Walmart's Story outside USA

It all started with Cifra.

That's not a drug, but the Mexican retail chain with which Wal-Mart Stores Inc. first waded into international waters more than 15 years ago. Wal-Mart signed a joint venture agreement with Cifra in 1991 and, six years later, acquired control of the company that today is Wal-Mart de Mexico -- or Wal-Mex, as it is commonly known.

During those years, Bentonville-based Wal-Mart also began operations in such places as Puerto Rico, Canada, Argentina and China. Today, Wal-Mart International operates in 13 countries and racked up $62.7 billion in sales in 2005, an 11.4 percent increase over the previous year.

Mike Duke, vice chairman of Wal-Mart International, predicted at a recent analysts conference that those sales figures could jump to $70 billion to $75 billion soon. Wal-Mart, he noted, does more business outside of the United States than any other company.

"One of our strengths would be our multi-formats," Duke said. "Three-fourths of our business is done in stores that do not say Wal-Mart on them, where Wal-Mart has bought a business and retained the brand name."

The operating profit at Wal-Mex has grown five times since it was purchased in 1991, Duke said.

RECENT MOVES

After months of rumors, Wal-Mart announced Monday it had signed a joint venture agreement with India's Bharti Enterprises Ltd., a telecommunications conglomerate, to set up hundreds of stores across the country.

Financial details were not disclosed, and it will take several months before the first of the stores opens its doors, according to news reports.

Although India does not allow foreign companies to open multi-product retail stores, they can still make wholesale purchases to support their global supply chains.

Wal-Mart already operates a procurement center in the southern Indian city of Bangalore. The company is expected to source products worth nearly $2 billion from India for Wal-Mart stores worldwide this year.

Wal-Mart bought Bompreco in Brazil for $757 million and a 33 percent interest in the Central American Retail Holding Co. -- called CARHCO -- in 2005, the latter its first venture into Central America. In March, the company raised its interest in CARHCO to 51 percent.

Wal-Mart said this year it plans to renovate every one of its 138 stores in Brazil by 2009, at a cost of roughly $124 million. The retailer also plans to open 28 new stores next year, double the 14 new stores that it is opening this year.

Wal-Mart had 2,680 total units internationally as of November, compared to the almost 4,000 it has in the United States. Most analysts -- and even the company itself -- seem to agree that, as Wal-Mart faces saturation in the United States, future growth may come largely from its international operations.

"Wal-Mart has the opportunity to succeed internationally in locations where the American way of life, for lack of a better phrase, is coveted. As in China and elsewhere where all things American are coveted and revered, Wal-Mart will do well in those countries," said analyst Patricia Edwards of Wentworth, Hauser and Violich in Seattle.

Edwards said she expected to see Wal-Mart much bigger in China 10 years from now than in any of the other foreign countries where it has stores.

INTERNATIONAL START

Teaming up with Cifra, like most of Wal-Mart's successes, came from founder Sam Walton. Although he touches only briefly on going international in his 1992 autobiography, Walton apparently discussed the idea with his management team over the years.

"Sure we talked about it a lot," said Don Soderquist, former Wal-Mart vice chairman and now head of the Soderquist Center for Leadership and Ethics. "When we decided to go, it was a new adventure for us. But the driving force on going international was that the same thing that worked here should work in other countries as well."

Soderquist practically scoffed when asked if Walton had any inkling how successful the Wal-Mart International division would be, saying people "ask me all the time if Mr. Walton foresaw this or that."

"I don't think he did. There were a lot of risks, but it was a matter of moving ahead on a careful basis," Soderquist said.

But Walton was almost prescient in one area. As he wrote in his book, "Absorbing people from other cultures quickly and smoothly will present a real challenge to Wal-Mart in the near future - but our folks are up to it."

PROBLEMS

Still, Wal-Mart folks ran smack into a culture wall in Germany and Korea, where the company pulled out its operations this year after dismal results.

The company sold its 16 Korean stores to Shinsegae Co. for $882 million, taking a loss of about $10 million, according to various reports. Wal-Mart had sales in 2005 in South Korea of about $787 million. The sophistication of South Korea's approximately $26 billion discount market proved difficult for Wal-Mart, analysts said.

Since entering Germany in late 1997, Wal-Mart captured just 2 percent of German food sales -- or $3.2 billion annually, according to Retail Forward Inc. The company had nine straight years of losses before pulling out and selling all 85 stores to rival Metro AG.

Wal-Mart Stores Inc. posted its first profit decline in 10 years in August as second-quarter earnings fell almost 26 percent, a result of its taking an $863 million loss from the shutting down of its German operation.

Lee Scott, president and CEO of Wal-Mart, said at this year's analysts conference that Germany was "not a particularly good acquisition, and the ability to change was not there."

Kurt Barnard, president of Barnard's Retail Consulting Group in New Jersey, has followed Wal-Mart since it began. He said the German culture "did not lend itself to the kind of concept Wal-Mart presents."

"Virtually every country has its own cultural identity. If you want to succeed as a retailer in that country ... you have to adapt yourself, if you can, or pass up the opportunity," Barnard said.

SAYANORA?

Wal-Mart's foreign problems didn't end there, as it is still struggling with its Japanese operation, Seiyu Ltd., and at least one analyst said he expected to see Wal-Mart exit Argentina sometime in the next fiscal year.

"Wal-Mart is going to have to wave the white flag there -- Carrefour is so ahead of them. Wal-Mart's made a lot of mistakes in Argentina and Brazil, but it was a smart decision to buy Bompreco," said Burt Flickinger of Strategic Resources in New York.

Wal-Mart bought 6.1 percent of Seiyu Ltd., a Japanese chain, in 2002 for $46 million and acquired a major interest in the company in December 2005. It has invested $1.3 billion in the operation, but Seiyu has not made a profit so far.

Flickinger called Japan the "business version of Vietnam" for many large retailers, and it may take five to 10 years for Japan to pay off for Wal-Mart, he said.

Japan could turn out to be important in more ways than one. Scott made a half-joking remark at the analysts conference that if Japan becomes another Germany, "neither Duke nor I will be here" anymore.

Flickinger said that was closer to the truth for Scott than for Duke, whom he called the "best operating executive in Wal-Mart today."

"Mike's footprint and good merchandising are all over the world, and he seems to have built a sense of esprit de corps. Mike Duke is doing a terrific job rebuilding what was largely a broken business," Flickinger said.

Duke told analysts that there is as much opportunity for Wal-Mart in Japan as in any country in which it operates.

FORTUNE'S COOKIES

Wal-Mart's foray into China has proven more successful, and Flickinger credited Joe Hatfield, the former head of Wal-Mart's China operations, for turning it around.

"Prior to Joe taking over that business as a corporation, the company was far too focused on small states -- Mississippi has more Wal-Marts than Mainland China. In the 10 years before Joe Hatfield took over, over 60,000 food and discount retailers had opened in China, most notably Carrefour. Wal-Mart really let competitors move into the fastest-growing countries while Wal-Mart was openly acknowledging it was facing saturation in some parts of the country and was cannibalizing its stores," Flickinger said.

Hatfield was a 32-year-company veteran and opened Wal-Mart's first Supercenter in China in August 1996. Wal-Mart China now has 66 retail units in 34 cities.

Wal-Mart said in October that Ed Chan would succeed Hatfield as head of the company's China retail business. Chan comes to the company from the Dairy Farm Group, where he served as the regional director of North Asia.

Reuters said in September that "global retailers like Wal-Mart are finding out the hard way that more is not always better when it comes to international expansion, and they are focusing their resources on a select group of countries, such as China and India, that promise fatter returns."

There is a potential problem in counting too much on China to fuel international growth, however, according to Reuters, because of the risk in overestimating the market, where a population of more than 1 billion people has a considerably smaller number of people with significant spending power.

But Barnard and Flickinger said they believed Wal-Mart will do better in China for several reasons.

"China is a big supplier (of Wal-Mart products), so that by itself may be a major advantage," Barnard said.

While agreeing with Reuters "to a certain extent," Flickinger said there are other factors that weigh in Wal-Mart's favor.

"As China's level of disposable income increases because of its tremendous economic growth -- which tends to be five times higher than the U.S. -- it's a smart investment decision by Wal-Mart not to fall further down the track. China has gone from the ninth biggest economy worldwide when Hatfield (took over) to the third this year," he said.

STIFF UPPER LIP

In 2000, Wal-Mart purchased Asda Group PLC, the third-largest retailer in the United Kingdom for $11 billion. The company lost its market share as it faced increased competition from J. Sainsbury and Tesco, and Asda has missed internal Wal-Mart profit and sales targets for three consecutive quarters.

But Charles Holley, finance chief at Wal-Mart's International division, said on Nov. 14 that Asda's total sales for the third quarter rose in the "high single digits" and comparable store sales -- those stores open at least a year -- were in the low single digits for the third quarter, thanks to new store initiatives such as organic foods and pet and baby departments.

Holley said the company was "particularly proud" of its Asda's team's success in attracting 1 million more customers than this time last year.

Asda held a 16.6 percent share of Britain's grocery market at the end of last month, widening its lead over Sainsbury's 15.7 percent. Britain's biggest retailer, Tesco, holds a 31.4 percent market share, making it as big as Asda and Sainsbury combined.

In April 2005, Tony de Nunzio resigned as chief executive of Asda. He was replaced by Andy Bond, who has embarked on a restructuring by cutting head-office jobs, increasing availability in stores, improving the fresh food on offer, growing the premium and organic ranges, expanding the George brand and experimenting with new formats such as Asda Essentials.

SONG OF INDIA

Following Monday's announcement about the joint venture agreement with Bharti, it wasn't immediately clear if Wal-Mart had given up on plans to set up its own stores in India, where resistance from political groups and domestic businesses has prevented the government from allowing foreign companies to operate multi-product retail chains.

Wal-Mart has shown an interest in opening stores in India for at least three years, if not longer. The Economic Times in Bombay in May 2004 quoted Scott as saying that India was "ripe for expansion," because of its middle-class population of 50 million to 60 million.

Vice Chairman John Menzer, who headed Wal-Mart's International division before Duke took over, met with India's prime minister in 2005 to discuss opening up the country's retail sector for foreign direct investment. It was the first time a Wal-Mart executive had visited the country.

Menzer said India represented a $250 billion retail market and a "huge organic growth opportunity for Wal-Mart." At the same time, Menzer acknowledged that doing business in India has been a challenge for global companies, primarily because of regulatory hurdles.

Wal-Mart has to be successful in its foray into India, Flickinger said.

"Of all the fast-growing economies worldwide, India has more growth potential, next to China, and Wal-Mart has to be there. Like China, India has a built-in loyal customer base," he said.

DOWN UNDER

Wal-Mart also has reportedly shown an interest in Australia, according to The Sydney Morning Herald. It reported in July that Wal-Mart was "close to making its first acquisition" in Australia.

The newspaper said Wal-Mart executives had visited Australia to look at possible targets, and Coles Myer, with a market value of nearly $14 billion, and Woolworths, valued at more than $22 billion, were likely candidates.

Wal-Mart declined to comment on the report, but the rumors surfaced again when the company said in late November it had appointed Roger C. Corbett, recently retired chief executive of Woolworths Ltd. in Australia, to its Board of Directors. Corbett retains a five-year consultancy with Woolworths, according to The Sydney Morning Herald.

Source : www.nwaonline.net