Table of content Page

1. Introduction 2

2. Distance Still matters 2

3. Four Dimensions of Distance 4

3.1 Cultural Distance 4

3.2 Administrative or Political distance 5

3.3 Geographic Distance 6

3.4 Economic Distance 6

4. Globalization Vs Regionalisation 7

4.1 Emergence of Globalization 7

4.2 Multinational Enterprises Global Strategy 8

4.3 Multinational and Regional Blocks 9

5. Classification of Regional Strategies 11

5.1 The Home Base strategy 11

5.2 The Portfolio strategy 11

5.3 The Hub Strategy 12

5.4 The Platform Strategy 12

5.5 The Mandate Strategy 12

6. Regional Strategy contribution to the global success

13

7. Service Industry and Regionalisation

13

8. Case Studies (Wal-Mart)

14

8.1 Background of Wal-Mart 14

8.2 Regional Based Wal-Mart 15

8.3 How do Regional factors affect Wal-Mart 16

9. Conclusion

16

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10. References

18

11. Appendices

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1. INTRODUCTION

Not “one size fit all”, Professor Pankaj Ghemawat

During the last half of the twentieth century, many barriers to international trade fell and a

wave of firms began pursuing global strategies to gain a competitive advantage, to grow,

prosper and maintain stability in domestic and international market. The interest of a few

powerful nations and corporations are shaping the terms of world trade. Their brands like

Coca Cola, Nike, Toyota, and so on demonstrate their presence around the world. However,

some industries benefit more from globalization than do others and some nations have

comparative advantage over other nations in certain industries. Some argues that the world

is flat while the others still argue that it is round. Although the world is considered becoming

more globalised, the current form of globalisation, neo-liberalism, free trade and open

markets are coming under much criticism both for their business ineffectiveness and failure

of its strategies.

Global business strategies have emerged as a result of globalisation and internationalisation

of established domestic companies which is purported to increase the value of the company

in question. Increasing pressure of globalisation and the rising global competition have

prompted managers and academician to rethink the formulation of global business strategy.

Some scholars like Ghemawat and Rugman advocate that regional strategy which stands

half way between the domestic and international market help succeed Multi Nationals

Enterprises in their globalisation strategy to reach the world by adopting their strategy to the

regional one since there is no one size fit all through standardization from the centre.

This paper briefly discusses the development of globalisation and the gradual succession of

regionalisation and their respective strategies and the importance of the Phrase “Distance

Still Matters”. It also attempts to highlight regional strategies as a response to their quest of

internationalisations. Wal-Mart, the top 500 on Fortune Global is taken as a case study to

explain the success of regional strategy.

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2. DISTANCE STILL MATTERS

In many, if not most cases, companies see globalization as a matter of taking a superior (by

assumption) business model and extending it geographically, with necessary modifications,

to maximize the firm’s economies of scale. From this perspective, the key strategic challenge

is simply to determine how much to adapt the business model, how much to standardize

from country to country versus how much to localize to respond to local differences.

Recently, as at Coke, many companies have moved toward more localization and less

standardization. Despite globalization, regional distinctions (cultural, political, legal, and

economic) aren’t disappearing. Global powerhouses, including GE, Wal-Mart, and Toyota,

capitalize on regional differences, crafting strategies that complement their global and

individual country tactics.

Companies routinely overestimate the attractiveness of foreign markets. They become so

dazzled by the sheer size of untapped markets that they lose sight of the vast difficulties of

pioneering new, often very different territories. The problem is rooted in the very analytic

tools that managers rely on in making judgments about international investments, tools that

consistently underestimate the costs of doing business internationally. The most prominent

of these is country portfolio analysis (CPA), the hoary but still widely used technique for

deciding where a company should compete. By focusing on national GDP, levels of

consumer wealth, and people’s propensity to consume, CPA places all the emphasis on

potential sales. It ignores the costs and risks of doing business in a new market.

Most of those costs and risks result from barriers created by distance. By distance, we don’t

mean only geographic separation, though that is important. Distance also has cultural,

administrative or political, and economic dimensions that can make foreign markets

considerably more or less attractive. Just how much difference does distance make? A

recent study by economists Jeffrey Frankel and Andrew Rose estimates the impact of

various factors on a country’s trade flows. Traditional economic factors, such as the

country’s wealth and size (GDP), still matter; a 1% increase in either of those measures

creates, on average, a 0.7% to 0.8% increase in trade. But other factors related to distance,

it turns out, matter even more. The amount of trade that takes place between countries

5,000 miles apart is only 20% of the amount that would be predicted to take place if the

same countries were 1,000 miles apart. Cultural and administrative distance produces even

larger effects. A company is likely to trade ten times as much with a country that is a former

colony, for instance, than with a country to which it has no such ties. A common currency

increases trade by 340%. Common membership in a regional trading bloc increases trade by

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330%. And so on. (Jeffrey Frankel and Andrew Rose, “An Estimate of the Effects of

Currency Unions on Growth,” unpublished working paper, May 2000)

Much has been made of the death of distance in recent years. It’s been argued that

information technologies and, in particular, global communications are shrinking the world,

turning it into a small and relatively homogeneous place. But when it comes to business,

that’s not only an incorrect assumption, it’s a dangerous one. Distance still matters, and

companies must explicitly and thoroughly account for it when they make decisions about

global expansion. Traditional country portfolio analysis needs to be tempered by a clear-

eyed evaluation of the many dimensions of distance and their probable impact on

opportunities in foreign markets.

3. THE FOUR DIMENSIONS OF DISTANCE

Distance between two countries can manifest itself along four basic dimensions: cultural,

administrative, geographic, and economic. The types of distance, influence different

businesses in different ways. Geographic distance, for instance, affects the costs of

transportation and communications, so it is of particular importance to companies that deal

with heavy or bulky products, or whose operations require a high degree of coordination

among highly dispersed people or activities. Cultural distance, by contrast, affects

consumers’ product preferences. It is a crucial consideration for any consumer goods or

media company, but it is much less important for a cement or steel business.

Each of these dimensions of distance encompasses many different factors, some of which

are readily apparent; others are quite subtle. “The CAGE Distance Framework” for an

overview of the factors and the ways in which they affect particular industries.

3.1 CULTURAL DISTANCE

A country’s cultural attributes determine how people interact with one another and with

companies and institutions. Differences in religious beliefs, race, social norms, and language

are all capable of creating distance between two countries. Indeed, they can have a huge

impact on trade: All other things being equal, trade between countries that share a language,

for example, will be three times greater than between countries without a common language.

Some cultural attributes, like language, are easily perceived and understood. Others are

much more subtle. Social norms, the deeply rooted system of unspoken principles that guide

individuals in their everyday choices and interactions, are often nearly invisible, even to the

people who abide by them. Take, for instance, the long-standing tolerance of the Chinese for

copyright infringement. As William Alford points out in his book To Steal a Book Is an

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Elegant Offense (Stanford University Press, 1995), many people ascribe this social norm to

China’s recent communist past. More likely, Alford argues, it flows from a precept of

Confucius that encourages replication of the results of past intellectual endeavors: “I transmit

rather than create; I believe in and love the Ancients.” Indeed, copyright infringement was a

problem for Western publishers well before communism. Back in the 1920s, for example,

Merriam Webster, about to introduce a bilingual dictionary in China, found that the

Commercial Press in Shanghai had already begun to distribute its own version of the new

dictionary. The U.S. publisher took the press to a Chinese court, which imposed a small fine

for using the Merriam Webster seal but did nothing to halt publication. As the film and music

industries well know, little has changed. Yet this social norm still confounds many

Westerners.

Most often, cultural attributes create distance by influencing the choices that consumers

make between substitute products because of their preferences for specific features. Color

tastes, The Japanese, for example, prefer automobiles and household appliances to be

small, reflecting a social norm common in countries where space is highly valued.

Sometimes products can touch a deeper nerve, triggering associations related to the

consumer’s identity as a member of a particular community. In these cases, cultural distance

affects entire categories of products. The food industry is particularly sensitive to religious at-

tributes. Hindus, for example, do not eat beef because it is expressly forbidden by their reli-

gion. Products that elicit a strong response of this kind are usually quite easy to identify,

though some countries will provide a few surprises. In Japan, rice, which Americans treat as

a commodity, carries an enormous amount of cultural baggage.

Ignoring cultural distance was one of Star TV’s biggest mistakes. By supposing that Asian

viewers would be happy with English-language programming, the company assumed that

the TV business was insensitive to culture. Managers either dismissed or were unaware of

evidence from Europe that mass audiences in countries large enough to support the

development of local content generally prefer local TV programming. If they had taken

cultural distance into account, China and India could have been predicted to require

significant investments in localization.

3.2 ADMINISTRATIVE OR POLITICAL DISTANCE

Historical and political associations shared by countries greatly affect trade between them.

Colony-colonizer links between countries, for example, boost trade by 900%, which is

perhaps not too surprising given Britain’s continuing ties with its former colonies in the

commonwealth, France’s with the franc zone of West Africa, and Spain’s with Latin America.

Preferential trading arrangements, common currency, and political union can also increase

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trade by more than 300% each. The integration of the European Union is probably the

leading example of deliberate efforts to diminish administrative and political distance among

trading partners. (Needless to say, ties must be friendly to have a positive influence on trade.

Although India and Pakistan share a colonial history, not to mention a border and linguistic

ties, their mutual hostility means that trade between them is virtually nil.)

Countries can also create administrative and political distance through unilateral measures.

Indeed, policies of individual governments pose the most common barriers to cross-border

competition. In some cases, the difficulties arise in a company’s home country. For compa-

nies from the United States, for instance, domestic prohibitions on bribery and the pre-

scription of health, safety, and environmental policies have a dampening effect on their in-

ternational businesses. More commonly, though, it is the target country’s government that

raises barriers to foreign competition: tariffs, trade quotas, restrictions on foreign direct

investment, and preferences for domestic competitors in the form of subsidies and favoritism

in regulation and procurement. Such measures are expressly intended to protect domestic

industries.

3.3 GEOGRAPHIC DISTANCE

In general, the farther you are from a country, the harder it will be to conduct business in that

country. But geographic distance is not simply a matter of how far away the country is in

miles or kilometers. Other attributes that must be considered include the physical size of the

country, average within-country distances to borders, access to waterways and the ocean,

and topography. Man-made geographic attributes also must be taken into account most

notably, a country’s transportation and communications infrastructures.

Obviously, geographic attributes influence the costs of transportation. Products with low

value-to-weight or bulk ratios, such as steel and cement, incur particularly high costs as geo-

graphic distance increases. Likewise, costs for transporting fragile or perishable products be-

come significant across large distances. Beyond physical products, intangible goods and

services are affected by geographic distance as well.

Interestingly, companies that find geography a barrier to trade are often expected to switch

to direct investment in local plant and equipment as an alternative way to access target

markets. But current research suggests that this approach may be flawed, Geographic

distance has a dampening effect, overall, on investment flows as well as on trade flows. In

short, it is important to keep both information networks and transportation infrastructures in

mind when assessing the geographic influences on cross-border economic activity.

3.4 ECONOMIC DISTANCE

The wealth or income of consumers is the most important economic attribute that creates

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distance between countries, and it has a marked effect on the levels of trade and the types

of partners a country trades with. Rich countries, research suggests, engage in relatively

more cross-border economic activity relative to their economic size than do their poorer

cousins. Most of this activity is with other rich countries, as the positive correlation between

per capita GDP and trade flows implies. But poor countries also trade more with rich

countries than with other poor ones.

Of course, these patterns mask variations in the effects of economic disparities, in the cost

and quality of financial, human, and other resources. Companies that rely on economies of

experience, scale, and standardization should focus more on countries that have similar

economic profiles. That’s because they have to replicate their existing business model to

exploit their competitive advantage, which is hard to pull off in a country where customer

incomes, not to mention the cost and quality of resources are very different. Wal-Mart in

India, for instance, would be a very different business from Wal-Mart in the United States.

But Wal-Mart in Canada is virtually a carbon copy.

4. GLOBALIZATION VS REGIONALISATION

4.1. EMERGENCE OF GLOBALISATION

The globalization of markets is at hand. With that, the multinational Commercial world

nears its end, and so does the multinational Corporation . . . The multinational

corporation operates in a number of countries, and adjusts its products and

processes in each, at high relative cost. The global corporation operates with

resolute constancy . . . it sells the same things in the same way everywhere.

—Ted Levitt, “The Globalization of Markets,” 1983

Globalisation which essentially refers to growth of trade and investment, accompanied by the

growth in international businesses, and the integration of economies around the world,

advanced in 1990’s and in the twenty first century. The globalisation of business is easy to

recognise in the spread of many brands and services spreads around the world. For

example, Japanese electronics and automobiles are common in large part of the world.

Moreover, companies have become transnational or multinational those are based in one

country but have operations in others. For example, Japan/based automaker Honda

operates the largest single factory in the United States, while U.S. based Coca-Cola

operates plants in other countries including France and Belgium with about 80% percent of

that company’s profits come from overseas sales.

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Nevertheless, the rapid growth of globalisation that was considered as a success particularly

due to the rapid economic growth and success of Asian Tigers and Taiwan in early 1990’s,

was undermined by these countries major economic setbacks in the late 90’s. A number of

rallies of anti-globalization forces attempted to portrait that globalization is not a panacea for

the world's problems. Their demonstration in all fronts during the Seattle meetings of the

World Trade Organization that turned into a fiasco is an example. Thus, globalisation

continues through its agents, i.e. MNE by changing strategies to internationalise their

businesses. Prof Ghemawat, (2007) believed that the above definition of Levitt still reign the

world, he however, challenges it and redefined globalisation as it will be explained later.

4.2. MULTINATIONAL ENTERPRISES GLOBAL STRATEGY

Multinational enterprises (MNEs) are the key drivers of globalization, as they foster

increased economic interdependence among national markets. The ultimate test to assess

whether these MNEs are global themselves is their actual penetration level of markets

across the globe, especially in the broad ‘triad’ markets of NAFTA, the European Union and

Asia. It will need three steps to become a global company from a local one. MNEs will build

upon the strong home base diamond characteristics of the United States, the European

Union, or Japan and use the appropriate triad market as a staging ground for activities in

other markets, (Rugman, 2001).

Companies may enter the global market through various kinds of international investments.

Companies may choose to make foreign direct investments, (FDI) which allow them to

control companies and assets in other countries. Indeed, the largest 500 MNEs account for

over 90% of the world stock of foreign direct investment (FDI) and they, themselves, conduct

about half the world’s trade, (Rugman, 2004). In addition, companies may elect to make

portfolio investments, by acquiring the stock of companies in other countries in order to gain

control of these companies. They may participate in the international market by either

licensing or franchising. Another way companies tap into the global market is by forming

strategic alliances with companies in other countries. While strategic alliances come in many

forms, some enable each company to access the home market of the other and thereby

market their products as being affiliated with the well-known host company. This method of

international business also enables a company to bypass some of the difficulties associated

with internationalization such as different political, regulatory, and social conditions. The

home company can help the multinational company address and overcome these difficulties

because it is accustomed to them.

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These forms of companies’ strategy contributed to the standardization approach that brought

consumers’ need more homogenous through the world. This argued to have provided high

quality and low prices over advanced features and functions of product by reducing

companies expenditures for instances using the same ads, design, packaging,

manufacturing, distribution, customer service, and software development that leads business

to succeed. However, Rugman (2002,2001, 2003,2005,7 & Ghemawat (2005,2007) counter

argue that global standardisation does not respond necessarily to local needs as the world is

far from being a single market rather, they suggest that business take place in regional

blocks.

4.3. MULTINATIONAL AND REGIONAL BLOCKS

The development of regional trading blocs has promoted an emphasis regional strategy as

companies develop plans to take advantage of the conditions within various trading blocs

such as the North American Free Trade Agreement (NAFTA), the European Union, the Asia-

Pacific Economic Cooperation (APEC) and the Association of Southeast Asian Nations

(ASEAN). Rugman and Verbeke (2004) have indicated that most of the world’s largest 500

companies pursue regional, rather than global strategies. Very few are successful globally.

For 320 of the 380 firms for which geographic sales data are available, an average of 80.3%

of total sales are in their home region of the triad, which indicates that the world’s larger

firms are not global but regionally based. Zhaowei Qi, (2008) further elaborated using the

following table that MNEs do not easily penetrate the three triads evenly, and intra-regional

sales are easier than inter-regional sales. Obviously, he stated that there are some regional

factors affecting a MNE to become global.

Table.1. Classification of the top 500 MNEs

Type of MNEs No of MNEs Percentage of

500

Percentage of

380

Percentage

intra/regional

sales

Global 9 1.8 2.4 38.3

Bi-regional 25 5 6.6 42

Host region

oriented

11 2.2 2.9 30.9

Home region

oriented

320 64.0 84.2 80.3

9

Insufficient data

15 3.0 3.9 40.9

No data 120 24 NA

Total 500 100 100 71.9

Data are for 2001, Source: Brainturst Research Group, the regional nature of global

Multination Activity, 2003

According to Rugman (2001,2003,2008.), multinational enterprises (MNEs) largely operate

within their home region of the triad, or, at best, are bi-regional (competing only across two

of the triads of the EU, NAFTA and Asia. Most of the largest 500 MNEs are interested in the

deepening of regional trade and investment agreements in Europe, the Americas and Asia.

This is a high end “niche” of the commonality viewpoint in which they argue that… “the world

is clearly becoming more unified and homogeneous”. However, basically every aspect of

their arguments wrong. Instead of one language, one thirst, one food, one car, etc. there are

strong regional differences within each part of the triad.

Despite their global nature, some argues that companies must customize their products or

services to meet the needs of various international markets, and hence must use a multi-

domestic strategy at least in part. For example, a US fast food companies such as KFC,

McDonalds although have a standard approach globally, they adapted their strategy to the

preference of regions or countries like in China, Japan, Middle-East. KFC introduced smaller

pieces of foods to cater to a Japanese preference, and located restaurants in crowded areas

along with other restaurants, moving away from independent sites. As a result of these

changes, the fast-food restaurant experienced stronger demand in Japan. As Grant, 2008,

indicated, for instance McDonald carefully blends of global standardization and local

adaptation in most countries. Its menus feature an increasing number of locally developed

items like McVeggie Burger in India, McArabia in Kofta in Saudi Arabia, Kosher food in

Israel by still maintaining globally standardized items, i.e. the big Mac and potato fries. Car

industries like Toyota adapt their product also as per region. Product for the US market and

other part of the world is different.

Thus, the development of regional trading blocs has promoted an emphasis regional

strategy as companies develop plans to take advantage of the conditions within various

trading blocs such as the North American Free Trade Agreement (NAFTA), the European

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Union, the Asia-Pacific Economic Cooperation (APEC) and the Association of Southeast

Asian Nations (ASEAN). Consequently, companies have been establishing regional

strategies designed around these trading blocs.

5: CLASSIFICATIONS OF REGIONAL STRATEGIES

Professor Pankaj Ghemawat, (2005) states that the successful companies employ five types

of regional strategies in addition to--or even instead of--global ones: home base, portfolio,

hub, platform, and mandate. Some companies adopt the strategies in sequence, but some

also switch from one to another and combine approaches as their markets and businesses

evolve. At Toyota, for example, exports from the home base continue to be substantial even

as the company builds up an international manufacturing presence. And as Toyota achieves

economies of scale and scope with a strong network of hubs, the company also pursues

economies of specialization through interregional mandates.

5.1 THE HOME BASE STRATEGY

The Home based strategy is a strategy that is focusing in serving nearby foreign market from

home base, which is efficient and permit rapid interactions with other departments,

especially work well when economics of concentration. However, it limits a company to its

local region. According to Ghemawat, (2005), a focus on home region is a matter of neither

default nor devolution but, instead, the desired long/term strategy. Zara, the Spanish fashion

company is able to respond rapidly to Europe market according to the change of the season

in a more competitive price due to low cost of shipment involved.

5.2 THE PORTFOLIO STRATEGY

It is a strategy that involves setting up or acquiring operations outside the home region that

report directly to the home base. As leads to lots of favourable performances and outcomes

in non-home regions, it is among the first preferences of companies wishing to work outside

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of their home, but it takes time to implement and require the abilities to compete with outside

rivals. By acquiring the stock of companies in other countries, it gains control over these

companies. A successful example cited by Ghemawat was Toyota’s initial investment in the

United States. Portfolio is regional growth in foreign regions but the strategy consumes time.

The main advantage of this strategy is it leads to faster growth in non home regions, better

home positions lead to large capital and give the opportunity to survive economic shocks.

Carrefour is looking at China as a portfolio of local markets.

5.3 THE HUB STRATEGY

It is a strategy of building regional bases or hubs to support local operations. It is simply a

multiregional version of the home base strategy to share resources and add value at the

regional level. Hub strategy involve transforming a foreign operation into a standalone unit,

and could be several and independent of one another, according to Ghemawat. For

instance, Toyota began producing a limited number of locally excusive models in its principal

foreign plant. Each plant had its own platform with products designed for sale within region.

However, it adds values at the regional level by catering to regional preferences, but risks

sacrificing cross regional economies of scale. The more regions differ in their requirements,

the weaker the rationale for hubs to share resources and policies. It is also a challenge to

balance between customization and standardization as Dell relative standard products was

forced to adapt to regional operations by modifying its plan in Chain to respond to local

companies competing aggressively on cost by producing less/sophisticated, lower quality

products. It is also considered spreading of fixed cost across countries within region.

5.4 THE PLATFORM STRATEGY

It is the strategy that utilizes the common platforms to delivery variety that more cost-

effectively and achieve greater economies of scale and scope through customization.

Reducing basic product platform of worldwide by allowing customization as to find a

common platforms engineered for adaptability. However, greater economies of scale in

design, procurement, and other functions, can be achieved in delivering variety more

cost/effectively but taking platform standardisation too far can backfire if regional

customization crates excessive disparity across regions. Hubs help to spread fixed costs

across countries within a region. Interregional platforms go a step further by spreading fixed

costs across regions.

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5.5 THE MANDATE STRATEGY

It is giving of certain regions mandates to supply particular products of perform certain roles

for the entire organisation. Economies of specialisation as well as scale, but broad

mandates can’t have variations in country, national, or regional conditions. While it is related

to the platform strategy it focus on economies of specialization as well as scale. Broad

mandate is given to the companies adopting this strategy under their region.

6. REGIONAL STRATEGY CONTRIBUTION TO THE GLOBAL SUCCESS

As the rising tide of globalization, some companies may lost the way or make mistakes to set

out to create a worldwide strategy. In fact, better results come from strong regional

strategies, which is the bridge that connect the local and global initiatives, and can

significantly boost a company’s performance. As indicated earlier, an increasing number of

companies regard regions as enabler of cross-border integration because high level of

cross-border integration usually accompany with high level of regionalization. Besides the

geographic proximity, the cultural, administrative and economic proximity also become an

important competitive advantage in regionalization and contribute a significant weight of

sales.

Embracing regional strategies requires flexibility and creativity. Managers must be conscious

that markets, supplies, investors, locations, partners, and competitors can be anywhere in

the world. Successful businesses will take advantage of opportunities wherever they are and

will be prepared for downfalls. Successful managers, in this environment, need to

understand the similarities and differences across national boundaries, in order to utilize the

opportunities and deal with the potential downfalls. Once this analysis is complete,

managers must establish strategic goals, which are the significant goals a company seeks to

achieve through a particular pursuit such as entering a new regional market through

considering the above five regional strategy model. International strategies refer to those

that address competition in each country or region on an individual basis, whereas global

strategy refers to addressing competition in an integrated and holistic manner across country

and regional boundaries. Hence, multi-domestic international strategies attempt to appeal to

the needs of customers in different countries or regions, while global strategies attempt to

standardize products and marketing to work across boundaries. Rugman (2001), Khan

(2006) and Gemhwat, (2005,2007) discredit the multi-domestic and global strategies and

argue that successful multinationals now design strategies on a regional basis or semi

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globalized to enables the development of a distinctively global approach while unsuccessful

ones pursue global strategies. While globalisation is business with regions, regionalisation is

intra-region and at the macro level both do not seem to be contradictory process.

7. SERVICE INDUSTRY AND REGIONALISATION

Rugman & Verbeke, (2008), discuss service industry as good examples of success for

regional based business internationalisation. For instance, for a large number of the world’s

largest 500 firms that also shows assets as well as sales to make their arguments that

services are more home-region oriented than manufacturing across both sales activities and

production activities. They further stated that the services MNEs are significantly more

home-region based, averaging 83.9 percent of sales in their home region, in contrast to

manufacturing firms with only 65.6 percent. Clearly, these summery date indicate that there

are very few global firms, whether in services or manufacturing. Therefore, both sets of firms

can benefit from the analysis of regional strategy and structure, rather than from an analysis

of focusing primarily on alleged global strategy and structure. Even if hotel chains follow the

globalisation process, they still develop their regional strategy as to adapt to the local needs.

Wal-Mart that represent service industry, is not global business and did not have global

strategy (Rugman,2003), yet, tops the Fortune Global 500 for the 2010 as it has done a

couple of times in the past according to Fortune Global 500.

8. CASE STUDIES (WAL-MART)

We have discussed that many MNEs are more regional than global. We are going to see

how the regional factors affecting Wal-Mart’s strategy and structure and contributes to its

success.

8.1 BACKGROUND OF WAL-MART

Wal-Mart is the world’s largest retailer. Sam Walton found the first Wal-Mart store in Rogers,

Arkansas in 1962. Wal-Mart’s international expansion began in 1991, when it entered into a

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joint venture with Cifra S.A., a successful Mexican retailer. Since then, it has also expanded

into nine other international markets: Argentina, Brazil, Canada, China, Germany, Puerto

Rico, Japan, India and the UK and seven other countries in Latin America. It is also on the

process its first entry in Africa through South Africa, which is the largest Sub-Saharan

economy. In the year ending of 2010, its revenue was almost $ 405 billion. Wal_Mart is

known as one of the success stories in the retail industry the management strategies that the

organisation has employed became on other most popular strategies in the retail industry

today a considerable number of retail stores have emerged in different parts of the world

following the retail format of Wal Mar. It’s often a mistake to set out to create a worldwide

strategy. Better results come from strong regional strategies, brought together into a global

whole.

8.2 REGIONAL-BASED WAL-MART

Wal-Mart is a regional, not a global business. There are two arguments to back up this

conclusion. First, most its stores located in NAFTA triad region. For example, according to its

Wal-Mart 2011 report, at the end of 2010, it had a total of 8,970 stores. A total of 7838.- of its

stores are in the NAFTA region, with 4,358.- in the domestic US market, 1,730 in Mexico and

another 328.- in Canada. Only 1132.- are truly “international”—outside Wal-Mart’s home

triad region, only about 13 percent of its stores.

Distribution of Wal-Mart Stores

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Distribution of Wal-Mart Stores

Locations No of stores Percentage of Total

NAFTA US 5, 780 64.44 Mexcico1,730 19.29 Canada 328 03.66

Other regions 1,132 12.61

Total 8,970 100

Second, although Wal-Mart became the largest company in term of sales revenues in 2010,

its most revenue came from NAFTA. For example, Wal-Mart’s revenue was almost $405

billion for the year ending in 2010, ahead of Royal Dutch Shell and Exxon Mobil. But about

80.5 percent is from United State and only 20.5 percent is from international sales. The

NAFTA market stands at an estimated 87.39 percent, and only 12.61 percent was from EU

and Asia regions, although its international sales has gradually shown growth.

8.3 HOW DO REGIONAL FACTORS AFFECT WAL-MART STRATEGY AND

STRUCTURE?

Wal-Mart is NAFTA-base business. The locus of its business model strategy and structure is

regional and home-based. Its success can be attributed to a scale strategy based on cost

reduction, steadily generating its “always low prices” formula and increased physical growth

of market share (Rugman, 2003). Each week, about 200 million customers visited a Wal-

Mart at more than 9230 retail unites in 15 countries. The company employed more than 2.1

million associates. Wal-mart has also been in the spotlight this year (2011) for a gender

discrimination suit involving 1.5 million of its current and former female employees. The

Supreme Court threw the case out on the grounds that the women couldn't pursue it as a

single class, but the retail giant will likely have to face these claims in smaller groups in the

months and years to come. And while Wal-Mart may be the biggest company in the world, it

has suffered from a sales slump back home: U.S. same-store sales have declined for eight

straight quarters. (http://money.cnn.com/magazines/fortune/global500/2011/snapshots/2255.html)

Wal-Mart’s structure and management system is based on region. Each store constituted an

investment center and was evaluated on its profits relative to its inventory investments.

9. CONCLUSION

Most of MNEs are home regional -based companies rather than global companies. One of

important reason is influence of regional factors. Home regional factors can bring more

advantages than host region’s. And MNEs can easily transfer FSAs into regional FSAs.

Therefore, MNEs should follow home country—home region—host region model. MNEs’s

manager must “think regional and act local”, and design regional strategy and organization

structure that develop triad-based internal know-how capabilities and organizational

competences. However, it is a fascinating paradox. GM (GM, Fortune 500) slid from

domination of the Western automotive world in three decades, yet made itself into a leading

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automotive producer in China in less than two while it is disaster on one continent. The

answer has enormous consequences for car buyers on both continents. China, the world's

single largest auto market, has become GM's largest market, too. GM sold more cars in

China in 2010 than it did in the U.S., and the difference will only grow in coming years. In

any case, the predication of Ghemwat, 2007, that semi-globalisation is likely to present for

next decade, the next two decades and probably beyond.

Ghemawat suggests choosing from a menu, depending on your circumstances. For

example, use the “home base” strategy, locating your R&D and manufacturing in your

country of origin, if the economics of concentration outweigh those of dispersion. Or use the

“portfolio” strategy, establishing operations outside your home region that report to home

base, if you need to average out economic cycles across regions. Shift among the five re-

gional strategies or combine them as circumstances evolve. By creatively blending regional

strategies, Toyota surpassed Ford as the world’s second-largest automaker in 2004.

Hence we can conclude that, “It’s often a mistake to set out to create a worldwide strategy.

Better results come from strong regional strategies, brought together into a global whole.”

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- Alan M. Rugman and Richard M. Hodgetts. (2001). The end of global strategy. http://www.referenceforbusiness.com/management/Str-Ti/Strategy-in-the-Global-Environment.html.an

- Alan M. Rugman and Alain Verbeke. (2003). Regional and Global Strategies of Multinational Enterprises. Kelley School of Business, Indiana University.

- Alan M Rugman and Alain Verbeke. (2004(. A perspective on regional and global strategies of multinational enterprises. Journal of International Business Studies, 35, PP 3–18 & 2004 Palgrave Macmillan Ltd. Freyssenet .

- Alan M. Rugman and Alain Verbeke. (2008). A New Perspective on the Regional and Global Strategies of Multinational Services Firms. Management International Review, Vol. 48, Q 4th.

- Pankaj Ghemawat. (2005). Regional Strategy for Global Leadership. December. Harvard Business Review, Harvard University, USA.

- Pankaj Ghemawat. (2007). Redefining global strategy: Crossing border is a world differences Still maker. Harvard Business School Publishing Corporation, USA.

- Zhaowei Qi. (2008). The Model of Expansion from Local Enterprises to Multinational Enterprises. August, International Journal of Business and Management.

- Omar J.Khan. (2006). Retrieved on 01.07.2011 from http://0-proquest.umi.com.oasis.unisa.ac.za/pqdweb?index=2&did=1232401421&SrchMode=2&sid=5&Fmt=6&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1309544974&clientId=27625.

- Elitsa R. Banalieva & Ravi Sarathy. (2010). The Impact of Regional Trade Agreements on the Global Orientation of Emerging Market Multinationals. Manag Int Rev (2010) 50:797–826 DOI 10.1007/s11575-010-0060-1, Gabler-Verlag 2010, North-eastern University, Boston, USA.

- Robert M.Grant. (2008). Contemporary Strategy Analysis. 6th Edition, Blackwell publishing company Ltd, Oxford. UK.

- http://walmartstores.com/sites/AnnualReport/2011/financials/Walmart_2011_Annual_Report.pdf, 16.07.2011

- http://www.qfinance.com/business-strategy-best-practice/globalization-and-regional-business- trategy?full”

- http://www.businessinsider.com/wal-mart-regional-breakdown-2011-3#ixzz1QtJvKDL1- www.walmartstores.com. Retrieved on 27.07.2011.- http://money.cnn.com/magazines/fortune/global500/2011/snapshots/2255.html- Distance Still Matters, The Hard Reality of Global Expansion by Pankaj Ghemawat- Beyond Off shoring: Assess Your Company’s Global Potential by Diana Farrell, Harvard

Business Review, December 2004

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APPENDIX-1 : CAGE FRAMEWORK

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APPENDIX-2

Jeffrey Frankel and Andrew Rose,“An Estimate of the Effects of Currency Unions on Growth,” unpublished working paper, May 2000

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