Wal-Mart started putting more emphasis on the international markets to drive its expansion since the financial crisis
Walmart Embarks on an African Safari Case Study
Wal-Mart started putting more emphasis on the international markets to drive its expansion since the financial crisis of 2008l
lThe 2008 financial crisis was a major financial crisis that resulted in the meltdown of the global financial markets.
. The main reason for its enhanced international focus was the limited growth opportunities in its domestic (US) market since the financial crisis. Strong sales growth and a record number of new stores opened made its international segment grow faster. Wal-Mart’s international segment grew by 15.2 percent year on year for the fiscal year 2012.20“Wal-Mart\”>20
20“Wal-Mart\
Its operating income from international operations for the fiscal year ending January 31, 2012, was US$ 6,241 million (Refer to Exhibit 5 for Wal-Mart’s operating income from international operations for the fiscal years 2010–2012). According to an estimate by Forbes Magazinem
mForbes Magazine is a biweekly business magazine published by the American publishing and media company Forbes.
, Wal-Mart’s international segment was approximately contributing 40 percent to its stock price in March 2012. This estimate highlighted the importance of international operations for Wal-Mart. It had been trying for a long time to enter the Indian retail market due to the tremendous growth opportunities for the retail sector there. The Indian retail sector was projected to grow from US$ 396 billion in 2012 to US$ 785 billion by 2015.21Ibid.”>21
21Ibid.
But the Indian retail market was still closed to foreign multi-brand retailers and Wal-Mart’s operations were limited to some wholesale outlets there. That had left Wal-Mart to focus on Africa as another most important growth opportunity.
EXHIBIT 5 Operating Income from International Operations for Fiscal Years 2010–2012 (in US$ Millions)
EXHIBIT 5
Operating Income from International Operations for Fiscal Years 2010–2012 (in US$ Millions)
Fiscal year
Operating Income from International Operations
Percentage of Total Operating Income
2012
$6,214
23.4%
2011
5,606
22.0%
2010
4,901
20.4%
EXHIBIT 5
Operating Income from International Operations for Fiscal Years 2010–2012 (in US$ Millions)
Source: Wal-Mart 2012 Annual Report.
With most of the developed western markets reaching saturation levels and the Asian markets becoming highly competitive, many big multinational companies (MNCs) were turning their attention toward Africa. Africa was being considered the last major emerging market left to be captured by the MNCs. The unstable political environment in most of African countries made it unviable for businesses to set up shop there. But some African countries like South Africa and Nigeria with elected governments and rule of law were seen as viable options for big MNCs to enter the African continent. Wal-Mart decided to gain a foothold in the African market in the inorganic way by acquiring an established retailing company. Since 2008, Wal-Mart had been on the lookout for an acquisition target in Africa. South Africa had some sophisticated retailers such as Shoprite Holdingsn
nShoprite Holdings, headquartered in Cape Town, South Africa, is a leading retail and fast food company. It has operations across 16 countries in Africa and the Indian Ocean Islands.
(Shoprite), Massmart, Pick ‘n Pay Stores Ltd.o
oPick \
(Pick ‘n Pay), Sparp
pSpar, headquartered in Amsterdam, Netherlands, is a leading retailer with operations across the globe. In Africa, its operations are spread across Nigeria, South Africa, Botswana, Namibia, Zimbabwe, Zambia, Swaziland, and Mauritius.
, and Woolworthsq
qWoolworths Group plc, headquartered in London, England, is a leading retail and distribution company.
. In September 2010, Wal-Mart announced that it had made a preliminary offer to buy the South African retailer, Massmart.22Stephanie Clifford, “Wal-Mart Bids for Massmart to Expand into Africa,” http://www.nytimes.com, September 27, 2010.”>22
22Stephanie Clifford, “Wal-Mart Bids for Massmart to Expand into Africa,” http://www.nytimes.com, September 27, 2010.”>22Stephanie Clifford, “Wal-Mart Bids for Massmart to Expand into Africa,” http://www.nytimes.com, September 27, 2010.
Analysts felt that Wal-Mart had gone in for Massmart rather than Africa’s biggest grocer Shoprite, as Massmart had rapidly increased its presence into the food-retailing business and, by then, operated 40 grocery stores in South Africa.23“Walmart in South Africa: The Beast in the Bush,” www.economist.com, February 17, 2011.”>23
23“Walmart in South Africa: The Beast in the Bush,” www.economist.com, February 17, 2011.”>23“Walmart in South Africa: The Beast in the Bush,” www.economist.com, February 17, 2011.
South Africa had a relatively mature organized retail market and some of South Africa’s leading retailers like Pepkor were planning to expand their operations into other African markets like Nigeria.24Sikonathi Mantshantsha, “Billionaire Wiese Targets Nigeria as Wal-Mart Enters Africa,” www.businessweek.com, August 12, 2011.”>24
24Sikonathi Mantshantsha, “Billionaire Wiese Targets Nigeria as Wal-Mart Enters Africa,” www.businessweek.com, August 12, 2011.”>24Sikonathi Mantshantsha, “Billionaire Wiese Targets Nigeria as Wal-Mart Enters Africa,” www.businessweek.com, August 12, 2011.
Commenting on the preference given by Wal-Mart to South Africa, Andy Bond (Bond), Executive Vice President of Wal-Mart, said, “South Africa presents a compelling growth opportunity for Wal-Mart and offers a platform for growth and expansion in other African countries.”25Stephanie Clifford, “Wal-Mart Bids for Massmart to Expand into Africa,” www.nytimes.com, September 27, 2010.”>25
25Stephanie Clifford, “Wal-Mart Bids for Massmart to Expand into Africa,” www.nytimes.com, September 27, 2010.”>25Stephanie Clifford, “Wal-Mart Bids for Massmart to Expand into Africa,” www.nytimes.com, September 27, 2010.
The preliminary offer was nonbinding to Wal-Mart and it could withdraw the offer anytime after conducting due diligence.
Page C-302
Massmart was the second biggest retailer in Africa and owned several established local retail brands like Game, Makro, Builders’ Warehouse, and CBW.26Tiisetso Motsoeneng, “Massmart Could Open Up To 20 Stores in Nigeria,” http://af.reuters.com, February 22, 2012.”>26
26Tiisetso Motsoeneng, “Massmart Could Open Up To 20 Stores in Nigeria,” http://af.reuters.com, February 22, 2012.”>26Tiisetso Motsoeneng, “Massmart Could Open Up To 20 Stores in Nigeria,” http://af.reuters.com, February 22, 2012.
Massmart was founded in 1990 and the group comprised nine wholesale and retail chains (Refer to Exhibit 6 for the list of major retailers in South Africa). The group functioned through four operating divisions—Massdiscounters, Masswarehouse, Massbuild, and Masscash. Even though most of Massmart’s operations were concentrated in South Africa, Massmart had operations across many sub-Saharan countries (Refer to Exhibit 7 for the list of countries in which Massmart operated in 2012). Wal-Mart hoped to gain an instant footprint across Africa through the acquisition of Massmart. Saying that “Walmart likes emerging markets and South Africa in particular,”27Richard Wachman, “South Africa Resists March of Walmart,” http://guardian.co.uk, October 10, 2011.”>27
27Richard Wachman, “South Africa Resists March of Walmart,” http://guardian.co.uk, October 10, 2011.”>27Richard Wachman, “South Africa Resists March of Walmart,” http://guardian.co.uk, October 10, 2011.
Bond said that Massmart hoped to open 40 new outlets a year in countries including South Africa, Nigeria, Malawi, and Zambia. It was also looking at opportunities in countries like Senegal, Cameroon, and Angola. The retailer said that its aim was not to change Massmart’s strategy, but simply “to put the foot on the accelerator”.28“Walmart in South Africa: The Beast in the Bush,” www.economist.com, February 17, 2011.”>28
28“Walmart in South Africa: The Beast in the Bush,” www.economist.com, February 17, 2011.”>28“Walmart in South Africa: The Beast in the Bush,” www.economist.com, February 17, 2011.
EXHIBIT 6 Major Retailers in South Africa
EXHIBIT 6
Major Retailers in South Africa
Rank
Company
1
Shoprite
2
Massmart
3
Pick ‘n Pay
4
SPAR
5
Steinhoff International
6
Woolworths
EXHIBIT 6
Major Retailers in South Africa
Source: http://www.prnewswire.com/news-releases/south-africa-retail-direct-selling-b2c-e-commerce-report-2012-150747085.html.
EXHIBIT 7 List of Countries in Which Massmart Operated in 2012
EXHIBIT 7
List of Countries in Which Massmart Operated in 2012
Country
No. of Stores
Botswana
9
Lesotho
2
Ghana
1
Malawi
2
Mauritius
1
Mozambique
1
Namibia
3
Nigeria
1
South Africa
188
Tanzania
1
Uganda
1
Zambia
1
EXHIBIT 7
List of Countries in Which Massmart Operated in 2012
Source: http://www.massmart.co.za/pdf/massmarts_operations_in_Africa_2011.pdf.
However, the news of Wal-Mart’s entry into South Africa led to huge protests from powerful trade unions and some government departments in South Africa who contended that Wal-Mart’s entry would drive down wages and lead to unemployment. They threatened to respond with strike action, demonstrations, and boycotts. Faced with such opposition, Wal-Mart defended itself and also warned that it would walk away from the deal.29David Smith, “Walmart Gets First Foothold in Africa,” http://guardian.co.uk, May 31, 2011.”>29
29David Smith, “Walmart Gets First Foothold in Africa,” http://guardian.co.uk, May 31, 2011.”>29David Smith, “Walmart Gets First Foothold in Africa,” http://guardian.co.uk, May 31, 2011.
After the negotiations were completed in June 2010, Wal-Mart’s offer was accepted by the shareholders of Massmart and South Africa’s Competition Tribunal in May 2011.30Jennifer Booton, “Wal-Mart Enters South Africa with Massmart Deal,” http://www.foxbusiness.com, June 20, 2011.”>30
30Jennifer Booton, “Wal-Mart Enters South Africa with Massmart Deal,” http://www.foxbusiness.com, June 20, 2011.”>30Jennifer Booton, “Wal-Mart Enters South Africa with Massmart Deal,” http://www.foxbusiness.com, June 20, 2011.
According to the tribunal, “The merging parties contend that the merger will indeed be good for competition by bringing lower prices and additional choice to South African consumers. We accept that this is a likely outcome of the merger based on Walmart’s history in bringing about lower prices. However, the extent of this consumer benefit is by no means clear—Walmart itself has not been able to put a number to this claim, only that it is likely.”31David Smith, “Walmart Gets First Foothold in Africa,” http://guardian.co.uk, May 31, 2011.”>31
31David Smith, “Walmart Gets First Foothold in Africa,” http://guardian.co.uk, May 31, 2011.”>31David Smith, “Walmart Gets First Foothold in Africa,” http://guardian.co.uk, May 31, 2011.
According to the figures of United Nations Conference on Trade and Development, Wal-Mart’s entry helped boost South Africa’s foreign direct investment in 2011 to US$4.5 billion.32Devon Maylie, “Wal-Mart, Massmart Merger Approved in South Africa,” http://online.wsj.com, March 9, 2012.”>32
32Devon Maylie, “Wal-Mart, Massmart Merger Approved in South Africa,” http://online.wsj.com, March 9, 2012.”>32Devon Maylie, “Wal-Mart, Massmart Merger Approved in South Africa,” http://online.wsj.com, March 9, 2012.
. The written case should be 6-10 pages in length. This paper should cover ANALYSIS onlyexcept for the introductory paragraph. The writing style is to be concise and direct using tools such as Strategic Group Mapping, Industry Competitive Forces Analysis, SWOT, and Financial Analysis presented in the text.
Suggestions regarding the preparation of written case assignments include:
1.Use of appropriate analytical tools techniques, including the use of charts and tables where appropriate. You are expected to demonstrate that you can use the tools and techniques of strategic analysis presented in the chapters. Both breadth and depth of analysis will be evaluated.
2.Presenting realistic, workable, well-supported recommendations for action.
GENERAL OUTLINE FOR PAPER:
Short Introduction to company
Competition in the industry and the 5 Forces Analysis
External company environment and a SWOT analysis
Discussion of future opportunities and the Strategic Group Map
Internal company environment and a Financial analysis
Discussion of options, conclusions, and recommendations
Answer preview wal-Mart started putting more emphasis on the international markets to drive its expansion since the financial crisis
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