You are on page 1of 5

Reasons for choice of location for the subsidiary;

It would be beneficial for Wal-Mart to enter Spain for a number of reasons. Spain, being a
developed country, has many opportunities for a well-established brand like Wal-Mart. The
economy of Spain has a considerable significance because it ranks 13th in economy size Currency
of Spain is Euro which is a strong currency even when compared to US Dollars. According to
World Investment Report (2012) of United Nations Conference Trade and Development, as
regards to stock, Spain ranks 9th in terms of receiving Foreign Direct Investment (FDI) in the
world. Moreover, the geographical location of Spain is an added privilege as a part f European
Union and due to good connectivity with Northern Africa opening access to marketplace of over
5oo Million consumers (Boada, 2012). The strong economy, history and culture connection of
Spain makes it suitable business target in Latin America. Young as well as well-qualified work
force along with competitive prices has transformed Spain into a business hub (Garrigues, 2013).
Garrigues (2013) further states that Spain has grown significantly in foreign as well as
international trade in recent past. This growth has made Spain a country with high international
orientation in the world (Garrigues, 2013).
According to (Bord,2012) in the retail market of Spain, the grocery retail has grown at the
highest rate. AC Nielsen (a marketing research firm) claims that supermarkets have grown 45.7%
in 2012. According to Alimarket (another research firm), in the year 2011, 70% out of all stores
opened in Spain were grocery retail supermarkets
Although Spain is doing well in international trade but domestic economic situation is not that
good. There is high rate of unemployment in Spain that leads to low labor cost. Therefore,
workforce is available at lower rates as people are in need of money. Moreover, as the income
levels have dropped, people are spending very cautiously. There is a change in the way Spaniards
shop and spend their money. They prefer those products that can be purchased with their scanty
income. Hence, Grocery retail is experiencing better growth levels in Spain. (Euromonitor,
2013). Wal-Mart can flourish in Spain on this grounds as industry reports raise a general opinion
that Wal-Mart offers approximately 15% lower prices than conventional supermarkets (Blattberg
& Allenby,2010; Saporito, 2003). For example, in 2002 UBS Warburg conducted a survey of 100
grocery and non-grocery items in 4-5 difference grocery stores in 3 difference markets in Wal-

Mart as well as other grocery stores. It was found that prices offered by Wal-Mart were about 1739% lesser than prices charged by competitors (Currie and Jain, 2002).
Considering the recent economic crisis in the country, the Parliament of Spain has passed Ley de
Emprendedores i.e.the Entrepreneurs law in 2013 to support entrepreneurs. According to this
law, corporate income tax has been reduced to 15% (gobierno de espaa), which ultimately will
reduce cost and increase profits.

Strategic methods of entry and the possible consequences

The choice of a suitable entry strategy plays a vital role in success of a business at an
international location. Success in introducing products in the Spanish market normally requires
local representation and personal contact. A local representative can provide up-to-date market
intelligence, guidance on business practices and trade related laws, sales contact with existing
and potential buyers, and market development expertise.

In the supermarket sector, products are imported either by an importer, broker or agent, a
wholesaler and/or distributor. Some products enter via other European Union ports either through
a European importer or through the U.S. representative for Europe for that specific product.
Product representatives are better positioned to promote to retailers and consumers since
retailers, as a general rule, do not promote specific products within their facilities. Retailers will,
however, sell shelf-space, which is very expensive in the Spanish market. In order to cut costs,
some retailers are importing directly from the supplier. In the case of retailers whose ownership
is primarily foreign (foreign partnership), such us Carrefour (French), Auchan (French) and Lidl
(German) many of the products, in particular specialty products for sale, are from their respective
home country. It is important to note that Spanish distributors have nationwide distribution in
Spain and, in most cases, in Portugal.
While hypermarkets and larger sized supermarkets control a large share of sales, small sized
supermarkets are becoming ever more popular due to their proximity to the consumer (generally
located within walking distance of residential and/or business areas).

According to Roberts & Berg (2012), Walmart has followed basically three types of entry
strategies in various markets of the world. These strategies are Organic where Walmart entered by
starting and developing stores from scratch and going upwards to a complete supply chain & other
back office capabilities; Joint Venture in which store is opened in conjuctions with a local
business partner having complete understanding and knowledge about the area; Acquisition i.e.
acquiring either completely or partially a local existing retailer already established in the target

1. Roberts, B.; Berg, N., (2012),Walmart: Key Insights and Practical Lessons from the
World's Largest Retailer, Kogan Page Publishers
2. Currie, N., and A. Jain (2002) Supermarket Pricing Survey, UBS Warburg Global
Equity Research
3. Garrigues (2013), Guide to Business in Spain, Invest In Spain, Madrid
4. Saporito,









at,9171,404212,00.html [Accessed 08-Apr2014]

5. Blattberg,R.C.; Allenby, G.M. (2010) Perspectives on Promotion and Database
Marketing: The Collected Works of Robert C Blattberg, World Scientific Publishing

Ross C, Richardson B, Sangrador B-Vegas (2013), Contemporary Spain, Third Edition, Routledge,
USA, pp. 139-170

7. International Monetory Fund (2013) IMF Country Report No. 13/244, SPAIN , ARTICLE
8. United Nations Conference of Trade and Development (UNCTAD), World Investment
Report, 2012, United Nations Publications
9. Boada J. Executive Director of Extenda, The Trade and Investment Agency of Andalusia,





in Spain,


at [Accessed 09-04-2014]

10. Bord Bia (2012) Successfully entering the spanish retail market: An understanding of
price margins and supply chain mechanics, Irish Food Board
11. AC Nielsen,
12. gobierno de espaa (Government of Spain) (2013), law to support Entrepreneurs and
their Internationalisation, Council of ministers.