Walmart Case
Introduction to International Business:
Case 4.2 Wal-Mart’s retreat from Germany: How distance made the replication of a domestically successful model impossible
October 8th, 2013
1. What are some of Wal-Mart’s FSAs? To what extent are these FSAs location-bound or internationally transferable? Some FSA’s of Wal-Mart are EDLP (it’s ‘every day low price’ philosophy) and it so-called ‘exceptional service’ (it customer-service)1. EDLP is in general internationally transferable because they could just transfer their low-price products from China and India. However, it was in a way location-bound since they could not implement their low-prices, or ‘’loss-leader strategy’’ (a pricing strategy in which one item is sold below cost in order to stimulate other, profitable sales)2 in Germany due to governmental regulations. Also, their exceptional service, which includes smiling at customers and helping customers with, for example, their groceries (‘grocery bagging’’), is in general internationally transferable, because every manager can apply that in their store. However, it is not appropriate for every culture. And in Germany, US Wal-Mart was not able to transfer their exceptional service approach, because what the Americans saw as “exceptional service”, the Germans experienced as bad service because of cultural differences. For example, the 10-foot rule was interpreted as flirting and sometimes even harassment. Next to that, the Germans did not like other people touching their groceries.
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? The American retailers in Germany could not only rely on the suppliers they have back in the US, because many products had to be purchased from local or regional producers. For example, bradwurst and beer was primarily local, and many European brands in
Case 4.2 Wal-Mart’s retreat from Germany: How distance made the replication of a domestically successful model impossible
October 8th, 2013
1. What are some of Wal-Mart’s FSAs? To what extent are these FSAs location-bound or internationally transferable? Some FSA’s of Wal-Mart are EDLP (it’s ‘every day low price’ philosophy) and it so-called ‘exceptional service’ (it customer-service)1. EDLP is in general internationally transferable because they could just transfer their low-price products from China and India. However, it was in a way location-bound since they could not implement their low-prices, or ‘’loss-leader strategy’’ (a pricing strategy in which one item is sold below cost in order to stimulate other, profitable sales)2 in Germany due to governmental regulations. Also, their exceptional service, which includes smiling at customers and helping customers with, for example, their groceries (‘grocery bagging’’), is in general internationally transferable, because every manager can apply that in their store. However, it is not appropriate for every culture. And in Germany, US Wal-Mart was not able to transfer their exceptional service approach, because what the Americans saw as “exceptional service”, the Germans experienced as bad service because of cultural differences. For example, the 10-foot rule was interpreted as flirting and sometimes even harassment. Next to that, the Germans did not like other people touching their groceries.
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? The American retailers in Germany could not only rely on the suppliers they have back in the US, because many products had to be purchased from local or regional producers. For example, bradwurst and beer was primarily local, and many European brands in