Wal-Mart Korea: Challenges of Entering a Foreign Market

Abstract

Wal-Mart entered South Korea in late 1990s for its international expansion; however, IT had a major failure in this market and left Korea in 2005 as the American way of marketing did not translate well in Korea. Wal-Mart had critical shortfalls in enabling value exchange with the Korean consumers as the Korean consumers had significantly different taste and preferences compared to American consumers. Wal-Mart's Every Day Low Price (EDLP) strategy was not perceived to have the "value" in the minds of the Korean consumers, while its store locations were not strategically well positioned to create sufficient customer traffic. Wal-Mart's competitive advantage of low cost and low price was not suitable in the Korean competition and consumption context. Wal-Mart was not prepared to develop an effective localization strategy that might have stemmed from not having a clear projection of how much it was willing to invest and grow in this market. This Wal-Mart Korean case shows the importance of the compatibility of a corporate unique value proposition and strategic fit with the local market conditions.

Understanding Failure in International Retailing: An Institutional Framework for Future Investigation

“…Owing to cultural and environmental differences, consumers in different countries may have different shopping experiences even in the same type of stores (Bianchi & Arnold, 2004;Kim & Jin, 2002). Research has shown that consumer taste and preferences and shopping habits of Japanese and South Koreans consumers are different from US consumers, and thus affected the performance of Mal-Mart and Carrefour in these markets (Aoyama, 2007;Choi, 2006;Coe & Lee, 2006;Jin & Kim, 2001;Kim, 2008).…”

“…For instance, the Japanese consumer has been referred to us the "most difficult consumer to strategize, as they require high quality on everything, and are knowledgeable about products, service, quality and prices from around the world… They are extremely brand-conscious, and demand brand products even on groceries" (Nikkei Business, 2005, p. 130, cited in Aoyama, 2007. In addition, research has shown that Japanese and South Korean consumers are sensitivity to price, seasonal changes in food items, love new products, and consider freshness and convenient shopping location as extremely important, are willing to make frequents visits to the supermarkets, corner shops, and traditional wet-markets to buy in small quantities (Choi, 2006;Coe & Lee, 2006;Jin & Kim, 2003;Kim, 2008). Kim (2008) noted that Korean local retailers accommodate this preference for food product freshness by transplanting the traditional outdoor market into a convenient indoors format hypermarkets.…”

“…In addition, research has shown that Japanese and South Korean consumers are sensitivity to price, seasonal changes in food items, love new products, and consider freshness and convenient shopping location as extremely important, are willing to make frequents visits to the supermarkets, corner shops, and traditional wet-markets to buy in small quantities (Choi, 2006;Coe & Lee, 2006;Jin & Kim, 2003;Kim, 2008). Kim (2008) noted that Korean local retailers accommodate this preference for food product freshness by transplanting the traditional outdoor market into a convenient indoors format hypermarkets. Thus, local retail chains have live sea food, local delicacies and extensively use localisation strategies that fit with Korean consumers taste and preferences.…”

“…For instance, Wal-Mart's trade-mark "every-day-low-price" (EDLP) strategy fails to appeal to Japanese and South Korean consumers who associate low price with low quality (Aoyama, 2007;Kyung-Chool & Sough-Hun, 2007;Kim, 2008). As Kim (2008) pointed out, mismatched merchandising, assortment, and marketing that neglected local needs and context were other factors that contributed to Mal-Mart's failure in Korea. Similarly, Gandolf and Strach (2009) stated that product mix, promotion, and pricing strategies accounted for Wal-Mart's failure in South Korea because the firm failed to recognise that South Koreans have different consumer preferences than North Americans do.…”

“…Similarly in South Korea, suppliers held large power over retailers (Coe & Lee, 2006) and were unwilling to have open information exchange EDI system with Wal-Mart. They held seller power as they had the choice of supplying to other major local retailers, and also the fact that they have their own retail chains (Kim, 2008).…”