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TEACHING NOTE
CASE 20
Wal-Mart in Africa
Overview
In the aftermath of the financial crisis of 2008, Wal-Mart began putting more emphasis on international market
expansion due to somewhat limited growth opportunities in its domestic (US) market. In its international
operations, Wal-Mart experienced strong sales growth and opened a record number of new stores; its
international segment grew by 15.2 percent year-on-year in fiscal 2012. By 2012, Wal-Mart operated 10,130
retail stores in 27 countries and posted revenues of US $443.85 billion.
Yet in its search for new growth markets, the company had met with mixed results in certain foreign countries:
successes in wealthier markets like Mexico, Canada, and the UK; challenges in Japan; failures in Germany and
South Korea. Having struggled to establish itself in Japan since entering that market in 2002, Wal-Mart finally
recovered after localizing its business model to better suit the needs of the Japanese retail market. Analysts
opined that Wal-Mart had failed to do the same to suit the needs of the German and South Korean markets, and
Wal-Mart exited both countries in 2006.
By 2010, most of the developed western retail markets reached saturation and Asian markets became highly
competitive. Africa remained the last major emerging market left for Wal-Mart to conquer, despite Africa’s
unstable political environment. To gain an instant footprint in Africa, in September 2010, Wal-Mart announced
an offer to purchase a 51 percent stake in the second biggest retailer in Africa, South African-based Massmart.
Massmart, founded in 1990, had rapidly increased its presence into the food-retailing business, operated 40
grocery stores and a total of 211 stores in sub-Saharan African nations, ranging from Botswana to Zambia. Since
the market potential of many individual African countries was limited, Wal-Mart needed Massmart to expand its
operations to many countries across Africa in order to achieve economies of scale.
Yet Wal-Mart faced opposition from powerful trade unions and some government departments in South Africa,
stakeholders who contended that Wal-Mart’s entry would drive down wages and lead to unemployment. Wal-
Mart countered by pledging the creation of 15,000 new jobs and a 100 million rand (US$13.37 million) local
industry competitiveness fund. The proposed merger went to the courts to decide. Analysts remained divided in
their opinion about Wal-Mart’s prospects in Africa, due to rampant poverty, low levels of income, low literacy
rates, political instability, and inadequate infrastructure. Just before the Competition Appeal Court of South
Africa’s ruled in favor of Wal-Mart’s deal to purchase Massmart, Massmart announced that it was going to
expand and open 20 more stores in Nigeria. Was Wal-Mart poised to succeed in Africa, or to repeat its earlier
missteps—in Germany and Japan and South Korea—by failing to understand the needs of the diverse local
African markets?
* This teaching note reflects the thinking and analysis of Professor Armand Gilinsky, Sonoma State University. We are most
grateful for his insight, analysis and contributions to how the case can be taught successfully.
*
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Suggestions for Using the Case
The case is highly suitable for illustrating diversification in a global context, covered in Chapter 7, “Strategies
for Competing in International Markets.” Particular learning objectives that can be met include:
n Building students’ awareness and understanding of cross-country differences in demographic, cultural, and
market conditions
n Developing students capabilities to assess and choose among strategy options for competing in developing-
country markets—where companies, faced with sometimes unusual or challenging circumstances, often face
considerable challenges
n Getting students to think critically about how a business sometimes must adapt its model to local conditions,
which often might not be possible or desirable. In developing regions such as Africa, Asia, and South
America, building a local market for a company’s products can often turn into a long-term process.
This case is also intended for use with Chapter 9 in the text (“Ethics, Corporate Social Responsibility, and
Sustainability”). It fits particularly well with a guided discussion to achieve a major learning objective in
Chapter 9: “Apply the concepts of corporate social responsibility and environmental sustainability and learn
how companies balance these duties with economic responsibilities to shareholders.”
If used with Chapter 9, instructors can direct students to critically evaluate Wal-Mart’s actions, by using ethical
reasoning and analyzing the costs and benefits of the company’s actions on its stakeholders. Persuasive arguments
can be made on both sides: on the one hand, as it enters new international markets, Wal-Mart is pursuing its
proven low cost business model to boost profits and benefit consumers; on the other hand, Wal-Mart has in the
past appeared to be tone deaf to the needs of local markets, and only reluctantly if ever adjusts its business model
to appease local stakeholders as it was forced to do in order to remain competitive in the Japanese retail market.
Video for Use with the Walmart in Africa case. There is a 3:42 video entitled “Walmart’s Push Into
Africa” that would be best viewed after students have read the case and become familiar with the industry. You
What to Tell Students in Preparing the Wal-Mart in Africa Case for Class. To give your students
guidance in what to do and think about in preparing the Wal-Mart in Africa case for class discussion, we
strongly recommend they master and then apply many of the concepts and analytical methods in Chapter 7
and 9. Be sure to:
n Provide class members with assignment questions and insist that they prepare good notes/answers to these
questions before coming to class. Our recommended assignment questions for the Wal-Mart in Africa case
To facilitate your use of assignment questions and making them available to students, we have posted a file of
the Assignment Questions contained in this teaching note on the instructor resources section of the Connect
Library. In all instances, these assignment questions correspond to the assignment questions in the teaching
note for the case.
In our experience, it is quite difficult to have an insightful and constructive class discussion of an assigned case
unless students have conscientiously have made use of pertinent core concepts and analytical tools in preparing
n
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Utilizing the Guide to Case Analysis. If this is your first assigned case, you may find it beneficial to have
class members read the Guide to Case Analysis that immediately follows Case 31 in the text. The content of this
Suggested Assignment Questions for an Oral Team Presentation or Written Case Analysis. We
believe that, as shopping quite popular with students and they are familiar with the retailing industry and the
company, the Wal-Mart in Africa case is quite suitable for written assignments and oral team presentations. Our
Assignment Questions
1. How would you describe Wal-Mart’s international strategy leading up to its acquisition of Massmart in
Africa? What has Wal-Mart learned from its experiences in Germany, Japan, and South Korea? What grade
would you give Wal-Mart for its performance to date in diversification into international markets?
2. How should Wal-Mart resolve the tension between market pressures to localize its product offerings country
by country and competitive pressures to lower costs? Explain.
3. Is there anything that Wal-Mart has done or is now doing in its drive to enter Africa and other international
markets that could legitimately be considered as “unethical” by its stakeholders? Why or why not?
4. In what ways, if any, is Wal-Mart exercising corporate social responsibility? Are there any changes to its
CSR strategy that you would suggest? If some shareholders complained that Wal-Mart has been spending
too little or too much effort on corporate social responsibility, what would you tell them?
5. Is the current strategy for Wal-Mart producing good strategic and financial results? What are some key
indicators of performance?
6. Should Wal-Mart adapt its business model to be better suited to local conditions in Africa? In what ways?
What are the pros and cons?
7. How would you advise the company to proceed with implementing its entry into Africa? What options does
Wal-Mart have on the table, and what option should be chosen?
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Teaching Outline and Analysis
1. How would you describe Wal-Mart’s international strategy leading up to its acquisition
of Massmart in Africa? What has Wal-Mart learned from its experiences in Germany,
Japan, and South Korea? What grade would you give Wal-Mart for its performance to
date in diversification into international markets?
Elements of Wal-Mart’s International Strategy
n Began with proximate nations in North America and then European Union followed by Asia
n Entered via greenfield start-up, alliances, and acquisitions
n Rapidly built scale and local knowledge in:
• Mexico—2,037 outlets and restaurants
— Entered in 1991 via joint venture with local retailer Cifra to build knowledge
• Canada—333 stores
— Entered in 1993.
• UK—544 stores including 32 superstores
— Entered in 1999
• Africa—211 Massmart stores
— 51 percent stake in Massmart, approved May 2011
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What Wal-Mart learned from Germany, Japan, and South Korea
In Chapter 7, we note that “If the company has sufficient clout, try to change the local market to better match
the way the company does business elsewhere.” Wal-Mart apparently acted as if it had ‘sufficient clout’ in
Germany, Japan, and South Korea—all developed nations, but it was unable to change the local markets in
n Recognize how a business sometimes must adapt its model to local conditions
• Rectified problems in Japan via renovating its stores to look better and creating better consumer
• However, the South Korean retail market was highly sophisticated with lavish stores and the South
n Learn the particular characteristics of local markets
• Could not a adapt company culture to local cultural norms—lifting the “romance ban” on store
personnel in Germany
n Accept that building a local market for a company’s products is a long-term process which:
• Did not always offer consumers a clear and compelling value proposition
• Did not result in a sufficient number of stores in South Korea and Germany to permit volume
purchases and scale economies, essential to a low cost entry
Wal-Mart’s Grade and Justification
Wal-Mart has had mixed success internationally, so we would give it a “B” grade. While it has had some
impressive results of transplanting its low-cost business model to certain countries via greenfield development,
Wal-Mart completely misunderstood the decentralized German market and the relatively upscale South
Korean market right from the beginning, while ham-fistedly attempting to implement the centralized lowest-
cost business model it had followed in the US and without making any adjustments. It encountered problems
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This less than stellar grade reaffirms one of the key learning objectives in Chapter 7, that is, tensions between
market pressures to localize a company’s product offerings country by country and competitive
2. How should Wal-Mart resolve the tension between market pressures to localize its
product offerings country by country and competitive pressures to lower costs?
Explain.
Chapter 7 offers some grist for the mill as students debate this question.
Market pressures to lower product offerings country by country
n Buyer tastes for a particular product or service sometimes differ substantially from country to country, as
n Cultural influences can also affect consumer demand
n Wal-Mart in Mexico and the UK benefitted immensely from its foreign partners’ familiarity with
Competitive pressures to lower costs
n Greater standardization of a global company’s product offering, on the other hand, can lead to scale
n While opening stores that are closely matched to local tastes may make them more appealing to local
customers, customizing stores on a country by country basis may raise investment and distribution costs
How Wal-Mart resolved these tensions
n Cross-border alliances enabled Wal-Mart to capture economies of scale in marketing, raise understanding
n While cross-border partnerships were effective in helping Wal-Mart establish a beachhead of new
• Wal-Mart needs to avail itself of local managerial talent and know-how by hiring experienced local
n Wal-Mart engaged in greenfield investment to create its Wal-Mart Canada subsidiary, which is apparently
successful to date
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3. Is there anything that Wal-Mart has done or is now doing in its drive to enter Africa and
other international markets that could legitimately be considered as “unethical” by its
stakeholders? Why or why not?
Over the years, Wal-Mart encountered numerous controversies and allegations regarding its business
practices and labor stance, and these did not abate as it entered international markets. Several criticisms
relating to its business practices are listed in case Exhibit 1 and included:
n Anti-unionism
n Employee discrimination
Ethical behavior in business situations requires adhering to generally accepted norms about right or wrong
conduct.
The school of ethical universalism considers conduct as either right or wrong, including truth-telling,
Chapter 9 notes that a multinational company can develop a code of ethics that it applies more or less evenly
across its worldwide operations i.e., to avoid the slippery slope that comes from having different ethical
A multinational company’s need to contour local ethical standards to fit local customs, local notions of fair and
proper individual treatment, and local business practices can give rise to multiple sets of ethical standards. The
operating practices, such as hiring underage labor or paying bribes and accepting kickbacks, but there are
allegations about violations of child labor laws in case Exhibit 1. Further, some students might argue that the
4. In what ways, if any, is Wal-Mart exercising corporate social responsibility? Are there
any changes to its CSR strategy that you would suggest? If some shareholders
complained that Wal-Mart has been spending too little or too much effort on corporate
social responsibility, what would you tell them?
Corporate social responsibility (CSR) concerns a company’s duty to operate in an honorable manner, provide