Strategy Used By Wal Mart While Entering

Published Date: 02 Nov 2017

This paper intends to describe the strategy used by Wal-Mart while entering into the foreign marketplace. Wal-Mart is a US based giant retailer that operates in more than 27 countries and almost forty eight percent of its shares are owned by the Walton family. Many authors have proposed different theories regarding the International Business and the considerations that ought to follow for internationalization. Root (1994), Brassigton and Pettitt (2000) and Koch (2001) describes the various factors that impact the decisions of the firms while entering a foreign country. Moreover, the Transaction Cost Model as well as the UPSALA Model has been discussed in the report. There are various modes of foreign entry including the licensing, franchising, Joint ventures and the acquisition. However, the Wal-Mart executed the Joint Venture strategy while entering the India. It formed the joint association with the Bharti Enterprises in order to begin their operations in India.

Contents

COMPANY OVERVIEW

Wal-Mart is a US based international retail company that operates chains of warehouse stores and big discount department stores. In 2012, Fortune Global 500 list included the Wal-Mart as the 3rd major public company around the globe. Moreover, it is also taken as the chief private company in the realm with more than 3 million employees, as well as the key retailer in the world. Furthermore, in 1962 Wal-Mart was established by Sam Walton and at the present time, almost forty eight percent of the shares are owned by the Walton family. It is recognized as one of the realm's most cherished corporations. The very recent market development, market penetration, and un-related diversification approaches of Wal-Mart display that it desires to keep up of rivalry and its international supremacy to be the largest corporation. (Wal-Mart, 2013)

WAL-MART IN INDIA

In 2008, Wal-Mart proclaimed a contract with Bharti Enterprises to form a joint venture, for back-end SCM (Supply Chain Management) and wholesale processes in India. An ordinary wholesale facility of cash and carry positions between fifty thousand and one hundred thousand square feet and vends an extensive range of vegetables and fruits, foodstuffs and staples, writing materials, footwear, dresses, customer durables and other wide-ranging commodities.

Being existent and necessitating to enter overseas marketplaces is for numerous corporations natural, however for other it is a different trial that they have to encounter. This contest, called as market entry, comprises of 3 chief verdicts: where to go in, what time to enter and in what way to enter diverse marketplaces. Some corporations are imposed to internationalize in the initial phases of their life owing to small drenched home marketplaces, though other corporations select to go in a foreign country for the reason of the great chances new marketplaces might carry (Peng, 2006).

LITERATURE REVIEW AND THEORIES OF INTERNATIONAL BUSINESS

DEFINITION OF ENTRY MODE

A worldwide market entry mode is to form the likelihood by positioning corporation’s merchandises, human skills, technology, administration or other possessions to enter into an overseas country. (Root, 1994). Root (1994) regards those entry modes aid corporations in determining objectives, possessions and policy in order to trail their global activities in the direction of a sustainable international development. Moreover, when administrators have to select an entry approach to go into a foreign country, there are many aspects which they consider before making verdicts. Numerous theories have been given by Chen and Mujtaba (2007), Koch (2001), Root (1994), and Brassigton and Pettitt (2000) for determining and assessing the entry mode approach espoused by the specific MNC.

TRANSACTION COST MODEL

Chen and Mujtaba (2007) advanced their investigation regarding entry mode factors founded on non-TCE standpoints and Transaction cost model (TCE). Transaction Cost Economics Model contends that the cost of executing a specific entry mode is a pertinent aspect in a corporation’s entry mode verdict. The manner of foreign entry is founded on efficiency standards so that transaction cost can be economized (Leelapanyalert& Ghauri, 2006). Non- TCE Model entails a set of tactics including Bargain power theory, Ecletic approach, and Resource-based theory. Dunning (1998) advanced 3 clusters of factors in Ecletic theory that impact the entry approach choice. It includes the internationalization-specific advantages, transaction-specific advantages, and ownership-specific advantages. The theory of bargaining power speculates the comparative bargaining power of the corporation and the host administrations are significant influences on international approach (Combe & Mucchielli, 1998)). Moreover, the resource-based theory deliberates that resource accessibility and application both play a role in the selection among modes of entry. The model developed by Dunning (1998) is concentrated on the advantages deliberated by the internationalization procedure and less on the expansion procedure of the internationalization of corporations.

UPPSALA MODEL

Uppsala Model concentrates on the diminuendos of the internationalization and it is also known as the "U Model". The key scope to be attained by smearing the Uppsala Model is envisaging the corporation’s evolution on distant marketplaces. Moreover, two features are at the root of the model which includes the concept of secventiality credited to the procedure and the view of physical distance. (Makryniotis &Yamin, 2000)

NORMATIVE DECISION THEORY

Normative decision theory proposes that the selection of the foreign marketplace entry ought to be founded on trade-offs between returns and risks. A corporation is anticipated to select the entry mode that delivers the maximum risk-adjusted payback on speculation. Though, behavioral evidence specifies that the company’s selections may also be determined by need for control and the resource availability.

Furthermore, Entry mode theories and concepts have gathered many of the important aspects on entry mode verdict. Numerous authors have alienated these aspects in two groups, for Instance Root (1994) divided the factors as external and internal. Koch (2001) embraces a third clutch which entails the mixed sorts of internal and external factors. Other writers like Chen and Mujtaba (2007) divided aspects of entry mode verdict in three sets from an altered viewpoint concerning to specificity: country-specific factors, market-specific factors, and firm-specific factors

THEORY BY BRASSIGTON AND PETTITT (2000)

Brassigton and Pettitt (2000) deliberated that two internal elements including the speed and payback have impacted on entry mode. They described payback as the period that a corporation requires to make proceeds from investment in a distant country. Moreover, they defined the speed as the period the corporation desires to dedicate for probing a target market.

THEORY OF ROOT (1994)

Root (1994) developed a model of elements that influence entry mode verdict. He differentiates between external and internal aspects. He described that the selection of entry mode for a merchandise or target state is the consequence of numerous (often contradictory) factors. He divided persuasive forces impacting entry mode verdict into two sets namely external and internal factors. Moreover, Root (1994) determined four significant external elements impacting entry mode selection including the target country production factors, target country market factors, home country factors and target country environment factors. It has been deliberated that two internal factors which impact the selection of entry mode include the resource commitment factors and product factors. (See Appendix 1)

THEORY BY KOCH (2001)

Koch (2001) describes that there are certain external elements impacting selection of entry mode including the characteristics of the image support requirements, foreign country business setting, and industry feasibility/viability of MEM, international administration efficiency necessities, admiration of individual MEMs in the foreign marketplace, and marketplace fences, and market development rate.

Koch (2001) contends certain entry modes such as joint venture or wholly-owned subsidiary may be omitted by law in certain states due to that the specific industry might be deliberated strategic by the country. This element also discusses the cost of labor, labor regulation, know-how dissemination risk, level of skill and taxes. Moreover, Koch (2001) describes that there are features of the foreign country which are tranquil to get these days, however company-specific information and data about industry is often problematic to find. The numerous other aspects as volatility of general business regulations/ practices, similarity, business infrastructure, scope and intensity of competition, levels of industrial development, customer sophistication and customer protection legislation. Furthermore, the knowledge of this data will impact the selection of international approach. The market development rate can be leading in entry mode verdict. When the marketplace has a fast development rate, the corporation pursues to exploit this occasion by means of entry modes of fast development. Or else, when increase in demand is anticipated to happen over a long period, the corporation inclines to form entry modes like wholly-owned subsidiary and joint venture. Koch (2001) described that entry modes are impacted by seven internal elements including the management locus of control, company size/ resources, management risk attitudes, experience in using MEMs, market share target, profit target and calculation methods applied.

LIMITATIONS OF LITEARURE

Cavusgil, Ghauri & Agarwal (2002) deliberated the entry modes in Developing Marketplaces while. Moore, Doherty & Doyle (2010) described the entry approaches from a retailer viewpoint. Though the literature covering entry approaches has numerous benefits, most entry mode approaches though elucidate entry mode selections in a statistical manner, referring that the authors only explicate in what way to enter the marketplace, but are not concentrating on the vibrant procedure after the pre entry approach.

Moreover, a relationship between selections of entry modes concerning developing marketplaces could have been more evidently demarcated. Associated with advanced marketplaces, emerging marketplaces vary in the external setting as well as in characteristics of firm; consequently an empathetic of entry mode selections for developing marketplaces needs to be simplified. Cavusgil, Ghauri & Agarwal (2002) clarified the prominence of external setting study when entering developing marketplaces but inappropriately flops to relate the features of emerging marketplaces to the selection of entry modes.

MODES OF ENTERING A FOREIGN MARKET

Doherty & Quinn (1999) described four key entry modes retail corporations ought to deliberate:

Own subsidiary

Joint Venture

Acquisition;

Franchise. ( See Appendix 2)

Moore, Doherty & Doyle (2010) enhance the modes of entry by including merger, concessions, flagship stores, internet sales, exporting/wholesaling, as pertinent entry modes choices for retail commerce.

Moreover, when a corporation is going to search a foreign marketplace, the selection of the finest mode of entry will get up in the corporation’s expansion approach. All of the foreign market entering approaches have their benefits for the corporation to discover as well as hindrances which must be measured by the corporation’s top administration. Furthermore, the administrators ought to make the selection prudently for the reason that it directly impacts whether the company will prosper or not in its distant development. Regarding the selection of entry for a retail corporation, acquisition and joint-venture with a host country company or establishing a wholly-owned subsidiary are more appropriate for these sorts of companies. (Hill 2007)

LICENSING

It includes a licensor and licensee that are taut together by a certain contract which positions to advantage both sides. The licensor would vend its know-how privilege to the lessee, generally for a time period. The know-how is the intangible possessions like patens, formulas, inventions, processes, designs, trademarks and copyrights. Moreover, the licensee requires paying the royalty payment for having the contract with the licensor. It is a key phase for a company which intends to enter a distant marketplace. Owing to the ambiguity of the foreign marketplace, the economic or political condition, this variability will provoke the corporation to deliberate developing a licensee contract. This contract can help the corporation to make their development in a more stable manner. Furthermore, the Licensor Corporation can gather a royalty payment from the licensee; this is particularly a great advantage for a licensor who has restricted investment to start full processes in a distant country.

FRANCHISING

It is a comparable entry style to licensing. The franchisee would get the key business know-how through a contract with the franchiser after the payment of royalty. The knowledge also embraces the intangible possessions like trademarks, patents, etc. The variance from the licensing style of entry is that the franchisee ought to follow numerous rubrics given by franchiser. Moreover, Franchising is usually used in service commerce. Though, the licensing entry style is regularly used by industrial organizations.

JOINT VENTURES

It is a usual entry mode used internationally. It refers to two or more discrete and autonomous corporations join together in an association for achieving enhanced standing in the marketplace. It is a technique that both sides grasp comparatively the same proportion of shares in the project. The joint venture’s process is distinct from both corporations, and frequently the similar role is pooled by both administrative groups. It could be conceivable that one company capitalizes more for gaining the larger proportion of shares and grasp firm regulation of the joint venture’s processes. Similarly, a lower speculation proportion will generally direct to less control. (Sanchez & Criado, 2009)

WHOLLY OWNED SUBSIDIARIES

The wholly owned subsidiaries refers that the corporation possesses hundred percent of the foreign entity. Additionally, there are 2 key techniques to found external wholly-owned subsidiaries. The one of them is the Greenfield venture which refers that the company will enter the new global marketplace by founding an entirely new process and legal entity. The other technique is the acquisition which refers that the company procures another corporation in that global marketplace in order to enter in a direct manner. The other company could be a recognized and strong corporation in that specific industry. Therefore the company could get a lot of benefits and stimulate its own merchandises by using the acquisition strategy.

LINK OF STRATEGY OF WAL-MART AND LITERATURE

Wal-Mart executed the joint venture strategy in India and its experience is projected to be a motivating source of knowledge for advanced country vendors who deliberate an entry and development into the developing marketplaces of India. Additionally, it is contended that this experience also can be beneficial for corporations who necessitate entering other developing marketplaces since correspondences between the diverse emerging marketplaces can be established. Moreover, the Wal-Mart executed such strategy for the reason that it was familiar with the business environment of the India as well as its market growth rate as described by the Koch (2011). The laws and other regulations present in the India also facilitate the joint venture and may pose certain obstacles for the country if it intends to trail the acquisition or any other related entry mode. Furthermore, the external factors described by Root (1994) also played an important role in determining the approach that would be beneficial for the Wal-Mart to execute. For Instance, the market factors of India and US were compared and it was analyzed to implement the joint venture strategy in order to be successful. Therefore, all the important factors impacting the entry of firm in the foreign market must be taken into account in order to obtain the effective results. All the proposed theories provides with an insight about the factors that play an important part and ought to be deliberated in internationalization process of any company.

REFERENCES

Brassington, F.& Petitt, S 2000, Principles of Marketing, Prentice Hall; NY

Cavusgil, S.,Ghauri, P.& Agarwal, M 2002. Doing Business in Emerging Markets: Entry and Negotiation Strategies, SAGE Publications; California

Chen, L & Mujtaba, B 2007, ‘The Choice of Entry Mode Strategies and Decisions for International Market Expansion’, Journal of American Academy of Business, vol.10, issue 2, p. 322

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Dunning, J 1988, ‘The eclectic paradigm of international production: A restatement and some possible extensions’, Journal of International Business Studies, vol. 19, pp. 19, 1-31.

Hill, Charles 2007, International Business-competing in the global market, McGraw-Hill.

Koch, A 2001, ‘Selecting overseas markets and entry modes: two decision processes or one? ‘Marketing Intelligence and Planning.pp.65-75

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Moore,C., Doherty,A.& Doyle, S 2010 ,’Flagship stores as a market entry method: the perspective of luxury fashion retailing’, European Journal of Marketing, Vol. 44 Iss: 1/2, pp.139 – 161

Peng, M 2006, Global Business. South-Western College Pub; Boston

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Sanchez,A.& Criado, M. 2009, "Deciding Between Acquisition and Joint Venture: Intangible Resources and Similarity’, Management Research: The Journal of the Iberoamerican Academy of Management, Vol. 7 Iss: 1, pp.21 - 32

Wal-Mart, 2013,’About Wal-Mart’, Viewed on Jan 15,2013, Assessed at http://www.walmart.com/