In 1991, Wal-Mart decided to expand internationally. Why was Mexico the focus of their first expansion efforts?
The large and growing population that Mexico offered gave Wal-Mart a go ahead of investing in Latin America. Since Mexico offered a 50-50 market venture this entry mode paved way for the company to develop. This entry mode helped Wal-Mart to manage substantial income and cultural differences in Mexico. Wal-Mart also liked venturing its business international and more so in Mexico since the Mexican business counterparts (Cifra and Conglomerate) offered a foundation for learning about retail business in the country and to provide market expertise.
Wal-Mart decided to make an international business move to Mexico since the European retail market had already flawed and matured meaning that any new business player would have to move its shares and equity in order to pave the way for the existing players. In Europe, there existed well established competitors such as Metro AG where likely retaliate whereas in Mexico there exist only small retail business that offered to merge with Wal-Mart.
Mexican retailers formats similar to that of Wal-Mart this increases the competitive advantage of the company. The opportunity costs of delaying acquisition entries into Mexican markets are relatively large making the markets less costly in terms of lost opportunities. There existed relative impacts of development in Mexico that leads to increase trade growth. These impacts made Wal-Mart target Mexico as a business position. The sheer level of the consumer market that existed in Mexico had opened up small medium retail business that helped Wal-Mart company in finding an easy path to invest it shares.
What was their entry strategy in Mexico and what are the advantages of that strategy?
The entry strategies that Wal-Mart used are IPO and Always Low Prices. While in Mexico, the company offered its shares at first to the Mexican public. This issuance of shares is referred to as Initial Public Offer (IPO). The company opted to use this type of strategy so as to seek expansion and diversification at most the company used it to strategy itself. The decision that the company took to support this strategy was to establish as financing and an exit strategy.
This strategy acts as a financing strategy and its mean strategy was for raising funds while the other exit strategy helps to invest the equity holding to the general public (Mexico). The companies’ success come as a result of raising the capital form selling the IPO, Mexico provided a ready market for the IPO. Wal-Mart Company becomes the equity shareholder. The decision that the company took to go public resulted in dilution of ownership. The advantage of using this type of strategy makes the company have a voting right that drives the company to have a long term commitment to the business.
The Equity share adds an advantage to the strategy by not having an obligation of paying dividends but also provides permanent. This advantage made the Wal-Mart company choose Mexico as a business arena. The other strategy that Wal-Mart used in conjunction of IPO includes Always Low Prices strategy. This strategy becomes an advantage since it allowed technology inventory. This strategy allowed the company to work directly with the manufacturer and other retailers. All the above strategies allowed the company to sustain a competitive advantage.