WALMART

AFRICAN EXPANSION

SUBMITTED TO PROF R. SUGANT

GROUP 6 –
Chirag kumar – 18069
Sahana BL – 18081
Anshuman Drolia – 18094
Pavan Kumar K – 18105
Sainath N - 18117
 WALMART AFRICAN EXPANSION
Walmart had expanded through North America, south America, Europe, and Asia. Now the
Walmart executives are looking to expand into another continent Africa. Biggest question now
before Walmart was whether its strategy for entry into South Africa was Sound or not.
Core of Walmart`s success was its ability to offer “everyday low prices”. Since Walmart`s
beginning in 1962, its strategies, systems and structures had been aligned to support a cost-
based business model. This model operated at an unprecedented scale.
Wide range of product offerings enabled Walmart to build a reputation as a one-stop shop for
most consumer’s needs. At its home country it achieved success and also faced a lot challenges
like low wages for employees and its relentless pressure on suppliers were unethical. Walmart
stores were not nearly as successful in urban areas as they were in rural areas.
Walmart began its international expansion in the early 1990s, targeting its neighbours to the
north and south for its first international ventures. It also entered into joint venture with the
Mexican retail company Cifra and later acquired a majority stake in Cifra. It acquired Woolco
in Canada. It purchased a 35% stake in China`s Trust-Mart. It entered Europe through
acquisition of Asda in Britain.
However, not all of Walmart`s international ventures were successful. For example, Wertkauf
and Interspar, neither of which operated on a large scale or held a great deal of the market
share.

According to Hofstede’s Dimension of culture explains the national culture in six dimension
1. Power distance
2. Individualism/collectivism
3. Masculinity/femininity
4. Uncertain avoidance
5. Long term/short term orientation
6. Indulgence/restraint

1. POWER DISTANCE- it means how much the society value hierarchy in the society
between the relationship. China has high power distance between the employees and
the boss. In order to understand this Walmart have to understand the power distance
in south Africa. It depends upon the relationship that established between the boss and
the employees. South Africa scores low on this dimension which means that people to
a larger extent accept a hierarchical order in which everybody has a place, and which
needs no further justification. Hierarchy in an organization is seen as reflecting
inherent inequalities, centralization is popular, subordinates expect to be told what to
do and the ideal boss is a benevolent autocrat.
 2. INDIVIDUALISM/COLLECTIVISM- Individualism means you are responsible
for yourself only and collectivism means you are responsible for the society. In
collectivism society is more important.
As the South African have large number of trade union and it says about 30% of the
south African workforce belong to trade union which means it is collectivism
economy here it is means important is not given only to individual, but it is given to
the society. And the wages for most occupation were set by collective bargaining
agreements.
South Africa, with a score of high is an Individualist society. This means there is a
high preference for a loosely-knit social framework in which individuals are expected
to take care of themselves and their immediate families only. In Individualist societies
offence causes guilt and a loss of self-esteem, the employer/employee relationship is a
contract based on mutual advantage, hiring and promotion decisions are supposed to
be based on merit only, management is the management of individuals.
3. MASCULINITY/FEMININITY: The fundamental issue here is what motivates
people, wanting to be the best (Masculine) or liking what you do (Feminine).

South Africa scores 63 on this dimension and is thus a Masculine society. In Masculine
countries people “live in order to work”, managers are expected to be decisive and assertive,
the emphasis is on equity, competition and performance and conflicts are resolved by fighting
them out. In south Africa as there were challenges like poverty, inequality, skill shortage and
unemployment rate was high the people were working in order live and earn some amount of
the family and welfare.

4. UNCERTAINTY AVOIDANCE: The extent to which the members of a culture feel

threatened by ambiguous or unknown situations and have created beliefs and
institutions that try to avoid these is reflected. South Africa scores 49 on this
dimension and thus has a low preference for avoiding uncertainty. As the people of
cosatu’s boycotted and threatened Walmart if company try to operate in south Africa,
then south African government approved the merger with some conditions laid out to
the Walmart.
5. LONG TERM ORIENTATION: how every society has to maintain some links with
its own past while dealing with the challenges of the present and future, and societies
priorities these two existential goals differently. To this Walmart company has
invested around 100 million dollars to support and improve competitiveness in the
suppliers. They also developed funds to support a local supply base for fresh
produced. They also identified 1500 farmers to participate in this project.
INDULGENCE: the extent to which people try to control their desires and impulses. South
Africa has a high culture of Indulgence. After the decision given by the court the people
accepted it and helped the company to operate in south Africa. By acquiring the Massmart
share holder accepted the merger with 98%, they didn’t have any oppositions. even though the
salary was bit low the company employers tried to work less than 2 dollars based on the locality
of the company
Distance still matters:
“Companies routinely exaggerate the attractiveness of foreign markets, and that can lead to
expensive mistakes. This is a more rational approach to evaluating global opportunities”.
To select the right target for the firm`s Global expansion, companies should not just focus on
geographical distance, they have to consider 3 other dimensions as well: cultural (religion, race,
social norms, language) administrative and political(colony-colonizer links, currencies, trading
arrangements), economic distances(income, distribution-channel quality).

SOUTHAFRICA:
Relating the above concept to South Africa:
By the gravity theory of trade flows, which says there is a positive relationship between
economic size and trade and negative relationship between distance and trade.
It says that having a common border, will increase international trade to 80%, but there is no
common border between South Africa and the countries in which Walmart is having its stores
at present. In the United states, 82% of the population speaks English whereas in South Africa,
only 8% speaks English and also South African people speak many languages which were not
spoken in any other countries in which is having its stores. This may turn to major disadvantage
for Walmart.
South Africa is having many languages, races, religions which were not there in the other
countries.
But, according to the gravity theory, international trade with South Africa can increase to 50%
because of its access to ocean. And also United states and South Africa are also having common
colonizers, due to which international trade will increase. There is also increase in South
Africa`s GDP from year to year, which signals increase of international trading chances with
South Africa.
There is also a strong financial institution in South Africa which decreases administration
distance. But climatic differences are there in South Africa and United States. There are also
different consumer income groups in South Africa compared to United States. But now
spending patterns of South African consumers had shifted over past years, largely due to the
emergence of a black middle class, estimated at 3 million people, making it South Africa`s
largest and fastest growing spending group. As a result of the trend toward urbanization, almost
65% of the South African population was expected to move into urban areas by 2015, thereby
affecting consumer spending patterns.
But Walmart is doing good in rural areas more than urban areas. Administration distance is
very less as African government viewed foreign investment as an opportunity to stimulate
growth, improve the competitiveness of South African companies.
So, Walmart has to all the four dimensions of distances i.e cultural, administrative,
geographical, economic distances before coming to South Africa instead of routinely
exaggerating the attractiveness of foreign markets which can lead to expensive mistakes.
Five contexts framework of Khanna, Palepu and Sinha
The five framework suggested by Khanna, Palepu and Sinha are as follows

 Political and Social systems

 Openness
 Product Markets
 Labour Markets
 Capital Markets

1. Political and Social systems:

 Walmart not only benefited from South Africa’s economic growth, but they
could use SA as a springboard to other African countries.
 South Africa was also the financial and business hub of Africa
 Followed Principle of Interrelatedness where employees were rewarded &
personal relationships were considered essential for a business relationship to
sustain.

2. Openness:
 South African government was open to foreign investment of all forms & in all
business sectors. They had no restrictions on foreign investment.
 The government viewed foreign investment as an opportunity to stimulate
growth, improve competitiveness of south African companies and also to obtain
access to foreign markets.

3. Product Markets:
 When Walmart did market research on African consumer behaviour they got to
know that the spending patterns of South African consumers has shifted due to
the emergence of a black middle class.
 65% of the population in urban areas contrary to Walmart’s strategy of opening
stores in rural areas. This was mainly due to the trend towards urbanization.

4. Labour Markets:
 Wages for most occupations were set based on collective bargaining
agreements. Because of this reason south Africa did not have minimum wage.
 Cosatu and other unions were prone to frequent strikes. One such incident was
when Cosatu union demanded an 8.6 percent pay raise, but the president agreed
to pay a 7.5 percent pay raise.
 Markets were facing shortage of skilled labours.
 South African companies were also required to source majority of the products
from local suppliers. If they didn’t follow it would result in violation of labour
laws and face retaliation from the unions.
5. Capital Markets:
 The financial system was fundamentally sound and included relatively well
developed money markets, foreign exchange markets and capital markets.
 South Africa had a modern and generally effective regulatory framework for its
financial sector.