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An analysis of Walmart cross-cultural management issues in Germany and South Korea

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Background Information Walmart

Walmart is the largest retailer in the United States, whose business activities have established strong

roots across the globe. Sam Walton established the company in 1962 as a small grocery store. Over the years,

the company has expanded its business operation across the country and in a considerable number of foreign

countries. Presently, the company is present in 28 countries and running more than 11,000 stores. The company

has become the largest retailer in the world based on profitability and revenue generated. The company has

been recognised the biggest employment hub across the world, with employees totalling to 2.3 million.

Currently, the company is using about 59 different brands in its international business activities. For instance, in

the United Kingdom, the company runs its business operations under the ASDA brand. The organisation has

been lining up its strategies with the international forces, which has been the foundation to the company huge

success.

Walmart’s international expansion has not always been easy. While its ASDA acquisition in the United

Kingdom was relatively successful, the company met with tremendous resistance in Germany and later pulled

out of the country altogether, and in Japan, it faced a number of challenges before it saw signs of success.

Walmart tried to duplicate its successful U.S. model in Germany, but found that it did not work there. The chain

it had acquired, Wertkauf, had stores that were geographically distant and often in poor locations, and the U.S.

managers it installed to run its new operations made a number of cultural gaffes. In addition, Walmart faced

strong competition from local companies Aldi and Lidl which had much more market power than Walmart. In

Japan, Walmart found that consumers equated low prices with inferior products. Moreover, Walmart’s strategy

of selling large sized packages did not suit the needs of Japanese consumers, most of whom had limited storage

options. Walmart also had to contend with wholesalers who typically brokered deals between buyers and

suppliers taking a cut of the profits along the way.7-27

I. Introduction
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Over the past years, the implementation of multinational companies in other countries has been growing and

more and more companies are adopting this method. Whilst implementing in foreign countries, some firms do

not take into considerations all the aspects needed to be successful there. Cultural differences have had a huge

impact on companies going to foreign countries. In fact, some does not consider the cultural aspect of the

country they are going into. They usually bring their own cultural values to the foreign countries and forget that

they must adapt to the foreign countries’ cultures not the contrary. In order to control all these cultural

mismatches, it is substantial that the manager which will be chosen has not only the qualified skills and creative

thinking abilities; but also, knows how to deal with the foreign country in terms of culture. Furthermore, it

would be difficult to particularly specify a management style from a specific society as there are so many

cultures in the world. One management style might not be suitable for the nation and firm; but might be for

another society. Therefore, the change of a firm to another country carries with itself a new way of thinking.

Primarily, the cross-cultural management issue which is going to be analysed is the Walmart’s case in

Germany; and followed again by the Walmart’s case in South Korea.

Walmart, the large multinational US retail corporation founded in 1962, operates a chain of hypermarkets,

grocery stores and discount department stores. In the late 1980’s the company started to expand and became the

biggest retailer by revenue in 1991. While Walmart is the biggest food retailer in the world and has a successful

global presence in many countries such as China and Canada; it failed in some nations like Germany and South

Korea. In 2016, it is said that Walmart revenue is estimated at $478.61 billion (Statista, 2016).

First of all, the two countries which are going to be studied are Germany and USA; and determined why and

how Walmart’s cultural strategy was not successful in Germany. Second, an analysis of the United States and

South Korea will be done. To effectively examine the issues concerning Walmart, several theories will be used

such as Hofstede cultural dimensions, and Trompenaars and Hampden Turner (T-H-T), and some explanations

about culture, intercultural differences and intercultural communication will be done.

II. Concepts/Theory & Application to a company

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A key to being successfully in global business is to understand the role of culture in international business.

Cultural differences will always have a direct impact on the profitability of the company. Hence, it is essential

to be aware of countries cultural behaviour. Zimmermann (2015) gives her definition of culture and according

to her, culture is the characteristics and knowledge of a specific group of people, defined by everything from

language, social habits, religion, music and arts. It is also the way of life, in particular the general customs and

beliefs of a particular group of people on a particular time. In today’s diverse society, it is challenging to build a

business environment where all employees can reach their full potential. Moreover, Hofstede (1984) defines

culture as a software of the mind that distinguishes the member of one group or category of people from others.

He explains that there are different levels of culture where there is national culture and organizational culture.

National culture involves the value differences between group of nations and/or regions; whereas organizational

culture is about the differences in practices between organizations and/or parts within the same organization

(sub-cultures).

One of the cultural differences that can impact a venture is the language barriers. In fact, language barriers

make it complicated to give direction, provide feedback, and explain the expectations to those who cannot

communicate effectively. It will be challenging to properly train or improve a worker performance if there are

misunderstandings from both ways.

Intercultural communication refers to communication between individuals or groups of people from one culture

to another. It is important because of the rising of modern communication and the fact that businesses want to

expand internationally. It brings people, businesses, and organizations in contact with each other from diverse

culture from all over the world. Individuals which are going in foreign countries learn different social cues and

have different styles of communication. This is a benefit for them as they are more able to know how to

communicate effectively with others. Also, a great intercultural communication requires intercultural awareness

signifying that they comprehend distinct cultures have distinct standards and norms (Samovar et al., 2014).

The professor Geert Hofstede has done a research on how people from different countries and cultures interact

based on six categories of cultural dimensions. His research was one of the most comprehensive studies on

national values presenting the dimension concept. To do his research, he studied employees who worked at
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IBM in more than 50 countries between 1967 and 1973. He primarily used the 40 biggest countries and then

extended the study to 50 countries and 3 regions. These are Power Distance Index (High versus Low),

Individualism vs Collectivism, Masculinity vs Femininity, Uncertainty Avoidance Index (High versus Low),

Long-term versus Short term orientation, and Indulgence versus Restraint. Researchers and managers use these

dimensions to know how they can interpret them in an international environment and to develop new researches

too (Hofstede, 1984). His dimension of culture is still a famous theory adopted by many people. Analysing the

intercultural differences, Hofstede cultural dimensions was hence one of the most appropriate study.

Although, his theory was and still is popular, there have been some criticisms discrediting some or the whole

part of his work about its cultural studies implying that his conceptualization of culture and its effect on

people’s behaviour might be incorrect. Professor Barry Gerhart from the University of Wisconsin-Madison and

Professor Mei yu Fang from National Central University in Taiwan claim that based on Hofstede’s data his

results only show that around two to four percent of variance at the level of individual values is explained by

national differences; and 96 percent or more is not explained. Also, they state that the problem is that it is

extensively interpreted and there is not a thing where Hofstede work that refers to individual-level behaviours

or actions. (Gerhart and Fang, 2005)

Another major criticism is made by Professor Brendan McSweeney from Royal Hollow, University of London

and Stockholm University who argues that Hofstede’s claims about the role of national cultural points out too

much determinism which might be linked to fundamental flaws in his procedure. (McSweeney, 2002) This

criticism led Hofstede to reply by mentioning that he had responded to the concerns in his book’s second

edition. But McSweeney still argued that the same flawed methodological remained existent in his second

book.

DiMaggio (1997) maintains that Hofstede’s study emphasizes only on nations as the units of culture analysis.

While his research finds that culture is in fact fragmented across group and national lines; often overlapping

across national boundaries. Also, the criticism believes that nations are not best-fitted unit for studying cultures,

since cultures are not essentially bound by borders. Globalisation is one of the reasons younger people in
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particular are coming together around a common set of values. Thus, Hofstede’s research is overwhelmingly

west-centric and mainly fails to take into consideration alternative frameworks.

1. Walmart in Germany

Walmart's cross cultural management was not a success in many countries especially in Germany where it

deeply failed. This failure was due to many aspects of its cultural management style when expanding in

Germany. For an American company, which is implementing in a foreign country such as Germany, the firm

should be able to manage all the cultural differences within its organisation. It is important that the manager

chosen has the management skills and knowledge of the culture he is going to address. In fact, in cross-cultural

management the manager will usually either adopt the culture of employees of a specific country or will bring

its own individual culture to the workplace; and the way it is going to be applied will play a very vital role.

Walmart did not choose the appropriate cross cultural management strategy in Germany which made the

company face sociocultural differences, institutional issues, and a lack of cultural engagement capability. On

the management level, Walmart’s could not lead the team, manage communication and motivation.

Furthermore, Walmart’s misadventure faced cultural mismatch as the firm’s challenged to combine of Interspar

and Wertkauf’s under one culture. Language issue was brought as one of the problems that Walmart’s

encountered as the top manager did not speak any German. Also, change of the internal regulations had

impacted on employees.