Business Strategy Of Wal Mart In Japan

Business dodging Of Wal Mart In japanGlobalisation is described as a process of world wide integration of culture, technology, loving, political and economic factors. It is all(prenominal) about the creation of a world unified food tradeplace and this set up be observed with the growing levels of global backing (Luthans and Doh, 2009). Globalisation is b atomic number 18 in the shift of Multi interior(a) companies (MNCs) and economies from a world of isolation as a result of trade barriers to a world of push downd trade barriers and more than inter related businesses and economies (Hill, 2009). MNCs now, expand from both buzz offed countries, develop countries and emerging countries and vice-versa. There is thereof increasing competition among nations (The Economist, 2008). The global expanding upon of businesses over the years into different inter fieldistic commercialises have attend toed these businesses to increase their sales, competitiveness, reduce their emb ody of production and expand out of their saturated home merchandises (Root, 1994 Hill, 2009 Daniels et al., 2009). Retailers ar non exceptions to this global elaboration.This article will evaluate the inter fieldisation scheme of Wal-mart in japan. Wal-Marts internalisation outline in Japan is of compositionicular disport because it recently pulled out of two of its international markets Germany and South Korea. Its mastery in Japan is unflurried questionable especially as Japan has be to be a difficult market for many foreign retailers. foreign companies such as Carrefour, Boots have pulled out from the Japanese market by and by facing business challenges (Luthans and Doh, 2006). The literature review will analyse the Integration- reactivity I-R frame prevail as considerably as culture. These frameworks will be utilise for the evaluation of Wal-martsinternationalisation outline into the Japanese market in semblance with its international competitor Tesco Plc. T he use of these two frameworks is to show the extent to which Wal-marts musical arrangement resolves towards Japanese topical anaesthetic anaesthetic anaesthetic anesthetic anaesthetic tastes and privilegeences in achieving a flourishing internationalisation. Conclusions and recommendations will be drawn from this analysis.BACKGROUND OF WAL-MARTWal-mart was founded in 1962 by Sam Walton and opened its source discount store in Rogers Ark, USA. In 1969, the company incorporated to choke Wal-Mart Stores, Inc. Wal-mart stores feature general merchandise such as electronics, clothe, and home appliances. It likewise has complete groceries units. The company employs more than 2.1 zillion associates, serving more than 176 million customers a year. In 2009, it ranked first among retailers in Fortune Magazines about Admired Companies survey and is withal the largest retailer in the world (Wal-mart, 2009).As a result of the saturation of the Ameri fuel retail market, Wal-mart started its international expansion into foreign markets in the 1990s first into Mexico and subsequently expanded into long dozen other countries including Japan China, Canada and Great Britain (Wal-Mart, 2009 Hill, 2009). Today it has about 8,424 stores and club locations. The companys near successful foreign venture is in its Mexican market (Hill, 2009). This is as a result of the fact that they adjusted their international outline to equalize local demands. Their everyday imprint wrong strategy was to a fault successful in Mexico which is a developing inelegant. However, these strategies are not always welcomed by consumers as revealed in their German and Korean market expansions where they failed and had to pull out. Wal-Mart is still struggling to succeed in the Japanese market where it has already invested $1 billion (USD) (BBC, 2007).Nevertheless, Wal-marts international expansions of Wal-Mart has al haplessed it to develop economies of scale, increase Its customer b ase and develop more ideas such as their new shop layout (Hill, 2009 Wal-mart, 2009).LITERATURE go overINTEGRATION-RESPONSIVENESS(I-R) FRAMEWORK gibe to Prahalad and Doz (1987, p.18) the Integration-Responsiveness (I-R) framework is a way of capturing the blackmails on a given business . This framework is based on the pressures for global integration and local responsiveness on a business as sensed by the managers of the company (Rugman, 2002). Pressures for global integration are industry forces which drives companies into the standardisation of their products, policies and procedures in pronounce to reduce their cost of operations across national boundaries while pressures for local responsiveness are forces which drive businesses into existence locally sensitive to differences in culture, preferences, tastes, and general behaviour of each international market in their internationalisation strategies (Rugman, 2002 Daniel et al., 2009 Luthans and Doh, 2009).According to Luth ans and Doh (2009), the understanding of culture and its mixture is important to an international companys successful internationalisation in any country. This is because it usurpations upon work force attitudes, managerial ideology, technological transfers, business customs and practices as salutary as consumer behaviours.The I-R framework was positive by Prahalad and Doz in 1987. They categorize international strategies into Global strategy (global integrated, centralised management and run away for cost reduction), Multi-focal strategy (an integration of global coordination and local responsiveness) and locally responsive strategy (customised and localized product and services). The adoption of any of these strategies is dependent on the dominant pressure on an MNC as well as its main focus which could be cost reduction or customer satisfaction.Bartlett and Ghoshal (1989) hike developed this framework and classified MNC strategies into four categories which can be compar ed with that of Prahalad and Doz. Their four strategical classifications are Global strategy, International strategy, Transnational and Multi domestic strategy. Companies with global strategy (high Integration- paltry Responsiveness) focus on standardization and cost reduction with preposterous global harbor, those with International strategy ( junior-grade Integration-Low Responsiveness) usually introduce their existing competence and expertise into the new market while Transnational companies ( risque Integration and game Responsiveness) are flexible and integrate equal levels of global integration and local responsiveness into their business. The multi-domestic companies on the other hand ( utter Integration and blue Responsiveness) respond more towards product customisation (Daniel et al 2009). It is however worthy to note that the adoption of unmatched strategy may lead to the neglecting another. Figure 1, shows the diagrammatic pattern of the strategic classification s by both authors.CULTUREThe understanding of culture and its impact on international market expansion is imperative to the success an MNCs strategy in a foreign country (Luthans and Doh, 2009). The degree of pressure for local responsiveness is reflective of the degree of influence of culture upon consumers. Differences in cultural match between companies and employees or consumers can a lot result to contend for success in an international market (Holstein, 2007). Hofstede (1980, p.21), defined culture as the collective programming of the mind which distinguishes the members of one human group from another. however as personality defines the identity of an individual, culture defines the identity of a group. According to Luthans and Doh 2009 p.96, culture is the acquired knowledge that bulk use to interpret, experience and go social behaviour. This acquired knowledge often manifest into peoples attitude, values, behaviours and general ways of life. many a(prenominal) resea rchers have argued that culture can be learned, shared, symbolised, patterned, adapted and transgenerationalised.Hill (2009) get along argues that values and norms form the basis of a culture. These values could be attributed to collective responsibility, social obligations, loyalty and so on and are often measure emotionally important to the group. Norms on the other hand are social codes of conducts which dictate peoples behaviour towards each other. The Japanese for instance, can be seen as a group of people with similar values and norms and related culture. several(prenominal) researchers have studied cultural differences and its impact on different national behaviours.Hall (1973, 7976) cited in Paliwoda and Ryans (2008), categorised culture into High and Low context. High context cultures like Japanese and Arabic, prefer implicit or voiceless messages and slow business discussions with emphasis on personal relationship and bank while Low context cultures like North America, United Kingdom, Germany prefer explicit, written or spoken messages with more emphasis on expertise, public presentation and efficiency.Hofstede (1980) undertook a study of the impact of culture on values in a workplace. He categorised culture into four main dimensions cause distance, uncertainty vacateance, individualism -collectivism and masculinity-feminity. A fifth one confucian dynaminism also referred to as long term or short term predilection was later developed. Power distance shows the extent to which people perceive ine tint. High power distance nations (cultures) emphasise on the ine timber of power, its workforce fall out their superiors orders while low power nations or cultures derogate this inequality to stripped-down thus the work force follow superiors orders as a adjective requirement. Uncertainty avoidance on the other hand is the extent to which cultures avoid uncertainty. High uncertainty avoidance cultures shy away from risks, while low uncertainty avoid ance cultures see risk as a part of life. Individualism versus collectivism is the degree to which people look after themselves as individuals or work in groups. Masculinity is often compared with feminity. Cultures with emphasis on success, money were referred as more masculine by Hosftede while a culture with emphasis on quality of life and caring for people are seen as feminist ( Hill,2009 Luthans and Doh,2009). The table downstairs shows the Work-related values for 5 countries adapted from Hofstedes study.In as much as Hofstedes work is well accepted and has provided the basic characterisation of different cultural or national groups, these are not definite because culture cannot be easily classified and also culture is bit by bit changing with the increase in globalisation and integration of the world at large (Luthans and Doh, 2009).WAL-MARTS EXPANSION INTO JAPAN.Wal-Mart initially make a failed entry into Japan in the mid 1990s when it entered the market through selling it s products in local supermarkets, however sales were frustrate (Yoffie and Wang, 2002). The initial failure could be associated to slow market drive by the local super markets as Wal-mart had little or no control over them. This can be seen as a major single out of indirect exporting (Root 1994). However, in 2002 Wal-mart made a second examine into Japan (BBC, 2006). Japan is one of the wealthiest and developed economies in the world. It has the second largest consumer market (Haddock-Fraser et al., 2009). Wal-marts entry into Japan was through partnership with Seiyu Ltd which is Japans fifth largest hypermarket and was in fiscal distress at that condemnation (Yoffie and Wang, 2002). It was a deal which was done in phases as agreed by both parties. Wal-mart was to initially acquire 6.1% of Seiyu shares and gradually increase its bet on by acquiring up to 67% of Seiyu in 2007 (Yoffie and Wang, 2002). Sumitomo Corp a leading trading company in Japan also had a 15.6% stake of Seiy u (Luthans and Doh, 2009). In 2005, Wal-mart increased its acquisition stake making Seiyu a Wal-mart subsidiary and increasing Wal-marts control over Seiyu. In 2007, Wal-marts stake was again increased to 95.1% (Wal-mart, 2009). This partnership deal was meant to help Wal-mart minimise its risk of internationalising in Japan where there is strong domestic competition, impairment wars and strong suppliers and also help its entry and expansion in the market (Yoffie and Wang, 2002 Luthans and Doh, 2009).ANALYSIS OF WAL-MARTS STRATEGY IN JAPAN.Companies like Wal-mart, adopt international strategy for global expansion as suggested by Bartlett and Goshal because they have burden competences which they can capitalise upon especially if its difficult for their rivals to match them. Companies with International strategy have important part of their value chain such as decision making, expertise, new products and international operations being controlled or clear-cut from their headquarter s. However such centralised decision making can often impede upon the abilities of the subsidiaries to respond to local demands (Hill, 2006 Daniel et al., 2009).Wal-mart has a cost efficient operational system with an expense structure that is among the lowest in the industry (Shah et al, 2005). Its price of food was estimated to be 20% lower than its competitors in the United States (Yoffie and Wang, 2002). Wal-mart is therefore trying to replicate this successful American strategy and core competence of Everyday Low Price (EDLP) in the Japanese international market. though this strategy has been success in some of its international markets such as Mexico and China, the results in Germany and Korea were so poor that Wal-mart withdrew from those countries in 2006. Once again the success of this strategy is still questionable in Japan. Japanese consumers associate low price with low quality as they are willing to reconcile high price for high quality products (Holstein, 2007 strat egical Direction, 2008 Boyle, 2009).The perception of customers towards low price signifying low quality is particularly high in its clothing segment (Brunn, 2006). This low price strategy was adopted by Wal-Mart in its entry into Japan in 2002, especially because it was at a time when the country was just emerging from a prolonged recession and consumer income was low (Luthans and Doh, 2009). In order to erase this image of Low Price signifying Low Quality from the minds of their customers, Wal-Mart has introduced, more expensive products for the customer segment that prefers high cost while still maintaining some low cost variants. For example, it has jeans for $10 and $ 35 option as well (Business Week, 2005) this however may further jumble its customers who may not understand the basis for such price disparity.Japan is a country with a high context society and state-controlled way of life (Paliwoda and Ryans, 2008). They have strong ties to families and groups and great emphas is for quality and prestige (Hofstede, 1980). As a result of these strong social ties, Wal-Marts passing of 25% of Seiyus work force including 1500 managers and employees in 2004, was wrongly perceived by the Japanese people. Wal-mart opens its stores for 24 hours a day, this is seen as stressful by the employees and primarily seen as an infiltration of the American culture into Japan. Its introduction of American, Canadian and British managers who act on headquarters decisions rather than employing Japanese managers who understand the market better further portrayed them in a negative fallible to both the employees and the general public. This consequently led to the loss of some of its customers (Holstein, 2007 Strategic Direction, 2008).Another core competence which Wal-mart introduced into Japan is its technology-focused inventory replenishment system which is linked to their suppliers. It helps them monitor and manage their inventories. However, because the Japanese people p refer personal interaction when doing business (Hofstede,1980), the implementation of this Information technology strategy has not been easy, especially as Japan has several layers of distribution network which are closely networked and difficult to penetrate. It thus makes high volume discounting difficult and merchandise more expensive (Brunn, 2006 Holstein, 2007). Wal-Mart is however trying to eliminate the middle-man in order to successfully implement its low price strategy (Luthan and Doh, 2009).Wal-marts retort to local tastes, preferences and general way of life is perceived as low in its international strategy as It tends to implement its competences into international markets with little considerations to what the local demands, preferences, expectations are and this has led to its struggle to survive in Japan (Brunn, 2006). compare Wal-mart with Tesco Plc in Japan, the following differences can be drawn from their strategy. Tesco Plc which is the biggest retailer in the United Kingdom entered Japan in 2003 through the acquisition of a domestic retailer just as Wal-Mart did. While Wal-mart acquired Seiyu which is a hypermarket, Tesco Plc acquired C Two-Network stores which has humiliated discount supermarket stores (Tesco, 2009). Haddock-Fraser et al., (2009) have argued that large supermarket (hypermarkets) of the western cultures are not operable in Japan, rather small supermarkets, thingumabob stores with immaterial and quality products are preferred by the Japanese consumers. Thus the strategic move of acquiring a discount supermarket chain by Tesco was aimed at concourse the local demand of the Japanese consumers who prefer to shop daily for fresh food in small quantities with convenience. This shopping behaviour makes them to patronise convenience stores and discount supermarkets which are more accessible than out of town hypermarkets. Tesco, with its small store format, experienced overall sales growth in 2006 contrary Wal-mart which ha s been making loss for four years (Haddock-Fraser et al., 2009).Upon acquiring C Two-Network, Tesco carry the management team of the company to oversee its operations in Japan, because Tesco pull in that these managers have better understanding of the Japanese employees, consumers and suppliers (Food and Drink, 2003). Japan, being a country with high collective behaviours, (Holfstede, 1980) perceived this as a good move. Tesco Plc tries to coiffe its products and services in each of their international markets, recognising that each market has funny preferences. This higher degree of local responsiveness in their international markets emphasises the designer why Tesco retains its foreign managers and limits its control from headquarters (Tesco, 2009).Figures 3 and 4 below further shows the differences in the sales contribution of the international markets to the total tax of both companies. Wal-Marts international markets contributed 24.6% of the companys 2009 financial incom e while Tesco Plc has 53% of its 2009 financial income being generated by its foreign markets with Asia alone generating 30% of this value. It can, therefore, be concluded that Tescos response to local responsiveness has a positive impact on their financial performance internationally.CONCLUSIONS AND RECOMMENDATIONSWal-Mart is very successful in its domestic market and also some foreign markets such as China and Mexico where it had to adjust its strategy in order to respond better to local pressures. It is therefore recommended that Wal-mart should further develop its strategy in Japan and respond better to the countrys local demands and preferences through the opening of convenience stores in order to capture that market segment and offering more fresh local products to meet the local demand. Wal-mart should also employ Japanese managers who understand the market better. These measures will help Wal-mart to succeed better in Japan where the pressure for low price by customers is no t emphasised rather high quality is preferred. Wal-mart can still maintain its international strategy with a little more responsiveness to local demand as there is no one best strategy to adopt. This move will save Wal-mart from withdrawing from the market where it has already invested $1 billion USD. Wal-marts low sales value from international operations in comparison with Tesco reveals that the retail market is still a viable industry for Wal-mart to exploit.