International Strategy
1.0 Walmart: International Successes and Failures
1.0.1 Internationalization drivers
Walmart International’s presence is dominant in the United States, Brazil, the United Kingdom, and China, which substantially contribute to the firm’s revenue. In markets such as the United Kingdom, Walmart has recorded success, whereas, in the German market, the firm has been forced to exit the market. Since its inception in 1991, Walmart has struggled to comprehend its consumers’ buying patterns, its competitors, the market culture, and the market regulations in its bid to achieve international operational goals and objectives. These drivers have varied across the retailer’s various markets.
First, stiff competition from local markets in Walmart’s foreign markets is another driver that the United States firm has struggled with over time. Despite the recognition of being the first growing company with record unit sales of $141 billion in 2015, the company has continuously made losses in the Brazil market. In 2016, for example, the firm was forced to close down 60 of its outlets in a bid to restructure its operations in the Latin American country. This closure led to a loss of 5% of the firm’s sales. Brazil’s “nightmare” as the firm puts it has dramatically been contributed to by Carrefour. This French supermarket chain has been Walmart’s toughest competitor in Walmart’s efforts to penetrate the Brazil retail market. Walmart’s efforts to convince the price-conscious consumers of the firm’s ‘everyday low prices’ have failed to match Carrefour’s prices contributing to the company’s inability to make substantial gains despite being in the Brazilian market for more than two decades.
Second, stringent market regulations, such as on food safety in nations like Brazil and Germany, have worked to the detriment of Walmart. The Brazilian market, for example, has for a long while been characterized by unsustainable economic legislation that has limited foreign direct investment in the Latin American nation. In Germany’s case, the issue of location and also employees’ working hours were among the challenges that Walmart had to contend with before exiting the German retail market. The German workforce expressed resistance to the retailer’s workplace culture and customs, which often resulted in continuous labor union disputes.
Third, cultural mistakes are some challenges that have significantly affected the American-based firm in its internationalization endeavors. Walmart has failed to timely and perfectly integrate the cultural differences in the foreign markets in its strategic management. Different cultures tend to have different preferences and demands. For example, in the South Korean market, Walmart continuously failed to meet consumers’ needs leading to the company’s from the South Korean market exit after eight years of futile operations.
However, having learned from its shortcomings in the South Korean market, Walmart managed to adjust its services to fit the Chinese culture. In China’s case, Walmart realized that Chinese consumers generally preferred taking frequent shopping trips contrary to the retailer’s home-based shopping experience, which mainly encouraged one-time shopping. Walmart preferred consumers driving out-of-town to the firm’s stores where they would have their vehicles filled with large multi-packs, only for them to come next when their shopping had diminished. Walmart had to change its activities to incorporate the Chinese shopping culture. In so doing, the global retail company has successfully established over 400 profit-making retails stores compared to the unfortunate Brazil case.
1.0.2 Dangers for large western retailers in staying out of emerging markets
Emerging markets present diverse opportunities for growth and expansion that are worth exploiting by Western firms with stable capital standings. Due to the growing demand that often characterize most emerging markets, there are always anticipations of higher market returns from these foreign emerging markets compared to the foreign investor’s local nation (Gerry, & Scholes, 2009). Additionally, emerging markets are also characterized by fast-pace real and monetary growth in their stock markets. It is, therefore, the foreseen high returns from the stock markets that most Western nations are drawn to pursue international markets.
The choice of staying out of emerging markets by large Western retailers could, therefore, curtail the retailer’s goals of attaining sustainable growth. Sustainable growth, in this case, would include revenue from sales, product mix, and consumer base. According to Forbes, emerging markets are projected to record growth of two to three times faster than already established and stable markets such as the United States as per the estimates of the International Monetary Fund (IMF) (Forbes, 2020). Walmart staying out of emerging markets would, therefore, imply that the multinational retailer’s dominance will only be felt in markets where its operations are already established.
Second, staying out of emerging markets may lead to loss of economies of scale that it would have enjoyed if it operated in the emerging market. Economies of scale refer to the long-run reductions in a firm’s marginal and average costs due to the firm’s growth in the size of an operating unit. Reasonably priced raw materials often characterize emerging markets. Firms that can create positive relationships with local suppliers tend to enjoy discounted or even fairer terms of trade as they progress in the market. Economies of scale in emerging markets are also obtained by retailers by the nature of their operational activities. For example, multinational retail firms that practice positive social change in local markets tend to enjoy higher economies of scale compared to those that do not. This economic advantage is because firms that engage in sustainable social activities enjoy subsidies from the local government as well as lower rates from the owners of raw materials due to their positive social image.
Third, a large Western retailer that opts out of an emerging market is likely to miss out on the economic benefits that arise from the use of e-commerce in such markets. The continuous rise in internet usage as a result of technological advancements and increased usage of mobile phones are drivers that make emerging markets e-commerce hubs. As a result of these developments, emerging markets are great opportunities for promoting online shopping since substantial populations are often fascinated with the idea of shopping without physically visiting retail shops. This trend is because internet usage is developing economies or emerging markets is yet to mature as it is in developed markets such as the United Kingdom and the United States.
2.0 The International “Joint Effort Enterprise”
2.0.1 Important internationalization drivers for Blue Skies’ market entry decision
The decision to explore international markets by multinational companies (MNCs) are mainly influenced by government, competitive, market, and cost drivers that exist in the targeted or selected foreign markets. The impact of these drivers varies across markets, thus explaining why the same firm can post completely different results in different markets despite trading in the same products and applying similar strategies. Blue Skies’ decision to go international was greatly influenced by cost drivers, market drivers, and competitive drivers.
On cost drivers, Blue Skies’ strategy to have its raw materials processed in its nation of origin rather than exported to be processed elsewhere has helped reduce the firm’s production costs. In so doing, the company ensures that 70% of its production value is retained within the nation of origin rather than 15%, which would have been the case if the raw materials were processed elsewhere. Since the company’s factories are located in African nations where there is a larger workforce, the choice of locally processing the raw materials reduces the processing costs significantly. This fact explains why Ghana is home to the company’s largest processing plant, with over 2,500 employees.
On competitive drivers, the lack of and therefore need for sustainable business models is a factor that prompted Blue Skies to enter its specific markets. In most economies, the typical profit maximization motive overrides other corporate social responsibilities. Consequently, consumers tend to be drawn most to firms that not only meet their specific consumer demands but also attend to their social needs. As a result of this need, Blue Skies developed the ‘Joint Effort Enterprise’ (JEE) business framework to steer the firm into sustainable operations that benefit both the firm and the society within which the company operates. JEE framework is built on three pillars: the creation of a diverse society, the nurturing of a culture of respect, and a profit drive. In Blue Skies’ case, profit maximization should not be achieved at the expense of the other two pillars. This unique pillar explains why the company manages to record progressively high turnover amidst operating in a stiffly competitive market.
Third, the growing demand from global consumers is a market driver that was important in Blue Skies’ choice of its markets. Presently the firm serves twelve major European markets besides its consumer markets in Egypt, South Africa, Ghana, and Brazil. At the time of the firm’s foundation in 1997, the European market lacked fresh-cut fruits and freshly squeezed juices imported from African nations (Blue Skies, n.d). According to the company’s website, the first successful consignment of that nature to Sainsbury’s in the United Kingdom from Ghana was exported on February 26, 1998, taking 36 hours. Since then, the firm proved that exports of fresh fruit juice, as well as fresh-fruit products from Africa to foreign European and Asian markets, were possible.
2.0.2 How does Blue Skies’ strategy fit into broader international value system?
The international value chain system in international strategy describes the categories of business activities within and outside an organization that collectively contribute to the creation of a product and provision of services (Gerry, & Scholes, 2009). Blue Skies has its activities classified as primary and supportive. According to Michael Porter, primary activities refer to those firm undertakings which are directly involved in the creation of products or delivery of services. These activities include inbound logistics, outbound logistics, operations, marketing, sales, and services. On the other hand, support services refer to those undertakings which improve the effectiveness of the firm’s primary activities. Support activities include technological development, infrastructure, procurement, and human resource management.
Blue Skies’ processing activities fit into the broader category of primary activities captured in the international value chain system (Fig.1). The firm’s inbound activities include the receipt and assortment of fruits from farmers, storing the inputs, and stock control, among other activities. In Ghana, for example, Blue Skies gets its fruits from an estimated over 100 small and medium-sized farmers who serve the company’s large processing plant. The operations that transform the input into the desired final form include processing, packaging, assembling, and testing to check for quality standards fitting the foreign markets. Blue Skies’ outbound activities include those that entail the collection, storage, and distribution of fruit products to the firm’s consumers. The output is stored in the firm’s warehouses before distributed to its local and foreign markets. To boost Blue Skies’ sales, the company engages in sales and marketing activities aimed at promoting the products to lure them to purchase the output. Finally, services such as repairs, installations, and training are also conducted to enhance the value of the fruit products processed by Blue Skies. These services are mainly on-job training.
Fig.1 Porter’s Value Chain Model; Source: (Gerry, & Scholes, 2009)
2.0.3 The significance of JEE to Blue Skies
Blue Skies’ Joint Effort Enterprise’ (JEE) framework was primarily developed to embrace the diversity in the society, create a culture of respect, and maximize profit. However, in the case of Blue Skies, the latter is not the prime objective. In a market economy where profit maximization overrides any other corporate responsibility required of an enterprise, Blue Skies’ sustainable business framework presents a different approach towards economic activities. The company argues that there is more to business activities than just profit maximization. Being that the firm serves an international consumer market with diverse consumer needs and preferences, JEE takes into account the need to have skilled workforce that best understands and labors to ensure the fulfillment of different consumer tastes. With skilled labor serving its local and foreign markets, Blue Skies is assured of accurate and reliable market analysis of its activities. Such studies are made possible through the expertise of its workforce who are not only experienced in the retail market but also connected to the firm’s consumers. In 2017, for example, the firm was awarded as the Supermarket of the year for its ability to manage significant growth despite operating in a very dynamic market more so in the United Kingdom (Blue Skies, 2017). The firm’s award came at a time when the company was facing Brexit anxieties.
Blue Skies’ Joint Effort Enterprise business model is also key to the firm’s competitive advantage. Through the model’s framework, the company processes its fruit products within the country of origin, unlike its competitors, who export the raw materials for processing. In so doing, the firm can significantly cut down on processing costs, which are often higher when raw materials are transported for processing in developed nations. Through its choice of factories in emerging markets with relatively fair labor costs, the company can achieve economies of scale, therefore gaining an advantage over its competitors with higher marginal and average costs. Additionally, the firm works closely with its suppliers to help them attain agricultural standards befitting international market standards (Fig.2). Blue Skies’ suppliers are well acquainted with the company’s expectations of quality and quantity. Through training and interaction with the firm, suppliers are furnished with up-to-date information on local and global market trends. The suppliers also act as the firm’s agents as they act as intermediaries between the local farmers and the firm.
Finally, the Joint Effort Enterprise framework is crucial in the company’s corporate social responsibility. The model advocates for a positive social impact in the firm’s operating environment. First, the company esteems the need for conserving resources, therefore explaining the reason behind their consciousness on environmental impact. For example, in response to rising energy prices globally, the firm has put in place plans to develop renewable energy. In so doing, the firm will not only reduce its operational costs on electricity but also reduce its contribution to greenhouse gas emissions during its processing activities. On direct social impact, Blue Skies, in partnership with other foreign retailers with similar positive social impact initiatives, have managed to participate in community projects directly. The firm has, in the past, raised over £1 million in support of its development projects in Ghana and South Africa. Between 2009 t0 2015, for example, the company has managed to construct latrines, schools, and community centers totaling over 40 projects. These initiatives have earned various global sustainable development awards, such as the Queen’s Award for Enterprise.
3.0 Nordic Industrial Park: Bridging Across International Markets
3.0.1 The CAGE Framework
The CAGE framework, also known as CAGE Distance Framework, is a strategic tool that most international businesses use to discover essential variances between various nations that they should focus on when coming up with their strategies in reducing distance across global markets. CAGE is an acronym for Cultural, Administrative, Geographical, and Economic differences, assists businesses by analyzing various countries and determining the distance gap between them (Herrera, 2017). The Nordic Industrial Park (NIP) has been of great help in reducing the international distance for international businesses, as in the case of China. In relation to the CAGE framework, NIP in China provides a wide range of essential services to its global markets in setting up businesses.
First, they provide administrative services such as the registration of companies and drafting of legal business contracts in China. Both Europe and China have different regulatory and political guidelines affecting international markets. In China, stringent political and legal policies have been established to conduct the operations of business administration. Due to the unfamiliarity of these administrative policies, new businesses that may want to start their companies in China may face awkward moments and may end up losing focus (Dong et al., 2019). At the same time, the country has embedded various friendly administrative relational policies that may favor the operation of new foreign businesses. Different legislation and guidelines in countries may have severe effects on trading practices between them. NIP is intensively informed on these different administrative measures in China. Therefore they will help the new foreign organizations to gauge if those differences may be of help or hindrance to their business expansion strategy.
NIP also provides geographical space for business offices and light-industrial amenities. Geographical differences entail the physical feature of the locational distance between the different countries. In our case, China and Europe are at a separate geographic location in the globe with differences in their transport facilities, climate, size, infrastructure, among other aspects. Due to these international differences, through technology, NIP bridges the countries in various ways. In physical differences, they provide transport facilities either by air, road, or sea to the designated businesses in the foreign country hence reducing the physical distance between them (Kuznetsova et al., 2017). They also help in automating and rescheduling of time due to the variance in the geographic time zone between the countries. In the means of communication, NIP assists the business startups in developing viable and stable communication systems for efficiency during their regular business operations.
Finally, Nordic Industrial Park (NIP) offers economical services such as financial reporting, accounting, and other financial services involved in the business. Every country has differences in their economic features such as wealth distribution, income levels, gross domestic products, and purchasing power. Differences in the economic aspects of a country like China can be a great hindrance to foreign startup companies but also can offer vast financial opportunities for them. Operating a company in a foreign country will need a sound understanding of its fiscal position, economic trends, and requirements (Liu et al., 2018). Additionally, differences in natural resources, knowledge and information access, costs, human resources, and financial quality may affect businesses. NIP offers the relevant competent expertise to the startup businesses that will help them navigate well through the country’s prevailing economic conditions.
3.0.2 The drawbacks of being located in an industrial park
Various advantages are associated with companies located in an industrial park, as depicted in Nordic Industrial Park’s case study. However, some setbacks are also associated with such parks, which have impacts on the operations of startups. First, companies face little or no control over their business operations due to complete dominance by the industrial park owner. Most industrial park owners provide everything for the incoming startup companies, such as administrative, cultural, economic, and geographical services, for the efficient operation of their business activities in the foreign nation (Gillis, 2019). The majority of the expertise and competencies are met by the industrial park owners, which in case of any misalignment to the laid guidelines by the company, may lead to possible retaliation of services by the industrial parks. As a result, this will adversely affect the productivity and growth of the located companies.
The occupational health and safety rules of the employees are compromised. Since industrial parks are associated with substantial industrial activities such as manufacturing and processing, there are possibilities of unhealthy emissions such as poisonous gases and irking noise. Employees working in such areas are likely to be affected during their duty performances hence adversely affect their productivity (Aynalem, 2019). Additionally, due to the large number of people staying under a confiscated area, the safety of the employees’ tools and properties are at stake. It later on, alarms the need for advanced security systems to guarantee the company of their employees’ security. Poor sanitation among people in the industrial parks is alarming, such that this can affect the comfortability and healthy working environment for the employees. There is a need for the industrial parks to advance and promote a sustainable working environment that caters to the safety and occupational health of the employees hence enhancing high employee productivity.
Finally, companies indulged in industrial parks face diminishing productivity scale and industrial indiscipline. Labor productivity capacity in the industrial parks tends to be lower than in other low-cost industrial terminuses (Aynalem, 2019). Due to the confinement set-up of the companies, there is minimum exposure to the rest of other companies bringing no or little competition. As a result, this leads to a lack of growth, specialization, and advancement in their activities. Also, due to the cultural differences among the employees being the locals and managers being foreigners, it may cause forms of misunderstandings in the companies. As a result, the company employees will not operate at their full capacity hence low productivity and sustainability of the companies.
References
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