Brian Adkins
Honors 1105
Research Paper
May 8, 2006
How Does Wal-Mart Choose Its International Sites?
As Wal-Mart continues to grow, it is inevitable that it will enter new countries; by examining the countries Wal-Mart has already entered it is possible to estimate what the corporation wants in a country. Unfortunately, Wal-Mart has given out very few clues to this topic, so any conclusions must come from the examination of the countries that Wal-Mart currently occupies. There are many things that could have been examined about Wal-Mart’s host countries, but to draw as accurate conclusions as possible this research was centered on a few important topics. The first area of interest was the economic strength of the countries; this was measured in the sheer size of the Gross Domestic Product. Building on economic strength, the next area of research was the rate of economic growth. Another important area of study was the well-being of the population in these countries; this was determined by comparing literacy rates, which correlate to education; unemployment, which should correspond to the ability of people to provide for their families; and life expectancy, which would indicate the living conditions in the individual countries. Although there were no official statements concerning how Wal-Mart chooses its countries, there was one area which provided statements from Wal-Mart officials and a look into the current selection of a country by Wal-Mart. This area was the recent events in India where Wal-Mart has been expressing strong interest. It is interesting that not all of Wal-Mart’s choices in countries have worked out; in Germany, Wal-Mart has had almost nothing but trouble. Although this research was begun with very specific hypotheses about what Wal-Mart would prefer, these hypotheses turned out to be incorrect much of the time.
A brief note before the research is presented. Many times this paper will refer to “Wal-Mart owned stores”; this is for an important reason. Although Wal-Mart has locations in 16 countries; including: Argentina, Brazil, Canada, China, Costa Rica, El Salvador, Germany, Guatemala, Honduras, Japan, Korea, Mexico, Nicaragua, Puerto Rico, United Kingdom, and the United States; it would be improper to simply refer to Wal-Mart stores because in many countries there are no Wal-Marts as there are in the United States (“Data Sheet,” 2006). In some countries Wal-Mart does not build Wal-Marts outright; instead the corporation purchases existing retail chains in a country and expands from there. An example of this is Germany, where Wal-Mart purchased two local chains, Wertkauf and Interspar (“How Big,” 2004). This may be to reduce the culture shock of a large American corporation invading a new country.
The size of a country’s economy is something that most people would consider important to where a corporation decides to spread. My initial hypothesis was that Wal-Mart would prefer countries that did not have large economies, excluding the United States because this is where the corporation was founded. This hypothesis was founded on the belief that Wal-Mart sells primarily to the poorest of the poor, and it seemed logical that countries with weak economies would have a surplus of poor citizens. As it turns out, however, Wal-Mart has actually shown a tendency to prefer countries with exceptionally large economies. Of the 16 countries which currently contain Wal-Mart owned stores, 10 have economies ranked in the top 25 in the world (Central Intelligence Agency [CIA], 2006). This may be because no matter how large an economy is, there will always be a lower class that cannot afford to spend a lot of money, and by entering these countries Wal-Mart is selling to a lower class that has more money than the lower classes of countries with weak economies.
The next area of study was the rate of economic growth in the countries containing Wal-Mart owned stores. I did not expect countries with Wal-Mart owned stores to have economies growing at a fast rate; this hypothesis turned out to be true. Fourteen out of the 16 countries with Wal-Mart stores have economies growing below the world average of 4.3%, the only countries with fast growing economies being Argentina at 8.2% and China at 9.2% (CIA, 2006). One possible reason why Wal-Mart seems to prefer slow growing economies may be that it wants to keep a stable customer base and if the economy was growing rapidly that might result in a shrinking lower class.
The next subject of interest, after the economies of the countries, was the well-being of the populations. Measuring the well being of the populations amounted to comparing unemployment rates, literacy, and life expectancy. Each of these areas corresponds to something that many people would relate to the well-being of a population. Unemployment rates correspond to the ability of people to provide for their families; high unemployment would imply that many of the people are having a hard time making ends meet, while low unemployment would mean that most people are at least putting food on the table. Literacy is related to the quality of education in a country; low literacy would mean many people aren’t receiving an education while high literacy would indicate the exact opposite. Life expectancy is what seemed to be a good indicator of the quality of life; in countries where life expectancy is low the population would most likely lead a harder life with more hazards than countries with high life expectancies. As it turns out, the quality of life in the countries with Wal-Mart owned stores is remarkably good. All but four countries had literacy rates above the world average, the only ones below world average being El Salvador at 80.2%, Guatemala at 70.6%, Honduras at 76.2%, and Nicaragua at 67.5%. The world unemployment is somewhere between 4% and 12%. Overall unemployment in countries with Wal-Marts was low, only Nicaragua and China reported unemployment rates above this average, most had rates at the low end of the range. However, a few of the countries reported substantial underemployment (Mexico 25%, China, El Salvador). The life expectancy of all the countries was above average; over half had life expectancies well above average, over 10 years above the world average (CIA, 2006). These results seem to show that Wal-Mart isn’t preying solely on the poor and defenseless as is commonly believed.
There are no official statements from Wal-Mart regarding how the corporation chooses its international sites. Luckily, there have been recent events involving Wal-Mart in India that have provided a few statements made by Wal-Mart officials. By looking at the recent events in India I was able to conclude that a key element of what Wal-Mart wants is a large retail market to enter in each country. India is the fourth largest retail market in the world, and it is not alone in this area (Bhatnagar, 2006 April 4). Just a few counties with large retail markets that contain Wal-Mart owned stores are the United States, Japan, and Germany (“How Big,” 2004). The fact that Wal-Mart has expressed interest in India’s fast growing economy seems to conflicts with the previous conclusion that Wal-Mart prefers slow growing economies; however, even if you factor in India, the majority of countries still have slow growing economies.
Although it would make sense that Wal-Mart would not enter a country unless they were absolutely certain it could succeed in that country’s market, it is interesting that not all of Wal-Mart’s choices have worked out. In 1997, Wal-Mart entered the German market and has nothing but trouble since then. Due to things like price controls, rigid labor laws, and tough zoning regulations, Wal-Mart has lost money consistently every year since its entry into Germany (“How Big,” 2004).
Wal-Mart will continue to grow well into the future and, in doing so, it will inevitably enter many new countries. The research laid out in this report is by no means a sure way of predicting which countries Wal-Mart will expand in, but by the analysis of the past choices the corporation has made it will be possible to have an idea of what to expect. Wal-Mart is often thought of as an evil corporation that crushes it competition, but as this paper has shown, Wal-Mart tends to enter countries with strong economies and large retail markets which has opened the corporation up to much stronger competition than it would have faced if it had entered countries with small economies and retail markets. Also, by entering these stronger countries, Wal-Mart is entering customer bases that, compared to other parts of the world, are much better off than the stereotypical Wal-Mart customer which is generally the poor bottom rung of society. Wal-Mart has provided very few clues to how it chooses its international sites; fortunately, by analyzing recent events some valuable information was discovered. It would make sense that a huge corporation like Wal-Mart would put considerable time and effort into choosing its locations, but like all other worldly things, Wal-Mart has proven not to be infallible. Despite its best efforts Wal-Mart has continually lost money at its German sites. Although it is impossible to predict exactly where Wal-Mart will spread, the research has provided enough information to make a rough forecast. By looking at the information described in this paper it seems likely that Wal-Mart will continue to move into countries with large, slow growing economies where the population has a relatively good quality of life; some countries that fit these criteria are France and Italy, neither of which currently contain Wal-Mart owned stores. Wal-Mart is a large and complex entity, but by reviewing the past, it may be easier to forecast the future.
References
Data sheet: wal-mart international. (2006 March). Retrieved March 10, 2006, from http://walmartstores.com/GlobalWMStoresWeb/navigate.do?catg=371
Central Intelligence Agency. (2006) World factbook. Retrieved March 11, from http://www.cia.gov/cia/publications/factbook/index.html
Puerto Rico economy. (2006). Retrieved March 22, 2006, from http://welcome. topuertorico.org/economy.shtml
Extra spending showcases govt's determination to curb unemployment. (2005, March 5) Retrieved March 22, 2006, from http://news.xinhuanet.com/english/2005-03/05/content_2653319.htm
Underemploymant. (2006). Wikipedia. Retrieved March 30, 2006, from http://en.wikipedia.org/wiki/Underemployment
How big can it grow? (2004, April 4). The Economist. Retrieved March 30, 2006, from http://www.economist.com/printedition/displayStory.cfm?Story_ID=2593089
Bhatnagar, P. (2006, April 5) 4 ways to gat wal-mart back on track. CNNMoney.com. Retrieved April 5, 2006, from http://money.cnn.com/2006/04/05/news/ companies/walmart/
Bloomberg News and Wire reports, (2005. Nov. 3). Global business, South Florida Sun - Sentinel, 3.D. Retrieved March 30, 2006, from http://22816.bsulibproxy.pals.msus. edu/pqdweb?index=6&did=920828411&SrchMode=1&sid=2&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1144533461&clientId=44369&cfc=1
Bhatnagar, P. (2006, April 4) Wal-mart’s dilemma in india. CNNMoney.com. Retrieved April 5, 2006, from http://money.cnn.com/2006/03/23/news/companies/ walmart_india/
What brings wal-mart to India? (n.d.) Retrieved March 30, 2006 from http://ibef.org/attachment/WhattoIndia.pdf
Honors 1105
Research Paper
May 8, 2006
How Does Wal-Mart Choose Its International Sites?
As Wal-Mart continues to grow, it is inevitable that it will enter new countries; by examining the countries Wal-Mart has already entered it is possible to estimate what the corporation wants in a country. Unfortunately, Wal-Mart has given out very few clues to this topic, so any conclusions must come from the examination of the countries that Wal-Mart currently occupies. There are many things that could have been examined about Wal-Mart’s host countries, but to draw as accurate conclusions as possible this research was centered on a few important topics. The first area of interest was the economic strength of the countries; this was measured in the sheer size of the Gross Domestic Product. Building on economic strength, the next area of research was the rate of economic growth. Another important area of study was the well-being of the population in these countries; this was determined by comparing literacy rates, which correlate to education; unemployment, which should correspond to the ability of people to provide for their families; and life expectancy, which would indicate the living conditions in the individual countries. Although there were no official statements concerning how Wal-Mart chooses its countries, there was one area which provided statements from Wal-Mart officials and a look into the current selection of a country by Wal-Mart. This area was the recent events in India where Wal-Mart has been expressing strong interest. It is interesting that not all of Wal-Mart’s choices in countries have worked out; in Germany, Wal-Mart has had almost nothing but trouble. Although this research was begun with very specific hypotheses about what Wal-Mart would prefer, these hypotheses turned out to be incorrect much of the time.
A brief note before the research is presented. Many times this paper will refer to “Wal-Mart owned stores”; this is for an important reason. Although Wal-Mart has locations in 16 countries; including: Argentina, Brazil, Canada, China, Costa Rica, El Salvador, Germany, Guatemala, Honduras, Japan, Korea, Mexico, Nicaragua, Puerto Rico, United Kingdom, and the United States; it would be improper to simply refer to Wal-Mart stores because in many countries there are no Wal-Marts as there are in the United States (“Data Sheet,” 2006). In some countries Wal-Mart does not build Wal-Marts outright; instead the corporation purchases existing retail chains in a country and expands from there. An example of this is Germany, where Wal-Mart purchased two local chains, Wertkauf and Interspar (“How Big,” 2004). This may be to reduce the culture shock of a large American corporation invading a new country.
The size of a country’s economy is something that most people would consider important to where a corporation decides to spread. My initial hypothesis was that Wal-Mart would prefer countries that did not have large economies, excluding the United States because this is where the corporation was founded. This hypothesis was founded on the belief that Wal-Mart sells primarily to the poorest of the poor, and it seemed logical that countries with weak economies would have a surplus of poor citizens. As it turns out, however, Wal-Mart has actually shown a tendency to prefer countries with exceptionally large economies. Of the 16 countries which currently contain Wal-Mart owned stores, 10 have economies ranked in the top 25 in the world (Central Intelligence Agency [CIA], 2006). This may be because no matter how large an economy is, there will always be a lower class that cannot afford to spend a lot of money, and by entering these countries Wal-Mart is selling to a lower class that has more money than the lower classes of countries with weak economies.
The next area of study was the rate of economic growth in the countries containing Wal-Mart owned stores. I did not expect countries with Wal-Mart owned stores to have economies growing at a fast rate; this hypothesis turned out to be true. Fourteen out of the 16 countries with Wal-Mart stores have economies growing below the world average of 4.3%, the only countries with fast growing economies being Argentina at 8.2% and China at 9.2% (CIA, 2006). One possible reason why Wal-Mart seems to prefer slow growing economies may be that it wants to keep a stable customer base and if the economy was growing rapidly that might result in a shrinking lower class.
The next subject of interest, after the economies of the countries, was the well-being of the populations. Measuring the well being of the populations amounted to comparing unemployment rates, literacy, and life expectancy. Each of these areas corresponds to something that many people would relate to the well-being of a population. Unemployment rates correspond to the ability of people to provide for their families; high unemployment would imply that many of the people are having a hard time making ends meet, while low unemployment would mean that most people are at least putting food on the table. Literacy is related to the quality of education in a country; low literacy would mean many people aren’t receiving an education while high literacy would indicate the exact opposite. Life expectancy is what seemed to be a good indicator of the quality of life; in countries where life expectancy is low the population would most likely lead a harder life with more hazards than countries with high life expectancies. As it turns out, the quality of life in the countries with Wal-Mart owned stores is remarkably good. All but four countries had literacy rates above the world average, the only ones below world average being El Salvador at 80.2%, Guatemala at 70.6%, Honduras at 76.2%, and Nicaragua at 67.5%. The world unemployment is somewhere between 4% and 12%. Overall unemployment in countries with Wal-Marts was low, only Nicaragua and China reported unemployment rates above this average, most had rates at the low end of the range. However, a few of the countries reported substantial underemployment (Mexico 25%, China, El Salvador). The life expectancy of all the countries was above average; over half had life expectancies well above average, over 10 years above the world average (CIA, 2006). These results seem to show that Wal-Mart isn’t preying solely on the poor and defenseless as is commonly believed.
There are no official statements from Wal-Mart regarding how the corporation chooses its international sites. Luckily, there have been recent events involving Wal-Mart in India that have provided a few statements made by Wal-Mart officials. By looking at the recent events in India I was able to conclude that a key element of what Wal-Mart wants is a large retail market to enter in each country. India is the fourth largest retail market in the world, and it is not alone in this area (Bhatnagar, 2006 April 4). Just a few counties with large retail markets that contain Wal-Mart owned stores are the United States, Japan, and Germany (“How Big,” 2004). The fact that Wal-Mart has expressed interest in India’s fast growing economy seems to conflicts with the previous conclusion that Wal-Mart prefers slow growing economies; however, even if you factor in India, the majority of countries still have slow growing economies.
Although it would make sense that Wal-Mart would not enter a country unless they were absolutely certain it could succeed in that country’s market, it is interesting that not all of Wal-Mart’s choices have worked out. In 1997, Wal-Mart entered the German market and has nothing but trouble since then. Due to things like price controls, rigid labor laws, and tough zoning regulations, Wal-Mart has lost money consistently every year since its entry into Germany (“How Big,” 2004).
Wal-Mart will continue to grow well into the future and, in doing so, it will inevitably enter many new countries. The research laid out in this report is by no means a sure way of predicting which countries Wal-Mart will expand in, but by the analysis of the past choices the corporation has made it will be possible to have an idea of what to expect. Wal-Mart is often thought of as an evil corporation that crushes it competition, but as this paper has shown, Wal-Mart tends to enter countries with strong economies and large retail markets which has opened the corporation up to much stronger competition than it would have faced if it had entered countries with small economies and retail markets. Also, by entering these stronger countries, Wal-Mart is entering customer bases that, compared to other parts of the world, are much better off than the stereotypical Wal-Mart customer which is generally the poor bottom rung of society. Wal-Mart has provided very few clues to how it chooses its international sites; fortunately, by analyzing recent events some valuable information was discovered. It would make sense that a huge corporation like Wal-Mart would put considerable time and effort into choosing its locations, but like all other worldly things, Wal-Mart has proven not to be infallible. Despite its best efforts Wal-Mart has continually lost money at its German sites. Although it is impossible to predict exactly where Wal-Mart will spread, the research has provided enough information to make a rough forecast. By looking at the information described in this paper it seems likely that Wal-Mart will continue to move into countries with large, slow growing economies where the population has a relatively good quality of life; some countries that fit these criteria are France and Italy, neither of which currently contain Wal-Mart owned stores. Wal-Mart is a large and complex entity, but by reviewing the past, it may be easier to forecast the future.
References
Data sheet: wal-mart international. (2006 March). Retrieved March 10, 2006, from http://walmartstores.com/GlobalWMStoresWeb/navigate.do?catg=371
Central Intelligence Agency. (2006) World factbook. Retrieved March 11, from http://www.cia.gov/cia/publications/factbook/index.html
Puerto Rico economy. (2006). Retrieved March 22, 2006, from http://welcome. topuertorico.org/economy.shtml
Extra spending showcases govt's determination to curb unemployment. (2005, March 5) Retrieved March 22, 2006, from http://news.xinhuanet.com/english/2005-03/05/content_2653319.htm
Underemploymant. (2006). Wikipedia. Retrieved March 30, 2006, from http://en.wikipedia.org/wiki/Underemployment
How big can it grow? (2004, April 4). The Economist. Retrieved March 30, 2006, from http://www.economist.com/printedition/displayStory.cfm?Story_ID=2593089
Bhatnagar, P. (2006, April 5) 4 ways to gat wal-mart back on track. CNNMoney.com. Retrieved April 5, 2006, from http://money.cnn.com/2006/04/05/news/ companies/walmart/
Bloomberg News and Wire reports, (2005. Nov. 3). Global business, South Florida Sun - Sentinel, 3.D. Retrieved March 30, 2006, from http://22816.bsulibproxy.pals.msus. edu/pqdweb?index=6&did=920828411&SrchMode=1&sid=2&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1144533461&clientId=44369&cfc=1
Bhatnagar, P. (2006, April 4) Wal-mart’s dilemma in india. CNNMoney.com. Retrieved April 5, 2006, from http://money.cnn.com/2006/03/23/news/companies/ walmart_india/
What brings wal-mart to India? (n.d.) Retrieved March 30, 2006 from http://ibef.org/attachment/WhattoIndia.pdf
posted by Louise Mengelkoch at
12:54 PM
