Walmart is a multinational retailer that operates discount stores in more than 15 countries including Brazil, Argentina, Canada, and the UK. The cost-leadership strategy of Walmart is based on tight control of operation costs and high turnover, combined with the offer of a large assortment of discounted products. The in-store services of the retailer are very limited due to the continuous effort to reduce costs (Hill & Jones, 2010).
The success of Walmart in the United States can be explained by the close fit of their offering to the customer preferences in the country. However, this model did not work that well in other countries, where Walmart tried to expand its operations. Moreover, the strong centralization of running overseas businesses as well as the attempt to directly apply Walmart practices in foreign markets have become detrimental for the retailer in some locations.
Walmart in Germany
Perhaps the biggest failure of the company in its expansion strategy happened in Germany, which is usually perceived as the most promising European market. Walmart entered the German market in 1998, however already in 2006 they had to withdraw due to significant losses (Landler & Barbaro).
The key problem of Walmart in Germany was its inability to appreciate cultural differences between American and German buyers. Typical German shoppers prefer to buy a limited range of items located closer to their homes rather than drive to big Walmart stores. They also visit shops more often than Americans and prefer daily purchases of smaller amounts of products to the weekly visits of larger stores. Additionally, products offered to the German customers were not well-adopted to the market. Hence, the American retailer did not anticipate the differences in standards of such items as pillowcases, resulting in huge inventories of unwanted items (Schaefer , 2012). German consumers also preferred a more personalized approach to customer service, which was against the traditional no-frills culture of Walmart. The situation was further exacerbated by the cultural conflicts within Walmart Germany. Thus, the company tried to impose an American management style in their German stores and employed mainly expatriates from the U.S. Such situation created hostility within the German subsidiary and limited the ability to understand the local market. All the cultural conflicts combined together made it impossible for Walmart to compete with highly successful domestic retailers, which could offer lower prices, possessed significant market knowledge and owned ore familiar brands.
Walmart in South Korea
Walmart’s expansion to South Korea was not very successful either. The company had to withdraw from the South Korean market in 2006 due to the inability to successfully compete with the existing local retailers and to understand the needs of local consumers (Olsen, 2006). In particular, Korean customers preferred buying higher quality food in smaller amounts and did not use cars as extensively as Americans. Walmart stores, however, offered mostly large packages, which were only convenient for people, who went shopping rarely and transported their purchases by car (Landler & Barbaro). Moreover, the limited customer service made Walmart unattractive to Korean shoppers, who were eager to pay extra for a high level of customer service that made shopping experience more pleasant.
The examples of Walmart failures in Germany and Korea clearly demonstrate the challenges that cultural differences pose for multinational companies. Underestimating these differences and the use of a universal global strategy may become detrimental for the success of international operations. While Walmart today is actively trying to adjust to local cultural peculiarities and demands, these efforts were not implemented in time to save their operations in Germany and Korea.
Hill, C. V. L., & Jones, G. R. (2010). Strategic management theory. (10th ed.). Mason, OH:
South-Western Cengage Learning.
Landler, M., & Barbaro, M. Wal-mart finds that its formula doesn’t fit every culture. The
New York Times. Retrieved from http://www.nytimes.com/2006/08/02/business/
Olsen, K. (2006, May 22). Wal-mart pulls out of south korea, sells 16 stores. USA Today,
Retrieved from http://www.usatoday.com/money/industries/retail/2006-05-22-
Schaefer , L. (2012). World's biggest retailer Wal-Mart closes up shop in Germany .
Retrieved from http://www.dw.de/dw/article/0,,2112746,00.html