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Managerial Economics 2nd Edition by William Boyes
Edition 2ISBN: 978-0618988624Managerial Economics 2nd Edition by William Boyes
Edition 2ISBN: 978-0618988624 Exercise 5
Wal-Mart in Germany
Wal-Mart began in 1962 when Sam Walton and his brother Bud set up the first store in Rogers, Arkansas. Continuous double-digit growth turned it into the world's largest retailer. In the late 1980s Wal-Mart embarked on an ambitious internationalization drive. Its goal was to have foreign operations contribute a third of Wal-Mart's total profits by 2005. On the international scene Wal-Mart's proven U.S. success formula-everyday low prices due to the extensive use of advanced IT, sophisticated logistics and inventory management techniques, a strong emphasis on customer service, and highly motivated personnel-paid off in Latin America and Canada. Wal-Mart expanded into Germany in late 1997. This move was a disaster. Wal-Mart pulled out of the German market in 2006 without having made a profit in part because it was unable to fight off competition from local discount retailers Aldi and Lidl. In addition, it seemed unable to convince German executives to enforce American-style management practices. Many analysts and Wal-Mart's CEO argued that it was a clash of cultures. Does this explanation make any sense? If there were cultural differences, wouldn't initial failure have led Wal-Mart to change what was necessary and continue with its low prices and high value? Wouldn't the market lead to some sort of arbitrage where cultural differences did not matter in offering lower prices and higher value?
Does arbitrage function along cultural lines as it does for price differences?
Wal-Mart began in 1962 when Sam Walton and his brother Bud set up the first store in Rogers, Arkansas. Continuous double-digit growth turned it into the world's largest retailer. In the late 1980s Wal-Mart embarked on an ambitious internationalization drive. Its goal was to have foreign operations contribute a third of Wal-Mart's total profits by 2005. On the international scene Wal-Mart's proven U.S. success formula-everyday low prices due to the extensive use of advanced IT, sophisticated logistics and inventory management techniques, a strong emphasis on customer service, and highly motivated personnel-paid off in Latin America and Canada. Wal-Mart expanded into Germany in late 1997. This move was a disaster. Wal-Mart pulled out of the German market in 2006 without having made a profit in part because it was unable to fight off competition from local discount retailers Aldi and Lidl. In addition, it seemed unable to convince German executives to enforce American-style management practices. Many analysts and Wal-Mart's CEO argued that it was a clash of cultures. Does this explanation make any sense? If there were cultural differences, wouldn't initial failure have led Wal-Mart to change what was necessary and continue with its low prices and high value? Wouldn't the market lead to some sort of arbitrage where cultural differences did not matter in offering lower prices and higher value?
Does arbitrage function along cultural lines as it does for price differences?
Explanation
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Case summary:
Person S and his brother ...
Managerial Economics 2nd Edition by William Boyes
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