South-Western - Management  
Wal-Mart Finds That Its Formula Doesnít Fit Every Culture
Topic Global Management
Key Words Global expansion, national culture, business climate
News Story

On July 31st, Wal-Mart announced that it was pulling out of Germany. The company had been trying to be successful in the country for ten years. Some of Wal Martís problems in Germany stemmed from pride. For example, the company originally insisted that all chains carry the Wal-Mart name, a policy they have since changed. The company learned other lessons from their failures in Germany. At first, they required cashiers to smile at all customers. This requirement was dropped when male customers complained that cashiers were flirting with them. They also dropped their morning Wal-Mart staff cheer, when they realized that Germans just couldnít relate to the American tradition.

Wal-Mart also never connected with Germanyís unions, never realizing that in that country, the workers and their unions are closely connected. The company also bought existing store chains that were in poor locations and then compounded their looming problems by moving one of the former chainís headquarters. Most of the German executives were infuriated and quit. In America, moving for Wal-Mart is just an accepted part of the culture. A final lesson for Wal-Mart from the Germany failure is that the company does best when it hires local management. The company used American executives who had little feel for what German consumers wanted.

While Wal-Mart was failing in Germany it was applying the valuable lessons learned to other markets. The International division started 14 years ago and has grown to a $63 billion business. It is the fastest growing Wal-Mart division, with nearly 30% sales growth in June compared to the same month last year. Wal-Mart International is sustaining this growth while Wal-Martís United States sales in stores open at least one year increased only 1% to 3% in July.

One segment that has been very difficult for Wal-Mart to enter internationally is the grocery market. Neighborhood grocers usually carry most items for lower prices, and cultural differences can be dramatic. For example, Germans do not buy packaged meat, preferring to buy meat from a butcher.

The company is forging ahead with foreign acquisitions. Wal-Martís most successful markets have been those in which they started big, like Mexico. In this market, the company bought Mexicoís best run chain, Cifra, and kept the management, which knew the market well. Another success has been the 1999 acquisition of Asda, Britianís number one discount chain. Asda now accounts for 43% of Wal-Martís International revenue, with sales of $26.8 billion.

Wal-Mart has made some obvious merchandising mistakes as well, like trying to sell golf clubs in Brazil where no one plays the game or ice skates in Mexico. But subtle cultural differences in each country are what Wal-Mart International really has to be aware of, if they are to continue to have successes.

Questions
1.

Give three examples of the ways in which cultural differences created problems for Wal-Mart in Germany.

2.

Give three examples of how Wal-Mart has adapted to local culture and customs in other countries.

3.

Define business climate. What can a company like Wal-Mart International do to assess the business climate when it is considering a move to a new country?

4.

Why did Wal-Mart have better success when it was able to maintain local management like in Mexico, as opposed to Germany where they brought in American management?

Source ďWal-Mart Finds That Its Formula Doesnít Fit Every Culture,Ē The New York Times, August 2, 2006, pNA.
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