Fdi Walmart-Asda

Foreign Direct Investment Wal-Mart – ASDA Wal-Mart is an American company, based in Arkansas, USA that runs large discount department stores. The company was started in 1945 when Sam Walton open a store in Arkansas, the premise behind the company was to slightly undercut its competitors while still making a profit. This idea proved a large success. In 1962 the name Wal-Mart was established when Walton open ‘Wal-Mart Discount City’ store by the time the company was incorporated in 1969 it had expanded 38 stores spread over 3 states, again operating under the same premise of marking up slightly less than the competitors. ASDAs life began in 1965 with the merger of Asquith supermarkets and Associated Dairies, the name ASDA is an abbreviation of the two names ASquith Dairies. In 1968 ASDA bought two large stores from Government Exchange Mart (G. E. M) that were failing and in the first week of trading by ASDA the sales grow from ? 6,000 a week under G. E. M to ? 30,000. The space given by the size of the stores allowed ASDA to create its own range of goods, which is considered to be on of the reasons behind the company’s early growth. By 1981 ASDA had expanded out of its northern home south with a total of 80 stores. Unfortunately this time also seen the managing director leave the company to be replaced by John Fletcher whose ideas to improve profitability was to increase profit margin on branded items, this increased profits in the short term but lowered the companies price competitiveness, straying away from the company’s founding principals. This led to decline in customer numbers and Fletcher left the company just 3 years later. By the beginning of the 1990’s ASDA was falling apart it had bought a chain stores know as Gateway for a high price and was struggling due to it, and ASDA entered in a doomed loop of increasing prices and loosing customers. Archie Norman took over the company as CEO after the share holders revolted. Made some radical changes to the company, completely changing it management style and returning back to the companies base ‘ASDA price – Pocket the Difference’ In the 1980’s Wal-Mart continued to expand in to southern United States states and by 1987 had 1198 stores. The 1990’s saw continued growth it to other United States states such as New York and by 1993 the company had managed to reach one billion dollars worth of sales in one week. By 1995 Wal-Mart were well on there way in to foreign markets with 276 international stores, by the time Wal-Mart looked in to purchasing ASDA in 1999 it was the world’s largest private employer. After ASDAs struggling period in the early 1990s, its future was looking up towards the end of the 1990s. 1999 saw a large discussion about a ? 18 billion merger between ASDA and kingfisher, but this was no more than just a ruse to cover what was really happening to ASDA. The kingfisher merger was days away when Wal-Mart made a ? 6. 7 billion offer the ASDA could not refuse. Both ASDA and Wal-Mart had very similar ideas about management style and, giving the customer what they wanted, cheap goods. In addition both had spread out from just groceries in to other areas, such as ASDA’s George Clothing range. The Asda acquisition thrusts Wal-Mart into the midst of a government inquiry of supermarket pricing A regal entrance into the U. K. Chain Store Age, 10870601, Dec99, Vol. 75, Issue 13 The Time that Wal-Mart purchased ASDA may also cause them problems; in 1999 the office of fair trading asked the competition commission to look it to the possibility that supermarkets were bullying suppliers. Wal-Mart are an international brand they would have intended to use this to there advantage and ‘shop around’ for the cheapest goods, this investigation would have caused them to look closely at how they source there suppliers to ensure that they are not caught up in the inquiry. If it wasn’t for the kingfisher merger possibility Wal-Mart may have waited until the air had cleared over the investigation before attempting a purchase. Britain was always a big target for Wal-Mart to step in to, the United Kingdom shopping culture has always been very similar to the United States, ith the tendency to buy everything from one shop. But Britain was always Wal-Mart's great hope. Here was a country with an established supermarket culture. The natives shopped in similar ways to Americans (who tend to prefer large, one-stop excursions, unlike Germans, for example, who buy their ham from one store, their toilet paper from another) A long, long way from Bentonville. Economist, 00130613, 9/30/2006, Vol. 380, Issue 8497 The Asda acquisition provides Wal-Mart with a foothold in the U. K. , where it previously had no retail presence Knestout, Brian P. Wal-Mart Buys Britain! Eyebrows Arch! , Kiplinger's Personal Finance Magazine, 1056697X, Sep99, Vol. 53, Issue 9 ASDA would have been considered a good step by the American giants Wal-Mart. Wal-Mart previously did not have a big grocery stronghold, where as with ASDAs backing there power would be increased. Where as Wal-Mart will give ASDA big purchasing power to enable cheaper purchases and therefore lower cost to the consumer. This was expected to cause a price drop industry wide in order for the other supermarkets to attempt to compete with ASDA / Wal-Mart. Much has been written about the good cultural fit between Wal-Mart and Asda†¦ Wal-Mart should also be able to improve Asda’s buying terms in both foods and non-foods. The result will be sharper prices and reduced margins that will progressively spread throughout British retailing. Asda’s expertise in grocery and petrol retailing may be helpful to Wal-Mart†¦ Rogers, David S, Possible Consequences of Wal-Mart's Acquisition of ASDA, European Retail Digest; Sep99 Issue 23, p51, 2p Hofstede’s Cultural Dimensions are very useful when looking at how similar/different two countries are from one and other. The following graphs show both the UKs and the USAs scores relating to Hofstede’s Cultural Dimentions. As you can see from the chart both countries are very similar in each area, I will briefly explain what each category is and how it relates to Wal-mart / ASDA Power Distance Index (PDI), Looks at how business in the country are affected by the small members over the managerial positions. Wal-mart has always pushed its self in this area saying that every staff member is of equal importance, which would imply a low PDI. Which is what both the USA and the UK show, this means there is a large amount of equality between societal levels. Individualism (IDV), Looks at how an individual lives, either by his/her self in small family groups or in larger community based groups, where everyone helps each other. Again both countries are very close to each other, and both with very high scores, implying that both countries are very individualist. There are only 7 countries in the world according to Hofstede that have Individualism as there highest value the USA, Australia and the UK being the top 3. Masculinity (MAS), Refers to how the country is ran, a score around 50 implies that the country is very diverse in sexuality with equal opportunities for both man and women. Both the USA and the UK have scores of around 60 showing that each country is reasonably diverse even if slightly male lead. Uncertainty Avoidance Index (UAI), Shows how much a country avoids new things and new ideas, until it is certain they good. The UKs uncertainty avoidance index is low, lower than the USAs and low over all, meaning that a new company entering the county is likely to be accepted, where as the USA is higher meaning they are untrusting of new companies, luckily for Wal-Mart they were investing in to the UK meaning a low UAI was good for them, but to avoid any problems the continued to trade under the know name of ASDA. Long-Term Orientation (LTO), examines the culture of the country. A county with a low Long-Term Orientation score tends to prefer to stick to traditional values, and doing as the society expects, where as countries with high long-term orientation scores look more to the future rather than sticking to historical values. Again both countries are very similarly rate but both are very low this was probably one of the reasons Wal-Mart continued to trade under ASDA in the UK so the traditionalist can continue to do there local shopping in the place they are se to under the name they are use to. One of the big problems facing Wal-Mart is that the supermarket industry in the United Kingdom is highly concentrated, and will face a larger amount of competition in a smaller area than they would in the United States. As well as a land issue, Wal-Mart had a tendency to build large stores on unoccupied land, where as in the United Kingdom spare land is scares and local governments are reluctant to allow the building of large American style retail outlets. In the United Kingdom, Wal-Mart will have to deal with a supermarket industry that is more highly concentrated than in the United States, a government probe on pricing as well as resistance by some local governments to the construction of American-style big box retail stores. A regal entrance into the U. K. Chain Store Age, 10870601, Dec99, Vol. 75, Issue 13 Wal-Mart made a very risky decision investing in ASDA when they did, considering ASDAs poor performance in the decade prior to the purchase. Their timing was probably slightly hastier than they would have liked, but die the kingfisher deal being imminent Wal-Marts directors had to make some quick decisions. As to not open rumours of the purchase to some other competitors the directors visited the ASDA stores as though they were the public to see if they believed that ASDA was a viable purchase and that they could make the company work for them. Wal-Mart and ASDA were built on similar core principals, cheaper prices for the consumers, and during the ASDA re-growth prior to the purchase ASDAs management style changed to one which put the store staff in a better place, similar to the way that Wal-Mart encourages. This meant that a purchase from Wal-Mart would have very little effect on ASDA in the short run which is good for the consumers and hence good for the business. The shopping culture in the United Kingdom was very similar to the United States with UK shoppers tending to buy all there goods from one place. However expansion may have been a problem for them and a large change from what they were use to in the United States but ASDA gave Wal-Mart a good step in to the European market. Bibliography A long, long way from Bentonville. Economist, 00130613, 9/30/2006, Vol. 380, Issue 8497 A regal entrance into the U. K. Chain Store Age, 10870601, Dec99, Vol. 75, Issue 13 About ASDA – History, http://www. asda-corporate. com/about-asda/history. asp (Accessed 10/02/2007) Frank, T. A. â€Å"A Brief History of Wal-Mart. The Washington Monthly. April 1, 2006 Geert Hofstede Cultural Dimensions, http://www. geert-hofstede. com/hofstede_dimensions. php (accessed 22/08/2008) Knestout, Brian P. , Wal-Mart Buys Britain! Eyebrows Arch! Kiplinger's Personal Finance Magazine, 1056697X, Sep99, Vol. 53, Issue 9 Rogers, David S, Possible Consequences of Wal-Mart's Acquisition of ASDA, European Retail Digest; Sep99 Issue 23, p51, 2p Teena Lyons, Competition Commission inquiry into supermarkets, guardia n. co. uk, Wednesday October 31 2007