#Strategy - How The Retail Giant Walmart Struggled in Germany?
We are in 2006. In the small town of Tübingen, nestled along the serene Neckar River, resided Herr Müller. A seasoned 50-year-old shopper born in the town, he had witnessed many shops open and close in the area. Yet, one event etched itself into his memory; the crossroads faced by the retail chain giant Walmart from 1997 to 2006 in his small town.
One crisp morning in 2006, Mr. Müller entered Walmart. Despite not being a very frequent visitor to Walmart, he was surprised to hear the news that morning. Frau Roeck, handing him his receipt, met his curious eyes. “I heard the news this morning. Why are you closing your branches all around the country?!” Mr. Müller asked.
Ms. Roeck does not however remember seeing him in the store. Maybe he does not come so often, if not at all? The store is located outside public transportation easy reach after all, and many people do not necessarily have a car here …
But here is the thing: Mr. Müller’s story can help explain why Walmart didn't make it big in Germany. Even after nearly ten years of trying, Walmart never became the go-to place for Germans like it did for Americans. It's not just Germany, though. Walmart faced similar struggles in places like South Korea and Japan. Turns out, what works in one place might not work in another.
Despite its setbacks, Walmart keeps pushing forward in other countries. It's buying up stores and making big moves all over the world. But here's the thing: Walmart's stumble in Germany taught us a valuable lesson – you've got to understand a place before trying to set up a business there.
Now, Walmart has been trying to be more sensitive to local customs and tastes. In Germany, for example, it was reported that Walmart stopped asking employees to smile all the time. Some German shoppers thought it was a weird gesture! They also got rid of the morning chants in the German branches. It was a small change, but it could make a big difference in other countries, like China where Walmart is growing fast.
Walmart's journey abroad is like a rollercoaster ride. It's had its ups and downs, but it's not backing down. In fact, it's doubling down on its international game plan. Just last year, Walmart bought a bunch of stores in Brazil and Japan and joined forces with a chain in Central America. Talk about making moves!
World's Biggest Retailer Wal-Mart Closes Up Shop in Germany
Source: DW News - 2006
Think local to go global?
Even though Walmart's German experiment didn't quite pan out, it's still a big deal in places like Mexico and the United Kingdom. Those success stories remind us that sometimes, you've got to think local to go global.
Hans-Martin Poschmann, the secretary of the Verdi union, has some interesting comments on that. In Germany, Walmart stopped requiring sales employees to smile at customers - a practice that some male shoppers interpreted as flirting - and avoided the morning Walmart chant by staff members.
“People found these things strange; Germans just don’t behave that way,” said Hans-Martin Poschmann, the secretary of the Verdi union, which represents 5,000 Walmart employees here. Walmart’s changes came too late for Germany, but they could help it crack other markets, like China, where it already has 60 stores and 30,000 employees. Far from being chastened by its setbacks, Walmart is forging ahead with an aggressive program of foreign acquisitions.
Walmart’s German operations, comprising 85 stores and generating $2.5 billion in sales, appear as a mere footnote for a company primarily concentrating on Asia and Latin America. However, the challenges faced in Germany resonate beyond its borders. Notably, Walmart struggled to foster amicable relations with German labor unions.
“Walmart didn’t understand that in Germany, companies and unions are closely connected,” Mr. Poschmann said. “Bentonville didn’t want to have anything to do with unions.” According to Ms. Keck, Walmart actively fostered positive relations with the leaders of the works’ council, which represents the unionized workforce. Additionally, the company adapted its policies based on employee feedback.
Walmart’s lessons in Germany emphasized the importance of local management as well. Initially, the company appointed American executives who lacked insight into German consumer preferences.
Notably, Walmart’s German venture, resulting in significant financial losses since 1998, serves as a cautionary example of how not to approach international expansion. “It is a good, important lesson, a turning point,” an international spokeswoman for Walmart, Beth Keck, said. “Germany was a good example of that naivete.” She added, “We literally bought the two chains and said, ‘Hey, we are in Germany, isn’t this great?’
It is all about adapting and understanding what people want, whether they're shopping in Brazil, Canada, or South Korea. And who knows? Maybe one day, Walmart will crack the code and become everyone's favorite store, no matter where they are in the world.
Quick Explanation of Hofstede’s 6 Cultural Dimensions Theory - crowjack.com
Could Walmart Situation Be Analyzed with Hofstede's Cultural Dimensions Theory?
Walmart's difficulties in Germany can indeed be analyzed in the context of Hofstede's cultural dimensions theory. Hofstede's theory suggests that cultural differences between countries can influence various aspects of business, including management styles, decision-making processes, and consumer behavior.
Trying to shed more light on uncertainty avoidance in particular, it is a dimension in Hofstede's cultural framework that reflects the extent to which members of a society feel uncomfortable with uncertainty and ambiguity. In high uncertainty avoidance societies, there is a preference for clear rules, structure, and predictability, while low uncertainty avoidance societies tend to be more accepting of ambiguity and change.
In the case of Walmart's struggle in Germany, the aspect of uncertainty avoidance is particularly relevant. German society is characterized by a relatively high uncertainty avoidance index, which suggests that Germans prefer clear guidelines and structures in their social and business interactions.
A Quick comparison between USA and Germany on the Hofstede’s Cultural Dimensions Theory:
Comparision between Germany and USA in the 6 dimensions - Source: hofstede-insights.com
Here's how uncertainty avoidance may have influenced Walmart's challenges in Germany:
Preference for Familiar Brands and Shopping Environments:
German consumers may have preferred shopping at established retailers with familiar brands and environments, as these provide a sense of predictability and reassurance. Walmart's entry into the market as a foreign retailer may have been perceived as unfamiliar and uncertain, leading consumers to stick with the brands and stores they already knew.
Concerns About Quality and Reliability:
High uncertainty avoidance cultures often value reliability and consistency. Walmart's emphasis on low prices and standardized products may have raised concerns among German consumers about the quality and reliability of its offerings. In a society where people prefer certainty, the perceived risk of purchasing from a foreign retailer like Walmart might have outweighed the potential savings.
Resistance to Change:
German consumers and employees may have been resistant to Walmart's attempts to introduce new practices and procedures that deviated from established norms. For example, Walmart's implementation of practices like obligatory smiles from salesclerks may have been perceived as culturally inappropriate or uncomfortable in a society with high uncertainty avoidance.
Adaptation to Local Regulations and Practices:
High uncertainty avoidance cultures often have stringent regulations and established practices that companies must adhere to. Walmart's struggle to adapt its business model to comply with German regulations and cultural norms may have further exacerbated its challenges in the market.
Walmart’s 9 years of trials to penetrate the German market is an interesting case study on its own. As highlighted by Walmart’s international spokeswoman Beth Keck, Walmart's struggle in Germany can be attributed, at least in part, to its inability to adapt its business model and operations to the cultural preferences and expectations of German consumers and employees. Walmart tried hard, but after 9-years, Walmart sold its 85 outlets in Germany in 2006 resulting in a $3 billion loss.
Conclusion
In almost every multinational business operation, cross-cultural understanding and an adequate market analysis are both undeniably pivotal factors.
The Hofstede’s Cultural Dimensions Theory not only puts a solid foundation to cultural analysis in large-scale business operations, but can also help us navigate business communication patterns on a day-to-day level.
More on Hofstede’s Cultural Dimensions Theory to follow!
TechiaVai© Social Media
