This report has been written to examine the failure of Wal-mart in Germany in accordance with institutional frameworks and cultural differences in both countries. Wal-mart started its operation in Germany with a huge expectations and confidence but the response was totally different and it had to stop its operation only after ten years of its entrance. We have been appointed by board of directors to assess and mention the causes of failure and German approach through cultural perspective, institutional and regulatory frameworks, convergence point of view and many other factors which can illustrate that what went wrong.
The main body of report consists of analysis of causes of failure of Wal-mart from convergence perspective relating to the effects of ethnocentric approach used by American’s and globalization effects. It also discusses that Wal-mart thought it will penetrate the German market by its competitive advantage due to its low prices and service provided to customers. Cultural differences between America and Germany have been discussed in the later section by using two technical theories.
At first it is explained by using Hofstede’s cultural dimensions and secondly by using Schein’s corporate vs. national culture point of view. Further it depicts that Wal-mart operations were greatly manipulated by German institutional and legal framework. It also illustrates Wal-marts connection with work councils and its struggle to meet the terms and conditions of German law. It is indicated in the conclusion section that Wal-mart completely failed to predict and understand the German cultural and institutional perspective.
Instead of focussing on German strategies it tried to implement its American practices which are the root cause of failure. In the recommendation section few suggestions are recommended for MNC’S regarding this type of issue and these will help them to avoid conflict in such situations. It is strongly recommended to investigate the market situation, regulatory framework and cultural perspective of country before entering oversees location. Mann family was the owner of Wertkauf hypermarket business in Germany and Wal-mart entered in German market by having contact with them (Talaulicar, 2009).
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The reason for entering into German market is that it is one of the biggest economy in Europe and its retail sales per capita is even more higher than any other European country (Fernie and Arnold, 2002). Wal-mart’s strategy totally failed in Germany and unfortunately company had to terminate its operations from this market only after ten years. It was not shocking because retailers all over the world are having problems working in international markets and it can be judged from the fact that forty retailer walked out from foreign market during four years from 2002 to 2006 (Farra et al., 2006).
There were also some external factors involved in the failure of Wal-mart rather than company’s control. These factors are limited shopping hours, strong hold of unions, existing anti-trust laws in Germany and delayed issue of building licences. But we need to consider that its rivals were operating their business successfully while they also had worked in same conditions and situation (Shugan, 2007). The report gives critical review of factors that have taken part in its failure in Germany.