Executive Summary:
Foreign Entry Strategy for Wal-Mart moving into Russia
In response to a request by Wal-Mart Executives, this is a report concerning the foreign entry of Wal-Mart into Russia. In particular it contains some areas of interest in determining the foreign entry strategy and what are the specifics of Russia in a demographic sense and economic sense.
The Product
Wal-Mart as a company is its own product. We sell our self as a discount retail chain with extra low prices. We do this by wholesaling products supplied to us by other companies and manufacturers. Our international market is growing rapidly and our next vision is on Russia.
The Country
Russia is extremely large in land mass, but a majority of it is covered with frozen tundra. The government in Russia has been hesitant towards foreign companies coming into the Russian market. There is no major discount retailer of as many goods as Wal-Mart carries though there are major retailers of goods that Wal-Mart carries already in the Russian market. In western Russia there are enough highly populated areas to have a distribution center providing multiple and growing numbers of super centers.
Recommendations
It is
recommended that as good as Wal-Mart has been in foreign markets and as good as
Wal-Mart could one day be in Russia that this is not the proper time to try to
enter the Russian market. The government in Russia is just not ready in my
opinion to let such a retail corporate giant enter their country. They are
becoming more technologically advanced and will eventually be at a globalized
enough point to have Wal-Mart’s all over Russia.
Wal-Mart in Russia
Foreign Entry Strategy
Mgmt 326: 01
To: Garland Wiggs
From: Matthew Downey
Introduction
This is a foreign entry plan for Wal-Mart entering into the Russian market. First off Wal-Mart is a United States based company and is the number one retailer in the world. They have gone international and succeeded greatly. Their Wal-Mart International branch would be on the Fortune 500’s top 25 if it were its own company. Russia has growing market and is one of the world’s largest and leading countries. Russia does have an issue with foreign companies coming into their economic scheme, but we will look further into that later.
Before entering Russia we will have to look at the country as a whole population wise, as well as, income and advertising mediums used. Locations will be picked for the super centers and distribution centers will have to be strategically placed. There will have to be a logistics system to import and ship the products to and from the D.C. units and to the super centers.
Russia is a very large country and if Wal-Mart is allowed to enter the Russian market it could flourish greatly and increase its presence in the economy. Also there are a lot of place just like in every other country where it is mostly poor. Jobs will be available for these people and hopefully we can have a positive presence in Russia.
Wal-Mart
Wal-Mart the retail discount giant is the world's #1 retailer. The company in itself is its own product. It sells itself as a discount retail store that also has ventured into grocery shopping. When people hear about Wal-Mart they do not think of a single product, but instead think of the savings they will incur by shopping there. Wal-Mart is able to offer discounted prices due to their volume based buying power. The more products purchased, the lower the price per item, and when supplying a large number of super centers and warehouse stores as Wal-Mart does then they basically write their own ticket. Also with the volumes they purchase if a manufacturer doesn’t like the price Wal-Mart wants to pay then the manufacturer will lose all of Wal-Mart’s business because they will move on to the next manufacturer. They offer just about everything any person or household could want and more. They range from clothes, toys, food, appliances, home and garden department, and even pets in the fish department.
Wal-Mart operates more than 5,700 stores, including some 1,350 discount stores, nearly 2,000 combination discount and grocery stores, and 550 warehouse stores (SAM'S CLUB). Nearly 75% of its stores are in the US, but Wal-Mart is expanding internationally; it is the #1 retailer in Canada and Mexico. Wal-Mart has expanded its operations to other parts of North America, Asia, Europe, and South America after being founded and opened on a large scale in the Unites States. Today, customers shop at more than 1,700 units in nine countries. Wal-Mart International employs more than 400,000 associates in Argentina, Brazil, Canada, China, Germany, Korea, Mexico, Puerto Rico and the United Kingdom. Customers in more than 15 international markets prove Wal-Mart's Every Day Low Price promise is a message clearly understood in any language. Wal-Mart is involved with direct investment in companies in other countries, one being a large retail discount giant in Japan. Wal-Mart first entered the international retail market in 1991 in Mexico. Since then Wal-Mart International has grown rapidly, even more rapidly than the U.S. parent grew in its early years. In 2004 international sales were $56.277 billion, almost 20 percent of total company sales. If Wal-Mart International was a separate company, they would be one of the 25 largest on the Fortune 500
Wal-Mart stores offer pleasant and convenient shopping in 36 departments: Family Apparel, Health & Beauty Aids, Household Needs, Electronics, Toys, Fabrics & Crafts, Lawn & Garden, Jewelry and Shoes.
In addition, some Wal-Mart stores offer: Grocery Shopping, Pharmacy Department, Tire & Lube Express, Garden Center, Snack Bar or Restaurant, Vision Center, One-Hour Photo Processing.
Wal-Mart President and CEO Lee Scott reports back to more than 18,000 shareholders and associates on how the company is doing. There is a large umbrella of corporate Wal-Mart including many CEO’s and Vice Presidents. Managers and Employees in the manufacture, distribution, logistics, and retail of consumer goods and services
Russia
Russia (Exhibit 1) is located in Northern Asia (that part west of the Urals is sometimes included with Europe), bordering the Arctic Ocean, between Europe and the North Pacific Ocean. The climate ranges from steppes in the south through humid continental in much of European Russia to sub arctic in Siberia to tundra climate in the polar north.
Exhibit 1
The population in Russia is about 145 million people, while the population growth rate is slightly decreasing at a negative 0.33%. The labor force is made up of 71.3 million people and the unemployment among those able to work is 8%. The per capita GDP is about $8,800. The gross national income per person is about $1,800 annually and 25% of the population is below the poverty line. There will be a large increase in available jobs if Wal-Mart moved into Russia and the annual income would increase along with the unemployment rate decreasing.
Russia has a Federation government and based the capital in Moscow. The government has not been one to welcome foreign entry of companies with open arms, but have been changing that slowly. Their legal system is based on civil law system and judicial review of legislative acts. They have Executive, Legislative, and Judicial Systems comparable to those of the U.S., in the way the elections are held and people are appointed to offices.
Foreign Entry Strategy
When moving Wal-Mart into Russia we would have to choose certain cities to begin operations in. My first choice of cities is Moscow mainly because it is the capital and we can get a base market in the biggest part of the country. Also we would move into St. Petersburg, Murmansk, Vyborg, and Volgograd next due to the city center populations and also because they are all in close vicinity to each other in western Russia. Logistics costs when starting in a new country is always something that must be looked at, so the logistics must be well thought out. Khabarovak is on the southern rim just north of China where Wal-Mart does operate and I’m sure some importing and exporting could be entertained to supply a couple of super centers in eastern Russia.
Wal-Mart would have to enter in an exporting entry strategy mode to start. Exporting is the marketing and direct sale of foreign produced goods in a country. Exporting is a traditional and well established method of reaching foreign markets. Since exporting does not require that the goods be produced in the target country, no investment in foreign production facilities is needed. And though Wal-Mart doesn’t manufacture its products is wholesales them and will have to import them to the distribution centers to be shipped to the individual stores. Most costs affiliated with exporting take the form of marketing expenses and logistics.
A Distribution Center (D.C.) would have to be added. It would serve the purpose of being the shipping point of all imports before they are sent to the stores. The D.C. would be placed in a rural area where it could provide better paying jobs to the area and could also bring more people to the area; if you build it people will come. As more Wal-Mart’s populate the country more distribution centers will be needed to supply the growing interest and expansion of Wal-Mart.
The logistics issue in the entry process is very important. With no way to ship the goods there would be no goods to sell. So a complete system must be devised to the shipment of products to the distribution centers and then to the super centers. There is 87,157 km of railroad that we could use to ship goods, highways total 752,000 paved kms. For when we ship by sea there is 95,900 km of waterways (total routes in general use) and there are 33 ports and harbors with tanker abilities. For air freight Russia has 471 airports with paved runways.
Advertising
Advertising might be the one most important thing we can do in Russia. If the people don’t like the product or do not welcome it into their culture than the endeavor will be a complete loss. It is up to the consumers whether we make it in Russia or not. Their internet user’s numbers have grown rapidly to 18 million and are still on a very steep upward rise. That is becoming one of the best ways to reach the consumers worldwide. Wal-Mart would have to appeal to the culture and needs of the public in Russia, but using the low prices motto is becoming more universal. There is television, newspaper, and radio also for Wal-Mart to reach the new consumers. Wal-Mart has always used less advertising than the rest of their competitors and hasn’t seen any decrease in profits. They find that by saving money in the advertising department they can afford to pay their employees higher salaries.
Competitors and Alliances
Competitors would include Transasia who is a retail giant in Russia and just so happens to buy a percentage of its products from one of our main suppliers Proctor and Gamble. They would be our biggest competition in that market. The largest Russian food retailers include Perekrestok, Kopeyka, Diksi, Megamart, but none of these would be able to compete with the low prices Wal-Mart would bring. A French company Auchan owns 221 hypermarkets and 523 supermarkets in 12 countries and has two hypermarkets in the Moscow region. This is not really competition but, it does exist and could expand in a competition attempt.
Some alliances we could count on would include Procter & Gamble who already does business in Russia in the retail market and could help us with positioning of stores and logistics in the market. Also there is McDonald’s which you can find in Wal-Mart’s in the United Sates. Maybe trying a little joint venture with McDonald’s in side of the Wal-Mart super centers. Transasia could also be considered an alliance in the foreign direct investment spectrum. Foreign Direct Investment (FDI) refers to when one country invests money to start a business in another country or to own a portion of a company in another country. This is an increasing trend for many US companies. Wal-Mart has directly invested in companies in China and Japan, it has brought them great return and this may be the way to go in the long run.
Summary and Conclusion
When trying to move Wal-Mart into Russia our major problem is with the resistance from the government concerning foreign companies moving into Russia. Wal-Mart may not be the best choice for Russia. This is not to say that in the future Wal-Mart could never do extremely well in Russia, I just believe that through my research it is difficult to move into Russia from another country and it may not be a consumer group that will take likely to Wal-Mart. The other idea of investing in another company in Russia is probably a better idea but, still would have to yield major expected benefits for Wal-Mart if they are going to get involved with anything like that. Russia is a market that could adopt a product that could be sold in its stores much easier than a whole new company entering the Russian market.
Works Cited
http://www.walmartstores.com/GlobalWMStoresWeb/navigate.do?catg=316
http://walmartstores.com/GlobalWMStoresWeb/navigate.do?catg=14
http://www.odci.gov/cia/publications/factbook/geos/rs.html
http://www7.nationalacademies.org/dsc/Technology_Commercialization.html