sociates sociates April 2008 re stunning achievement. achievement. stunning also has an ability International Wal-Mart the company’s and transfer transport to retailing and effective unique culture Wal-Mart market. each new to concepts a it makes that claims International to and adapt to embrace effort concerted deeply involved and become cultures local As community. in the local $62.7 billion and operating profits at profits $62.7 billion and operating the gave $3.3 billion, these strategies penetration market excellent company for positioned them and effectively than 500,000 With more growth. future markets in its international associates expansion sees its rapid alone, Wal-Mart America, Latin North America, throughout as a solid foundation Asia, and Europe further for areas promising with many and development While store growth. it is significant, are expansion in-country of Wal-Mart’s not the only measurement

corporations, corporations, two were there in occurrences discount shop in discount one to Arkansas of the world’s powerful most and successful 23

of green-field investments, acquisitions of investments, of green-field With and joint-ventures. stores, existing results during the financial impressive reaching year with end sales 2006 fiscal 2006 that deeply impacted Wal-Mart’s Wal-Mart’s deeply impacted 2006 that expand globally to quest unrelenting withdraw to forced was – Wal-Mart in both Germany operations international pull-out from While the and . the South highly publicized, was Germany received or failure withdrawal Korean in the United no media attention almost States. is the result global expansion Wal-Mart’s colossal failu colossal

Colossal failure

o matter the controversy that has that controversy the o matter US. Despite Wal-Mart’s unprecedented unprecedented Wal-Mart’s US. Despite beginnings as a its humble success, from © 2008 School of Global Leadership & Entrepreneurship markets. As of September 2007, Wal- As of September markets. more through represented Mart was and operations than 2,700 wholly-owned outside the in 14 countries ventures joint is America’s largest retailer and boasts and boasts retailer largest is America’s of share market 20 percent an estimated and consumables grocery America’s story. It is the largest private employer employer private It is the largest story. and with sales revenues in the world surpassing $350 billion in 2007. Wal-Wart N Inc., the Stores Wal-Mart surrounded success a tremendous remains giant retail By FrancoBy Gandolfi,MindyYoon Braun, NanneyPhil & Ki-Jun Succeed in South Korea South in Succeed Why Wal-Mart Did Not Not Did Wal-Mart Why respond to local customer needs, Wal-Mart International 2007* merchandise preferences, and local suppliers. By serving each new market El Salvador Mexico in the same way, Wal-Mart International has realized considerable efficiencies and Guatemala Nicaragua synergies. Canada Honduras Puerto Rico Wal-Mart in South Korea India In August 1998, Wal-Mart acquired four stores and six undeveloped sites in Costa Rica Japan South Korea. At the time, the units were Source: Wal-Mart Stores, Inc. - *Represents more than 500,000 associates operated as Makro stores, a chain of -based membership clubs. Three of them were located in the capital a subsequent press conference in Seoul, food rather than dry products and the city of Seoul and one in Taejon. Each it was revealed that the company had type of clothing that Wal-Mart sells. The store was a single level unit with more operating losses of nearly 9.9 billion won South Korean culture is also very tied into than 100,000 square foot space. Since ($10 million) in 2005. its markets; they are one of the largest Makro had only been operating in South countries that are deeply involved in local Korea for two years, the stores were On May 22, 2006, Wal-Mart, the world’s markets. fairly new. largest retailer, added their name to a list of multinational firms (Nokia, Some individuals commented that the Wal-Mart’s international division Senior Nestlé, Google) that failed to adjust to location of Wal-Mart was poor and VP and COO, Carlos Perez, was also part the taste of South Korean consumers. miscalculated. A South Korean professor of Makro’s entry into South Korea when Wal-Mart sold its 16 stores to Shinsegae Byung-Chul Shin commented, “The most he was executive VP of Makro. At the for 825 billion won ($882 million), which important mistake of Wal-Mart South time, South Korea’s economy was on a constituted a considerable loss. Wal- Korea was its location.” rebound and its currency had declined Mart was the second Western retailer to sharply in 1997 along with all other Asian retreat from South Korea in less than a Most Wal-Mart outlets in South Korea countries. After a new president took month. were placed outside instead of in office in 1998, the currency recovered the cities. South Koreans expect easy much of its value in the wake of Asia’s France’s , the world’s second accessibility to shopping facilities within financial crisis. The new government largest retailer behind Wal-Mart, had the larger cities without the need to pledged to let market forces, rather sold its 32 South Korean outlets to local travel. Also, South Korean consumers than the government itself, dictate the retailer E-Land on April 28, 2006 for shop more frequently than most process of reconstruction. $1.85 billion (1.75 trillion won) – also at a Americans do. They may not purchase significant loss. As an alternative strategy, many things at once, but they will usually Wal-Mart believed that the long-term Wal-Mart focused on those foreign get at least one item. Some individuals potential for South Korea’s operations markets that were most profitable for felt that Wal-Mart should have been to contribute to the sales of Wal-Mart’s the firm and its stakeholders and its located in the center of the cities where international division was considerable. focus turned back to Latin America, a consumers felt more comfortable with While the geographical size of South booming economic zone. their shopping needs. Korea is comparable to the size of Florida, the population is three times as South Korean Consumer Preferences South Koreans do not distinguish between large. At the time, there were 135 Wal- discounts and normal prices. Thus, they Mart stores and 33 Sam’s Club stores Most individuals believe that Wal-Mart may not see a compelling reason to shop in Florida. There was an underlying failed to understand South Korean’s at Wal-Mart. Gen Kanai, a South Korean expectation that the successful business consumer preferences. Wal-Mart had marketing professional observed, “Wal- model in Florida could be replicated in relied on its proven business model and Mart put off South Korean consumers by South Korea. its strategy in offering low prices for sticking to Western marketing strategies products. However, low prices alone that concentrated on dry goods, from However, prior to Wal-Mart’s withdrawal, were insufficient to make a successful electronics to clothing, while their local Wal-Mart was ranked in the mere business case in South Korea. South rivals focuses on food and beverages, bottom five major discount stores in all Koreans have different consumer the segment that specialists say attract of South Korea. According to Wal-Mart’s preferences than Americans do; they South Koreans to . South spokesperson, Wal-Mart South Korea are not necessarily interested in the Koreans really like fresh vegetables and had sales of about 750 billion won ($787 same products. For instance, South beverages.” million) in 2005, when in fact, at Koreans like fresh vegetables and fresh

Regent Global Business Review 24 www.regent.edu/rgbr

- - - April 2008 Corporate Downsizing Demystified: A Scholarly Analysis (2006) has Press University ICFAI published by of a Businesscan be Gandolfi acclaim. Dr. great received Phenomenon [email protected]. at reached Mindy Braun, Phil Nanney & Ki-Jun are Yoon MBA students at Cedarville University in Ohio. these areas of strengths are by design, by are of strengths these areas be need to They accident. than by rather thinking of the strategic into incorporated by go global. Said best to firms intending on focus Shin, “Firms need to Byung-Chul Wal- countries; between the differences other for example Mart will be a good go global. And, with the to wanting firms concludes, “it values he core of exception their to change companies for is essential succeed in international to strategies… markets.” Gandolfi serves as the MBA Franco Dr. of professor and associate director program (HRM) in the management human resources & Entrepreneur School of Global Leadership in holds degrees He University. Regent ship at the Uni from and Adult Education Commerce in qualifications and doctoral of Sydney versity Southern Cross from Business Administration consults with Gandolfi Dr. Australia. University, and is also an ac corporations international with published articles researcher complished recent journals. His international in numerous book, E-Mart because of the localized feel. feel. localized of the because E-Mart Failure from Forward Moving The be learned? lessons can What going firms for aspect important most the what know must they global is that desire, want, really consumers local commentator, and need. American was Wal-Mart that explains Bracy Ray with South Korean connect unable to and strategy of bad because consumers model its business “adapting overlooked markets.” foreign of the complexities to Ham believe such as Young-Gu Others, Korea lesson in South Wal-Mart’s that their change “If they is salvageable, satisfy to effort an and make strategies will definitely Wal-Mart customers, local in the world.” succeed anywhere the expand internationally As firms and adaptability virtues of flexibility However, of primary significance. become

25 Courtesy of Wal-Mart Stores, Inc. Courtesy Stores, of Wal-Mart Wal-Mart International Executives at the New York Stock Stock York the New at International Executives Wal-Mart Exchange. as E-Mart had. Thus, many consumers consumers had. Thus, many as E-Mart shopping at preferred they that stated Korean consumers are generally not generally are consumers Korean has that in shopping in a store interested style. In and flavor American distinctly to expect consumers South Korean fact, in a localized presented products see local the main reason this is probably fashion; did their shopping at Koreans South why when Even than Wal-Mart. rather E-Mart it Korea in South arrived first Wal-Mart greater capture to not in a position was to competitors force nor to share market prices. Wal-Mart lower at sell its products such stores, localized what not offer could South Koreans strongly believe that that believe strongly South Koreans sales its Western over brought Wal-Mart South culture. company and tactics Unsurprisingly, various constituencies constituencies various Unsurprisingly, failure about Wal-Mart’s speculated have While not widely exposed in South Korea. business media, international in the U.S. of perspective, had no shortage analysts of a example is a typical “Wal-Mart its localize to who has failed global giant said Na Hong Korea,” in South operations Good Morning Shinhan at Seok, an analyst Securities in Seoul. that local customization, flexibility, and and flexibility, customization, local that in ingredients essential are adaptation of international pursuit the successful Wal- Consequently, business operations. that was failure on its own view Mart’s their simply preferred South Koreans A similar shopping centers. domestic own Wal- where Germany in occurred situation its 85 stores. Mart withdrew Wal-Mart’s on Perspective An External Failure firm, it is subject to relentless market, market, relentless to it is subject firm, pressures and business environmental, to localized exposed and continually learned retailer The expectations. cultural © 2008 School of Global Leadership & Entrepreneurship cultures have different idiosyncrasies. idiosyncrasies. different have cultures that realize to has come Wal-Mart powerful large, though it is a very even sold products out of boxes. Wal-Mart Wal-Mart out of boxes. sold products based stores designed its South Korean but different preferences, on US customer For example, E-Mart used techniques, used techniques, E-Mart example, For and hand clapping such as megaphones while Wal-Mart displays, along with fancy Western market strategies that mainly that strategies market Western and electronics, on dry goods, focused clothing hurt them while in South Korea. desired.” of its the pursuit also believed Wal-Mart Inc. oversees international operations. operations. international Inc. oversees existing in the was that His perspective would be time “it that at environment we scale the reach to for us difficult financial failure struck at Wal-Mart, there Wal-Mart, there at struck failure financial Mike constituencies. stunned many were Stores, Vice Chairman of Wal-Mart Duke, to failure. In contrast, Wal-Mart is used Wal-Mart In contrast, failure. to success, any success, and not just to When scale. but success on a colossal Failure unaccustomed is a corporation Wal-Mart and to adjust its business model to the its business model to adjust and to culture. domestic prevailing on its Economic View Wal-Mart’s Mart’s failure in South Korea was primarily was Korea South in failure Mart’s the understand its inability to due to consumers of local shopping preferences observer, yet are obvious, even standard standard even obvious, are yet observer, local As a result, marketers. local to Wal- is that Koreans among perspective These and other characteristics seem These and other characteristics the foreign to and intricate subtle South Korean , you never never you supermarket, South Korean said Hye- market,” think of it as a discount Times. Jang, of the Korea Won since the products are still cheap. They cheap. They still are since the products neat, store-like, the department prefer atmosphere. clean, and sophisticated the biggest which is E-mart to go If you ladies do not like the warehouse-like warehouse-like the like ladies do not which the of Wal-Mart, atmosphere mind not to seem consumers American itself, but also because of its appearance of its appearance also because but itself, in receives or the service the customer Korean some South “In fact, the store. South Koreans are also visually-oriented visually-oriented also are Koreans South purchase to tend They customers. of the product because not just products Notes: (Continued from p. 25) 1. Global expansion strategies are discussed in: Jang, H. (2006). Is globalization succumbing to globalization? Retrieved from http:// times.hankoki.com/1page/opinion/200607/kt2006071818021854070.htm 2. Wal-Mart International financial analysis found in: AFX News Limited. (2006, May 22). Wal-Mart exits South Korea with $886M sale to Shinsegae. AFX News Limited ; Gerrit, W. (2006, July 29). Why Wal-Mart decided to pack. Financial Times; Olsen, K. (2006, May 22). Wal-Mart pulls out of South Korea, sells 16 stores. USA Today; and Troy, M. (1998). Wal-Mart enters South Korea on the ground floor. Discount Store News, 37, 2-3. 3. Background on Shinsegae department stores referenced in Choe, S.H. (2006, May 23). Wal-Mart selling stores and leaving South Korea, The New York Times; Hyong-ki, P. (2006, May 22). Shinsegae to take over Wal-Mart South Korea, The South Korea Times; and Murdoch, L. (2006, May 22). Proof that Wal-Mart's success or failure is determined by its customers. 4. Analysis of South Korean consumer preferences referenced from: Gen, K. (2006, May 24). Wal-Mart leaves South Korea, New York Times, 2; Jang, H. (2006, July 18). Is globalization succumbing to globalization?; and Shin, B. (2006, June 26). Why Wal-Mart failed. Retrieved from: from http://blog.naver.com/widtjs54/120025868601.

5. Analysis on Wal-Mart’s strategy provided from: Kottolli, A. (2006, August 15). Trans-cultural business failure: Wal-Mart exits Germany. Retreived from: http://arunkottolli.blogspot.com/2006/08/trans-cultural-business-failure-wal.html; Murdoch, L. (2006, May 22). Proof that Wal-Mart's success or failure is determined by its customers; and Shin, B. (2006, June 26). Why Wal-Mart failed. Retrieved from: from http://blog.naver.com/widtjs54/120025868601.

CALL FOR ARTICLES

As RGBR expands its international subscriber base, we desire to provide substantive articles for our readers while also including perspectives beyond that of traditional Western views. To truly represent global business, we seek to encourage new ways to approaching commerce that balance performance goals with responsibilities to employees, consumers and suppliers. Based in principles of biblical scripture, we believe the Global Business Review enriches our readers with articles and information to impact their organizations with worthwhile, enduring results.

If you are interested in contributing to the exploration and advancement of global business, we are interested in hearing from you. The RGBR seeks articles from contributors who are recognized experts in their field or who have requisite experience and credentials to be qualified to speak authoritatively on a subject matter. RGBR invites articles addressing the following content areas:

 Strategy  Values-based Management  Innovation and Design  Faith and Workplace Integration  Entrepreneurship  Finance  Business Globalization  Accounting and Financial Management  Social Responsibility  Technology  Human Resources Development  Operations Management  Human Resources Management  Marketing and Sales Management  Change Management  Not for Profit Management  Business Environment and Public Policy  Leadership and Executive Development

For submission guidelines, visit: www.regent.edu/rgbr or submit your article to the editor at [email protected]

Regent Global Business Review 26 www.regent.edu/rgbr