Globalization Imperatives

Globalization Imperatives

Did Wal-Mart need to go global? Clearly, it had developed a successful business model for competing in the United States. Why not just prosper as an American retailer? The answer is that the company needed to grow in order to survive, and the international arena was the only one in which significant growth was possible.

Why was growth so important? First, the company needed to show increases in both sales and profits to satisfy capital market expectations. Second, it needed to satisfy the expectations of its own employees. One of the key factors in Wal-Mart's success was its dedicated and committed work force. Thanks to Wal-Mart's stock purchase plan, the wealth of these employees was directly tied to the market value of the company's stock, creating a direct link between growth and its effect on stock price and company morale.

Given the necessity for growth, Wal-Mart could not afford to confine its operations to the United States for three reasons. First, it had already saturated most of the domestic markets. Second, the United States accounts for just over 4 percent of the world's population. By limiting itself to this market, Wal-Mart was missing out on 96 percent of the world's potential customers.1 Finally, emerging markets, with their lower levels of disposable income, offered huge platforms for growth in discount retailing. Other companies had already capitalized on such growth thanks to the rapid expansion of information technology, increasing cultural homogenization and lowered trade barriers.2 Wal-Mart had no choice but to pursue globalization aggressively to meet this competition.

In undertaking global expansion, Wal-Mart had the capacity to leverage two key resources originally developed in the United States. It could exploit its tremendous buying power with such giant domestic suppliers as Proctor & Gamble, Hallmark, Kellogg, Nestlй, Coke, Pfizer, Revlon and 3M to procure goods cost-effectively for its non-United States stores. It could also utilize domestically developed knowledge bases and competencies in such areas as efficient store management, the effective use of technology vis-Ðo-vis suppliers, merchandising skills, logistics and I.T. deployment to benefit its foreign outlets. An unforeseen but positive byproduct of this process was that Wal-Mart was also able to leverage sales-generating or cost-reduction ideas learned in its international outlets to benefit its 3,000 United States stores.

Choice of Markets

In going outside the United States, Wal-Mart had the option of entering Europe, Asia or other countries in the Western hemisphere. It could not afford to enter them all simultaneously for at least two reasons. First, in 1991 Wal-Mart lacked the necessary competencies and resources - financial, organizational and managerial.

Second, a logically sequenced approach to market entry allows a company to apply the learning gained from its initial market entries to its subsequent entries.

The choice of which market to enter first is not always easy. During the first five years of its globalization (1991 to 1995), Wal-Mart concentrated heavily on establishing a presence in the Americas: Mexico, Brazil, Argentina and Canada. It is important to examine whether it should have focused first on Europe or Asia instead.

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