The Background Of Walmart Marketing Essay

The Background Of Walmart Marketing Essay Introduction International business is where business activities take place in other countries. Business activities include starting a joint venture, shipping, exporting goods and services across national borders. In this essay, I will be selecting Walmart as an international business which had encountered business failure because of the lack of understanding of the national cultural difference in South Korea. Background of Walmart Sam Walton was the founder of Walmart in July 1962 and the first Walmart store was opened in Rogers, Arkansas, offering Lowest Prices Anytime, Anywhere. In 1970s, the company goes national and expands their businesses. In 1980s, the company set up Sams club, attending small businesses and individuals. The first Walmart Supercenter was opened in Washington, Mo., merging merchandise and supermarket to offer one stop shopping convenience. In 1990s, Walmart became the countrys number one retailer and Walmart Supercenter reformulate their multiple services to Every Day Low Prices strategy (Walmart 2012). Walmart.com was founded to offer consumers a seamless shopping experience to shop online, handheld devices or in a store. Today, the company hires 2.2 million associates and have exceeded 10,000 retail stores in 27 countries. In conjunction to that, they also celebrated 50 years of assisting people to save money so they can live better. Problem Identification Walmart goes international to South Korea in 1998. At that point of time, American economy in 1998 had strong domestic economy. The fundamentals of South Korea market were excellent but Asian financial crisis had ruined the exchange value of the Korean won. And as their currency is artificially low and hence, Walmart sees it as an opportunity to expand into Korea. But due to the culture differences and underperforming business in the host country, they had decided to pull out and give up 16 of its South Korea stores to the countrys largest discount store chain, Shinsegae in 2006 after eight years in the market. At the time of withdrawal, Walmart Korea was ranked in the lowest among five major discount store chains in the South Korea (Ramstad 2006). According to the Walmarts spokesman Beth Keck, Walmart Korea earned $787 million of sales in 2005. Following on, they held an interview in Seoul to announce that the company had suffered a loss of $10 million in 2005 (Olsen, 2006). In less than a month, Walmart had become the next western retailer to pull out from South Korea after French retailer Carrefour, sell off its 32 South Korea stores to a local retailer, E.Land Group for $1.8 billion (Choe, 2006). The decision to pull out from Korea is part of its global strategy. Steers and Nardon (2006) stated that global strategy is to focus attention on cost reduction and effectiveness at the cost of local adaption. But as Walmart strive hard on their growth strategy, they still couldnt the reach the stage they desired from the South Koreas market. On May 2006, Walmart joined other reputable firms like Nokia, Nestle and Google under a list of multinational whom had experienced the same outcomes that failed to change the taste of the South Koreas customers (Choe 2006). Causes of the Problem There were many factors that led to the failures of Walmart in South Korea. Walmart failed due to the incapability to identify the shopping patterns of the local consumers and to modify its business model to suit the current culture of the South Koreans. Thus, the profits they earned from stores were very little and despite of large investments, consumers did not choose Walmart as their main shopping destination. Location Preference In South Korea, Walmart had only 16 stores. Just in Seoul, a metropolitan area of 10 million, there is only one single Walmart store. As a result, it couldnt generate enough customer flows as the location is not well located. Therefore, many Koreans have never heard of Walmart. This has resulted in many Koreans shopping at E-Mart, largest discount store chain in South Korea. E-Mart has a total of 79 outlets which are all easily accessible in the centre of the cities. The local retailers, E-Mart, has a more localized approach to suit the local consumers taste and preference. They changed the preference by moving from the open-air market into a well-situated indoors concept in supermarkets. They studied the local consumers preference and focused mainly on food and beverages like local delicacies, seafood as well as their products mix. E- Mart offer low-priced products in smaller quantities and in well-known locations instead of warehouses, having more fresh foods and feature special-in-store events (Coyner 2007). Therefore, most of the South Korean customers do not like the warehouse design of the Walmart. It pulls them off as the tall shelving causes them to use ladders or to stretch for items on higher shelves that were beyond their imagination. They prefer department stores like E-Mart which is clean, neat and have stylish atmosphere. Product expectation The OECD reported that Korea has the highest hours per worker in 2002 (OECD 2004) shown in figure 1. The standard number of hours worked per year in OECD countries is around 1700 and Korea reached 2410 hours per year. Therefore, Koreans work a lot, under huge amount of pressure. Hence, they want every moment when theyre not working or studying to be a luxurious life of living. They have a tendency to choose expensive products and better environment. As a result, Walmart was not very approachable in the host country. Product Mix The South Korean customers might not be interested in the same product categories as the Americans as both of the countries have different consumer preferences based on their cultures differences. Walmart sell dry products, electronics products and garments. Walmarts shoes to sausage product line concept do not go well with the shopping habits of the locals. Freshness of food is very important and in the aspect of the South Koreans and they take it very seriously. They dont mind travelling down to supermarkets or wet markets to buy the fresh food products frequently. Another reason is that they stay at small houses with limited storage and freezing space to store the food, therefore, they have to go for groceries shopping every day. Choe (2006) reported that South Koreans prefer to shop for fresh vegetables and fresh foods rather than buying foreign foods and beverages. In contrast to that, Americans doesnt travel to supermarkets often. They buy products in bulk for longer storage. Therefore, most of the products in Walmart are sold in boxes which do not cater to the Koreans as they prefer smaller packages. A retail analyst Hyundai Securities in Seoul said that Walmart Korea failed to attract customer to the stores (Olsen, 2006). South Koreans are visually-oriented shoppers. They prefer eye catching displays and local retailers were able to present it and grab their attention. Problem Solutions If I am in charge of the Walmarts businesses in Korea, the fundamental aspect to go global is to have an in-depth understanding of what local customers need, want and desire. Some of the business concepts can be easily transferred while others may suit only to particular countries. Walmart go into South Korea sticking to its own culture and sales strategy, ignoring local cultures and buying behaviour and failed to survive in the market at the end (Kottolli 2006). Based on Hofstedes dimensions of culture and Trompenaars cultural dimension, it will be easier to identify the similarities and differences between the Walmarts in United States and South Korea. Therefore, the cultural values are very important in a national culture, it could reflect how the business operate and organise within that country. Hofstedes Dimensions of Culture Figure 2 shows the comparison between South Korea and United States based on the Hofstedes five dimension of culture. They are categorized under Power distance (Power Orientation), Individualism (Social Orientation), Masculinity/ Femininity, Uncertainty avoidance (Uncertainty Orientation) and Long- term orientation (Time Orientation). Power Orientation Power orientation means that the people in the culture hold the power and authority differences in hierarchy levels such as business organisations. There are power respect and power tolerance in the power orientation. Power respect is individuals who have the tendency to accept power based on the position and will respect superiors decision. Power tolerance is those individuals whom often question people in higher authority. Based on the chart shown in Figure 2, under power distance, South Korea scored 60 and United States scored 40. This shows that South Korea is based on a hierarchical society which means that people agree to a hierarchical order based on the position and needs no further explanation. Social Orientation Social orientation reflects a persons beliefs about the relative importance of the individual and the group to which that person belongs (Ajami et al.2006). Under the social orientation there are individualism and collectivism. Individualism refers to the people or countries that look after themselves and their families first. Collectivism refers to people who look after others more than themselves. According to Hodstede (1997), people are integrated into strong cohesion groups which offer protection in exchange for loyalty. Figure 2 shows that South Korea scored 18 and United States scored 91 for the individualism. South Korea is considered a collectivistic society and loyalty in a collectivist culture is importance as it prevails over other rules and regulations. The collectivistic society emphasizes on strong relationship where everybody takes accountability for fellow members of their group. But the disadvantage of the collectivistic society is that wrongdoing will lead to humiliation and loss of face as the employment relationship is perceived in ethical terms (e.g. family connection). Also, hiring or promotion decisions take the employees in- group into account. As for the United States, their employment relationship is perceived via contract. Based on rules and skills, the management will then decide to hire or promote the employees. Uncertainty Orientation Uncertainty orientation refers to the extent to which an individual in the society who feel threatened by uncertain and unknown situations. There are uncertainty acceptance and uncertainty avoidance. People in cultures with uncertainty acceptance have the tendency to be motivated by change and to thrive on new opportunities. On the contrary, people with uncertainty avoidance have the tendency to dislike ambiguity and avoid it. Figure 2 shows that South Korea scored 85 and United States scored 46 under uncertainty avoidance. South Korea is considered to be the most uncertainty avoidance countries in the world and they hold rigid rules based systems. South Korea people feel that there is a need to work hard and have rules and punctuality. As for the United States, they will work hard only when there is a need. Time Orientation Time orientation refers to the people of a culture who adopt a long- term versus a short- term viewpoint on work, life and other issues (Griffin 2011). Figure 2 show that South Korea scored 75 and 29 on the long- term outlook. South Korea has a longer term orientation and people from this society accept the fact that they have to work hard and to have perseverance in order to achieve their goals. As for United States, the Americans will focus on the past and present more rather than the future. Apply Hofstedes theory to Walmart Applying back to Walmart Korea, there is a need to examine the different dimensions of culture based on Hofstedes model shown in Figure 3. South Korea being a collectivistic society, they work hard to achieve their goals and blindly obey the orders of their superiors. Walmart cant simply impart their western culture to the South Korea and to expect them to accept. South Koreans dislike ambiguity and will avoid the changes. Walmart needs to look into the future of the South Koreans living expectation and adopt a different way of approach to keep the customers. They cant just look into the Asian financial crisis and go into South Korea without preparing their business plan for the long term growth in the local market. Trompenaars Cultural Dimensions Another theory that I will apply is using Trompenaars cultural dimensions. Its another alternative to Hofstedes dimensions. Universalism versus Particularism South Korea is more of a Particularistic culture. They believe that circumstances state how ideas should be applied and some things cannot be done the same way as it is. South Korea with high particularism that has legal contract is often amended and they will try to work things out to suit the parties. Likewise for the culture in Walmart Korea, they are under Universalists. They believe that ideas can be applied everywhere without any modifications. Aswathappa (2010) stated that the management under Walmart focus on formal rules and business connections. Specificity versus Diffuseness South Korea is under diffuse countries, which means that their work and private life are closely related. In 1996, Trompenaars observed that the employee turnover rate and the number of invasion in the countries are quite low mainly because of loyalty (Cited in Heidtmann 2011, p. 44). Walmart are based under specific cultures because of its handling by western country. The people are more open and outgoing. Furthermore, their work life and private life are separated so they only share with close friends or associates. Achievement versus Ascription South Korea is considered an ascription- orientated culture. They give certain associates a higher status because of their age, gender and social connection. As for the Walmart in United States, their status is based on their performance and accomplishment. Conclusion To conclude, Walmart needs to plan their operations and strategies before expanding to South Korea. Having a lucrative business in foreign country depends on the market size, culture aspects, current and future wealth of customers. Walmart had their strategic positioning fit in the United States and was able to capture the principles from the customers which helped to boost their profit growth (Kim 2008). But Walmarts attempt to use their business model to the South Korea market leads to failure. As a result, Walmart Every Day Low Prices strategy does not fit in the South Korea country due to the culture differences. In addition to that, Walmart did not come up with an effective localization strategy to indicate how much they are investing and grow in the local market. Therefore, Walmart should apply Hofstede or Trompenaars culture theories to analysis the culture differences first before deciding whether Korea was a strategically key market to go into it global expansion. Word limit: 2363