INTERNATIONAL MARKETING FOR MANAGERS

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Executive Summary

Before entering into a new market, business organizations should first assess the external and internal environmental factors which might affect their success in the market. The aim of this paper was to explore the macro-environment in Germany, especially for Walmart, a retail company that intends to enter the market. An analysis of the political and legal environment has demonstrated political stability and non-discriminatory laws in the country which are favorable for new entrants. However, the economic environment is not that good considering the high number of taxes paid by companies (corporate taxes and solidarity surcharge). The socio-cultural environment is attractive for Walmart because of high purchasing power on the part of the customers due to high minimum wages and high standards of living. The reduction in the competitive ranking of Germany in the past one year implies that the country does not have a huge competitive advantage despite it having the largest economy in the EU. However, the country’s retail industry is one of the most competitive with over 300,000 retail stores in Germany visited by over 50 million Germans daily. Based on the examination of the external environment, it has been established that the country has the strengths of political stability, a large consumer market, and an educated workforce. However, its weaknesses include high rates of taxes and high labor costs. Although Walmart can enter the Germany market using modes such as a joint venture, licensing agreement, online sales, and the purchase of foreign assets, the latter is the most preferred mode. The choice of the purchase of foreign assets as the most appropriate mode of entry was based on the fact that it will allow Walmart to buy assets of an already operational local company and avoid the challenges of starting a new venture.

Introduction

In the contemporary extremely competitive global business environment, companies are seeking to diversify their profits by establishing operations in foreign markets. According to Mose (2016), entry into the international market allows organizations to exploit the potential for market growth and diversification. However, the expansion of products as well as product lines by entering into new geographic markets comes with various planning issues as well as opportunities. As such, organizations are supposed to explore the foreign market by examining the external environmental factors that could affect its operations (Schellenberg et al. 2018). Studying the macro environment enables the adoption of an appropriate foreign market entry strategy. Watson IV et al. (2018) assert that the success of a company’s operations in a foreign country is depended on the ability to identify and adopt mitigation mechanisms for the various challenges likely to be found in the market. Additionally, the performance of a macro environmental analysis ensures the identification of opportunities that can be exploited (Narula, and Verbeke 2015). This paper provides an analysis of the macro environment in Germany and the best possible foreign market entry strategy that Walmart can use to explore the market entry opportunities in the country. In specific, the economic, socio-cultural, political and legal environments will be analyzed. Additionally, the competitive advantages and industry competitiveness in Germany will be explored. Finally, an evaluation of the alternative foreign market entry modes for Walmart in Germany will be done.

Economic Environment Analysis

            The economic environment in Germany has a significant impact on how organizations conduct their business as well as their probability of making profits. Issa, Vanessa, and Issa (2010) asset that some of the aspects considered in the economic environment analysis include the rate of economic growth, interest rates, rates of inflation, exchange rates, and disposable income among other factors. Germany has the fourth largest economy across the globe. In specific, according to Fichtner et al. (2017), the country has a gross domestic product (GDP) of $4.2 trillion. However, over the last two quarters of 2019, the GDP of the country has declined by 0.2 percent and has even failed to grow in the following three months after the decline. Additionally, there has been concerns about the fall in industrial production as well as manufacturing in the country. Nevertheless, the German job market has been healthy with the rate of unemployment being at 3.2 percent, making it have one of the lowest rates of unemployment around the world (Audretsch and Lehmann 2016). The country has amazing working conditions for the citizens as well as expatriates. Employee in the country enjoy various benefits such as the job protection and best holidays compared to other countries in the EU, as well as some of the highest salaries (Fichtner et al. 2017). However, in Germany, business organizations have to pay a corporate tax of 15 percent and a solidarity surcharge of 5.5 percent as well as a 1.49 percent rate of inflation (Audretsch and Lehmann 2016). Germany is Australia’s tenth largest trade partner with the trade between the two countries amounting to A$20.6 billion in 2016-17. Furthermore, various trade agreements between the two countries are under negotiation which include Australia-European Union Free Trade Agreement and other agreements between Australia and the EU countries. However, the various taxes make the economic environment unattractive for businesses such as Walmart wishing to enter the market.

Political and Legal Environment Analysis

            The political environment refers to the degree to which the government intervenes in its economy via actions such as government policy, trade and tax policy, and any trade restrictions. However, Ho (2014) opines that the legal environment includes the legal factors such as consumer rights and laws, product labeling and safety among others. In terms of the political environment, Germany has a calm political environment with no likelihood of political instabilities which could affect businesses. The country is a democratic republic with both federal and parliamentary branches. The president is the head of state and the chancellor the head of government. Germany is member of various world bodies such as the European union, NATO, OECD, G20, the World Bank, IMF and G8. Although government intervention in terms of making unfavorable policies is limited, some business organizations have struggled to pick up in the country. In terms of the legal environment, there are typically no differences between German nationals and foreign nationals when it comes to making investments in the country as well as the establishment of any type of allowed businesses (Basilio, Bauer, and Kramer 2017). The government has very open legal frameworks and does not discriminate against individuals and companies based on their nationality. However, a minimum wage is set under the law to be €9.19 and this is expected to increase by a bit as from the beginning of 2010. Nevertheless, the political and legal environment in the country is good for foreign companies such as Walmart as there is no discrimination based on the place of origin.

Socio-Cultural Analysis

An analysis of the social-cultural factors in a country involves an assessment of the shared beliefs as well as the attitudes of the population in that country. Some of the vital aspects that should be analyzed under this category include the age distribution, rate of population growth, career attitudes, and health consciousness (Issa, Vanessa, and Issa, 2010). Germany has been; for some time, one of the best countries to live in because of its superiority in the areas of wealth distribution, education, quality of life, and the health of the population (Basilio, Bauer, and Kramer 2017). Despite the country being home to over 82 million people, life expectancy is 78 years and 83 years for men and women respectively. Since Germany is a cosmopolitan country, it has a pluralism of beliefs and lifestyles. Whereas 60-70 percent in the country profess the Christianity faith, 4.4. of the country’s population consists of Muslims and 35 percent of the residents do not affiliate themselves to any religion. Most of the people in the country have a high standard of living with the country being a welfare state where people have the freedom to shape their lives (Basilio, Bauer, and Kramer 2017). However, some of the social changes faced in the country include a rising ageing population, low birth rates, falling wages, expensive lifestyles, and diminishing purchasing power. Some of the attitudes which are good for business in the Germany society include punctuality, diligence, perfectionism, and hard work. As such, Walmart will find such values vital for its success in the Germany market having failed to survive in the market before.

Country Competitiveness Analysis

            Although Germany has been the largest economy in the European Union (EU), the country has been less competitive in the last one year based on information from the World Economic Forum (WEF). In specific, Germany dropped four places to rank as the seventh most competitive economy. The reasons for the such a ranking are because of low scores in 53 of the 103 indicators which were measured on competitiveness (Trading Economics 2019). However, the company raked as the best in the EU for innovation capability and also had better ranking in its macroeconomic status and infrastructure. Nevertheless, the areas where the competitiveness of Germany ranked low include those of low levels of ICT adoption- especially internet and mobile networks. The report demonstrated that in the area of ICT, Germany was seventh behind some Baltic and Nordic countries as well as several Gulf countries such as China and Russia (DW 2019). Notably, some of the main factors which were measured for competitiveness include the roles of innovation, human capital agility, and resilience. The business confidence score in the country dropped as well as the manufacturing and industrial production. Additionally, corporate profits dropped from a score of 182.21 to that of 174.78. Moreover, the competitive index experienced a decline from the previous score of 82.84 to 81.80 (Trading Economics 2019). Hence the country lagged behind Singapore, United States, Japan, Netherlands and Switzerland in terms of its competitiveness. The drop in the competitiveness of Germany is not a good sign for new entrants such as Walmart because of the fall in various factors which are used to measure the competitiveness.

Industry Competitiveness Analysis

            The relevant industry- where Walmart belongs, is the retail industry. Based on statistics from German Trade & Invest (GTAI), the retail industry is one of the most competitive in the country and actually the third largest sector in the country’s economy with revenues amounting to EUR 525 billion. Such a figure is 16 percent of the total GDP in the Germany (GTAI 2019). Customer traffic in the retail industry is also huge with 50 million customers visiting the different retail stores in the country daily (Steenkamp 2018). Moreover, the industry has also a large job market with close to three million employees working for the different retail companies. In specific, there are over 300,000 different retail companies in Germany. The industry is expected to grow further with a rate of around 2 percent in 2020 (GTAI 2019). One of the key drivers of such growth is e-commerce, which was responsible for the generation of EUR 65.1 billion in B2C turnover in the year 2018 compared to 11.4 percent in 2017 (Steenkamp 2018). There has been an increase in the concept of ROPO (research online, purchase offline) with customers increasingly researching items in different stores online before they can make a purchase. Additionally, the different retail stores in the country have adopted multichannel retailing, which refers to the combination of online and offline sales channels to capture the different classes of customers. Moreover, in the retail industry, especially the consumer goods market, customers have now tended to go green by becoming environmentally conscious and thus, mostly purchasing sustainable and environmentally friendly products. The leading retail stores in Germany consist of not only traditional supermarkets but also low-price discounters such as Edeka, Rewe, Lidi, Aldi and Kaufland, among others (GTAI 2019). The numerous numbers of companies in the market as well as the millions of customers who purchase retail products daily makes the retail market very competitive.

Comprehensive SWOT Table

Based on the examination of the macro-environmental factors in the German retail market, the following is a table of the strengths, weaknesses, opportunities, and threats in the market.

Table 1: A SWOT analysis of Germany. Source: Own creation.

Alternative Entry Modes in The Selected Country

There exist various modes of entry that Walmart can use to enter into the Germany market. These include using a joint venture, licensing agreement, online sales, and the purchase of foreign assets. In a joint venture, Walmart will combine resources and sell products with an already established business in Germany. Although the merit of this model is that it allows Walmart (a foreign company) to partner with an experienced company in the Germany market, the created partnership can prove difficult to manage as well in sharing the profits (Ang et al. 2015). A licensing agreement, on the other hand, will involve Walmart signing contracts with a local Germany business (licensee) and then allowing the licensee to sell Walmart’s products. The advantage of licensing agreements is that it allows Walmart to enter the Germany market quickly and inexpensively. However, according to Stoian, Rialp, and Dimitratos (2017), the demerit is that Walmart will have little control over the foreign marketing and sales of its products. In online sales mode of entry, Walmart can try to enter the German market indirectly through targeting consumer on the internet. In this case, the company will still retain its physical operations from its headquarters but ship products overseas. One of the merits of this mode is that it is cheap because the costs involved are only those of a website creation and intensive marketing (Ang et al. 2015). However, the demerit is that consumers may be deterred from purchasing products because of shipping costs, and duties and taxes that will be levied by the German government. Finally, Walmart can purchase foreign assets in Germany as opposed to launching an entirely new venture, an aspect that the company was unable to do before. I would choose this mode of entry because; despite the fact that it will be expensive for Walmart to purchase or invest in a Germany company, it will ensure that Walmart can reap the profits of a business that is already well integrated into the local market. Additionally, using such a mode of entry will ensure that the challenges that forced Walmart to exit the German market in the past are not encountered.