Wal-Mart has seen its growth in the United States slowing recently. Quarterly same-store sales increases have dipped from between 7%-9% in 2002 to 1%-3% this year. Because of this slow down, Wal-Mart has no choice but to look to overseas expansion to fuel its continued growth. Currently, international operations account for about a fifth of Wal-Martís sales, but they hope that eventually sales in that division will equal a third of the companyís revenue.
Wal-Mart operates nearly 300 stores in Brazil, Latin Americaís biggest economy. They also operate about 260 discount stores in Canada. Overall, the company operates in about 15 countries besides the United States. However, success has not come easy in other countries. It has struggled in Japan, failed in Germany, and even had troubles in the United Kingdom. Mexican operations, however, are thriving.
A research firm called Bain & Co. analyzed 100 overseas moves by retailers between 1989 and 2004 and found that less than one-third were successful. Success rates in Latin American countries were around 40% and about 80% in Canada. The company views Wal-Martís expansion into Brazil as high risk and low growth potential.
The company found that cultural reasons are one clear obstacle to success in other countries. They also found other reason that expansion plans fail. First, when countries already have clear and established market leaders it can be difficult to enter with a new name. Also, the local economies are often not robust enough to support the massive investment needed to launch a successful international enterprise. Wal-Mart already earns a much lower return on assets in international markets (6%) then it does domestically (24%).
,br>As to other reasons why failure rates internationally are so high, many speculate that executives assume that competitors wonít make any adjustments to compete with the new business. Logistics can also prove to be a problem. Wal-Mart is known for its great distribution, based on their trucking system. Given Wal-Martís slowing gains and recent bad publicity, investors would like to see them succeed in Brazil, even against the odds.