Adam Foxcroft K0219955
Adam Foxcroft K0219955

International Dimensions of business Individual Assignment
International Dimensions of business Individual Assignment

International dimensions of business individual assignment

Introduction
This assignment will look at one of the world’s largest companies, Wal-Mart, and will look into the company’s choice to expand into China by looking into the factors in the home, host and other international countries that might have had an effect on how and why Wal-Mart moved into china.
Brief history
Even the world’s largest companies have to start somewhere and for Wal-Mart this was with the opening of its first store in Arkansas in the year 1962 with the intention of creating a discount chain that would offer its customers lower prices by taking lower profit margins.
Sam Walton the founder of Wal-Mart and considered the father of modern retailing took Wal-Mart from this one store to the world’s largest and most powerful company in just 50 years.
He did this by adopting an extremely aggressive growth policy that in just 12 years took Wal-Mart to the position of having125 stores across 8 states, employing 7500 people and had sales reaching $340.3 million.
This is however not the end of the company’s rapid growth and by introducing systems, such as barcode for stock management, computer systems and distribution networks, before most of its competitors Wal-Mart was able to stay ahead of the curve and provide continuous growth for its shareholders. By 2000 this had resulted in Wal-Mart having 3,800 stores in the states, 3800 international store, employed 1.6 million people with sales of 312.4 billion.
Today Wal-Mart is the world’s leading retailer ranking first on the fortune 500 list with a global presence in 27 countries outside the states including; Argentina, Chile, Ghana, japan, Mexico, Nigeria, Uganda, Botswana, china, Guatemala, Lesotho, Mozambique, south Africa, the UK, brazil, costa Rica, Honduras, Malawi, Namibia, Swaziland, Zambia, Canada, el Salvador, India, Nicaragua and Tanzania.

Identify and analyse the main characteristics of the business environment in the host country that are likely to have influenced the organisation’s decision to operate there. You should also take account of any relevant factors influencing this decision in the region of the world where the host country is located. Whilst you may use a framework such as a PESTLE analysis for this task, it is more important that you analyse the issues in depth, making use of sources such as the World Economic Forum Global Competitiveness Report and OECD or other country surveys, as well as appropriate theoretical frameworks such as Porter’s ‘diamond’, country risk analysis, cultural analysis or regional integration theory.
The choice to expand Wal-Mart into new international markets will have most likely have been because of the saturation of the home market in the states, there will have been very little room for growth at home as Wal-Mart operated in every state and the existence of competition would have reduced the rate of possible growth.
It is well known that the company’s success has been mainly due to its ability to implement new systems that keep it ahead of the game however due to their amazing success a large number of “copycat” competitors have appeared in the market copying every aspect of how Wal-Mart does business which has left the company with geographical expansion as its most logical option in continuing this growth.

At first glance China would be an excellent choice for Wal-Mart to choose as a host country primarily for its population as this would give them an extremely large target marketed in a fairly small geographical location. This however is not the only thing that the company should look at before picking a country to expand into, one of the possible ways of assessing a country would be comparing the home and host country scores using Hofstede’s Dimensions of Culture.
The scores for both the USA and China are shown below. country | power distance | individualism | masculinity | uncertainty avoidance | long-term orientation | USA | 40 | 91 | 62 | 46 | 29 | China | 80 | 20 | 66 | 30 | 118 |

Power distance
The power distance dimension shows the level of equality in a country and how the population in that country views equality.
The score for the United States of America is fairly low which shows that people in that country are fairly equal and this allows for regular upward mobility. The score for china however is very high which means equality is not valued as much which may be down to china still operation a caste style social system.
This may have very little effect on Wal-Mart other than the fact that it will provide a relative level of stability as people will not likely to be moving up or down the social latter that much then sales will class focused products will remain fairly stable.
Individualism
This dimension is all about what the country as a whole focuses more on the collective achievement of society or the achievement of the individual and the sorts of interpersonal the population form.
The very low score of 20 that china has means that its people heavily believe in doing things for the good of the whole and focus very little on personal gain which is very common for a communist country. The types of bonds people create in this type of culture tend to be very strong and family ties are given strong importance.
At the opposite end of the scale the very high score you the USA means that its people are highly focused on the individual in terms of rights and in terms of personal gain which again is very common for a western capitalistic country. The people in such cultures tend to form a very large number of relationships with others however these relationships tend to be fairly weak.
This extreme difference in scores could prove to be a difficult obstacle for Wal-Mart to overcome however it also offers a few opportunities for them to exploit.
The main obstacle that this difference creates is the different approaches to advertising to customers as in the more western capitalistic countries such as the states and the UK adverts tend to focus on how a product will improve the customers life and are based strongly on creating emotional attachments between the customer and the products. This approach however is unlikely to work as well in china as the customers their will not be as highly influenced by the idea of making their own life better due to the view focusing more on the whole and not just themselves.
This difference also offers the chances for Wal-Mart to create a new approach that focuses more on selling to families as a unit and to create adverts that will encourage customers to recommend certain products to the family members and close friends which in turn will help them increase the number of customers that visit their stores.
Masculinity
This dimension looks at the role that gender plays in in society in terms of achievement, control and power both in the work place and in social settings.
China and the USA have very similar score for this (66 and 62) which means that in both cultures men are slightly more likely to have positions of power and to do better than women. These scores however are not really that high or that low so women are only slightly less likely to have roles of power and this is mostly going to even out even more due to women taking a much more active role in the work place for both countries.
Because these scores are so close it means Wal-Mart will have little to worry about when it comes to this dimension and can apply the same policies they use in their home country to the same effect in China.

Uncertainty avoidance
Uncertainty avoidance is the dimension that looks at the role of rules and risk in the given society.
China has a low score of 30 which means they are adverse to risk probably as a result of their collective view on how things should be done for the benefit of everyone and they are inclined to have a very strong set of guiding laws to avoid such risks this again is a typical score for a strongly communist country.
The USA is slightly more inclined to take risks with a score of 46 however they are likely to take only carefully assessed risks as they are still fairly risk adverse.
In the past it has been known that Wal-Mart gets into a lot of trouble with law suits for not following the rules of the country they are in as well as they should which in china would be a very bad thing for them as the Chinese government are a lot stricter when it comes to enforcing their laws.
This however could be a good thing for Wal-Mart when it comes to the management of its staff from the host country as they are much more likely to behave in the way that management expects and not to take extreme risks when making decisions.
Long-term orientation
This dimension looks at how the population looks at decision making for example whether long term planning in more important than short term.
The highest china has is for Long-term orientation of 118 this means that it is very focused on long-term goal such as development of the country or creating stability for future generations of a family and not just the current one.
Again this is extremely different to that of the 29 Scored by the USA which shows that the population in the states are much more focused on finding short term solutions to problems and improving their own lives whenever they can which is to be expected when they scored high in the individualism dimension.
This will be one of the main concerns that Wal-Mart will have moving into china as in the states a large amount of sales can be put down to luxury impulse purchases. This however would not happen in china as they are focused on meeting long term needs and not on things such as luxury foods or clothing. Wal-Mart however could change its focus to things that hold value in the longer term such as household appliances, their own saving accounts or insurance.
This method of analysing if a country is worth expanding into is just one of the methods of deciding there are a large range of factors to look and no one theory is going to cover them all so it is possible that Wal-Mart will have used Porter’s diamond to look at another set of factors, the diagram below shows his theory.

Firm strategy, structure and rivalry
This section refers to any of the internal factors that could affect the choice to expand into a different country such as the different style of management in both countries or how well the company is suited to compete in that market.
This is of little importance to Wal-Mart as they have the resources to import their own senior management as well as hiring a large number of Chinese nationals that have the knowledge needed.
Factor conditions
Factor conditions relate to the different things a company in a given nation can exploit to a high degree that improves their competitiveness and for Wal-Mart china offers the following factor conditions; * Skilled manufacturing workforce – this is helpful for Wal-Mart because they have a large amount of own brand good that they provide and china offers the perfect place to produce these goods. * Cheap labour – the Chinese labour market is known to be one of the cheapest around this will help keep Wal-Mart’s costs down and will reduce the amount of capital required to start up in china. * Access to raw materials – although China itself does not have amazing amounts of raw materials it does however own the right to a large percentage of the world’s resources must of which are imported back to china. This will allow Wal-Mart to reduce the costs of the products it makes in china as they do not have to pay the taxes china imposed for other countries to import their goods.

Demand conditions
The level of demand in china will no doubt be one of the main factors Wal-Mart will consider when looking to expand into china as it has a population of 1.3 billion people which is still growing. This is however unlikely to be the sole demand condition that is making the company decide to move to china firstly the home market offers little room for growth due to saturation and secondly there is a growing demand for “western culture” in china and Wal-Mart may see this as an opportunity to deliver this to them.
Related and supporting industries
The main supporting industry in china that Wal-Mart will be interested in is its low cost manufacturing industry which the company already used to deliver low cost goods to its stores around the world. There are two reasons this may affect whether the company decides to expand into china. The first is they may be able to develop a better deal with the Chinese government allowing them to export their goods for less and the second reason is that due to reduced shipping costs that anything made and sold in china will be able to deliver a higher profit margin than anywhere else in the world.
Evaluate the factors that the organisation is likely to have taken into account when choosing its mode of international entry in this case. International entry mode relates to the choice between exporting, FDI, licensing, franchising etc. Your evaluation should be make use of appropriate theories of internationalisation
The world of business has changed dramatically in the last 50 years, one of the biggest changes the world has seen is the rise of globalization and all the world’s leading companies have operations that span over continents.
Wal-Mart is one such company and as stated in their history their operations cover over 27 countries outside of the United States of America but as with every other company making the choice to expand abroad has to be carefully looked at and all the factors analysed and once done they have to pick the most appropriate mode of entry.
The mode of entry is the strategy that a company implements when they decide to expand into a new country when doing this is has a number of options it can take which include; it can acquire an existing player, build an alliance with an existing player or start Greenfield operations.
When looking at what mode of entry to use Wal-Mart will have looked at a number of different factors such as time of entry, scale of entry and the advantages of each type of entry mode.
Time of entry
If a company moves into a new international market before its competitors this is said to be an early entry and comes with the advantage of being able to secure access to resources before competitors are able to and be in a more competitive position when competitors do eventually set up in the market. This competitive advantage comes from being able to create strong brand loyalty before the competition is even there so when they do arrive they are unable to take that many of the company’s already loyal customers.
There is however one very important disadvantage to being an early move and that is known as the “pioneering cost” which refers to the cost to the company in learning exactly how to trade in this new market, a cost that later comers can avoid by allowing the early movers to learn the lessons first.
This is an important factor for Wal-Mart to look at as the first time they moved into china it was not entirely successful because they had problems adapting to the Chinese culture for example the Chinese like to see their fish alive and swimming before they buy them which was something that Wal-Mart did not do.
Due to Wal-Mart being one of the first to move into china they had to learn these things on their own and have allowed their competitors to learn them without having the hardship Wal-Mart went through to learn these lessons. Wal-Mart did however at this point withdraw the amount of effort it was putting to the expansion of its market share in china and instead let the other competitors go through this hardship and then took that they learnt from watching them when they chose to expand again.
Scale of entry
Even for a company like Wal-Mart that turns over countless billions each years the scale of entry is important because it impacts the level of risk involved, for example if the company only opened one Wal-Mart store in china then the risk would be fairly low as if it did not work then not much has been lost. This however also reduces the potential return as if that one store is highly successful chances are competitors would jump in just as fast as Wal-Mart could therefor leaving a smaller market share for Wal-Mart.
The first time the company went into China they bought 66 stores from an existing company this is a fairly large scale of entry which as mentioned before did not work out too well however it did give them the required information to make their second entrance much more successful. In the second entry Wal-Mart bought 125 stores from Taiwanese-owned supermarket chain called Trust-Mart which was much more successful.
Type of entry
The type of entry reflects the method in which the company chooses to start out in a new country and this is by far one of the most important factors to consider when looking at moving into a new country.
Buying out an existing competitor is one of the ways a company can do this and it comes with the several advantages; * Speed – this is the quickest way of setting up in a new country because all the ground work has been done for example the stores are built and already have staff. * Reduced competition – as the company is buying out a competitor this means that when the company sets up there is already one less competitor.
The disadvantage is however that this is an extremely expensive option and require large amounts of capital to do.
A second option is to start completely from scratch which involves buying the land and building your own custom build stores. This is ideal for a company that requires very special premise however this is also an expensive and time consuming activity.
A third option is to create a partnership with an existing competitor in the host country which is done by the company buying a percentage of the shares in the competitors company. The advantages of this are; * Lower cost – this option is cheaper than the other do as the company does not have to completely buy out its competitor or build new stores. * Experience – when the culture in the host country is dramatically different this mode of entry allows the company to gain important experience from its partner. * Reduced risk – if the deal is not working out then the shares can be sold again.
Conclusion
Due to the different cultures and Wal-Mart’s first failed attempt in china and other countries around the world the mode of entry they chose was a joint venture with Trust-Mart with the possibility of full buy out later down the line. this is considered the best option that they could have chosen because of their difficultly in adapting to new cultures and because it reduces the risk for Mal-Mart should it go wrong again.
Word count 3104 words (excluding assignment brief)

References
Websites
http://www.kwintessential.co.uk/intercultural/dimensions.html http://www.businessmate.org/Article.php?ArtikelId=49 http://edissertations.nottingham.ac.uk/1369/1/07MAlixyl25.pdf.pdf
Books
Harrison, A. (2010), Business Environment in a Global Context
Journals
Choice of foreign market entry mode in service firms, Anders Blomstermo http://searchit.tees.ac.uk/V/69M62GVIC8XPSB6YQ2AE14JY1LYK5CGNVJX1NX7Y7J77K6SLLR-27599?func=meta-3&short-format=002&set_number=001832&set_entry=000006&format=999 Entry modes of international corporations into China’s marketed: a socialeconomic analysis, Haishun Sun http://searchit.tees.ac.uk/V/69M62GVIC8XPSB6YQ2AE14JY1LYK5CGNVJX1NX7Y7J77K6SLLR-32316?func=meta-3&short-format=002&set_number=001895&set_entry=000003&format=999 Core competencies, matching and the structure of foreign direct investment, Diez, Federico J.Spearot
http://searchit.tees.ac.uk/V/69M62GVIC8XPSB6YQ2AE14JY1LYK5CGNVJX1NX7Y7J77K6SLLR-33041?func=meta-3&short-format=002&set_number=001895&set_entry=000010&format=999