In terms of management philosophies, companies can be categorized as ethnocentric (homemarket oriented), polycentric (oriented toward individual foreign markets), regioncentric or geocentric (oriented toward larger areas, even the global market place) (Czinkota, 1999, pp.
395). Nevertheless, the world economy is more and more characterised by an increased internationalisation in which companies see a chance to improve their long-term competitiveness, to increase their profitability as well as to balance the economic cycle of the home market by diversify the risk internationally. In addition, there are non-economic motives such as to obtain power and influence as well as to gain prestige. However, to internationalise successfully companies must create a strategy of internationalisation. Part of this strategy is for instance the choice of the target market and the timing of entering a market. In addition, a strategy can be created based on the control aspect, the capital employed as well as how much risk is involved in internationalising the operations. Referring to this,there are several modes a company can choose to internationalise its operation, which can be divided into equity and non-equity modes. In general, non-equity modes such as franchising, exporting, etc. are less
expensive and risky than equity modes. For companies with little international experience, non-equity modes provide a good start to begin their operations internationally. Equity modes such as Foreign Direct Investments provide the most control of the business and as the name already indicates there is a substantial equity participation involved. However, when creating an international strategy companies must consider risk aspects that can be categorised into political, economic, and legal risks. In addition, as companies operate internationally the more they deal with the diversity of languages as well as cultural differences which a company must give attention to.
This paper will identify the main reasons for and against internationalisation as well as present different types of entry modes. At the end, the internationalisation of Wal-Mart will be analysed mainly focusing on Wal-Mart entering Germany.
Table of Contents
1. Introduction
2. Reasons for internationalisation
2.1 Location
2.2 Internationalisation
2.3 Ownership
3. Reasons against internationalisation
4. Modes of entry
4.1 Non-equity modes
4.1.1 Indirect/direct export
4.1.2 Licensing
4.1.3 Franchising
4.2 Equity modes
4.2.1 Joint venture
4.2.2 Wholly owned subsidiaries
5. Wal-Mart
5.1 Wal-Mart Germany
6. Conclusion
Objective and Research Focus
This paper examines the motivations behind corporate internationalisation and evaluates the various entry modes available to firms. By analyzing theoretical frameworks and the practical case study of Wal-Mart's expansion into Germany, the research identifies critical success factors and strategic pitfalls in global market entry.
- Strategic drivers of internationalisation (push and pull factors).
- Classification and analysis of entry modes (equity vs. non-equity).
- Risk assessment and the importance of location-specific advantages.
- Detailed case study on the failures of Wal-Mart in the German retail market.
- Evaluation of acquisition strategies and post-merger integration challenges.
Excerpt from the Book
Wal-Mart Germany
In 1997, Wal-Mart has decided to enter the German market through acquisition. During this time, the German retail market was the most important market in the European Union with a gross national product of € 2 trillion (Kneer, 2009, pp. 8). Because of the attractiveness of this German market, Wal-Mart decided to acquire the German retailer Wertkauf in 1997 and one year later Wal-Mart acquired 74 stores of Interspar for € 560 million. Through these acquisitions, Wal-Mart immediately became the fourth largest retailer in Germany (Kneer, 2009, pp. 8). One of the biggest difficulties for Wal-Mart right at the beginning was to integrate these two different retailers into their corporate structure. Wertkauf was making constant profits before the acquisition whereas Interspar was not be successful in the German market and must almost completely be renovated.
Chapter Summary
Introduction: Outlines the management philosophies regarding international business and introduces the primary research goals regarding market entry strategies.
Reasons for internationalisation: Discusses the theoretical drivers of global expansion, categorizing them into location, internationalisation, and ownership advantages.
Reasons against internationalisation: Explores the inherent risks of cross-border operations, including currency fluctuations, regulatory complexity, and cultural barriers.
Modes of entry: Categorizes strategies into non-equity (exporting, licensing, franchising) and equity (joint ventures, wholly owned subsidiaries) methods.
Wal-Mart: Provides an overview of the company's business model and a critical analysis of its failed entry into the German retail landscape.
Conclusion: Summarizes that successful international expansion requires rigorous market analysis and cultural adaptation rather than simple replication of home-market strategies.
Keywords
Internationalisation, Entry Modes, Foreign Direct Investment, Wal-Mart, Germany, Joint Venture, Acquisition, Greenfield Investment, Porter's Five Forces, Cultural Barriers, Retail Management, Risk Mitigation, Strategy, Global Business, Competitive Advantage.
Frequently Asked Questions
What is the core focus of this research paper?
The paper evaluates why companies choose to internationalize their operations, examines the different strategic entry modes, and analyzes the factors leading to success or failure in foreign markets.
What are the primary themes discussed in the work?
The work covers theoretical drivers for global growth (location and ownership), specific entry modes such as licensing or acquisitions, and the practical application of these strategies via a case study.
What is the central research question?
The paper asks how a company can successfully internationalize and why certain strategic choices—specifically acquisition—can lead to failure in competitive markets like Germany.
Which scientific methods are employed?
The paper utilizes a qualitative research approach, combining literature review on international business theories with a detailed case study analysis of Wal-Mart's market entry.
What topics are covered in the main section?
The main section details the advantages and disadvantages of international expansion, explores non-equity and equity entry modes, and provides a chronological analysis of Wal-Mart’s entry and eventual exit from Germany.
Which keywords best describe this study?
Key terms include internationalisation, entry modes, Foreign Direct Investment (FDI), and cross-border acquisition strategies.
Why did Wal-Mart fail in Germany according to the author?
The author identifies four main reasons: disregard for local laws/regulations, an arrogant management/staff policy, a failure to adapt to German consumer needs, and an ill-suited acquisition strategy.
How does the author define the role of "Porter’s Five Forces" in this context?
The author uses this model as a tool to show that Wal-Mart could have anticipated the high competitive rivalry in Germany, which would have made it clear that their home-market strategy was not feasible.
- Quote paper
- Alexander Berger (Author), 2011, Compare and contrast the means by which a company can internationalise its operations, Munich, GRIN Verlag, https://www.hausarbeiten.de/document/173491
