Wal-Mart Case

2 February 2017

What are some of Wal-Mart’s FSAs? To what extent are these FSAs location-bound or internationally transferable? Some of the FSAs of Wal-Mart are its ‘every day low price’ (EDLP) philosophy and its so-called ‘exceptional service’. The EDLP and the service seem to be internationally transferable FSAs, because they can be copied to other countries. The EDLP is based on efficient distribution systems, very innovative technology, low prices negotiated with suppliers and efficient processes with suppliers. Those strategies are developed in the USA and can be transferred across borders.

Just like the ‘exceptional service’, which includes smiling at customers, assisting them and exceeding their expectations, which are a set of rules for the employees, does not seem to give any problems when they are transferred across borders. But although those FSAs can be transferred to other countries, they are not working in Germany, due to cultural differences. So therefore the FSAs are location-bound, because they are efficient in the culture of the USA but not in the culture of Germany.

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The FSAs are location-bound when they cannot be implemented in the local culture of the host country. 2.

What distance components (relative to the US) do American retailers face in Germany? Give examples. How did these distance components affect the exploitation of Wal-Mart’s FSAs transferred to Germany? American retailers in Germany cannot only rely on their suppliers in the US, some products need to be sourced locally. For instance, vegetables and local products need to be bought from local suppliers, because vegetables need to be fresh, they do not improve in quality when they are transported from the USA, and local products are not produced in the USA, like Bratwurst, so they have to be bought locally.

Also Wal-Mart had to source locally or regionally for some of its products offering, but because of this and the small size of Wal-Mart Germany and its inability to expand rapidly made it impossible to reduce costs so as to provide everyday low prices. Due to the small size of its German operations, Wal-Mart could not gain power over suppliers when purchasing German or other European products. So, a number of suppliers did not comply with the requests of Wal-Mart. Wal-Mart wanted to be successful with its ‘every day low price’ philosophy in Germany, but it did not work out the way they wanted it to.

The loss-leader strategy of Wal-Mart, a pricing strategy in which one item is sold below cost in order to stimulate other, profitable sales, was judged illegal. Therefore Wal-Mart faced great difficulties by transferring their low-cost FSA to Germany. 3. Did Wal-Mart overestimate the transferability of its FSAs? Yes, we think that Wal-Mart overestimated the transferability of its FSAs. The case study makes clear that Wal-Mart assumed that its culture (i. e. its EDLP and its ‘exceptional service’) could be transferred to Germany without problems, but this was not the case.

The low prices of Wal-Mart could not be transferred to Germany, because of several different reasons. Germany’s fair trading and antitrust laws made it impossible for Wal-Mart to use its loss-leader strategy and they made Wal-Mart raise its prices. More of Germany’s regulations caused problems for Wal-Mart’s expansion in Germany and high prices were the consequence of this. Wal-Mart’s ‘exceptional service’ also did not work in Germany. The case study explains that Wal-Mart’s services like smiling at each customer and grocery bagging were not appreciated by the Germans, so this FSA was not transferable as well.

Wal-Mart could have known that these problems would appear by doing research in advance, but it did not do that and this shows that it overestimated its FSAs. 4. Can you provide an update on Wal-Mart’s international expansion, using materials available on the Web? Wal-Mart currently operates in 15 countries: Argentina, China, Honduras, Nicaragua, Brazil, Costa Rica, India, the UK, Canada, El Salvador, Mexico, Japan, Chile, Guatemala and of course the US 1. After Wal-Mart’s failure in Germany and South Korea, it started focusing on Asia and Latin America.

However it can expect to experience similar challenges in its new countries like it experienced in China, India and of course in Germany and South Korea. The regulations of these countries formed a problem for Wal-Mart, but Wal-Mart states that it has learnt a lesson from its failures in Germany and South Korea 2. It has developed a new way of thinking. It does not simply copy its US stores and plant it in another country anymore, but it focuses on the local circumstances 3. Wal-Mart’s new strategy apparently works, because it was the world’s largest retailer in 2010 4.

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