wal Mart did a great job in relation to the market analysis in India. They knew that there is a big Chance there, especially because of the fragmented retail sector and the high number of actual and future consumers. That’s what they learned from their previous failings in Germany and Korea. On the other hand, they obviously didn´t consider the cultural differences in cooperation between Wal Mart and Bharti when they merged these companies. In my opinion the cooperation failed because of Hofstedes dimensions Individualism and Power Distance. When looking at these dimensions, and comparing the Indian culture with the United States, in India the Power Distance is rather high, where in the US there is a quite low Power Distance. Futher Individualism in the US is very high, in India very low.
In relation to the working life is the low Power Distance in India indicated of appreciation for hierarchy and a top-down structure in society and organizations. An acceptance of un-equal rights between the power-privileged and those who are further down in the hierachy. Employees expect to be directed clearly as what their functions are and what is expected of them. Whereas in the US, the Power Distance is indicated by the fact that everybody is unique, they are all unequal. One of the most salient aspects of inequality is the degree of power each person exerts or can exert over other persons; power being defined as the degree to which a person is able to influence other people’s behavior and ideas. I think this differentials have caused the allegations of bribery.
I think the example of Wal-Mart shows, indeed it is very important to analyze the internal and external facts but to keep in mind that the cultural difference also influences the success of a new market entry.
In the second round, they were left on their own. Wal Mart has to learn, to be successful in the Indian market, they have to have a good research and they have to adopt their market strategy to the market needs and regulations. After considering the legal restrictions, they were able to obtain success with a localization strategy to market itself.
Quelle: http://geert-hofstede.com/india.html (India/US)
December 9, 2015 @ 10:04 pm
From my point of few, Wal-Mart made a very good decision with leaving the retail sector and operating instead in the wholesaler sector.
Regarding to Hofstede’s Dimensions the uncertainty avoidance is not really high in India. So it is possible, that this new wholesaler will be accepted very soon. It doesn’t mind that this company has not so much experience yet in this sector and that the company is not so known in India at the moment.
Furthermore India has a high Power Distance. Due to this, it is maybe possible, that the new wholesaler wouldn’t be accepted. There are high hierarchies and the decisions are made centralized. If the top managers of the retailers don’t want a change of their suppliers, there is no one who can change their decision. They will not even get the negative feedback if their staff or their customers don’t like their decision.
The last point I’d like to mention is the quite high score in Masculinity of India. Therefore the Indians like success, brands and ostentation. This could be a reason, why Wal-Mart will be accepted as a good wholesaler very soon. Wal-Mart is an international well-known brand which is already very success full. The indian retailers will accept the new wholesaler as a brand which stands for success and this can lead to their own success.
March 14, 2016 @ 6:29 pm
Well it seems Wal-Mart has really learned its lesson. While one couldn’t stop to wonder how a debacle like their short attempt in Germany could occur, this is a whole different story. For one thing the entry mode seems to have been incomparable better, they didn’t seek out some crap partners like Wertkauf this time, also Wal-Mart concentrated on its strengths, its distribution and logistical qualities. Rather than simply trying to implement its US strategy into the Indian market. The move away from retailer stores for consumers onto wholesales stores for retailers shows that Wal-Mart was able to adapt its strategy to the environmental challenges and differences in India, rather than flee the fight with its tail between its legs as it has been the case in Germany before. Of course it remains to be seen if this course of action will pay off in the long run, but in any case Wal-Mart seems to have blooded its nose enough in Europe too be able to learn from and adapt to new challenges.
March 16, 2016 @ 9:54 pm
I think Wal-Mart has done really a great job here at the end and thus will be able to compensate failures in Germany and South Korea from the past.
Although it seems unclear to me whether the failures in these cases and especially in India in the first try were really made due to pure ignorance or lack of a systematic market entry, which resulted in a poor product fit, or simply because of the conscious strategy to try to introduce a globally standardized and in other regions already proven product.
The new approach seems very promising. It fully builds on the strength of Wal-Mart as retail giant with a good supplier network and a totally optimized and well organized logistics chain, made possible through an adjustment in the product strategy.
I’m certain by means of the relatively small adaption of its standardized product in simply addressing retailers with its Best Price wholesale stores instead of consumers, the enterprise is still able to maintain economies of scale, high product respectively process quality and less marketing costs, achievable through a globalized standardization strategy. Furthermore it is able to locally increase customer satisfaction and enhance local competitiveness, which can be seen in the discussed benefits for small retailers.
In my opinion Wal-Mart found here the appropriate degree of standardization in relation to positive net effects on profit. In combination with further localization of the product spectrum, as for example in the direction of local flavors, the approach has great potential to be successful in India in medium-term.
The principle seems to be transferable also to other countries in which Wal-Mart wasn’t successful in the past. Maybe the enterprise has found thereby also the missing recipe for success in Germany.
March 20, 2016 @ 10:43 pm
However, it is well-known, the best way to learn is learning from failures of the past. With their painful experiences in Germany as well as in South Korea, Wal-Mart’s management seems to have underestimated the power of cultural differences in consumer behavior, their different habits and the resultant consequences for this success spoiled company.
In fact, this example of entry strategy shows, that international organizations have to think, handle, decide, and finally operate different than local operating companies, consequently more complexity and challenges are inherent with internationality. If the company decides to grow international, there will be no easy way out.
Without a doubt, the market entry in India has a huge potential in various aspects and therefore the decision of the expansion in this future market seems to be foresighted. Nevertheless, due to Wal-Mart’s experiences explained above, there should be still a certain kind of carefulness and awareness of these mentioned differences which will finally result in different needs, expectations and attitudes of the customers and these characteristics have always to be considered and evaluated when the idea of expansion exists.
An international acting company with a corresponding international alignment has to think global in various aspects and dimensions and it has to be aware of differences concerning mentality and the cultural background with resulting habits, needs, peculiarities and philosophies. Additionally customer focus is more necessary, and without a doubt it will be helpful if you are familiar with the cultural aspects, if you have knowledge about rules, behaviors and reliable information about the mindset of these countries you want to expand or make your business.
Moreover there was the similar situation with analogical problems for Wal-Mart when expanding to South Korea. In this context, and when thinking about expansion, I am convinced you have to take care and think of the customer’s needs, interests and preferences for being successful in your business. Obviously there might be some difficulties when neglecting some important habits of different cultures as Wal-Mart already learned in the past. So in most of the cases it will be vital for the expanding company to have substantial and reliable information about these conditions.
Further, considerations concerning the currency, political and economic conditions and the corresponding stability, legal aspects, as well as the explained cultural impacts and sometimes even geographic issues will be some of these elements and are probably more necessary when going international. Just looking on demographic facts and its market potential, development of GDP, GDP per capita, number of potential customers might be too less, additionally there are to take into account some other important circumstances than these PEST parameters mentioned above. Success will hopefully not only be reduced on geographic dimensions and conditions, although cultural impacts and considerations should be taken into consideration.
For Wal-Mart’s international management, there are obviously some additional lessons resulting from the Indian partnership with Bharti, consequently this new approach and changes made in their strategic alignment by acting and operating as a wholesaler seems to be the right decision, but it is evident: for being successful at least it will need more than just offering good products.
March 8, 2017 @ 7:36 pm
Making a step back, reassessing the situation and adapting the company´s strategy might have been the key success factors for the largest retail company in the world when re-entering the huge Indian market. However, it seems to be astonishing, but is obviously reality that Wal-Mart, although unrivaled in the United States, has to prove country by country that the “product” really works out. Wal-Mart has, although initially failed, learnt the lessons during the partnership with Bharti and could reposition the product “Wal-Mart” more beneficial for the company in the wholesale industry.
However, this example once again shows how difficult it is, even for the largest company in the world and having entered numerous foreign markets, to establish in areas which exhibit great distance, especially by means of culture and regulatory environment, from their home market. It is always rather comfortable to assess failures companies have made after they had happened, but being the first mover in this case exposed the company to inherent risks arising out of the insufficiently considered or unratable legal situation on foreign direct investments in a highly protected market segment such as the Indian retail sector. Carrefour and Tesco who thought about entering the Indian market at that time as well took more time to figure out the rather complex legal environment with obligations on local sourcing rates and proceeded on more conservative expansion plans than Wal-Mart did.
July 2, 2017 @ 9:51 pm
It is very interesting to see, that also big companies, which are already experienced in entering new markets are still struggling when doing so. Although many experts work on such a huge project, they often forget the impact of cultural differences. In my opinion, the strategic alliance with Bharti was comprehensible, due to huge cultural differences. It makes sense to team up with a local partner, but of course there is also the threat, that your partner might become your competitor like in this example. Even if the partnership wasn’t successful, they have learned their lesson. They came back with a new concept, where they considered everything, what they had neglected before. Well done!