Mismanagement of National Culture Diversity.
Culture:
Every individual culture holds its own specific values, beliefs and lifestyle. A culture portrays specific race, ethnicity, gender, social class, education, and personality (Caplan, 2014). To live successfully in another culture, we need to understand the dominant values of that culture (Wilson, 2012). Working or living in a different culture would not be seamless unless the traditional cultural values are modified according to the host cultural values.
Management incompetency of Walmart for Cultural Diversity in Germany:
Walmart is a leading American retail business company, implementing a corporate culture and policies based on the American cultural values is Walmart’s main reason of significant success in America. Though Walmart is at present operating more than 6500 stores across the globe but its rate of success is higher in regions having cultural values similar or close to that of America.
As stated by Williams (2013) that recognizing cultural differences is critical to succeeding in global business. Walmart’s rigidness in following the same traditional home based policies for all its stores is regarded as the main cause for its low success rate in different cultural regions. Referring to its failure in Germany, a Wal-Mart international spokesperson commented that it was a good lesson for the company and that they should have learned to be more sensitive to cultural differences (Neuliep, 2012) Hence, inappropriate management of cultural diversity is termed as the major reason for Walmart’s failure in Germany. Failing to appreciate cultural differences may lead to cultural clashes, which can ruin a business setup in a new territory (Hansen, Panwar & Vlosky, 2014).
Germany, is among the most developed countries in Europe and a leading economic power on globe. Based on its traditional values and beliefs, German culture is quite different from other European countries, particularly America. Hofstede highlighted four cultural dimensions, individualism, power distance, masculinity/femininity and uncertainty avoidance, for the analysis of cultural differences (Pour, 2019). However, Wal-Mart operational procedures in Germany portray its negligence in considering any of the mentioned factors for its stores in Germany.
Individualism:
It can be defined as a social stereotype in which individuals consider themselves as independent entities (Petrakis, 2014). Individualism is a core of American culture and the main value in America (Hao 2015). Whereas, German culture is anti individualism as Germans are used to work in groups for a common goal. Wal-Mart in Germany was unable to gain employees loyalty due to its non-supportive attitude towards team building of its German employees. At Wal-Mart employees are not allowed to use any other language other than English for communication with the co-workers and even with the visiting customers. And as Germans are more comfortable with their own national language, making English the official language affected employee morale with employees starting to feel like outsiders, and getting increasingly frustrated (Deresky, 2006). English being the main communication language turned out to be a communication barrier due to poor English language skills of the locally hired managers for the German stores. Even the customers sensing it difficult to communicate with the store staff shifted to other retail outlets. Thus, Wal-Mart sales staying stagnant for over a small period started declining.
Power Distance:
The power distance dimension can be defined as the extent to which less powerful members of a society accept and expect that power is distributed unequally (Mooji, 2010). Companies to be successful in the long run building effective communication encourage its employees for their suggestions to improve its progress and enhance loyalty among the employees. However, in Wal-Mart Germany due to language barriers and individualism supportive behavior of the top management employees were not considered for any suggestions or feedbacks. Their job tasks were strictly wrapped with the company’s rigid policies, hence there was no flexibility in the performance of the assigned task for the employees. Due to the same huge power distance among the Wal-Mart management hierarchy, Wal-Mart becomes unpopular among the German labor market.
Many people saw Wal-mart as a very unattractive company to work for because of relatively low pay and an ultra-frugal policy on manager’s business expenses (Deresky, 2017). The wage structure of Wal-Mart was also on the lower side as compared to its main competitor Metro and other popular national brands. Having unequal pay scale with more rules & regulation became a major reason for high employee turnover causing an adverse impact on the overall budget of Wal-Mart Germany.
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Uncertainty avoidance:
As stated by Mooji (2010) uncertainty avoidance is the extent to which people feel threatened by uncertainty and ambiguity and try to avoid these situations. Wal-Mart’s policies were extremely contradicting with the German employee’s cultural values. As a part of Wal-Mart’s strategy to enhance employees level of motivation and loyalty, all employees were persuaded to partipate daily in morning exercise and call out ‘WALMART’ loudly, though the same practice had produced desired results in America and similar cultures but as Germans were not accustomed to such practices it worsen their confidence over the company.
Moreover, as a rule implemented in Wal-Mart stores, an employee will maintain a watch on his fellow employee and would report any act of misconduct or disobedience to the management.
International companies operating across its home borders, modify their business policies in compliance with the cultural beliefs and bylaws of the host country. However, in Walmart’s case, the top management overwhelmed with their successes in other European markets ignoring significant difference among the cultures of Germany and America, proceeded with their operations in Germany without any modifications in their conventional policies. Moreover, Walmart operation in Germany was administered and managed by the managers based in UK, English being the main communication language turned out to be a communication barrier due to poor English language skills of the locally hired managers for the German stores.
Diverse buyer’s interest:-
Type of shopping behavior varies from country to country (Klopcic, Kuipers, Hocquette, 2013). Consumer’s mindset, attitude, and demands are influenced by their cultural values, ignoring the local culture will almost certainly destroy the chances of it accepting the services or products offered by the international company (Hollensen & Banerjee, 2010). Particularly, for retail business setups it would be a great mistake considering the customers of different cultures as same. Walmart, overlooking the compelling difference among the retail shoppers of the two countries implemented the same policies as in its UK and American stores. The diverse attitude of the German consumers did not acknowledged American style of operation and its policies, causing low sales and finally a complete shutdown.
Business Location in New Territory:
Selection of an ideal location is one of the major factors influencing the success of an international company in a new region. It is vital for any company that its logistic section should be seamless and cost effective. Moreover, the premises should cope with the consumer’s expectations. Walmart in Germany instead of building its own purposely designed store buildings acquired stores of the national retailers Wertkauf and Interspar. It bought the stores but not the land on which they were located, giving the company problems with leases (Needle, 2010). The stores being small in size and less product storing space, were a no match of Walmart stores actual style and size. Moreover, as there was no provision of any modification in the store size or design due to the legal limitation by the German authorities, Walmart could not display its actual appearance with full services. Even due to lack of space, range of products could not be offered store shelves. Due to the same reason many German customers expecting same Walmart as in other countries, lost their interest for shopping in new Walmart stores.
Competitive Advantage:
Complete of range of products offered in economical prices is the success factor or competitive advantage of Walmart. However, in Germany Walmart could not take leverage of its main competitive advantage as in Germany many supermarkets and grocery stores are offering products on discounted prices. Particularly, the retail giant ‘Metro’ having advantage of well established consumer’s loyalty and a better logistic management was offering many products at much cheaper rates than the Walmart. As such Walmart irrespective of its distinguished global reputation was unable to produce desired sales and gain a good number of consumer’s loyalty throughout its operational tenure in Germany.
Host Regions Rules & Regulations:
Every region is dominated by specific laws and regulations. International businesses must follow their host laws for all their operational procedures. Walmart discourage labor unions, whereas in Germany labor unions hold significant influence over the business procedures, rights of the workforce and even over the country’s labor laws. Walmart due to its noncompliance with the regulations of German labor unions was persuaded to face court trials which affected its business reputation and most importantly due to the same adverse attitude for labor unions Walmart was unable to retain skilled workforce which also affected its planned budget.
Walmart expansion in German territory would have been a success if the challenges of a diverse culture would have been considered and managed competently.
Reference:
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