Going Global - Learning from Wal-Mart’s Mistakes
We’re focused on organic growth here at Volaris and a great way to achieve that growth is by moving into new markets. But before any of our businesses do expand globally, I encourage them to really sit down and analyze if this is the best course of action.
Are you chasing one large contract from a customer or can you serve a wider market? Does your product meet the needs of this new market or will your product have to be adapted? What is the competitive landscape like?
Not being fully prepared to expand into a new market can alienate customers, hurt your brand, be financially costly, or result in exiting the market.
A great example to learn from about going global is Wal-Mart’s expansion into Germany. On paper, this was the perfect market for Wal-Mart to enter but it wasn’t long before the retail giant closed up shop.
In 1997, Wal-Mart started to expand into Germany by acquiring two retail chains and an American CEO was brought in to head the operations. But in 2006, Germany exited the market after losing $1 billion USD. They never quite found their footing in the competitive landscape and went through four CEOS within the first 4 years.
Where Did They Falter?
1. Underestimated Competitors
The German market is no stranger to discount retailers. Two chains, Aldi and Lidl, dominate the market and focus on selling products at extremely low prices while maintaining high quality standards. The market is oligopolistic with Aldi heavily influencing and setting prices. Wal-Mart underestimated how prominent Aldi and Lidl are and didn’t adjust their strategy to account for their competitors.
2. Lack of Cultural Fit
Wal-Mart’s corporate culture never resonated with the German audience. They tried to enforce American values and practices which didn’t sit well with their German employees. Management did not listen to its employees when employees came to them with suggestions and improvements. Lastly, there was no stability with top management as they were constantly turning over. The high turnover was inconsistent with the Germans' preference for stability and long term orientation.
3. Didn't Understand Consumers
They didn’t take the time to understand consumer needs and preferences. This may be due to Wal-Mart Germany’s first CEO being an American who refused to learn the language or culture. German consumers don’t value the one-stop shop proposition that Wal-Mart offered and focus more on price and value than service and quality. The fundamental differences between consumer preferences and Wal-Mart’s offering caused consumers to have animosity towards the brand.
Lessons Going Forward
Know Your Customers
Understanding your customers inside and out is critical for success. Unless you solve their needs, they won’t care about your product or brand. We push our companies to spend time with customers and involve them in the development process.
The Importance of Culture
For a company to thrive, they need employees who fit with the corporate culture and want to be ambassadors for the company. Happy employees will attract top talent and provide a strong brand image, especially in a new market.
As well, your values need to resonate with the customers of the new market you’re entering into. Without customer buy-in, you won’t have sales – simple as that.
Figure Out Market Dynamics
Who are the key players in the industry? Are there laws and regulations that you have to adapt to? Can you enter the market on your own or do you need a joint venture? Really understanding the nature of the market and the competitive landscape is key in determining your long term success in that market.