Case Analysis Report: “Wal-Mart’s

Rising Sun? A Case on Wal-Mart’s

MBA (Marketing), James Cook University

April 9, 2014

Executive Summary

This report provides an analysis on the issues faced by Wal-Mart in the Japanese Retail industry.

Problems were identified like unfamiliarity with culture, high and rapid investment, branding and

promotional disagreement, entry mode mistake and witlessness of localized approach. Causes for

these problems have discussed further into the report. After close insight into the decision

criteria, the recommended solution is to set up small floor size stores in multiple neighborhoods.

This would be operating under a sub-brand and the pricing would be higher than Wal-Mart’s

EDLPs. This would allow better relations with customers, as well as, local suppliers.
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Statement of the Problem

Wal-Mart’s Japanese business operations have faced many concerns. Broadly speaking few

of them are Branding, Culture and Investment. Wal-Mart should have considered to use their

brand name which they have developed over decades. Wal-Mart had not learnt from their past

mistake in Germany, and repeated to force their global expansion strategy without understanding

the culture of their customers. In the case, it is also mentioned that “On April 25, 2008, Wal-Mart

raised its stake in Seiyu to 100 percent despite the fact that the company had yet to turn an

annual profit.” (Kotabe & Helsen, 2009) There was too much investment, too soon without a

promising plan of return. Other problems that surface from the article are entry mode mistake

and non-localization of strategy. Wal-Mart stepped into Japanese waters through the means of a

Joint Venture in 2002. (Kotabe & Helsen, 2009) Brown, Rugman and Verbeke (1989) state that

many reasons such as loss of control, failure to understand culture, perception of foreign

company intrusion and low cost - low quality lead to joint venture failures. Wal-Mart has always

focused on their global strategy and therefore, without localization they failed to tap into the

fresh food market that has great potential.

Problems like branding and entry mode mistake are short term mistakes if one considers

that a business is a going concern and in the long timeline of the business in an international

location, the 7 years presented in the case are not much of a concern. Problems like culture,

investment and non-localization strategy are long term issues. Ed Kolodzeiski, CEO, faces

important decisions which he must deal with strategically and efficiently to reach a desired

position of business returns.

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Causes of the problem

The first issue of branding that Wal-Mart faces is in conjunction with the mistake of the

entry mode adopted by them. In 2002, Wal-Mart bought 6.1% stake in Seiyu, which formerly

belonged to the Saison Group – one of Japan’s most successful conglomerates. With such

minimal stake, it may not have been in their capacity to rename the joint venture and hence, the

powerful brand name of the world’s best retailer (Kotabe & Helsen, 2009) could not be used.

This brand name had the power to draw customers due to the value they delivered. Although the

case states that the Japanese customers directly relates the quality of the product to its price. This

failure to understand the complex retail culture of Japan was a major setback for Wal-Mart. The

multinational retailer tried to increase efficiency with measures like SMART to better predict

sales patterns and Retail Link to increase efficiency in inventory management. But this would all

have been in vain if they couldn’t draw customers to their store. Another interesting pattern that

can be noticed in the case is the relation between sales of grocery and the retail market share.

7-Eleven tops the retail market share chart with 80% of their sales coming from sales of grocery.

AEON is not too far behind with 82.2% of its sales hailing from grocery. (Euromonitor

International, 2009) This statistic relates to the problem of non-localization of their strategy.

Wal-Mart has always been following a global strategy for all its locations and wherever it faces

such a problem, such as a complex supply chain in Indonesia and a culture mismatch, they quit

that market. Wal-Mart’s competitive element that set it apart from others is EDLP (Every Day

Low Pricing) but lead the audiences to believe that the products on offer are of low quality too.

In a nutshell, the Japanese consumer would not trust the world’s best retailer owing to its USP

(Unique Selling Proposition).

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Japanese retail culture consists of a very close knit network of members in the supply

chain. (Alpert & Kamins et al., 2001) This means that the manufacturers, distributors, retailers

and customers are very closely connected. Geert Hofstede’s theory on cultural dimensions

(1991) can be applied here to interpret that this is a collectivist culture with low power distance.

According to the case almost 85% of the retail market is comprised of small, family-run

businesses (including department stores, general supermarkets, specialty stores and convenience

stores). This proves the highly fragmented market makes it very difficult for international retail

chains to penetrate and dig out profits.

A financial perspective on this proves that there was way too much investment at a very

rapid rate. This proved to cost losses in high amounts to the company. In 2002, Wal-Mart’s

investment was at 6.1% which immediately grew to 34% in 2003. The following year the stake

in Seiyu grew to 38% and grew at the same rate in 2005 to 42%. In 2006, Wal-Mart held a stake

of 54%. As of 25th April, 2008, Seiyu was a wholly-owned subsidiary of Wal-Mart (100% stake).

All this was done while Seiyu continued to give losses to the extent of USD 772 Million in 2003

(major stake increment from 6.1% in 2002 to 34% in 2003) and USD 469 Million in 2007 (major

stake increment from 54% in 2006 to 100% in 2008). It is evident, on a superficial level, that

Wal-Mart’s decision to gradually increase its stake in an existing retail firm, which suffered from

major debts (USD 7.46 Billion) before the joint venture did not prove to be beneficial to the

company and up until the time period of the case, there had been no profits from this joint

venture.

Wal-Mart also failed to respond to the local needs of the areas where it was responding and

continued to use an omni-present strategy. Whereas, its competitors like AEON focused on

localization and operated according to the needs of the neighborhoods in which it was operating

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in. AEON also responded to the demographics of its market like aging population and low birth

rate. (Kotabe & Helsen, 2009) Meanwhile, multinational retailer, TESCO continued to baffle

consumers with high-tech convenience methods like shopping groceries by scanning QR codes

of items at underground train platforms through smartphones and having them delivered at the

doorstep. (Bergen, 2009) Wal-Mart continued to follow their trend of spending 1% of its sales on

advertising (as mentioned in the case) and therefore lost a whole market to competitors who

responded to the local needs.

Decision Criteria and Alternative Solutions

According to the findings above, Wal-Mart needs to consider solutions most appropriate to

the local needs of the audiences. They must consider factors like culture, demographics and

costs. A detailed study of the Japanese retail culture will give a deeper insight into the area-

specific needs of the zones they are operating in and intend to expand to in the future.

Furthermore, expansion should not be the priority at the moment. Presently, they need to

increase profits at the current stores. If they need to take measures which compromise on the

brand, then they should probably operate through a sub-brand (e.g. Wal-Mart Express Store).

Through this, they can introduce stores with smaller floor space and limited quantities of stock,

keeping a variety at the same time. This will allow them to be in multiple neighborhoods and

charging a higher price wouldn’t compromise on the brand. They must also focus on localization,

wherein they must engage with local suppliers of groceries. This would allow them to have a

global strategy and focus on local needs as well. This is in conjunction with the concept of

“Glocalization”; that is the buzz word for multinational enterprises in the 21st century. Another

viable solution for Wal-Mart would be to reduce expenses on implementing systems that have

proven to be beneficial worldwide and increase focus on managing interpersonal relations with

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suppliers. Giving out merchandise and incentives to boost supply may add value to the supply

chain.

Setting up these express stores would have initial costs which might seem to be a

disadvantage, but may prove to be beneficial on a more holistic perspective. Meanwhile

increasing focus on interpersonal relations with suppliers will have many advantages but will

have a financial disadvantage to it. A culture study will only prove to be beneficial and has no

disadvantages to it.

Recommended Solution

Among the alternative solutions mentioned above, it is recommended to the top

management to follow a localized strategy wherein, it would prove to be beneficial to set up

small floor size stores in multiple neighborhoods. This can operate with a sub-brand that

would not compromise on the worldwide branding of the company. It will prove to be beneficial

culture-wise, as well. Vis-à-vis these neighborhood stores will provide a better relation with

customers (customer relationship management) and the central distribution facility can procure

in bulk. Interpersonal relations will improve on the holistic frontier. Procurement in bulk will

allow higher discounts from suppliers and this would obviously lead to higher profitability. It

would not necessarily have to imply that these discounts would have to be passed on to the

consumer since the Japanese consumer is willing to pay a premium for a higher quality. This

sub-brand’s pricing strategy would be different from Wal-Mart’s worldwide EDLP USP

(everyday low pricing unique selling proposition).

A contingency plan would be to resume operations through its current stores, meanwhile

keep focus on localization. Collaboration with farmers and selling fresh grocery will prove to be

beneficial.

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References

Alpert, F., Kamins, M., Sakano, T., Onzo, N. & Graham, J. (2001). Retail buyer beliefs, attitude

and behavior toward pioneer and me-too follower brands: A comparative study of Japan and

the USA. International Marketing Review, 18 (2), pp. 160--187.

Bergen, J. (2009). Korea’s Tesco reinvents grocery shopping with QR-code “stores” Geek.

Brown, L. T., Rugman, A. M. & Verbeke, A. (1989). Japanese joint ventures with western

multinationals: Synthesising the economic and cultural explanations of failure. Asia Pacific

Journal Of Management, 6 (2), pp. 225--242.

Euromonitor International. (2009). Retailing in Japan. [report].

Hofstede, G. H. (1991). Cultures and organizations. London: Mcgraw-Hill.

Kotabe, M. & Helsen, K. (2009). Global Marketing Management. 5th ed. John Wiley & Sons,

Inc.