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Natural resource seeking is fairly self-explanatory, there is some resource and possibly related infrastructure that is valuable to the firm in the host country (peng, 2022).

by | Sep 12, 2022 | Business

 

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Please read the initial questions and 2 posts. Then write a response only to each post (initial questions do not need to be answered).
Initial Question:
1. How do firms such as Wal-Mart enter foreign markets?
2. Why do they enter certain countries such as Brazil but not others?
3. Why do some of them succeed while others struggle?

Evan Post- Wal-Mart is a U.S. based multinational retail chain that has expanded to having 6,000 stores in over 26 countries (Peng, 2022), and is ranked as the largest company in the world for both revenue and number of employees globally (Statista, 2022). When looking at how a company like Wal-Mart does business in foreign countries, one wonders how the behemoth might enter a new market? The answer, as it turns out, is varied and depends on a number of factors that Wal-Mart’s management needs to evaluate any time it decides to enter a new market (Peng, 2022). In the case of Brazil, Wal-Mart had decided on a large-scale equity-entry (foreign direct investment), starting a wholly owned subsidiary with its WMT Brasilia (US DOJ, 2019). In Russia, Wal-Mart was attempting to use another large-scale foreign direct investment strategy, by acquiring an existing retailer, although that venture failed (Peng, 2022). In India, Wal-Mart was pursuing another large-scale equity strategy, a joint venture, however unlike wholly owned subsidiaries and acquisitions, Wal-Mart would not retain total control (Peng, 2022). There are two broad categories of strategies with which companies can enter foreign markets: equity and non-equity—essentially import/export or contractual relationship while primarily operating from origin country versus some level of foreign direct investment of capital and operating in varying degrees in the host country (Peng, 2022).

            Ultimately, regardless of which strategy they use, although, the strategy used to enter does bear relationship to the reason why the firm is entering the new country, firms have four broad categories of reasons to enter new countries. Those reason categories are: natural resource seeking, market seeking, efficiency seeking, and innovation seeking (Peng, 2022). Natural resource seeking is fairly self-explanatory, there is some resource and possibly related infrastructure that is valuable to the firm in the host country (Peng, 2022). Market seeking is a broad term, but it basically means that there are ready and potential consumers of a firms’ products in the host country (Peng, 2022). Efficiency seeking is somewhat vague, but it boils down the host country having factor endowments favorable to economies of scale and lower costs (Peng, 2022). Innovation seeking is the firm is motivated by being able to access the talent of individuals, knowledge, and education of the host country (Peng, 2022). So, why does Wal-Mart want to enter a country such as Brazil? Wal-Mart in particular, as a retailer would be market seeking, as its main revenues source is selling merchandise, so it seeks the largest sources of ready consumers of its products. Brazil is an attractive market, because it is an emerging economy, and a member of BRICS countries, which together represent 40% of the world’s population and contribute over 25% of global GDP (Peng, 2022). Brazil, Russia, India, China and South Africa are particularly attractive to market seekers because of the emerging markets they have the largest concentrations of consumers with cash to spend.
One might ask: assuming that firms like Wal-Mart carefully consider and select their entrance strategies and, especially a corporation the size of Wal-Mart, have access to so many resources, why do some succeed and others not? New market entrants in host countries often fail because of the multidimensional aspects of the liability of foreignness, the liability of foreignness can manifest making itself apparent from both an institutions-based view and a resource-based view. If the firm’s management cannot develop effective strategies to overcome this liability, they will fail. Wal-Mart, as an example has had great difficulties in Brazil, for a number of reasons. From an institutions-based view, things that are considered normal or part of doing business in a country like Brazil are actually considered violations of U.S. law. As a result, Walmart and it’s wholly-owned subsidiary in Brazil ended up getting hit with a Judgment against them for violation of the Foreign Corrupt Practices Act (FCPA) in 2019 (US DOJ, 2019). From a resource-based view, Wal-Mart’s internal attributes that made it incredibly competitive in the United States and elsewhere, namely its supply and logistic chain processes, were not able to be effectively leveraged in Brazil, due to geographic and infrastructure challenges (Peng, 2022). Additionally, simultaneously from a resource-based view and an institutions-based view, Wal-Mart’s business model did not mesh well with the bargain-sniping culture in Brazil (the informal institution of cultural norms and behaviors), customers were selective in their purchases and would go to Wal-Mart’s competitors for other goods that Wal-Mart carried (Peng, 2022). Brazil’s culture was less supportive of the non-specialized retail, or “one-stop shop” department store model which Wal-Mart specialized in, giving the firm its competitive advantage in places like the United States (Peng, 2022). As time went on, these factors led to Wal-Mart selling the majority share of its holding in WMT Brasilia to a private equity firm in 2018 (Walmart, 2018), and eventually the subsidiary being bought out by one of its main competitors in Brazil: retailer Carrefour, from France (Mulier & Rascouet, 2021).
 
References:
Mulier, T., & Rascouet, A. (2021, March 23). Carrefour to Buy Walmart’s Former Business in Brazil. Bloomberg. https://www.bloomberg.com/news/articles/2021-03-24/carrefour-to-buy-brazilian-retailer-grupo-big-for-1-3-billion
Peng, M. (2022). Global Business (4th Ed.). Cengage Learning. https://online.vitalsource.com/reader/books/9781305890305
Statista. (2022, August 5). Top companies in the world by revenue 2021.  https://www.statista.com/statistics/263265/top-companies-in-the-world-by-revenue
United States Department of Justice Office of Public Affairs. (2019, June 9). Walmart Inc. and Brazil-Based Subsidiary Agree to Pay $137 Million to Resolve Foreign Corrupt Practices Act Case [Press release]. https://www.justice.gov/opa/pr/walmart-inc-and-brazil-based-subsidiary-agree-pay-137-million-resolve-foreign-corrupt
Walmart Inc. (2018, June 4).  Advent International to Acquire Majority Stake in Walmart Brazil [Press release]. https://corporate.walmart.com/newsroom/2018/06/04/advent-international-to-acquire-majority-stake-in-walmart-brazil

Wylie Post- How Firms Such as Wal-Mart Enter Foreign Markets
            Firms like Wal-Mart enter foreign markets by adopting an expansion strategy and aggressive growth plan (Batzer & Laumer, 2019). Wal-Mart has entered foreign markets through direct entry or by first engaging in joint ventures, followed by growing through explicit purchases of existing retail stores. Wal-Mart began going global after a joint venture with Cifra in 1991. Wal-Mart needed to consider various things before going global. Wal-Mart could not retain its operations in the US for three significant reasons. First, Wal-Mart had already saturated the majority of the US markets. Second, with the US accounting for only 4% of the global population, limiting itself to the US market means Wal-Mart would miss out on 96% of potential customers. Lastly, Wal-Mart needed globalization to meet competition from emerging firms (Batzer & Laumer, 2019). 
Why they Enter Certain Countries Such as Brazil but not Others
            The main reason why Wal-Mart chose Brazil is mainly due to the country’s large population, which can lead to increased demand for consumer products and services. The other major significant factor is the presence of middle-income people in line with their spending culture. In simple terms, Wal-Mart entered Brazil’s markets to enable it to get the benefits one can derive from the probable population demand and the possible economic growth. The Wal-Mart management perceived the family profile of Brazil as an advantage. A Brazilian family is bigger than an American family. Thus, the administration assumed Brazilian families would purchase goods in bulk. 
Why Some of Them Succeed While Others Struggle
            Some global firms fail due to a lack of planning. In contrast, others struggle due to poor management of resources, lack of or inadequate business plan, unsuccessful marketing, and failure to track resources (Lerner, 2018). Wal-Mart’s global strategy is the provision of low price goods that could advance people’s living standards globally. The above strategy entails the company’s globalization efforts to enter foreign markets (Lerner, 2018). Wal-Mart intends to sustain its low-price form of leadership while pursuing global store expansion. The expansion is enabled by launching new stores and clubs globally. 
References
Batzer, E., & Laumer, H. (2019). Corporate strategies and corporate action to open up the Japanese market and achieve greater market penetration. Marketing Strategies and Distribution Channels for Foreign Companies in Japan, 281-285. https://doi.org/10.4324/9780429043352-14
Lerner, M. B. (2018). “The death of liberal internationalism?: Donald Trump, Walmart, and the two Koreas”. The Journal of American-East Asian Relations, 25(2), 169-197. https://doi.org/10.1163/18765610-02502003

 

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