arun kottolli_ trans-cultural business failure_ wal-mart exits germany
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20/11/2013 Arun Kottolli: Trans-cultural Business Failure: Wal-Mart Exits Germany
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tuesday, august 15, 2006
Trans-cultural Business Failure: Wal-Mart
Exits Germany
In August 2006 Wal-Mart, the worlds largest retailer, announced that it
was exiting operations in Germany. Bentonville based retail giant
announced it was selling all the 85 of its hypermarkets to Metro (German
retail giant). This marks the end of Wal-Mart’s German adventure which
began in 1997 with the acquisition of Wertkauf.
I have lived in USA where I shopped, studied and observed Wal-Mart’s
business operations. And the news came to me as no surprise. Back in
2003 I had posted a presentation on why Wal-Mart will find it tough to
succeed in India. The recent news validated my observation that Wal-
Mart’s cultural insensitivity led to its failure in Germany. (The same
mistake is being repeated by Wal-Mart in Korea, Japan, China and
Mexico)
History of Wal-Mart in Germany
Wal-Mart started with an aggressive global expansion strategy. In 1997,
Wal-Mart bought Wertkauf, a leading retail chain. Later it acquired
Interspar in 1998. Wal-Mart wanted to jump-start its European presence.
In UK, Wal-Mart purchased ASDA, and started talks to buy the German
retailing giant Metro. ( Wal-Mart could not acquire Metro - as Metro board
rejected the idea. ASDA was acquired by Wal-Mart and is the second
largest retailer in the U.K)
Wal-Mart’s Mistakes
The fundamental problem with Wal-Mart’s global expansion plans lies
with its core advantages - a fully owned distribution network,
standardized store layouts, warm & welcoming employees who greet
customers, and standardized ERP systems. These factors enabled Wal-
Mart to succeed in United States - but these factors can become a major
disadvantage while operating abroad.
Firstly, Wal-Mart is not experienced in the game of acquisitions and
mergers. Wal-Mart was built ground up in the USA and Canada. The lack
of managerial skills needed to bring out the related synergy between
itself and Wertkauf led to employee frustration. Moreover, the top
management refused to acknowledge the differences in customer
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20/11/2013 Arun Kottolli: Trans-cultural Business Failure: Wal-Mart Exits Germany
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behavior in Germany when compared to its US customers, and the top
management failed to listen to the feedback from its employees.
Wal-Mart stores are designed for customers who are willing to spend lot
of time shopping. But in Germany, the shopping hours are shorter:
Shops close by 5 PM on weekdays, and no shopping on Sundays. This
meant that customers don’t have the habit of spending lots of time in a
store - wandering around for the things they need. Coupled with this
problem, German customers do not like to be assisted by Wal-Mart’s
friendly store assistants. Germans prefer to do their own search for
bargains.
Wal-Mart got its store merchandising wrong: Germans like to see the
advertised discount products upfront - without having to ask the store
assistant. This implies that the discount products must be placed at the
eye level. Instead Wal-Mart chose to use its US style merchandise
display strategy - where premium priced products are kept at eye level
and discount products are kept at higher shelf or in the bottom racks.
This irritated the German shoppers. Wal-Mart also got its store inventory
wrong, Wal-Mart stocked its store with clothes, hardware, electronics and
other non-food products were given much bigger floor space than food
products, as a result more than 50% of the revenue was from non-food
products. But other German retailers stock more of food products. For
example for Metro, food products constitute more than 75% of the
revenue.
Wal-Mart also failed to achieve the required economies of scale. To
implement its US style hypermarkets, Wal-Mart invested in a robust
distribution system with three warehouses and logistics centers - this
implied higher cost. To be efficient Wal-Mart needed about 400+ stores,
but it had only 85 stores.
The biggest mistake of Wal-Mart was to ignore the local culture, local
buying habits and impose an American boss on its German operations.
The first head of German operations was an expat from the USA - who
did not understand Germany or its culture and insisted that all business
operations be carried out in English language. I have not met him in
person or even interacted with him - but from what I hear and
understand, it is clear to me that the cultural insensitivity started right at
the top.
Closing Thoughts
Cross-border, Cross-cultural business is a challenge even for the biggest
companies. Companies have to be sensitive to the local cultures and
tailor their offerings to local market. To localize their offerings,
companies must carry out cultural assessment before acquisitions,
maintain an ongoing cultural assessment of its foreign operations. This
will help companies measure the effectiveness of its localization efforts
and make adequate changes in local strategy & tactics.
The Wal-Mart example tells us that even the biggest of the companies
are not immune to failures. Companies need to understand the local
culture in order to capitalize on the local market.
The lessons learned from Wal-Mart’s experience in Germany, Korea and
Japan can be applied by other retailers who are planning on expanding in
India & China. Large retail chains such as Tesco, Metro, Carrefour, Home
Keep Overseas Staff Focused on
the Right Goals
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20/11/2013 Arun Kottolli: Trans-cultural Business Failure: Wal-Mart Exits Germany
arunkottolli.blogspot.co.uk/2006/08/trans-cultural-business-failure-wal.html 3/5
Depot, etc., have to be very careful when they plan to invest in countries
outside their home markets. Indian market offers tremendous
opportunities for these organized retailers - but it also comes with
tremendous challenges. Indian consumers have deep rooted cultural
biases which must be understood and overcome in order to succeed in
India.
Also See:
Keep Overseas Staff Focused on the Right Goals
Cultural Assessment - Prerequisite for successful Mergers
Promoting Organizational Change Through Communication
posted by arun kottolli at 10:55 am
labels: marketing, working across cultures
16 comments:
pradeep said...
excellent article. very insightful. you inspire me to start blogging.
12:33 PM
pradeep said...
forgot to mention.. ur blog goes into my favourites..
12:34 PM
princess kali said...
thanks for all the great info. i am a business management student and
your blog always helps me to give my papers a nice twist. keep up the
good work!
1:37 PM
ayesha said...
Good stuff, topics are wide and well written, thanks for your help! albeit
received indirectly...
8:30 PM
chobitz_news said...
Good article, but stores in Germany do noct close at 5 p.m., it's between
7 and 10 p.m. depending on the store...
10:32 AM
rohit said...
hey arun i tired contacting you on orkut but could not, your work is really
nice I am doin my dissertation on indian retail sector in food an
opportunity for foreign investment.
3:31 AM
rohit said...
hi this is really good can u please give me your contact number I really
need to speak to you, or your email id, my id is [email protected]
3:32 AM
namita joshi said...
Lovely article....I wish if I can get your reply on [email protected]
am doing MBA in India.Thanks.
Nami
3:26 PM
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20/11/2013 Arun Kottolli: Trans-cultural Business Failure: Wal-Mart Exits Germany
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Cross-Cultural aspects into consideration. This will be a great help for all
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2:29 AM
mahipal said...
Dude i am about to write a long ass paper on Wal-Mart and its failures in
germany.You made my job easier bro..
2:31 AM
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excellent friend
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