Wal Mart In India Executive Summary

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. The OLI Model describes the Ownership Advantages, Location Advantages and the Internationalization Advantages for the company entering the foreign marketplace. 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).

JOINT VENTURE STRATEGY OF WAL-MART

The joint venture strategy provided the Wal-Mart with the occasion to advance new expertise and capacity as well as permitted the corporation to enter associated commerce or new geographic marketplaces or advance new technological familiarity. Moreover, it delivered Wal-Mart with the access to greater purchaser bases and geographical marketplaces. A joint venture provides the business a greater scale, permitting the administration to take on greater ventures or deal with greater clienteles that would be beyond the capability of the Wal-Mart. Furthermore, a joint venture that also provided the business with the greater production capacity which otherwise could not be possible to attain. It is better than the licensing in the terms that the businesses can overawed the time-consuming procedure of obtaining licenses and other credentials essential to conduct business in a foreign marketplace.

PORTER’S FIVE FORCES MODEL ANALYSIS

THREAT OF NEW ENTRANTS: MEDIUM

The retailers can possibly enter into the retail market.

Entry obstacles are comparatively high, as it has an exceptional delivery systems, brand name, locations, and monetary resources to fend off contestants.

It often has a complete cost advantage over other contestants.(Wal-Mart,2013)

RIVALRY AMONG ESTABLISHED COMPANIES: MEDIUM

The top competitors of Wal-Mart in India are Metro Cash & Carry and Carrefour

A moderate level of competition exist in the Industry due to the presence of the big and well established firms

It has been deliberated that the Wal-Mart has given a tough competition to the local retailers.

THE BARGAINING POWER OF BUYERS: LOW

The individual purchaser has diminutive to no stress on Wal-Mart.

Patron advocate groups have nagged about the pricing practices of Wal-Mart.

Customer can shop at a participant who delivers comparable merchandises at similar prices, but the suitability is lost.

BARGAINING POWER OF SUPPLIERS: MEDIUM

As Wal-Mart grasps so much of the marketplace fragment, they deliver a lot of commerce to wholesalers and manufacturers. This provides Wal-Mart an edge for the reason that Wal-Marts’ intimidating to switch to an altered supplier would form a scare approach to the suppliers. (Evans,2011)

Wal-Mart conducts business with some large suppliers like Coca-Cola, P&G who have an increased bargaining power than small dealers.

THREAT OF SUBSTITUTE PRODUCTS: LOW

There exists certain retail stores in the Industry that may put pressure on the Wal-Mart but none of them are offering such lower prices as Wal-Mart does.

Online shopping ascertains another substitute for the reason that it is so diverse and the purchaser can get price edge as the online stores don’t require to be present physically in order to vend their products.

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.

OLI THEORY

The eclectic paradigm theory is also called as the OLI-Framework or the OLI Model. It is an additional enhancement of the theory of internalization that was proposed in 1980 by John H. Dunning.

Moreover, the internationalization theory itself is founded on the theory of transaction cost. The theory describes that the transactions are formed within an establishment if the transaction costs are greater than the internal charges on the free marketplace. This procedure is knows internalization. Dunning (1998) added three factors to the theory.

OWNERSHIP ADVANTAGES (O)

Ownership specific advantages O is the competitive edges of the corporations pursuing to participate in FDI (Foreign Direct Investment).Moreover, the larger the competitive edges of the capitalizing corporations, the increased they are probable to involve in their external production.(Dunning,1998)

LOCATION ADVANTAGES (L)

Locational advantages refer to the alternate states or sections, for executing the worth adding actions of Multinational Enterprises. Additionally, the more the natural, immobile, or created capitals, which Enterprises require to use mutually with their particular competitive edges, favor a existence in a far-off place, the more Enterprises will select to supplement or exploit their specific edges or advantages by fetching in Foreign Direct Investment.

INTERNALIZATION ADVANTAGES (I)

The corporations may shape the formation and exploitation of their fundamental capabilities. The more the net paybacks of internalizing cross-border in-between merchandise marketplaces, the increased probable a corporation will favor to involve in far-off production itself instead of licensing the privilege to do so.( Cantwell& Narula,2003)

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.

CHARACTERISTICS OF DIFFERENT ENTRY MODES

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.

ADVANTAGES AND DISADVANTAGES OF ENTRY MODE WITH RESPECT TO WAL-MART

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 Dunning (1998). 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 other mode of foreign market entry could not benefit the Wal-Mart in the similar way as they require different type of documentation procedure which is time consuming and don’t support the business in capturing the more market share in the oversees marketplace.

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

Cantwell,J.& Narula,R 2003, International Business and the Eclectic Paradigm: Developing the OLI Framework, Routledge; London

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

Combe, E.& Mucchielli, J 1998, ;The multinational firm versus the host country: A bargaining power approach’, Vol. Iss: 6, pp.185 - 210

Doherty,A.& Quinn,B 1999,’International retail franchising: an agency theory perspective’, International Journal of Retail & Distribution Management, Vol. 27 Iss: 6, pp.224 – 237

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.

Evans, B 2011,’ How India and Wal-Mart Will Create 10 Million Jobs. Forbes. Retrieved from http://www.forbes.com/sites/sap/2011/12/02/how-india-and-wal-mart-will-create-10-million-jobs/

Hill, C 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

Leelapanyalert,K.& Ghauri,P 2006 ,’Managing International Market Entry Strategy: The Case of Retailing Firms’, Vol. Iss: 17, pp.193 – 215

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

Root, F 1994, Entry strategies for international market, Jossey Bass, Inc; San Francisco

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/