walmart pestle

Global Expansion: WalMart in Spain

International Trade and Commerce


Agenda

Status Quo

• Current business model

• Lessons from the past

The Spanish

retail market

• The environment: PESTEL

• The company: SWOT• The market: Porter’s

5 Forces

Entering the

Spanish market

• Mode of entry• The adapted

business model• Strategy


Status Quo


Current Business Model

1

Decisions

Policies

Low wage, non-union workers

Customer priority,

friendliness

Assets

Information systems

Specialty and regular

formats

Governance

Autonomous store

operation

Bulk purchase,

power over suppliers

Consequences

Flexible

Low costs, low prices

Rigid

A fast and efficient system

Supplier relationships

, brand equity


The virtuous cycle of Wal-Mart’s success stories

Lack of adaptability and foresight in new markets?

Large Sales

Supplier Relationships

Information Exchange

Low Cost

Attractiveness to Customer

and Brand Value

Successes and Failures

2

+Good

Logistics

+Compliant

Labour

Customer Service

+Local Culture

Available Infrastructure

Laws of the Land

International Expansion

Contingent success may not

materialize


Case in Point: Failure in Germany

3

Labour issues

Non-strategic acquisitions (Wertkauf & Interspar) Integration problems

Brand building problemsVery expensive mistakes


Case in Point: Failure in Germany

4

Global expansion driven by country’s market size alone

Little attention to required business model adaptations No real market penetration:

Lack of strong buyer / supplier relationships Huge competition in a “price-sensitive market”

No cultural adaptation: English the official language Oblivious of shopping habits, work habits

Problems with German authorities (pricing, wages etc.) Efficient centralized distribution system but hard to

replicate in other markets


Spanish retail market


PESTEL analysisPolitical Economic

• Government wants to deepen relationships with USA

• Moderate political risk• VAT recently hiked (18% to 21%)• 5% lower income tax than neighbours

• Economic crisis• High unemployment rate (24.6%)• Entrenched market, few global players• Expected downturn till at least 2013• Retail spending down 11% y-o-y in Q3-

12

Social Technological

• Price sensitive market• Easy terms, post-sales services

important• Food & beverage: 2nd highest family

expense• Fastest population growth during

2005-10• Closely controlled family based

companies• Spanish language: different languages

• The adoption of Electronic Point of Sale (EPoS), Electronic Funds Transfer Systems (EFTPoS) and electronic scanners have greatly improved the efficiency of distribution and stocking activities, with needs being communicated almost in real time to the supplier

Ecological Legal

• Important in the country : the energy consumption decreased by 5.2% in 2012

• Hypermarket size > 4000 m2• Competition and anti-trust laws strict• Selling below cost forbidden• Minimum salary: 748 €

5


Strengths• Automated distribution system• Low prices • Wide range of products• Growth/ Global Expansion

Weaknesses • Customer concern due to low prices• Low wages • Large inventories

Opportunities• Growth, global expansion (+

Mercadona’s own expansion plans)• Drive down costs by combining own

technological expertise and local partner’s knowledge

• Government wants to deepen relationship to USA

Threats• Currency risks for profit expatriation• Political and Economic risks amid

EuroZone crisis• Antitrust regulations against big-tickets

joint ventures• Unemployment rate 24.6% (2012)• Declining economy due to crisis 2011• Bureaucracy

SWOT

6


Porter’s 5 Forces (Spanish retail industry)

INDUSTRY RIVALRY

(1) Medium-sized supermarkets

(2) Mercadona

(3) Wide range of supermarkets

ENTRANTS

(1) Governmental framework,

decentralization

(2) Entry barriers: retail regulations

(3) EU Service Directive

BUYERS

(1) Unemployment

(2) Tourism

(3) Variation

SUBSTITUTES

(1) Large distribution chains

(2) Wholesalers

(3) Middle-sized supermarkets

SUPPLIERS

(1) Walmart may dictate

(2) Mercadona‘s strong relationship to suppliers

(3) Favoring infrastructure of

suppliers near cities

7


Entering Spain


Mode of Entry

8

Organic growth obstacles: Need local expertise, established supply chain and cultural

knowledge Land regulations make new development expensive and

time-taking Barely enough surplus demand to support another big

player Motivations for Joint Venture:

Acquisition may be too expensive, may create hostilities Spanish IPOs improbable due to increasingly illiquid markets Twin benefits: combine own technological advances and

supply chain expertise with local knowledge and relationships

Avoid short term market risks, medium term Eurozone risks and gain on long term partner expertise and brand equity


Mercadona

10

Turnover: EUR15,267mn, No of stores: 1,311 (in Spain) 9th most reputable company in the world in 2009 by the

Reputation Institute as listed in Forbes Magazine Expansion plans into Italy, France, Belgium, Portugal;

Wal-Mart’s gateway to continental Europe Orientation towards Mercadona’s secret to success

high productivity flexible working conditions employee training performance-linked bonuses permanent, full-time working contracts above average wages, no mass layoffs employees‘ dedication watching costs, passing savings to customers

A rare mix, even

among its Spanish peers


Recommendations Leading European retail format = discounters (low priced

stores with limited assortment but good quality for certain target groups) [Pfohl and Roth, 2008]

Market stagnant: aim to grab competitors’ market share Capitalize on the downturn sentiment

Participate in social causes for community benefit and visibility Crisis => lower ability to pay => prices a critical factor => EDLP

rules Population density rising, improved accessibility more

important than new establishments Target new formats (eg. neighbourhood stores) at untapped

areas Place supermarkets in areas more accessible to tourists Experiment with Marcedona‘s employment practices in other

EU markets

9


The ‘adapted’ Business Model

11

Large Sales

Marcedona’s Supplier

Relationships

Better bargaining and good quality

Low Cost and Low Prices

Attractiveness to Customer

Marcedona’s local cultural knowledge

WalMart’s innovative supply and distribution

technologies

Marcedona’s

employment

practices

Higher productivity and better

service

+ expansion opportuniti

es


Features of the Model

12

Aligned

• Highest cost savings realized across geographies

• Continuous expansion of the everyday low price system

Self-Reinforcing

• Once positive synergies from the joint venture, the growth trajectory would be steeper than possible for either retailer alone

• As also shown by the feedback loop

Robust

• Imitation would require huge resources and established presence in the entrenched market

• The combination of inimitable consequence of Wal-Mart and Marcedona’s business model should be strong against competitors

• Substitution by small retailers is a negligible threat in Spanish market


Case in Point: Tackling the labour issue

13

Low compensation

Intangible benefitsJob security

High Productivity Happy Employees

Thank You for your Attention

Elodie Lichtenberger

Harshit Krishna

Lara Aschenbrenner

Louise Roche

Marie Nauméa

walmart pestle

Education

germany international

failures international

spain international

agenda international

entrenched market

pricesensitive market

real market penetration

countrys market size