Introduction
Wal-Mart is the world largest retail company operating both in the US and the international markets through joint ventures and subsidiaries in other countries. Wal-Mart was established in 1962 by Sam Walton in Brentonville, Arkansas and was traded in the public market in 1972. The company took anticyclical measures in the 90s by considering the international expansion. The company has established itself in Mexico, China, Canada, and Argentina. The company has successfully been able to establish a vibrant market by attracting more consumers through its Every Day Low Price (EDLP) (Horngren, 2008). This is a consumer centric approach combined with giving customers the best service which has ensure that customers can return defective products. Since the establishment of the company the founder’s unique, strategy drove it to its success. The management focused on the customer satisfaction and they relied on the three main principles, which include respecting individual customers, great service to customers and striving for excellence. As a result, the company had set up a strategy that was consumer centric and emphasized on the pricing (McWilliams, 2009). This means that they offered the customers’ needs at the lowest price possible and still maintained a high quality product. The EDLP strategy and consumer centric policies played a pivotal role in the Wal-Mart’s growth in the US. This was a different strategy compared to what other retail companies used which gave the Wal-Mart an added advantage for growth and expansion. The Wal-Mart is in continuous trend even in the modern changes in the consumer market. The company is establishing itself in other countries around the globe. This report is aimed at assessing the Wal-Mart expansion to Africa (Dakora, 2012).
The company's actions
The retail industry is highly competitive. Wal-Mart is also competing at different levels of the retail categories. It competes against other world giants such as Kmart, Target, Costco, Safeway, Kroger, and Albertsons. The competition in the retail category is majorly on the pricing, location of the store and size , the shopping atmosphere , merchandise mix, variation and the consumer image. Therefore, Wal-Mart has employed different strategies when entering in different markets around the world. It has therefore looked into the business in the region and formulated strategies that are fit for the particular region (Horngren, 2008). In Mexico the retail company entered through joint venture with Group Cifra SA de CV where it formed the Walmex. The Walmex was successful because of the similarity in customer needs and interests. This is because the consumers in Mexico were able to enjoy the EDLP model that is a strategy used by the Wal-Mart. Even when they employed the local strategies, Wal-Mart had similar interest in terms of pricing strategies. In Asia countries, the retail giant faced some challenges especially in China and japan because of the culture issues and language barriers. This forced the Wal-Mart retail company to consider drastic changes that would make the company competitive in the local Asian market. Even with these changes, the company still faced strong competition from the local players (McWilliams, 2009). In the case of Japan, the EDLP was not attractive to the customers compared to other countries of entry such as Mexico. This is because majority of the Japanese consumers linked the low prices with low quality thus driving away many potential consumers (Dakora,2012). In other countries such as Germany Wal-Mart faced a lot of government restrictions on the low pricing strategy. This means that the company had to adjust its strategies based on the region of entry.
Africa is an emerging market because of the expected population growth at 5%. Africa has turned out to be an important market for the international companies because of its promising future growth. Wal-Mart boosts of having a large-scale presence in more than 15 countries with projected revenue of about $400 billion by the end of 2010 (Hough, 2007). The Africa economic growth has attracted many international giants in various business fields. Wal-Mart also saw an opportunity in Africa. The increasing consumer demand led to the consideration of a joint venture with a south Africa retail giant Massmart which has more than 288 stores across the region. This joint venture is an opportunity for the Wal-Mart to expand in the African market (Accenture, 2009).
Wal-Mart spent over $2.4 billion for a joint venture with South Africa Massmart in 2011. This was projected to be a gateway to Africa markets which is experiencing a high growth rates. The choice of Massmart which was founded in 1990 was projected as a good strategy. This is because Massmart is the second largest retailer in the sub-Saharan Africa with currently more than 374 stores and operating in 12 countries in the region. Massmart always focus on the high volume, low cost distribution, and low margin of the branded consumer goods. Its main strategy is to improve its business model and increase investment across the continent (Dakora,2012).
During the Wal-Mart –Massmart joint venture process, the challenge that emerged was the possibility of the mass lay off which would have a negative impact on the company success. The solution for this was to retain all the staff for two or more years and to adhere by the existing labor agreements (Hough, 2007). The Wal-Mart was expected to take advantage of the high rate of economic growth that Africa was projecting. In addition, the increasing middle class population, which implies that demand for the consumer goods, also rose. It was also expected that Wal-Mart would also benefit from the large network developed by Massmart in the region. However, there were challenges that Wal-Mart was projected to face in the continent which include their one size fit al approach which may not work well in all regions. In addition, the cultural and infrastructure barriers are also eminent. Africa also lacks reliable data research of the consumer behavior, which would be a barrier to the implementation of its strategies. There is also a challenge of poor legal systems in most Africa countries. The governments and local groups may also be a major problem to the retail entering Africa market (Hollensen, 2007).
Despite the powerful investment in the joint venture, the seems to be little growth in the Massmart as they were only able to open 10 more stores which were outside the 25 existing outside its home market since the signing of the joint venture. This is far behind their rival Shoprite that was able to double its outlets from 150 to 300 in the same period. This slow growth experienced by Massmart depicts the challenges facing multinationals trying to do business in Africa. This also raised questions to the Wal-Mart’s venture into the rapid expanding markets in the developing countries. It seems that the reality on the ground for the company is also shifting barring projected growth for the American giant in Africa market (Dakora,2012). The Wal-Mart pricing strategy may not be working effectively in the African market because low returns. However, the retail giant’s pushes on in the African market hoping to understand it and make appropriate changes that would propel it to dominance in the market as is in other parts of the world.
The entry of the multinational companies in Africa has lessons that should be studies by other companies planning the same venture before investing their money in any venture. It’s evident that it’s hard to understand the African market because of limited data on the consumer behavior which is an important concept when designing marketing strategy. There are also silent issue that cannot be seen by an outside before venturing in the local African market which include the demographic characteristics and consumer bargaining power. The other issues that should not be overlooked in Africa include cultural, religion and behavioral patterns of the local populations. This is because these are unique concepts that are unique in every city even in the same country. In the case of Wal-Mart Massmart merger, there seems to have little study on the reason for the increasing growth of the Massmart in the African market. It is lack of this knowledge that has slowed down the growth of the joint venture compared to its competitors. There are more risks and uncertainty in the African markets which sometimes would force an company to venture blindly and hope for the best as is the case with other competitors strategy. Being a developing continent, the EDLP strategy needs to be redefined because low price in the US might be highest in Africa context.
References
Accenture (2009). Expansion into Africa: Challenges and success factors revealed. http://www.accenture.com/SiteCollectionDocuments/PDF/Accenture_Strategy_Expansio n_into_Africa_POV.pdf [8 Jan 2017]
Dakora, E. A. N. (2012). Exploring the fourth wave of supermarket evolution: concepts of value and complexity in Africa. International Journal of Managing Value and Supply Chains, 3 (3), 25-37
Hollensen, S.(2007). Global marketing: a decision-oriented approach. 4th ed. London: Prentice Hall.
Horngren, Charles (2008) . Cost Accounting. 13th. NJ: Pearson. Print
Hough, J.(2007). Global marketing strategy. In Venter, D., Erwee, R. & de Lange. R. Global business environments and strategies: managing for global competitive advantage. Cape Town: Oxford
McWilliams, Gary (2009). "Wal-Mart Evades Global Woes as Net Rises." Wall Street Journal 2512/20/2008 A2. 1 Apr 2009 <http://www.library.american.edu>
