CASE Walmart Goes South

Comercial Mexicana S.A.

est retail (Comerci),
chains, is faced with a serious
one of
Mexico's larg started growing in Mexico, management Cras
it
Walmart's aggressive dilemma. Since Walmart International Division in 1993. By 2016d reated the
ket, Comerci has entry into the Mexican retail mar- had expanded to 28 countries outside the UniterWalr
found it n
competitive. Walmart's strong increasingly difficult to remain through new-store construction and acquisition S.
pices since NAFTA's operating presence and low growth stalling in the United States, Walmart is lon Wit
Comerci, and now lifting of tariffs have put
pressure on international expansion. It currently has more
chain needs to do management must determine what the than 11
retail units worldwide, of which more than 6,200 are
to
What has causedcompete against Walmart.
this intense
the continental United States, and it employs mora
Comerci, competitive pressure on 800,000 people outside the United States. than
and what is
likely to be its future? Mexico's Neverthe
Walmart's success internationally has varied by coL
tail sector has
benefited greatly from the re
liberalization the government has been increasing trade It hasstruggled to match consumer preferences and
cades of protectionism, Mexico pushing. After de- successfully with suppliers in Japan, encountered troubeble
joined GATT in 1986 to help in the to
open its economy to new markets.
In 1990, with Mexico's United Kingdom, and failed turn profits in Ge
Ger
economy on the upswing and additional free trade many and South Korea, forcing it to withdraw complete
tions with the United negotia from the latter two markets. However, it has flourished in
States and Canada taking place,
founder of Walmart, Sam Walton, met with Canada and, most notably, in Mexico. Walmart's opDer
the president of tions in Canada in 1994 with the
began acquisition of 122
Cifra, Mexico's leading retail store. Their
in a 50/50 joint venture in the meeting resulted Woolco stores. It now has more than 400
Walmart stores
opening in 1991 of Mexico's and enjoys strong partnerships with Canadian suppliers
first Sam's Club, a subsidiary of
Walmart, in Mexico City. In Mexico, Walmart operates 2,360 units, including Sams
t took only a
couple of months after the opening to prove Clubs, Bodegas (discount stores), Walmart Supercenters,
the store's success-it was
breaking all the U.S. records for Superamas (grocery stores), Suburbias (apparel stores
Sam's Club. The JV evolved to incorporate all new stores, and and VIPS restaurants, and it has become the largest
by 1997, Walmart could purchase enough shares to have a con retailer in the country, followed by Organizacion Soriana
trolling interest in Cifra. In 2000, the name changed to Walmart Comercial Mexicana (Comerci), and Chendrauí.
de México, S.A. de C.V., and the ticker symbol to WALMEX. Given its hit-and-miss success rate on the international
Prior to 1990, Walmart had never made moves to enter scene, it is natural to wonder how much of Walmart's tr
Mexico or any country other than the United States. Once umph in Canada and Mexico has stemmed from its internal
 CHAPTER 8
245
Cross National Cooper aton and Agreerrients

nrOcesses, international strategies, and geographic proxim- Prior

American goods sold to Mexico from 10 to 3 porcent.
and
how much
can be ibuted to the close econom- to NAFTA, Walmart w a s not much of a threat to
companies
shared by the United States with the two countries
ity
Iike Comerci, Gigante, and Soriana, Mexico's top retailers
and
through NAFTA.
But once the agreement was signed, the barrlers fell
Walmart was on a lovel playing field with its competitors
However,
Walmart's Competitive Advantage which was all it needed to become number one.
the retail sector in Mexico is the second most competitive
of Walmart's intemational success comes from the sector of the economy behind auto parts, so Walmart
has
Much
es on which the U.S. division bases its suc- rernain cornpetitive against lo
had its work cut out for it to
Walmart is known for the slogan such as
ss.
"Every Day Low cal Mexican retail chains and other foreign retailers,
e
Prices,"
which is the core of their value proposition. It has U.S.-based Costco and French-based Carrefour, which sold
anded that internallyto "Every Day Low Costs" to inspire its outlets to Mexican competitor Chendrauí in 2005.
invested
oloyees to spend company money wisely and work hard Since NAFTA has gone into force, Mexico has
lower costs. Because of its sheer size and volume of pur- infrastructure which has
to significantly in public and private
ses. Walmart can negotiate with suppliers to drop prices the efficiencies in its distribu
chasex helped Walmart to improve
the gates
to agreeable levels. tion network. The signing of NAFTA also opened
The company also works closely with suppliers on inven- Walmart was
wider to foreign investment in the country.
Mexico from
tay levels using an advanced information system that in- paying huge import fees on goods shipped to
knew that if
foms been made and when areas like Europe and Asia. Foreign companies
suppliers when purchases have could keep
Walmart will be ordering more merchandise. Suppliers can they built manufacturing plants Mexico, they
in
then plan production runs more accurately, thus reducing labor and ship to NAFTA's free trade
costs low with Mexican
United States, or Canada.
production costs, which results in cost savings for Walmart zone-Mexico, the
in
and passes on the savings to the consumer as lower prices. As companies began to build manufacturing plants
Walmart also has a unique distribution system that reduces Mexico, Walmart could buy these products
without paying
the high import tariffs. An example of this tactic in the earty
expenses. t builds super warehouses known as Distribution television line, Wega.
Centers (DCs) in central locations that receive the majority years of NAFTA was Sony's flat-screen
Sam's Clubs in Mexico imported Wega TVs from Japan with
of merchandise sold in Walmart stores. It sorts and moves
a 23 percent import tariff plus huge shipping costs, resuiting
the merchandise via a complex system of bar codes, then its
various in a $1,600 retail price. In 1999, Sony built a manufacturing
inventory infomation system directs transport to the the
stores using its company-owned fleet or a partner. The central plant in Mexico, thus allowing Sam's Club to purchase
this tactic also yielded much
distribution center helps Walmart negotiate lower prices with Wegas without import tariffs;
lower shipping fees. Sam's Clubs passed on the savings to
purchasing volumes. These
S suppliersbecause of the large customers. Recently, Chinese electronics manufacturer Hi-
strategieshave resulted in great success for the company.
the sense bought a factory in Rosarito, Mexico, from Japanese
And it even uses the second most powerful computer in manufacturer Sharp Corp. and hopes to ship 4 million TVs
world-behind the Pentagon's-to run its logistics.
under the Sharp brand name throughout North America. in-

cluding to Walmart. Higher labor costs in China and closer

Walmart in Mexico proximity to the NAFTA markets make Mexico a far more at
tractive market for Hisense products, plus once it gains ac-
Prior to the passage of NAFTA, Walmart faced some challeng- cess to Walmart, it gains access to all of the markets where
sas it expanded into Mexico. One of the biggest was import Walmart operates. NAFTA resulted in better suppliers due
narges on many of the goods sold in its stores, which pre
Low Prices."
to an increase in competition, competitiveness, and effi
it from being able to offer its "Every Day
vented stocked its shelves ciency among companies in order to gain the trust of their
Unsure of local demand, Walmart and riding lawn-
clients. Suppliers have invested in being more productive in
tackle,
WIn rtens like ice skates, fishing
Mexico. Rather than informn-
order to be more competitive, while at the same time gaining
owers-all unpopular items in
ng headquarters that they wouldn't need those items,
local greater access to better materials and technologies in the
only to have the au- region. Better suppllers also increased the variety of prod-
anagers heavily discounted the items, when the first batch
ucts available to consumers with wider price ranges, which
reorder them
Omatic inventory system allowed Walmart to offer customers better savings and thus
problems due to
Walmart also encountered logistics trucks. Yet another
increase their purchasing power. NAFTA also helped Mexico
Or roads and the scarcity of delivery the Arkansas e x achieve greater economic growth and lower rates of infla-
probl was the culture clashes between tion, again adding to the purchasing power of consumers.
SCutives and the local Mexican managers. Comercl and others have combated Walmart's tactics
trial and error,
of these problems were solved by by lowering their own prices, but on many items, they can't
butn e of NAFTA in 1994 helped
solve most
emergence
of them. Among
other things, NAFTA
reduced tariffs on get the prices as low. Walmart's negotiating power with its
 246 PART 33 Theories and Institutions: Trade and Investment

suppliers is large enough that it can get the better deal. Also, learned things in Mexico to help target the Hispanic
most of Mexico's
retailers have priced goods differently. nity in the United States by opening at Latin-themer
anic comm
They were used to putting certain items on sale or at deep house store in Houston, Texas, called Más, a spinofof
discount, a strategy known as "high and low," rather than
lowering all prices. Though they have been trying to adjust
Club. In addition, Walmart imported products from
for its stores in the United States for the Hispanic Comm
their pricing structure to
match Walmart's, they are still frus-
trated with Walmart's continued cost
communty
cutting. How Much Did Bribes Help?
Walmart's Expansion into Central America Just as things were looking bright, allegations werebro
against Walmart in 2012 that systematic bribery was anOugh
Walmart also made two in
in
significant changes in its operations portant part of its expansion efforts. Allegedly, the CE
Mexico. First, Walmart de Mexico
purchased Walmart
Centroamerica in 2009. One thing that facilitated Walmart de Mexico was using bribes to expedite their abi
that acqui- to obtain permits to build stores in a rush to expand,W
sition was the fact that Mexico, in addition to
a NAFTA
member, signed free trade agreements withbeing
these alleged payments "business as usual," or did they i
49 countries gally give Walmart an advantage in its rush to expand the
around the world, including several in Central
America. This and gain greater dominance over its competition? Thisis
meant that they could gain access to
even more products interesting question and one being investigated by the Us
and suppliers. Walmart worked with
thousands of suppliers Department of Justice. However, as recently as 2015, lite
throughout Mexico and Central America, with more than 60 had been discovered in the way of major offenses, and it
percent of their supplier base in Mexico composed of SMEs likely that not much will come of the allegations.
g

(small- and medium-sized entities). They were also able to

better coordinate the network of 14 distribution centers in
Mexico and Central America. QUESTIONS
Second, Walmart established a multi-format operations
approach in the region to address different consumer seg- 8-3. How much of Walmart's success is due to
NAFTA, and how
ments. This occurred not only in Mexico but also in Central much is due to Walmart's inherent
competitive strategy?
n
America through Bodegas and discount stores, other words, could any other U.S. retailer have the
hypermar- same suc
kets, clubs, and supermarkets. Two different store concepts cess in Mexico
post-NAFTA, or is Walmart a special case?
it established are Bodega Aurrera and Superama, both 8-4. What can a local retailer like Comerci
do to compete agains
supemarket stores aimed at different demographics. In addi- Walmart?
tion, Walmart opened apparel stores and restaurants. It also 8-5. How can NAFTA be beneficial to
suppliers of Walmart?

Endnotees
For Endnotes, go to http://www.pearsoned.co.in/JohnDDaniels/
 South
Walmart
Goes
CASE
ome of Mevico's
lara
it startedd growing
Walmart
International

in Mexico,
Division

manageme..
in 1993, B tCreat
016, Wa
(Comerci). c o u n t r i a s outside the
Comercial Mexicana S.A Sirce to 28 nisrd
s e r i n i s dilemyma. expanded
est retail chains, is
fared with a had and a
itiors
construction
mar
Mexicen retail store
into the
new
United States, Walrmam Gr,
through
walmat's aggressive entry to rermain in the
increasinoly difficult
ket. Comei has found growth stalling has more
expansion. It Gurrently
low
presence and
Oompettive Walmat's strong opereting on
pressure
international
w o r l d w i d e , of
which m o r e than 6 2 1
of tariffs have put
rices since NAF TA's lifting retail units
United States, and it ernploys
what the
determine
Lomet, ad now management must the
continental
Chain needs to do to compete against Walmart
B00,000 people
outside the United States States. Neverhe
pressure on Walmart's success internationally has varied by
What hRS CAUsed this intense competitive
Mexico's re c o n s u n e r preferencee
Comerci, and what is likely to be ts future ? to match
trade I1 has struggled
tail sector has benefited oreaty from the increasing
After de successfully with
suppliers in Japan, encountered t
nberalization the government has been pushing Kingdom, and failed to turn profte
in the United
cades of protectionism, Mexico joined GATT in 1986 to help many and South Korea, forcing it to withdraw ompleta
Open its economy to new markets. In 1990. with
Mexico's
markets. However, it has flourie
economy on the upswing and additional free trade negotia from the latter two
in Mexico.
rishe
Walmart's
tions with the United States and Canada taking place, Canada and, most notably,
founder of Walmart. Sam Walton, met with the president of
the tions in Canada began
in 1994 witrh the acquisition o
Citra. Mexico's leading retail store. Their meeting resulted Woolco stores. It now
has more than 400 Walmart st
and enjoys strong partnerships with Canadian supnli
in a 50/50 joint venture in the opening in 1991 of Mexico's
In Mexico, Walmart operates 2,360 units, including Same
first Sam's Club. a subsidiany of Walmart, in Mexico City.
Clubs, Bodegas (discount stores), Walimart Supercenter
took onty a couple of months after the opening to prove
the store's sucoesS-it was breaking all the U.S. records for Superamas (grocery stores), Suburbias (apparet store
Sam's Cub. The JV evolved to incorporate all new stores, and and VIPS restaurants, and it has become the larce
by 1997, Walmart could purchase enough shares to have a con- retailer in the country, followed by Organizacion Soriana
troling interest in Citra. In 2000, the name changed to Walmart Comercial Mexicana (Comerci), and Chendraui.
de México. S.A. de C.V., and the ticker symbol to WALMEX. Given its hit-and-miss success rate on the intemationa
Prior to 1990. Walmart had never made moves to enter scene, it is natural to wonder how much of Waimart's
Mexico or any country other than the United States. Once umph in Canada and Mexico has stemmed from its interna
Walnart
Walmart has successfully
expanded into Mexico, and
its stores reflect the scale
and quality of Walmart's
best in the world. The
familiar Walmart logo and
color scheme are typical of
the Walmart stores.
Source: Monkey Business Images/
 Goes South
Walmart
CASE
growing in Mexico,
it startedInternational Division inman
Walmart 1993. ement
Comercial Mexicana S.A, (Comerci), one of Maxico's larg
St retail chains, is faced with a serious dilemma. sinc to 28 ountries
Outside
By 2016Creat
had expanded Uni
acquleUnit'sioogtnog
imart's aggressive entny into the Mexican retail ma new-store construction
ande
through
Ket, Comerci has found it increasingly difficult to remal
growth stalling
in the United States, Wal
competitive. Walmart's strong operating presence and lo international expansion. It currently has
rices since NAFTA's lifting of tariffs have put pressure o retail units worldwid of which more than more than
Comerci, and now management must determine what
the the continental United States, and 6,200a0
it
United Statenploys
chain needs to do to compete against Walmart. people outside the
mio
what has caused this intense competitive pressure
on
800,000
Walmart's
success internationall has Neven
varied
Comerci, and what is likely to be its future? Mexico's r It has struggled to match nsumer preference by
tail sector has benefited greatly from the increasing trade successfully with suppliers in Japan, encounte
liberalization the government has been pushing. After de- in the United Kingdom, and failed to turn pro
cades of protectionism, Mexico joined GATT in 1986 to help
South Korea, forcing it to withdr
many and
open its economy to new markets. In 1990, with Mexico's two markets. However, it hae
economy the upswing and additional free trade negotia-
on
from the latter
Canada and, most notably, in
floureo
Mexico. Walmart
tions with the United States and Canada taking place, the tions in Canada began in 1994 with the quisiton
of
founder of Walmart, Sam Walton, met with the president has more than 400 Wale
resulted Woolco stores. It now
Cifra, Mexico's leading retail store. Their meeting strong partnerships with Canadian s
and enjoys
in a 50/50 jointventure in the opening in 1991 of Mexico's In Mexico, Walmat operates 2,360 units, includings
first Sam's Club, a subsidiary of Walmart, in Mexico City. Walmart Super
t took only a couple of months after the opening to prove Clubs, Bodegas (discount stores),
Superamas (grocery stores),
Suburbias (apparel s
records for
the store's success-it was breaking all the U.S. and it has become the
and and VIPS restaurants,
Sam's Club. The JV evolved to incoporate all new stores, retailer in the country, followed by Organizacion So
shares to havea o n
c
by 1997, Walmart could purchase enough Comercial Mexicana (Comerci), and
Chendrauí.
to Walmart
trolling interest in Cifra. In 2000, the name changed WALMEX.
Given its hit-and-miss success rate on the intema
ticker symbol to
de México, S.A. de C.V., and the wonder how much of Wanarts
made moves to enter scene, it is natural to
Prior to 1990, Walmart had never Canada and Mexico has stemmed
from isi
the United States. Once umph in
Mexico or any country other than

Waimat

watmart E ea5HHo

Walmart has successfully

and
into Mexico,
expanded
reflect the
scale
its s t o r e s
Walmart's
of
and quality
world. The
best in the and
familiar
Walmart logo
scheme are typical of
color
the Walmart stores.