This article will traverse the before and after affects of Wal-Mart’s attempt to gain a strong foothold in Germany. Wal-Mart has done very well in North America and many of Wal-Mart’s leaders thought that they could use the exact same success formula in Germany; however that was not the case. There were several factors that contributed to the initial failure of Wal-Mart’s in Germany including language barriers, government, and cultural differences. Wal-Mart’s failed attempt to gain success in Germany lead to the loss of millions of dollars and the offense of many German businesses.
When attempting to expand a business overseas there are several important areas that must be taken into account in order to give the business a fighting chance. Possibly the most important issue is to avoid ethnocentrism which is the “belief that ones one culture is superior to others” (Angell, 2007, p. 352). Wal-Mart failed at disdaining an ethnocentric viewpoint and this combined with other failures lead to their financial disaster in Germany.
1. Do you think there are cultural differences between the German market and the American Market? What might they be?
There are many cultural differences between the German market and the American market, but one of the biggest differences is the way that the people of each culture perceive low prices. Wal-Mart prides itself on its low prices and this is the primary reason why it has done so well in the United States. Americans love to buy goods at what they feel is a bargain price and they will shop around in order to get the best deal. However, in Germany very low prices are often viewed as accompanying a poor quality product. This cultural difference can have a devastating affect on a company that prides itself on the lowest prices. One other cultural difference is that Americans like to buy everything in large quantities and to get all of their shopping done at one location, but in Germany people do not mind going to many different shops in order to get everything on their list and they will go to these shops every day and only purchase the amount that they need for that one day. This may seem like a waste of time to Americans but that is a ethnocentric viewpoint and should be avoided.
2. Why would German managers and vendors revolt against American business practices.
One of Wal-Mart’s first business decisions in Germany was to buy out several retail chains and to redesign the outlets in order to fit the Wal-Mart style. This gave the impression to the managers that Wal-Mart was going to do business in their own way whether or not the Germans liked it. Furthermore Wal-Mart has the practice of forcing its vendors to supply the first shipment of goods on credit and then Wal-Mart would not pay them until they had either shipped another load or had ended their business relationship with Wal-Mart. By receiving the first shipment on credit Wal-Mart is able to keep large amounts of money under their control. This method of buying on credit upset Wal-Mart’s vendors in Germany and brought them into a revolt against Wal-Mart.
3. Why do you think the Wal-Mart executives didn’t intrapersonaly think about the context in which they were communicating?
Wal-Mart has no excuse for the many mistakes that they made when branching into Germany, particularly when so many companies have had success in Germany before them. The Wal-Mart executives were over confident from the success that they had achieved in North America and this confidence, though pertinent in North America, did not suit them well when expanding into Germany. If the executives had stepped back and thought about the situation they were jumping into and ignored their previous success they would have been able to better see the cultural differences that eventually lead to Wal-Mart’s great financial loss in Germany. The mistakes made by Wal-Mart were basic but had large effects.
4. What specific communications skills should Wal-Mart managers have used to start off on better terms with the German managers and vendors?
One of the most surprising mistakes made by Wal-Mart is that the American bosses placed in Germany could not speak German (Angell, 2007, p. 28). Being unable to communicate in a complete manner immediately placed strains on Wal-Mart’s German relationships. Also by placing the pressure on the German managers by expecting them to speak English gave further insight into how much thought Wal-Mart had given to adapting to the German Community. Before reconstructing the outlets in order for them to fit the Wal-Mart model Wal-Mart managers should have spoken with the German managers to find out the strengths and weaknesses of the current outlets. Then Wal-Mart could have made an informed decision as to whether or not it was appropriate to redesign the layout of the buildings. Communication on a personal level would have gone a long way in securing Wal-Mart’s success in Germany.
5. How should Wal-Mart address the problems it faces and begin to collaborate productively with the German people?
Germany’s government has placed price bottoms on many goods that Wal-Mart sells and this directly undermines their ability to be the low price leader. Wal-Mart needs to partially redefine their position in the German marketplace. In addition to redefining their position Wal-Mart needs to stop adhering to their ethnocentric viewpoint and begin listening to the ideas of their managers. Once again communication at the personal level with German managers and vendors will be the key to Wal-Mart’s success. They have already messed up their relationships enough that the only way to repair those relationships is for Wal-Mart to make the first move and to begin to deconstruct their German branch of the company in order to realistically face the cultural needs of the German people. Once the German’s see that Wal-Mart is making a serious attempt to change the way in which they do business they will begin shopping there more often. Possibly it will take the younger German generation to change the cultural norm and begin to buy in bulk while paying the lowest price.
Wal-Mart made many mistakes when they expanded into Germany. Their primary mistake was falling into an ethnocentric view and assuming their formula for success would automatically succeed in all other nations. By not properly researching the German culture Wal-Mart failed to realize that selling in bulk and at a low price was not what the German people were used to. Also Wal-Mart failed to give the German managers the courtesy of speaking to them in German while in Germany. Lastly Wal-Mart was not prepared to deal with the German government and the price restraints that they placed on certain goods. When looking at the results of Wal-Mart’s expansion into Germany the term disastrous comes to mind and it will be interesting to see how Wal-Mart proceeds into other countries in the future.
Source by John Severin