Market
When building up a valuable business there are several steps to take, depending on the stage your company is at and the complexity of the product or service and how ready is the market to accept that product or service.

A market type is a way a given group of consumers, services provider and producers interact, based on the context determined by the readiness of consumers to understand the product or service, the complexity of the product or service; how big is the existing market and how much it can potentially expand in the future?

Why does it matter to understand the market type?
Challenge
How Not to Enter the German Market:
The Example of Walmart

The failure of Walmart in Germany is a notable example of how not to go about taking your company into the German market. Walmart's mistakes provide a lesson from which we can all learn.

In the late 1990s Walmart based its entry into the German market on a series of strategic business acquisitions. They acquired the twenty-one stores of the well-known Wertkauf chain in December 1997 paying an estimated $1.04 billion for a chain with annual revenues of €1.2 billion. Then in 1998 Walmart purchased seventy-four hypermarkets belonging to Spar Handels AG, the German arm of France's Intermarché group. The chain had revenues of €850 million and Walmart paid €560 million.

Despite this promising foothold in the German market things quickly went wrong for Walmart. Their mistakes fell into several key areas:
Entry by Acquisition
Walmart entered the German market by means of two major acquisitions. The first, the Werkauf chain, was an inspired strategic move. Werkauf had prime locations, good sales and a capable management team. The later acquisition of a number of hypermarkets from Spar Handels AG, on the other hand, was anything but a shrewd move. Spar's stores were mainly situated in less well-off inner city areas and the majority were desperately in need of upgrading. Furthermore, most of the stores acquired were on a leasehold basis so Walmart did not even gain the real estate. Even worse for Walmart was the fact that turnover per square metre was amongst the worst in the German retail market.
Management by 'hubris and clash of cultures
'An authoritative report by the University of Bremen highlighted the problems caused by the blinkered attitude of Walmart's US managers that they refer to as 'hubris and clash of cultures'. Walmart's American senior executives who were assigned to manage the operation in Germany had little or no knowledge of German business culture, refused to learn German and ignored the advice of the German senior managers they had taken on board as part of their acquisition process.

Walmart quickly lost large numbers of their German store managers and supervisory staff who took jobs elsewhere because they were unhappy with the American company's management style. These key staff cited low wages and alleged poor quality produce as their primary reasons for leaving. Managers were also unhappy with the US practice of moving managers on to another store every year or two.

The approach by which Walmart had achieved success in the United States and elsewhere did not fit in with the culture of Germany. Industry and commerce in Germany, like much of continental Europe, is highly-unionised. German trades unions exercise enormous power both in the workplace and in the political sphere. However, Walmart, in common with many American companies, is a strictly non-union employer.

When faced with mounting employee costs in Germany Walmart's answer, as it would be in the US, was to start laying-off staff. However, they were taken by surprise by the heavy cost of making employees redundant in the highly-regulated German economy and their financial difficulties were exacerbated.
A failure of strategy
A strategy of ruthlessly undercutting competitors with their 'everyday low prices' guarantee had worked for Walmart in every other market. To the company's consternation the strategy back-fired in Germany. Walmart's major German competitors, such as Aldi and Lidl, hit back and cut their own prices even more drastically. Furthermore, a number of German newspapers and consumer organisations analysed Walmart's 'everyday low prices' promise and publicly concluded that it was meaningless.

German consumers did not like Walmart's US-style approach to customer service either. They found the in-store 'greeters' and staff constantly approaching customers to guide them far more intrusive than they were used to. Walmart found that their usual customer service approach was ineffective in Germany and was very expensive in terms of staffing costs.
Walmart had succeeded in the US by being one of the first retailers to offer customers a 24/7 retail experience. With legislative restrictions on opening hours, however, they could not launch this strategy into the German market.
Management by 'hubris and clash of cultures
'An authoritative report by the University of Bremen highlighted the problems caused by the blinkered attitude of Walmart's US managers that they refer to as 'hubris and clash of cultures'. Walmart's American senior executives who were assigned to manage the operation in Germany had little or no knowledge of German business culture, refused to learn German and ignored the advice of the German senior managers they had taken on board as part of their acquisition process.

Walmart quickly lost large numbers of their German store managers and supervisory staff who took jobs elsewhere because they were unhappy with the American company's management style. These key staff cited low wages and alleged poor quality produce as their primary reasons for leaving. Managers were also unhappy with the US practice of moving managers on to another store every year or two.

The approach by which Walmart had achieved success in the United States and elsewhere did not fit in with the culture of Germany. Industry and commerce in Germany, like much of continental Europe, is highly-unionised. German trades unions exercise enormous power both in the workplace and in the political sphere. However, Walmart, in common with many American companies, is a strictly non-union employer.

When faced with mounting employee costs in Germany Walmart's answer, as it would be in the US, was to start laying-off staff. However, they were taken by surprise by the heavy cost of making employees redundant in the highly-regulated German economy and their financial difficulties were exacerbated.
Infringements of German laws and regulations
Walmart wilfully failed to comply with a number of rules and regulations of Germany's highly-regulated retail market. This was largely because of the company's unwillingness to adapt to German culture and their refusal to consider abandoning strategies that had been so successful elsewhere. The result of these repeated infringements was a continuing cycle of heavy fines and negative publicity. Amongst the areas of legislation where Walmart fell foul were:
Breaches of German antitrust legislation through their discounting strategy;
Failures to comply with the requirements to publish financial information; and
Failure to institute a deposit/refund strategy for the plastic and metal drinks containers on sale in their stores.
Conclusions
By failing to follow the kind of basic, common-sense rules for doing business in Germany, the ones that we have discussed in this piece, Walmart entered the new millennium with mounting year-on-year losses in their German operation. In July 2006 they conceded defeat by selling-off their 85 German hypermarkets to a local competitor, Metro. In doing so they sustained a loss of nearly one billion dollars. Walmart are an efficient, highly successful multi-national company. However, by failing to take account of the nature of the German market (or German business culture), they came badly unstuck in that country. ©howtogermany
Solution
Wal-Mart tried to apply its US success formula in an unmodified manner to the German market. As a result, they didn't have sufficient knowledge about the market structure and key cultural/political issues. In addition, structural factors prevented Wal-Mart from fully implementing its successful business model.
When entering a new market, it is important to anticipate competitors' reactions.

To successfully develop or set-up your brand and business in Germany, knowing the local market structure and business model, culture and communication, market research and analysis, competitor research and analysis, thorough planning, accurate execution... and reliable partners or joint ventures are essential. Therefore you need a German based business consultant.
25%
Market Research and analysis
50%
Competitor Analysis
75%
Sales Strategy
100%
Road map & Timeline
Start a Business
What is the missing piece in your business?

To successfully set-up or develop your business, knowing the local business culture, market research and analysis, competitors analysis, business concept, roadmap strategy, thorough planning, accurate execution... and reliable partners or joint ventures are essential. Therefore you need a German based business consultant.

Our approach is a integrated 360-degree review at all aspects of your business, including your business, brand, services, products, and market, that reaches customers at all possible points of contact.

For a better results, we suggest that you participate in our strategy session in which we understand more about you, your business and business vision; and accordingly offer you the most optimum business strategy.

Please, fill out the form here, that we are better prepared when we contact you back.