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Essay Example on Internalization the third strand of Dunning's taxonomy is regarded as the most important

State University of New York at Potsdam

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Internalization the third strand of Dunning's taxonomy is regarded as the most important Huand and Ruan 2004 Walmart's internalization strategies in Germany included acquisitions of German supermarket chains However instead of reaping the benefits of internalization it only brought more problems for Walmart in the case of Germany due to points mentioned previously This could be primarily attested to poor management styles Furthermore the premise of national cultures is also another mainstream driver of success in international businesses Another conceptual framework for understanding the drivers behind foreign investment was proposed by Hofstede 1997 which focuses on national cultural differences in order to determine a suitable foreign market This model differs from Dunning s 1979 framework which lacks an emphasis of cultural dimensions Hofstede s 1997 Five Dimensions of National Culture Differences consist of five dimensions Power Distance Uncertainty Avoidance Individualism Collectivism Masculinity Femininity and Long Term Orientation Hofstede 1997 In terms of Hofstede comparison scores factors such as Power Distance Individualism and Uncertainty Avoidance between the US and Germany scored vastly different Hofstede 2001 potentially explaining why Walmart significantly underperformed in these areas In terms of Uncertainty Avoidance which is a vital dimension in the visualization of cultural differences Bialas 2009 US employee management practices did not align accordingly within German domain

One instance of this was Walmart's policy whereby all employees were forced to attend a morning ritual and chant Walmart in order to supposedly increase employee loyalty and boost their morale This was taken as an annoyance in Germany Christopherson 2007 in addition to asking employees to spy on each other for misconduct which is not accepted in Germany Shurrab 2014 Additionally Walmart caused further annoyance by ordering their employees to smile at customers which made both parties unsettled and stressed as smiling to strangers was not commonplace in their culture Nazir Shah and Zaman 2014 This could be explained by Germany s significantly high Uncertainty Avoidance score Hofstede 2001 as compared with the US lower score Thirdly German consumer habits were not adequately assessed before entry because German consumers prefer to shop in several places when making purchases not purchasing everything from one location Govindarajan and Gupta 2002 Also Walmart opted to place their higher cost items on shelves at eye level and place cheaper ones towards the bottom as they do in the US UK causing further annoyance among consumers Landler and Barbaro 2006 Furthermore Walmart structured their stores in a way which encouraged customers to spend a significant amount of time shopping which again did not align with German values which consider themselves to shop quickly and efficiently causing further exasperation Javid 2015 Another Uncertainty measure not recognised by Walmart was its use of plastic carrier bags and packaging which did not align with German s land of the green ideology Macaray 2011 Insufficient analysis of cultural norms and not adapting to customer preferences lead to poor customer retention and constrained financial performance with Walmart in Germany Jui 2011

Additionally, Power Distance is another key indicator of Walmart's failure In Germany it is not common to have an authoritarian employee structure whereby employees are constantly required to seek knowledge from employees above Instead they work in clusters to achieve targets which Walmart did not accommodate Clark 2006 Also a reduced salary than that of the equivalent UK market frustrated employees leading to a high staff turnover Christopherson 2007 Finally Individualism factors also explain reasons for their demise Germany scores significantly lower than the US on this Hofstede 2001 as they prefer to work collectively within teams However Walmart failed to facilitate this due to forcing employees to use English as the stores official language resulting in communication breakdowns among the employee hierarchy Schmidt 2014 Rather surprisingly Walmart decided to disregard critical feedback made by their workers causing them to resign Landler and Barbaro 2006 One could also argue that there are far more important factors to consider than just the cultural dimensions of a country Friedman 2000 proposed nine questions that determine suitability for foreign market penetration It successfully places emphasis on important factors such management capability and knowledge utilization however one could argue that without a cultural element to the model one can not correctly determine a suitable foreign marketplace

The same applies for Dunnings 1979 framework but not for Porter s 1990 Diamond Model which highlights demand conditions and the role of the government From the points mentioned above it can be noted that Walmart had encountered many catastrophic failures in their German venture primarily due to a lack of understanding German consumer behavior However in modern times it can be seen that they have learned from many of their previous mistakes, For example, China is one of their most successful overseas ventures with over 439 stores across 189 cities growing year on year due to its popularity within the country Walmart 2017 Walmart stress the significance of the Chinese culture in their business decisions there and emphasize the importance of local partnerships sourcing 95 of their merchandise locally Walmart 2017 Furthermore 99 9 of their employees are Chinese nationals managed by local Chinese people which they didn't do in Germany This demonstrates that they effectively learned from their previous mistakes


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"Internalization the third strand of Dunning's taxonomy is regarded as the most important"
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