You’ve probably heard of Wal-Mart, as it is the second largest retailer in the world, but did you know that Wal-Mart expanded into Japan in 2002? It took Wal-Mart 40 years after its founding in 1962 by Sam Walton to finally expand into this untapped market. For Wal-Mart, Japan wasn’t the first international destination that they expanded into, for they started expanding globally in the 1990s, so they already had a foreign strategy of forming a joint-venture. Wal-Mart’s approach is to enter into these unknown markets by buying a large portion of similar retailers, and then gradually takes over by increasing their investments over time. This plan hasn’t been flawless each time for them though.
Although it remains a juggernaut worldwide, Wal-Mart has experienced failures which have ultimately resulted in them having to abandon markets. They have been extremely profitable in Mexico and Canada, had struggles in the UK, and abandoned markets in South Korea, Germany and Indonesia. It is clear that perfecting an international expansion plan is easier said than done, and requires a lot of planning, but in the long run results can be extremely profitable. Unfortunately, after investing about $3 billion in their expansion into Japan (as of 2008), Wal-Mart ultimately failed when trying to break into the Japan Market. They have made many mistakes in the past, but as of 2011, Wal-Mart is still operating in Japan under the same brand name Seiyu (the brand which they bought on as a part of their routine expansion plan). For a larger corporation that is supported by a great financial foundation, failures are easier to absorb and keep moving, but it’s obvious not everyone has the same conditions when expanding. Here are a few of their mistakes which will provide insight on the Japan market, and advice on how to prevent similar disappointing results.
- Culture. Instead of tailoring their company to fit the Japanese culture, Wal-Mart assumed they would adapt their ways. A good example is that in Japan there is a greater need for local store customization, for purchasing patterns and trends differ across regions. Japan also purchases 40%of the world’s luxury goods annually because they associate high price with high quality, so Wal-Marts low costs translate to low quality goods to them. There are multiple cultural misunderstandings that Wal-Mart faced that could’ve been easily avoided had they done a little extra research beforehand.
- No Longer Carrying Out The Same Strategy. Continuing on the subject regarding the misunderstanding of the culture in Japan, Wal-Mart was unable to carry out their high volume, low cost strategy. The culture was a different target, and Wal-Mart didn’t adjust effectively. Their particular strategy is a lot more effective domestically.
- Inefficiencies in the Supply Chain. Japan as a country operates differently than Wal-Mart was used to, and as a result it was hard for Wal-Mart, as a foreign firm, to break into existing close knit relationships among companies. When Wal-Mart was forced to work with multiple suppliers to accommodate specifications for their stores, they were no longer mass producing at their normal rate, making their supply chain inefficient, which then in turn decreased profits.
- Pressure from Competition. In Japan there are a lot of players: both internationally and domestically. Companies who are from Japan have a leg up due to their experience in understanding how their country buyers and sellers interact.
- Absorbing Existing Problems. The company Seiyo it absorbed had amassed a large amount of debt that totaled $7.46 billion. It was believed Wal-Mart could dig them out of this hole, and become profitable, but looking back Seiyo may not have been the best company to latch onto.
Not all hope is lost for Wal-Mart regarding business in Japan, hopefully they have learned from their mistakes and past decisions in order to grow their business even more in the future.