Wal-MartOver the years, internationalization has been increasingly mentioned as the outward movement in an individual firm’s or larger corporation’s international operations. Enterprises no longer conduct their business activities just within their own country; they gradually reach the international market. However, in the process of penetrating foreign markets, they often face challenges and barriers that are not easily to overcome, such as language, regulation, currency, polity, or economic size. These barriers significantly impact on the activities of a business in a foreign country.
Pankaj Ghemawat categorized all barriers into four distances: cultural, geographic, political, and economic distances, which form CAGE framework. He emphasizes that the types of distances influence different businesses in different ways. For example, culture distance determines consumers’ product preferences while geographic distance influences the costs of transportation. Obviously, the future and the success of internationalization in any company depend heavily on the company’s ability to master and reduce barriers, specifically, the four distances. Any company that underestimates their importance or simply ignores the distances may incur a big loss, yet failure. In the retail industry, the failure of Wal-Mart in South Korea is a typical example.
After eight years of disappointing sales in South Korea, in 2005, the America’s largest retailer, Wal-Mart, announced to leave the country. A year later, the company quietly transferred all 16 of its South Korean stores to Shinsegae Group, a domestic retailer, for $882 million and officially withdrew from Kimchi (Olsen, 2006). While Wal-Mart has had impressive success in other foreign markets such as Canada, the United Kingdom, and Mexico, Wal-Mart experienced a shameful failure in South Korea, which is mainly because of its neglect in cultural and administrative distances.
Since the early 1990s, Wal-Mart has promoted its international...