Wal mart in spain
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Global Expansion: WalMart in Spain
International Trade and Commerce
International Trade and Commerce
Agenda
Status Quo
• Current business model
• Lessons from the past
The Spanish
retail market
• The environment: PESTEL
• The company: SWOT• The market: Porter’s
5 Forces
Entering the
Spanish market
• Mode of entry• The adapted
business model• Strategy
International Trade and Commerce
Status Quo
International Trade and Commerce
Current Business Model
1
Decisions
Policies
Low wage, non-union workers
Customer priority,
friendliness
Assets
Information systems
Specialty and regular
formats
Governance
Autonomous store
operation
Bulk purchase,
power over suppliers
Consequences
Flexible
Low costs, low prices
Rigid
A fast and efficient system
Supplier relationships
, brand equity
International Trade and Commerce
The virtuous cycle of Wal-Mart’s success stories
Lack of adaptability and foresight in new markets?
Large Sales
Supplier Relationships
Information Exchange
Low Cost
Attractiveness to Customer
and Brand Value
Successes and Failures
2
+Good
Logistics
+Compliant
Labour
Customer Service
+Local Culture
Available Infrastructure
Laws of the Land
International Expansion
Contingent success may not
materialize
International Trade and Commerce
Case in Point: Failure in Germany
3
Labour issues
Non-strategic acquisitions (Wertkauf & Interspar) Integration problems
Brand building problemsVery expensive mistakes
International Trade and Commerce
Case in Point: Failure in Germany
4
Global expansion driven by country’s market size alone
Little attention to required business model adaptations No real market penetration:
Lack of strong buyer / supplier relationships Huge competition in a “price-sensitive market”
No cultural adaptation: English the official language Oblivious of shopping habits, work habits
Problems with German authorities (pricing, wages etc.) Efficient centralized distribution system but hard to
replicate in other markets
International Trade and Commerce
Spanish retail market
International Trade and Commerce
PESTEL analysisPolitical Economic
• Government wants to deepen relationships with USA
• Moderate political risk• VAT recently hiked (18% to 21%)• 5% lower income tax than neighbours
• Economic crisis• High unemployment rate (24.6%)• Entrenched market, few global players• Expected downturn till at least 2013• Retail spending down 11% y-o-y in Q3-
12
Social Technological
• Price sensitive market• Easy terms, post-sales services
important• Food & beverage: 2nd highest family
expense• Fastest population growth during
2005-10• Closely controlled family based
companies• Spanish language: different languages
• The adoption of Electronic Point of Sale (EPoS), Electronic Funds Transfer Systems (EFTPoS) and electronic scanners have greatly improved the efficiency of distribution and stocking activities, with needs being communicated almost in real time to the supplier
Ecological Legal
• Important in the country : the energy consumption decreased by 5.2% in 2012
• Hypermarket size > 4000 m2• Competition and anti-trust laws strict• Selling below cost forbidden• Minimum salary: 748 €
5
International Trade and Commerce
Strengths• Automated distribution system• Low prices • Wide range of products• Growth/ Global Expansion
Weaknesses • Customer concern due to low prices• Low wages • Large inventories
Opportunities• Growth, global expansion (+
Mercadona’s own expansion plans)• Drive down costs by combining own
technological expertise and local partner’s knowledge
• Government wants to deepen relationship to USA
Threats• Currency risks for profit expatriation• Political and Economic risks amid
EuroZone crisis• Antitrust regulations against big-tickets
joint ventures• Unemployment rate 24.6% (2012)• Declining economy due to crisis 2011• Bureaucracy
SWOT
6
International Trade and Commerce
Porter’s 5 Forces (Spanish retail industry)
INDUSTRY RIVALRY
(1) Medium-sized supermarkets
(2) Mercadona
(3) Wide range of supermarkets
ENTRANTS
(1) Governmental framework,
decentralization
(2) Entry barriers: retail regulations
(3) EU Service Directive
BUYERS
(1) Unemployment
(2) Tourism
(3) Variation
SUBSTITUTES
(1) Large distribution chains
(2) Wholesalers
(3) Middle-sized supermarkets
SUPPLIERS
(1) Walmart may dictate
(2) Mercadona‘s strong relationship to suppliers
(3) Favoring infrastructure of
suppliers near cities
7
International Trade and Commerce
Entering Spain
International Trade and Commerce
Mode of Entry
8
Organic growth obstacles: Need local expertise, established supply chain and cultural
knowledge Land regulations make new development expensive and
time-taking Barely enough surplus demand to support another big
player Motivations for Joint Venture:
Acquisition may be too expensive, may create hostilities Spanish IPOs improbable due to increasingly illiquid markets Twin benefits: combine own technological advances and
supply chain expertise with local knowledge and relationships
Avoid short term market risks, medium term Eurozone risks and gain on long term partner expertise and brand equity
International Trade and Commerce
Mercadona
10
Turnover: EUR15,267mn, No of stores: 1,311 (in Spain) 9th most reputable company in the world in 2009 by the
Reputation Institute as listed in Forbes Magazine Expansion plans into Italy, France, Belgium, Portugal;
Wal-Mart’s gateway to continental Europe Orientation towards Mercadona’s secret to success
high productivity flexible working conditions employee training performance-linked bonuses permanent, full-time working contracts above average wages, no mass layoffs employees‘ dedication watching costs, passing savings to customers
A rare mix, even
among its Spanish peers
International Trade and Commerce
Recommendations Leading European retail format = discounters (low priced
stores with limited assortment but good quality for certain target groups) [Pfohl and Roth, 2008]
Market stagnant: aim to grab competitors’ market share Capitalize on the downturn sentiment
Participate in social causes for community benefit and visibility Crisis => lower ability to pay => prices a critical factor => EDLP
rules Population density rising, improved accessibility more
important than new establishments Target new formats (eg. neighbourhood stores) at untapped
areas Place supermarkets in areas more accessible to tourists Experiment with Marcedona‘s employment practices in other
EU markets
9
International Trade and Commerce
The ‘adapted’ Business Model
11
Large Sales
Marcedona’s Supplier
Relationships
Better bargaining and good quality
Low Cost and Low Prices
Attractiveness to Customer
Marcedona’s local cultural knowledge
WalMart’s innovative supply and distribution
technologies
Marcedona’s
employment
practices
Higher productivity and better
service
+ expansion opportuniti
es
International Trade and Commerce
Features of the Model
12
Aligned
• Highest cost savings realized across geographies
• Continuous expansion of the everyday low price system
Self-Reinforcing
• Once positive synergies from the joint venture, the growth trajectory would be steeper than possible for either retailer alone
• As also shown by the feedback loop
Robust
• Imitation would require huge resources and established presence in the entrenched market
• The combination of inimitable consequence of Wal-Mart and Marcedona’s business model should be strong against competitors
• Substitution by small retailers is a negligible threat in Spanish market
International Trade and Commerce
Case in Point: Tackling the labour issue
13
Low compensation
Intangible benefitsJob security
High Productivity Happy Employees
Thank You for your Attention
Elodie Lichtenberger
Harshit Krishna
Lara Aschenbrenner
Louise Roche
Marie Nauméa