International Business: Competing in the Global Marketplace
Fourth Edition
Cases
WAL-MART’S MEXICAN ADVENTURE
SYNOPSIS
Strengthened by a unique culture and armed with the industry’s state of the art information system that
powers a unique hub and spoke distribution system, Wal-Mart entered the Mexican market. It perceived that
continued growth in the U.S. markets was no longer possible and took advantage of the free trade
environment to be created by NAFTA.
The strategy Wal-Mart originally adopted by Wal-Mart was to begin a joint venture with thee discount and
grocery store giant, Cifra. Problems were apparent very early. Wal-Mart encountered transportation
problems, poor merchandise selection, and government interference. In the mid-1990s, the collapse of the
Mexican peso hit Wal-Mart hard, because it meant that the goods imported from the U.S. were more
expensive.
During the market slump, Wal-Mart built its market share and began to invest heavily in Mexico. It
improved its distribution problems, sourced more products from Mexico, and changed its mix of products to
appeal to the Mexican market. Soon, Wal-Mart had improved its cost structure and repositioned all of its
Mexican stores to operate under the strategy of Every Day Low Pricing. Surging volume in early 2000 was
an indication that Wal-Mart had finally hit it big to control most of the Mexican market.
TEACHING OBJECTIVES
The main teaching objectives of the case are:
1.
To indicate the strategies and problems that may be used when entering a foreign country.
2.
To understand how to create value in a foreign venture.
3.
To appreciate the operational culture of one of America’s great retail firms.
This case can be most effective when used after Chapter 17, describing the distribution, communication and
pricing strategies and the marketing mix that most be considered in international business.
STRATEGIC ISSUES AND DISCUSSION QUESTIONS
1.
Why did Mexico make such a good proving ground for Wal-Mart’s foreign expansion strategy?
First, the logistics of dealing with a foreign neighbor nearby, connected by land, was a great opportunity to
utilize Wal-Mart’s hub and spoke distribution system. Secondly, the nature of the retail system in Mexico,
with many mom and pop stores located in nonmajor retail areas with no other major competitors, was
advantageous to Wal-Mart’s retail strategy. Finally, Wal-Mart’s operating efficiency, as illustrated by its
state of the art informational system, made the operation of a foreign entity, more efficient and less costly.
2.
What is the source of Wal-Mart ‘s competitive advantage? What barriers did Wal-Mart
have to overcome in transferring its competencies to Mexico?
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International Business: Competing in the Global Marketplace
Fourth Edition
Cases
Wal-Mart’s competitive advantage lies in three areas. First, its unique hub and spoke distribution system
allows it to rapidly replenish stock and keep floor space for selling to a minimum. That means that less
store space is devoted to holding inventory and more space is devoted to selling. Secondly, its information
system allows it to rapidly recognize a sale and replace inventory so that major selling items are always
available and out of stock occurrences are virtually nonexistent. Third, its unique culture empowers
employees and managers to give their best for the company, hereby improving employee turnover and
lowering costs.
3.
How did Wal-Mart create value in the Mexican market?
Wal-Mart created value through a combination of a rapid replacement distribution system, a product mix
that attracted Mexican consumers, and the utilization of its huge purchasing power to gain leverage from
suppliers. All resulted in lower costs and lower prices. When it repositioned its stores to an Every day Low
Pricing strategy, the results were significant. Mexican consumer could now purchase products they needed
at prices they could afford.
4.
Despite some early setbacks, Wal-Mart has apparently been successful in Mexico. In
contrast, some other U.S. retailers pulled out of the country in the aftermath of the December 1994 peso
crisis. What do you think distinguishes Wal-Mart from these companies?
In addition to its operational efficiencies already discussed, Wal-Mart brought an administrative tenacity to
its Mexican operations that few other firms could match. When the peso became devalued and economic
turmoil threatened, Wal-Mart did not close stores but rather saw the economic downturn as an opportunity
to build its market share. It opened an efficient distribution center in Mexico City and used it to reduce
inventory and operating costs. It also struck a partnership with a Mexican trucking company to improve
delivery and distribution.
5.
If Wal-Mart can succeed in Mexico, it can probably succeed in most countries. Discuss
this statement. Is it correct?
While Wal-Mart’s operational excellence is virtually unparalleled, it is difficult to assume that the
circumstances that allowed it to profit in Mexico could be duplicated in other countries. The product mix
necessary to stock Mexican stores was only moderately different from that used in the U.S. NAFTA gave
Wal-Mart an advantage with the free flow of goods into the country, and the culture of Mexico was not
resistant to its empowerment culture that allowed store managers and employees to make decisions for the
good of the company. Other countries may not accept that culture so readily, and duplication of the success
factors may be more difficult. Still, given the enormous commitment that Wal-Mart management makes to
new ventures, and its successful track record, it may be a mistake to underestimate their resolve should they
choose to expand aggressively beyond North America.
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