Why did Walmart fail in Germany and South Korea?

 Given Wal-Mart's success in Mexico, one can easily understand the company's decision to expand further into other countries, especially since they have been able to change the purchasing behavior of the Mexican market to match what is available in the United States.However, visualizing the business environment as a common community is a big mistake that any company can make because there will always be differences down to the minute level in terms of how people perceive things and behave.

The case of Wal-Mart’s failure in Germany and South Korea has become a subject of discussion in both the academic and practitioner worlds as people seek to understand the reasons behind their failure and solutions for avoiding similar cases in the future. In any case, this research will focus primarily on the analysis presented by the University of Pavia (2010), in which it was made known that a large number of reasons have been accounted for as the factors behind Wal-Mart’s failure in Germany and South Korea, and these reasons are as explained below.

Nature of the market: during the time that Wal-Mart entered the German market, retail spending had reached the maturity stage and was about to enter the decline stage, as influenced by the German economic slowdown of 2000 (University of Pavia, 2010). Besides the product life-cycle experienced by German retail shoppers, it is historically known that the German retail market is such that achieving huge margins is impossible, and the market has already been dominated by other brands such as Metro, Aldi, Rewe, and Schwarz. Even with the acquisition of Wertkauf and Interspar, Wal-Mart only had 1.1% of the German retail market, and many argued that it was too small for the company to create any critical mass for expansion. Additionally, the acquisition became very difficult because no other brand was willing to sell. Even these brands (for instance, Aldi) had a similar strategy to Wal-Mart in the sense that they offered low-priced goods. This was also a similar case in South Korea, where top brands such as Carrefour and other local brands already dominated the market prior to Wal-Mart’s entry, and these brands also offered low prices. Thus, the market created a really uncomfortable zone for Wal-Mart to gain any grip on market shares, forcing the brand to exit and focus in other markets where they are sure of maintaining dominance.

The acquisition – one striking discovery pointed out by the analysis presented by University of Pavia (2010), the kind of acquisition made by Wal-Mart played significant role in their failure. For instance, the German brands Wertkauf and Interspar were considered inferior and second choices in the country, and the company only acquired selling rights to buildings but did not acquire the land. Thus, Wal-Mart had issues meeting changes in rental demand, and this influenced their overall success in the country negatively. Additionally, success was negatively affected because the acquired brands were considered second choices in their respective markets, so demand for goods sold under these brands was very low.

The senior managers—in both Germany and South Korea, Wal-Mart made the mistake of not taking local HRM into consideration, and this can also be linked to their initial failure in Mexico, with the outcome of its present success being influenced by the decision to localize its HRM (University of Pavia, 2010). In any case, the senior managers in both countries were primarily Americans with little knowledge or experience of the German and Korean markets, which caused the company's decision-making process to be more aligned with American standards while ignoring the need to function in accordance with what is locally available.Looking back at their acquisitions mentioned above, it can be seen that the lack of local managers influenced their choice of acquisition because the American managers were not familiar with the top retail brands in these countries. Thus, the management pattern did influence the lack of success in these countries.

Corporate culture – described as one of the reasons why major brands fail, priding one’s culture while in another culture can have significant negative effects and this was the case of Wal-Mart. The company has a well-established culture of customer orientation and has committed staff that have the desire to meet the needs of customers (University of Pavia, 2010). However, this was different in the German culture, as staff wanted to be seen as individuals with their own views about things around them. In South Korea, the high level of power distance also meant that staff did maintain some distance from customers, whom they viewed as being above them in the social hierarchy. Thus, these differences created a crash in the HRM system, and it affected its success negatively because staff had different views from what their American managers wanted, thus pointing back at the importance of localizing the management system.

Supply chain network: with only a few percent of market share owned by Wal-Mart, supply chain was a very difficult issue for the brand because suppliers were reluctant to move away from the top brands that offered better supply value (University of Pavia, 2010). Additionally, it was made known that Wal-Mart managers were acting in the same way as they do in America by going to the warehouses of their suppliers in order to check if they have enough stocks for supply. Thus, the German and South Korean suppliers were put off by this because it’s not applicable in their own culture. Thus, the lack of supply also influenced their success negatively.

Comparison of Wal-Mart in Germany and South Korea with Mexico

Basically, it can be seen that exactly the same fate experienced in South Korea and Germany is what initially befell Wal-Mart when they entered Mexico. It is still the same issue of understanding market needs and being pluralistic in nature in terms of identifying differences in cultures and not treating different cultures as if they were the same (Adler and Ghadar, 1990; Kobrin, 1992; Milliman et al., 1991). Standing on the brink of failure, Wal-Mart quickly understood the importance of localizing its operations in Mexico by opening smaller shops in the streets and offering a smaller volume of sales as is attainable within the Mexican setting. The company also employed Mexican managers and aligned their overall services to the tastes of the Mexican market.

However, the brand repeated the same mistake in both Germany and South Korea by showcasing so much American influence in these markets. Considering the fact that Mexico was its first international market, one could easily argue that Wal-Mart should have learned its lessons once and for all. However, this was not the case, as the brand still exhibited faults in a number of ways when considering the German and Korean markets. Maybe the brand viewed these markets as having the same features as the American market because they are advanced countries, but the fact remains that differences in culture play a significant role in how people do things, irrespective of the similarities between the countries.

Irrespective of the argument made in this case, one thing that is very striking is the difference in zeal and commitment to excel that Wal-Mart had in these countries. While the brand was on the brink of failure in Mexico, it didn’t withdraw from the market but instead sorted for new ways to improve its services, and this effectively led to the idea of employing locals and offering smaller stores across Mexico. The outcome is that Wal-Mart is the biggest retailer in Mexico presently, but their reason to pull out of Korea and Germany as opposed to the Mexican decision to stay can also be linked to the fact that the Mexican market is fresh while the German and Korean markets were already congested with other popular brands.

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