The Success Story of Wal-Mart in Mexico
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Case Code: BSTR264 Case Length: 14 Pages Period: 1991 - 2007 Pub Date: 2007 Teaching Note: Not Available |
Price: Rs.300 Organization: Wal-Mart Industry: Retail Countries: Mexico, USA Themes: International Business, Globalization Business |
Abstract Case Intro 1 Case Intro 2 Excerpts
"Wal-Mart's power is changing Mexico in the same way it changed the economic landscape of the United States, and with the same formula: cut prices relentlessly, pump up productivity, pay low wages, ban unions, give suppliers the tightest possible profit margins and sell everything under the sun for less than the guy next door."
- Tim Weiner, New York Times, in December 2003.
"We have a commitment to Mexico, a long-term view in this country."
- Raul Arguelles, spokesman for Wal-Mart de Mexico SAB de CV, in 2005.
"Wal-Mart can have a dramatic effect in emerging markets. If you look where Wal-Mart has been less successful, it's developed economies like Germany and Japan, where you have sophisticated urban dwellers who have a host of other concerns."
- Mark Husson, Analyst at HSBC Securities, in 2007.
Introduction
On March 01, 2007, Wal-Mart de Mexico SAB de CV (Walmex), the Mexican arm of Wal-Mart Stores, Inc. (Wal-Mart), the world's largest retailer, announced plans to open its first in-store bank branch in Mexico by June 2007. While Wal-Mart's efforts to enter into the banking space in the US had been unsuccessful owing to protests from small banks and unions, Walmex was able to get government approval easily to set up in-store bank branches in Mexico owing to its image as a successful retailer that catered to the daily needs of the Mexican people. Walmex was seen by the Mexican government as being capable of breaking the oligopoly of international banks in Mexico. This was expected to make financial products more affordable to millions of Mexicans, many of whom didn't even have a bank account.
For Walmex, having banking operations within its stores would improve the traffic at its stores and boost its retail sales. Wal-Mart started its international operations with its entry in Mexico in 1991. It formed a joint venture with Grupo Cifra SA de CV (Cifra), a well-established retail chain in Mexico. Industry experts credited much of Walmex's success in Mexico to its entry through a joint venture with an established local player. Cifra provided Wal-Mart with the necessary understanding of the Mexican market and helped it fine-tune its strategies to suit the Mexican customer. Walmex's drive for low prices attracted protests from small vendors and suppliers in Mexico.
However, the company was able to overcome these hurdles because of strong support from the Mexican government as well as common people, who were eager to benefit from Walmex's reputation as a company that offered quality products at affordable prices. Analysts said that in Mexico, protests against Walmex were led by small groups of traders who were affected by the competition on the price front, but these groups failed to mobilize the masses and other activists against the company. Prior to Wal-Mart's entry into Mexico, people bought their regular requirements from informal street shops, where locally made and relatively cheap products were available.
More than the organized retailers, this unorganized sector posed tough competition for Walmex on the price front. However, the street shops could not withstand the competition from Walmex as the products they sold were not of the same quality and of the same range as those at Walmex. Organized retailing in Mexico was confined to a few local players like Controladora Comercial Mexicana SAB de CV (Commercial Mexicana), Organizacion Soriana SA de CV (Soriana), Grupo Gigante SAB de CV (Gigante), etc. Wal-Mart's success in Mexico forced these local retailers to improve their operational efficiency. They started focusing on their database management, supply chain, store interiors, product pricing, and customer care in order to compete with Walmex (Refer to Exhibit I for a note on the retail market of Mexico)...
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