1. Distinguish following international entry modes: acquisitions, greenfield investments, and joint ventures. Outline what factors Wal-Mart needs to consider when choosing between these entry modes?

Distinguish following international entry modes: acquisitions, greenfield investments, and joint ventures. Outline what factors Wal-Mart needs to consider when choosing between these entry modes?

This assignment is based on a case study of Wal-Mart’s global operations. The details of the case are included in the attached articles.

WRITE THIS ESSAY FOR ME

Tell us about your assignment and we will find the best writer for your paper.

Get Help Now!

Answer following questions by using appropriate theories and the case study materials.

1. Distinguish following international entry modes: acquisitions, greenfield investments, and joint ventures. Outline what factors Wal-Mart needs to consider when choosing between these entry modes?
(25 marks)

2. Explain what factors are likely to have attracted Wal-Mart to set up its operations in emerging economies. Use Mexico as the example to support your answer.
(20 marks)

3. Compare the risks that Wal-Mart faces as a result of its investments in both developing and developed economies.
(30 marks)

4. Discuss the view that the benefits of foreign investment such as that by Wal-Mart in Mexico outweigh the disadvantages.
(25 marks)
Case Study Materials
1. Attached article: Leonardo Iacovone et al, ‘The two faces of Wal-Mart in Mexico’.
2. BeataJavorcik et al, ‘Openness and industrial response in a Wal-Mart world: a case study of Mexican soaps, detergents and surfactant producers’, World Economy, vol. 31, no. 12 (December 2008) pp.
1558-80.

Case Study Material 1

The two faces of Wal-Mart in Mexico
Leonardo Iacovone, BeataJavorcik, Wolfgang Keller, James R Tybout 20 August 2011

The entry of Wal-Mart into Mexico 20 years ago has reshaped the country’s industrial structure. This column argues that the effect has been polarising. While Wal-Mart’s retailing power has helped more productive companies expand their market shares and boost productivity, the retailer’s pressure to lower prices and innovate has pushed down mark-ups and marginalised less capable producers.
Wal-Mart is a company that polarises. While there is much to be said about the low prices and extensive selection Wal-Mart offers its customers, its business model can be controversial (LA Times 2011). The US Supreme court has just heard a major sex discrimination lawsuit against the firm, and Wal-Mart is frequently in the news for its anti-union policies, its use of “sweatshop” suppliers abroad, and its impact on smaller retailers. Such controversies are not limited to the United States. In Mexico, Wal-Mart’s plans to open a store in Teotihuacan, an important historical location and a sacred Aztec site, drew massive criticism. And yet consumers kept coming.
Today Wal-Mart is one of the largest companies in Mexico, and its influence extends far beyond the retail sector. As we discuss below and show in more detail in our recent study (Iacovone et al 2011), Wal-Mart has had a polarising effect on Mexican suppliers of consumer goods, enabling strong firms to flourish while squeezing the profits of others.1
Mexico’s liberalisation and the arrival of Wal-Mart
Wal-Mart’s entry into Mexico was a response to several forces.
• First, beginning in the mid-1980s, Mexico systematically dismantled its barriers to trade and relaxed restrictions on foreign investment. This dramatic shift away from populist, inward-looking policies was locked in place when the country joined the General Agreement on Tariffs and Trade (GATT) in 1986 and signed the North American Free Trade Agreement (NAFTA) in 1994.
• Second, over the same period, Mexico’s population of 100 million people grew increasingly affluent, driving up demand for consumer goods. Enticed by these developments, and by the proximity of these consumers to the United States, Wal-Mart entered Mexico in 1991 by investing in a joint venture with an important Mexican retailer, Aurrera. A period of explosive growth followed. In 1997 Wal-Mart took majority control of Aurrera and became Wal-Mart de Mexico (henceforth Wal-Mex). By 2001 it controlled nearly half of the Mexican retail market, and by 2003 Wal-Mex became Mexico’s largest private employer.
The Wal-Mart system in action…
The entry of Wal-Mexhas profoundly changed the Mexican retail sector and its supplying industries. Practices introduced by the retailing giant include centralised distribution systems, the use of standardised pallets, rigorous delivery schedules, and computerised tracking, which allows suppliers to obtain real-time information on sales and inventories at the level of individual stores. These innovations, together with Wal-Mex’sscale, have reduced distribution costs and enabled local suppliers to reach a national customer base – either under their own brands or as producers of Wal-Mex store brands. In exchange for these benefits, Wal-Mex has asked for, and given its size, typically received, exceptionally low wholesale prices from its suppliers. In fact, according to the Mexican manufacturing firms interviewed, Wal-Mex routinely demands price reductions from suppliers that do not come up with a product innovation in a given year.2
… and its effect on suppliers
In essence, selling through Wal-Mex allows Mexican suppliers to reach a larger market without having to make investments in distribution and logistics on their own. But this scale effect is traded off against lower quality-adjusted prices and the need to continually innovate. Thus the option of retailing through Wal-Mex affects not only the volume of sales but also the incentives of producers to engage in innovation and investments.
Not all suppliers benefit from the Wal-Mex option. According to the firms we interviewed, only relatively strong performers can achieve sufficiently large sales to break even at the retail prices dictated by WalMex while investing enough in innovation to avoid further price cuts.