How many retailers would one expect to be in the top ten of the global fortune 500? There is
one, and it has a firm second position, leaving behind mammoth companies such as Ford and
General Motors (www.fortune500.com). Wal-Mart is the world’s largest retailer with 195
billion dollars in revenue in the year 2000, with operations mainly concentrated in the United
States. Renowned in the United States for their discount centres, they have diversified into
wholesaling to sustain the explosive growth of the seventies and eighties. Making use of
acquired knowledge in distribution and inventory management technology, these new
formulas proved to be profitable as well. However, the United States of America were not big
enough to satisfy the needs of such a giant company, and international expansion was
inevitable. After entry in South-America and Asia, Europe is the next market to be penetrated
by Wal-Mart. The time seems right, as extensive liberalization has opened up the European
Union and far-reaching economic integration between member states have created a huge
common market, offering scale economies in purchasing and distribution similar to U.S.
operations. Wal-Mart can use experience from previous foreign expansions to implement the
correct strategy for Europe. This paper analyses Wal-Mart’s European strategy, the rational
behind its move to Europe and implications for its European competitors. It explains the
following problem statement:
Wal-Mart’s entry into the European market was a strategic move rather than the pursuit of a
growth opportunity.
A brief review of Wal-Mart’s history will be followed by the factors explaining their success
in the United States, coming together in a concept called “strategic fit”. After a short summary
of their foreign expansion into South-America to stress the importance of the transferability of
the concept of strategic fit, a description of the European retail industry will be given. Then
the European retail industry is analysed with the help of the generic five forces model from
Porter. The paper ends with a conclusion hinting at the future of the European retail market.
Table of Contents
1. Introduction
2.1 Wal-Mart History and Success Formula
2.2 Strategic Fit
2.3 Competition in Europe
2.3.1 Carrefour
2.3.2 Metro AG
2.3.3 Aldi
2.3.4 Ahold
2.4 Industry analysis using Porters five forces model
2.4.1 Internal Rivalry in European Retailing Industry
2.4.2 Barriers to entry
2.4.3 Supplier Power
2.4.4 Threat of Substitutes
2.4.5 Buyer Power
2.5 Conclusion
2.6 References
2.7 Bibliography
2.8 Appendix 1 –Learning reports
Objectives and Topics
This paper examines Wal-Mart's expansion strategy into the European retail market, evaluating the rationale behind this move and its broader implications for existing European competitors. The research aims to determine whether the entry was primarily a strategic decision to confront rivals in their home territories rather than simply a pursuit of new growth opportunities.
- Historical success factors of Wal-Mart in the United States
- The concept of "strategic fit" and its transferability to international markets
- Analysis of key European retail competitors including Carrefour, Metro AG, Aldi, and Ahold
- Application of Porter’s Five Forces model to the European retail industry
- Strategic implications of Wal-Mart's market entry for European global dominance
Excerpt from the Book
2.1 Wal-Mart History and Success Formula
On the heels of supermarkets, discount stores emerged in the 1950s in the U.S. Sam Walton recognized the opportunity of locating discount retail stores in relatively rural cities and opened his first Wal-Mart store in 1962 in the town of Rogers, Arkansas. From the beginning Wal-Mart stores have been offering low prices combined with a wide selection of merchandise and individual, friendly service (www.american.edu, May 16, 2001). Supermarkets had educated consumers about self-service and many were ready to try cheaper self-service retailers. Total discount retail sales grew at a compound annual rate of 25 percent from $2 billion in 1960 to $19 billion in 1970. An illustration of Wal-Mart’s success is the fact that not one single competitor from the early years existed as of 1993. King’s Corvette, Mammoth Mart, and Zavre failed over Wal-Mart. According to Ghemawat (1999), Wal Mart’s success was founded on three main pillars.
First, by locating many of its stores in relatively rural cities, Wal-Mart provided a much-needed service to customers who lived in or near these cities (Barney, 1997). Sam Walton said: “our key strategy was to put good sized stores into little one-horse towns everybody else was ignoring. If we offer prices as good or better in cities that were four hours away by car, people would shop at home.” (Ghemawat, 1999) These one-horse towns, inhabiting between 5,000 and 25,000 inhabitants, were only large enough to support one large discount retail operation and therefore able to charge prices that were up to six percent higher than Wal-Mart prices in more rural areas. (Barney, 1997)
Summary of Chapters
1. Introduction: This chapter provides an overview of Wal-Mart's global standing and outlines the research objective regarding the strategic nature of its entry into the European market.
2.1 Wal-Mart History and Success Formula: Explains the origins of Wal-Mart and identifies the three core pillars—location, technological innovation, and organizational culture—that drove its U.S. success.
2.2 Strategic Fit: Discusses the sustainability of Wal-Mart's competitive advantage through the concept of "strategic fit," where internal resources align perfectly with external goals.
2.3 Competition in Europe: Provides a detailed profile of major European retailers including Carrefour, Metro AG, Aldi, and Ahold, highlighting their business models and operational scale.
2.4 Industry analysis using Porters five forces model: Evaluates the European retail landscape by analyzing internal rivalry, entry barriers, supplier power, buyer power, and threat of substitutes.
2.5 Conclusion: Summarizes the findings, suggesting that Wal-Mart's move was a calculated strategic strike to force European competitors into a defensive posture.
Keywords
Wal-Mart, European Retail Market, Strategic Fit, Porter’s Five Forces, Competition, International Expansion, Retail Management, Business Strategy, Globalisation, Market Entry, Carrefour, Metro AG, Aldi, Ahold, Competitive Advantage.
Frequently Asked Questions
What is the core focus of this research paper?
The paper focuses on analyzing Wal-Mart’s entry strategy into the European market and assessing whether this expansion was driven by a need for growth or a strategic move to challenge competitors in their home regions.
What are the primary thematic areas covered?
The themes include Wal-Mart's historical success, the transferability of the "strategic fit" concept, an analysis of the European retail environment, and a competitive assessment using the Porter Five Forces framework.
What is the primary research question?
The paper addresses whether Wal-Mart's entry into the European market was primarily a strategic maneuver to pressure key rivals rather than merely an pursuit of new growth opportunities.
Which scientific methodology is employed?
The paper utilizes an industry analysis approach, specifically applying Michael Porter’s Five Forces model to evaluate the competitive dynamics of the European retail sector.
What does the main body of the paper cover?
The main body covers the historical background of Wal-Mart, its expansion history, detailed profiles of major European competitors, and a rigorous application of Porter's Five Forces model to the retail industry.
Which keywords best characterize this work?
Key terms include Wal-Mart, European Retail, Strategic Fit, Porter’s Five Forces, Competitive Advantage, and Market Entry.
Why did Wal-Mart struggle in South America initially?
Wal-Mart faced losses due to cultural barriers, local consumer shopping habits that differed from the U.S. model, and restrictive competition policies regarding product pricing.
What role does the "ten-foot rule" play in Wal-Mart’s culture?
The "ten-foot rule" is a specific behavioral standard for employees to look at, greet, and offer assistance to any customer who enters a ten-foot radius, ensuring customer-centric service.
How does Porter’s model describe the internal rivalry in Europe?
The model describes the rivalry as very high and "rough," characterized by extremely thin profit margins and a market where competitors can easily replicate successful strategies by observing others.
- Quote paper
- Tomislaw Dalic (Author), 2001, Wal-Mart's European Business Strategy, Munich, GRIN Verlag, https://www.grin.com/document/20727
