Assignment I

Case Study
Wal-Mart’s German Misadventure

Author: Hafez Shurrab

Semester: Summer 2014
Course code: FÖA117
1. Case Analysis
According to Browaeys and Price (2008), culture is the shared
understandings, goals, values and assumptions that are acquired from
preceding generations, applied by present members of a society and
proceeded to inheriting generations. It usually produced shared codes of
conduct, expectations, and attitudes that subconsciously control and guide
particular norms of behavior.

Figure 1: Environmental Variables Affecting Management Functions - source (Deresky,

2002)
Walmart’s experience in Germany reflects a low level of its executives’
understanding for the German culture, and above all, how the management
functions are affected by environmental variables. Figure 1 describes how
different patterns of variables are overlapped with each other. To start with,
the national variables that include economic system, physical situation, legal
system, political system, and technological know-how (Deresky, 2002).
1.1. Institutional Issues
Walmart has been shocked by several regulations after entering the German
market such as that a retailer can operate for a maximum of 80 hours/week,
which restricted the competitive advantage of Walmart to operate its 24/7
convenience stores in Germany. Furthermore, retailers are not allowed to sell
below cost for an extended period, which formed a serious problem for
Walmart as it has been sued for breaching this law. That all reflects that
Walmart rushed entering the German market before properly studying the
German legal system and explore how it might affect Walmart’s competitive
advantage. Another institutional issue is that employee representation in
Germany was not properly understood by Walmart, which led to conflicts
with them and their representatives (Subhadra & Dutta, 2004).
Trompenaars and Hampden-Turner (2012) addressed seven dimensions of
cultural differences in business divided into three categories including

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people, time, and environment. One dimension is universalism versus
particularism. Both the US and Germany have dominant universalism since
each country has its own absolute rules that apply irrespective of
circumstances and situations. However, that difference in in either legal
systems caused damages to Walmart.
1.2. Sociocultural Differences
As for the sociocultural theme, variables include education, religion, and
language (Deresky, 2002). Walmart gave the job of masterminding Wal-Mart
Germany to an American who did not speak a word of German. Moreover,
Walmart made English the company official language, which negatively
influenced the morals of the German employees (Subhadra & Dutta, 2004),
not because of their bad English, but because they felt like outsiders, which is
catastrophic for Germans that are known for their pride of being assertive
Germans speak their native language and use explicit communication
(Browaeys & Price, 2011). If Trumpenaars’ dimensions are recalled back, the
environment dimension of inner versus outer direction applies. My argument
is that by making English the company official language in Germany,
Walmart reflects a conviction inherent in US culture that the environment is
changeable through internal control. That resulted as Trumpenaars expects in
conflicts and resistance to change.
1.3. Lack of Cultural Absorption Capability
According to Deresky (2002), cultural variables including norms, values, and
beliefs are backed up by national and sociocultural variables. Cultural
variables determine attitudes toward time, work, change, individualism, and
materialism. Attitudes influence behavior and, thus, individual’s expectations
and motivation regarding workplace and work relations. The cultural
mismatch Walmart experienced while combining Wertkauf and lnterspar
together and integrating them reflects low understanding levels of the cultural
variables. The employees at Interspar used to work under decentralised
operations with independent regional units. Walmart did not properly study
the cultural variables that determine the German attitudes toward change and
work in order to avoid such difficulties and absorb the workforce confusion.
As a result. Employee morale in Walmart Germany have been badly affected
by the changes in internal rules and regulations effected by Walmart
(Subhadra & Dutta, 2004). I see this kind of gap similar to a Trumpenaars’
dimension “specific versus diffuse”. While the German work culture has
more consultative style, the autocratic governing style of Walmart in decision
making was quite frustrating for both normal employees and executives.
Moreover, Walmart has even reduced the executives' expense accounts,
whereas lnterspar and Wertkauf had given their executives liberal expense
accounts. Hofstede and Minkov (2010) proposed a model for of five
dimensions of the national culture that affect our thinking about
organizations. The results show that the American organizations have greater

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power distance than the German ones, and that might interpret the autocratic
decision making behavior of the American managers at German Walmart that
has not be appreciated in the German culture.
1.4. Lack Understanding of Customers
Moving to the customer reflection, many practices of Walmart were not
really welcomed in Germany. In addition to the fact that the German culture
is an individualistic culture, German people are assertive and use explicit
communication as Hall and Hall discussed (1990). Therefore, the Ten-Foot
Rule of Walmart was seen as fake and not genuine because the employees are
strangers, and thus, Germans did not appreciate it. The same applies to the
idea of greeters in the stores. It is obvious that Trumpenaars’ dimension of
neutral versus affective is relevant to discuss in this context. It is not familiar
in the German culture, which is neutral, to express emotions in business
relations. Therefore, it was weird for them that a stranger pays a smile and
talks to them during their shopping activity. Another cultural aspect is that
the German consumers realised that they were the ones who would be paying
more because of the guy standing at the door, greeters, which made more
unappreciated for a result- and value-oriented culture like the German
culture.
1.5. Controlling Suppliers
Walmart faced other problems in the operating environment in addition to the
Walmart’s competitive advantages that have been restricted by the German
laws and public attitudes. First, the competition was very fierce and there was
no foothold to do something different. Secondly, and most importantly,
suppliers, the most powerful competitive advantage of Walmart, were not
cooperative enough as they were not accustomed to the centralised
distribution that Walmart adopted. Instead of improving the relationship with
German suppliers, Walmart tried to control them and apply its roles, which
led to Walmart ended up trying to sell goods which its customers did not
want but which suppliers wanted to push (Subhadra & Dutta, 2004). I see two
cultural reasons for what happened. The first reason stems from the
environment dimension of inner versus outer direction Trumpenaars
suggested whereby a conviction inherent in US culture that the environment
is changeable and it can be internally controlled, and that the German
suppliers should adapt to and comply with Walmart instead. The second
reason could be connected to a Hofstede’s cultural dimension of long/short
term orientation. The culture of Germanic Europe is long-term oriented
(Browaeys & Price, 2011), while Walmart behavior with the German
suppliers reflects short-term orientation.

2. Reflection
To sum up, Wal-Mart broke into the German market in 1998, expecting that
the history of its phenomenal success in the US will repeat itself in the

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biggest economic context of Europe. The scenario did not develop in that
way. Instead Walmart ran into different problems. That started from entering
the German market while it is in a stagnant status and acquiring two poorly
located and rated retailers, buying stores but not the lands, giving Walmart
problems with leases, and restricting alteration and expansion. Furthermore,
Walmart hired American senior managers and made English its official
language, which was totally uncomfortable for the German employees. Even
after hiring German CEOs, the level of their expenses has been cut down and
they were even asked to share rooms on overnight stays for company meetings.
Besides, Walmart failed in creating good relationships with German suppliers by
controlling them, and integrating the corporate cultures of the acquired
companies with its own, leading to a loss of its powerful competitive advantage
and clashes with the trade union, respectively. Moreover, Walmart failed to
create good relationships with both employees and customers due to its clinging
to the approach applied in the US leading to distorting Walmart’s image and
publicity in Germany. Finally, the issues of pricing and financial reporting made
Walmart disarmed from its competing strategies (Subhadra & Dutta, 2004).
Walmart stayed with its 85 stores in Germany until July 2006 on which the
stores were sold to Metro. The deal was not revealed to the public. Therefore,
no financial details were disclosed. However, some analysts estimated that
Metro paid US$ 1 billion less than the value of the assets of Wal-Mart in
Germany. The German lesson prompted Wal-Mart to reconsider its position
in international market leading to Walmart sold all its stores in South Korea.
By 2007, Walmart’s international market shrunk to operate in only 13
countries. On the other hand, the international rival of Walmart, Carrefour,
operates in 29 countries. The historical experience tells that Wal-Mart has
always done best in markets closest to the USA, namely Canada, and Mexico,
where either cultures are very close to the one in the US, or Walmart is very
familiar with them. Walmart has also a success story with Asda in the UK
contributing 43% of Wal-Mart’s international revenue (Knorr & Arndt, 2003).

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References
Browaeys, M. and Price, R. 2011. Understanding cross-cultural
management. 3rd ed. Harlow, England: Financial Times/Prentice Hall.

Deresky, H. 2002. Global management. 1st ed. Upper Saddle River, N.J.:
Prentice Hall.

Hall, E. and Hall, M. 1990. Understanding cultural differences. 1st ed.

Yarmouth, Me.: Intercultural Press.

Hofstede, G. and Minkov, M. 2010. Cultures and organizations. 3rd ed.

Maidenhead: McGraw-Hill.

Knorr, A. and Arndt, A. 2003. Why did Wal-Mart fail in Germany, Institute
for World Economics and International Management, University of
Bremen. Band 24, pp. 1-30.

Subhadra, K. and Dutta, S. 2004. Wal-Mart's German Misadventure, Case

Study, ICFAI Center for Management Research (ICMR).

Trompenaars, A. and Hampden-Turner, C. 2012. Riding the waves of culture.

3rd ed. New York: McGraw Hill.

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