It has been a stressful summer for Wal-Mart. After eight difficult years in Germ

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It has been a stressful summer for Wal-Mart. After eight difficult years in Germany, WalMart announced the sale of its German businesses to the nation's leading retail chain, Metro AG. In a May interview with RM, David Wild, former president and managing director of Wal-Mart Germany, spoke of the difficulty applying the American Wal-Mart model to the German consumer climate. "The biggest challenge Wal-Mart faced was the culture change throughout the organization," he said. Wal-Mart Germany, which was launched in 1998 and operated 85 locations at the time of its sale, was criticized for trying to force American culture into its stores. The policy of having employees smile and greet customers seemed unnatural to Germans, and signage and product organization needed to be reworked. While Wal-Mart Germany struggled to fit in, competitors like Metro and Rewe Group benefited from the national loyalties of Germany's 91% native population. Wild attempted to fix the ailing German franchise with some strategic adjustments: an emphasis on food and fresh produce, and a greater sensitivity to local culture in employee practices and product presentation. In the end, changes came too late. The decision to terminate Wal-Mart Germany came on the heels of a similar decision to sell the company's South Korean holdings in May. Wal-Mart South Korea also suffered from cultural incongruities in addition to a difficult political climate and a low number of stores. In a New York Times article in August, Beth Keck, international spokesperson for Wal-Mart, spoke of the company's "naivete" in its international expansions and called Germany "a good, important lesson, a turning point." This lesson--that one formula does not fit all--will be critical to the continued success of Wal-Mart's other international endeavors in countries like Canada, where it opens its first Canadian Supercenters this fall; Japan, where first-half operating losses at Seiyu, its Japanese unit, were reportedly half of those of the previous year; and China, where this summer the company bowed to pressure and agreed to unionize its 60 stores. YOUNG RESIGNS Just weeks after the Germany announcement, Wal-Mart faced another setback when Ambassador, civil rights leader and former Atlanta mayor, Andrew Young, chairman of the business's advocacy group, Working Families for Wal-Mart, made derogatory comments about Jewish, Asian and Arabic store owners during an interview with the Los Angeles Sentinel. After a fierce backlash from labor and minority groups, Young retracted his statement and resigned. Wal-Mart distanced itself from Young's comments, emphasizing its support of urban communities and diversity in the workplace. Evidencing the importance of urban communities, Wal-Mart opened stores this summer in White Plains, NY, and in Kearny, NJ, an urban enterprise zone where the majority of consumers are Hispanic, African-American and Asian. Both towns are in close proximity to New York City. Adding to Wal-Mart's negative publicity travails but finally putting an end to the saga, former Wal-Mart Stores vice chairman Tom Coughlin was sentenced to 27 months of home confinement for stealing thousands of dollars from the company. In addition to five years of probation, he was also ordered to pay restitution to Wal-Mart and the IRS totaling about $411,000. He had faced up to 28 years in prison and $1.35 million in fines after pleading guilty to wire fraud and tax evasion in January. Finally, Wal-Mart, along with other retailers such as Target and Home Depot, had to put plans for an aggressive expansion in the city of Chicago on hold after the city council passed a "living wage" ordinance requiring retailers with sales of $1 billion or more and stores of 90,000 or greater square feet to pay workers a minimum of $13 per hour in wages and benefits by 2010. Wal-Mart subsequently placed construction of 10 Chicago stores on hold, pending a possible veto of the measure by mayor Richard M. Daley in September. Despite these challenges, and recording a loss of $863 million in connection with the sale of its German operations, Wal-Mart reported that net sales for its second quarter were $84.524 billion, up 11.3% over last year's results. Wal-Mart has experienced some other positives this summer. It garnered some good publicity by announcing it was raising salaries for starting workers by an average of 6%. Former vice president Al Gore praised the company for its focus on environmental sustainability. Analysts report that Wal-Mart's keener focus on improved merchandising has helped to enhance average ticket. In the U.S., Wal-Mart continues to grow its premium and specialty offerings. Addressing the needs of an ever-more health-conscious consumer, Supercenters will feature an extended line of competitively priced organic foods. In fashion, the company rolled out its new George ME ladieswear line in August. Wal-Mart is also transforming its stores through customer service initiatives and remodeling. Banc of America analysts believe that unlike many other retailers, there is a fourth-quarter catalyst from remodels. Maybe a change of seasons will do Wal-Mart some good.

1. What are some of the cultural misunderstandings that led to the closing of all Wal-Mart stores in Germany?

2. How do these misunderstandings reflect U.S. culture? Which aspects of culture are most different between the United States and Germany?

3. How should Wal-Mart have better prepared for this expansion into the German market? How should the managers have shown more of a “global mindset” in entering the German market?

Explanation / Answer

The cultural misunderstandings that led to closure of all Wal-Mart stores in Germany are: The US policy of smiling and greeting customers seemed unnatural for Germans The loyalty of Germans towards German nationality companies like Metro and Rewe Group The difference in long term orientation goals of Germans and Americans created unstable financials of Wal-Mart’s business in Germany Based on Hofstede Cultural dimensions, given below is the analysis of cultural differences of Germany and USA: Power Distance: In terms of power distance, both Germany and USA are similar. Both countries value equality and participatory form of doing business. Managers are easily accessible and every member has equal rights of expressing his concerns. Individualism: Both the countries are similarly individualistic countries, though the rate of individualism varies. While USA is highly individualistic, Germany is moderately individualistic. Both nations prefer own family than groups. Society is more about small families than joint families. Loyalty is biased towards personal favorites in business. Masculinity: Both the countries are highly masculine society. Both societies thrive on competition and aspire to be achievers. Success is what matters the most, the way taken to achieve success is not considered important. Uncertainty avoidance: Germany is highly risk aversive while USA is a risk taker nation. Germans want detailed terms in any agreement and are aversive to change. On the other hand, Americans accept change and risks as a challenge. Long Term Orientation: Germans believe in long-term orientation while Americans believe in attainment of short-term goals. The Germans aspire for the future while the Americans live in the present and care very less about the future. Wal-Mart needed to do the following to establish a foothold in the German market: Not enforcing the American values in German stores. Instead they could have imbibed the local values and strategized around that They needed to research more about the consumer mindset and demand pattern of German market. They were adopting global strategy while the need of the hour was a personalized local business strategy. They had underestimated their competitors in German market. Competitors, especially if local, should never be taken lightly. All consumers have a loyalty for native companies.

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