For its entry into Mexico, Wal-Mart took a different route. Because there are significant income and cultural differences between the United States and Mexican markets about which the company needed to learn, and to which it needed to tailor its operations, the local market requirements would have made a startup problematic. So, the company chose to form a 50-50 joint venture with Cifra, Mexico's largest retailer, counting on Cifra to provide operational expertise in the Mexican market.
For further expansion in Latin America, Wal-Mart targeted the region's next two largest markets: Brazil and Argentina. The entry into Brazil was also accomplished through a joint venture - with Lojas Americana, a local retailer. But Wal-Mart was now able to leverage its learning from the Mexican experience and chose to establish a 60-40 joint venture in which it had the controlling stake.
The entry into Brazil gave Wal-Mart even greater experience in Latin America, and so it chose to enter Argentina through a wholly owned subsidiary. This decision was reinforced by the fact that there are only two markets in Argentina of significant size.
Cloning the Corporate DNA
Wal-Mart had developed several major capabilities in the United States. Thus Wal-Mart's ability to clone its domestically grown DNA and insert it into its global operations would be a key to success, as illustrated by its entry into Canada.3
Wal-Mart acquired Woolco Canada at a time when a combination of high costs and low productivity had driven the Canadian company into the red. Wal-Mart quickly reconfigured Woolco along the lines of its successful United States model, a strategy facilitated by the similarity between the United States and Canadian markets. This transformation occurred in four central areas:
- Work force: Once the purchase was finalized, Wal-Mart sent its transition team to Canada to familiarize Woolco's 15,000 employees with the Wal-Mart way of doing business. The team was successful in clarifying and defining Wal-Mart's core beliefs and practices to the new Woolco associates.
- Stores: At the time of the sale, many of Woolco's122 stores were in poor shape. Wal-Mart brought every outlet up to its own standards and renovated each plant within three to four months. It took an additional three to four months to restock each store.
- Customers: Although the Woolco acquisition was Wal-Mart's first entry into Canada, the company had a head start in building a consumer franchise because most Canadians live near the United States border and were already familiar with Wal-Mart. Wal-Mart leveraged this high brand recognition into customer acceptance and loyalty by introducing its "everyday low prices" approach to a market accustomed to high/low retail pricing.
- Business Model: A broad merchandise mix, excellent customer service, a high in-stock position and rewarding employees for diminished pilferage were among the United States core attributes that were successfully transplanted into Wal-Mart's Canadian operation.
The transfer of Wal-Mart's corporate DNA to Canada produced dramatic results. Between 1994 (the time of acquisition) and 1997, sales per square foot increased from C$100 to C$292 and market share rose from 22 percent to 45 percent. During the same period, expenses as a percentage of sales in Canada declined by 330 basis points. Wal-Mart's Canadian operation turned profitable in 1996 - only two years after acquisition. By 1997, it had become the leading discount retailer in the country.
Winning the Local Battle
For Wal-Mart, winning the local battle involves two steps:
1. Local adaptation
A company wishing to establish local presence must understand the uniqueness of the local market and decide which aspects of its business model require little change, which require local adaptation and which need to be wholly reinvented. Wal-Mart's entry into China provides insights into this process.4