Wal Mart leaves South Korea In May 2006, Wal-Mart announced that it had agreed to sell all sixteen of its South Korean stores to its biggest competitor there. Shinsegae. Wal-Mart is not the only outsider that fared poorly in South Korea. The French retailer Carrefour, the second largest retailer worldwide after Wal-Mart, sold its 32 South Korean stores a month earlier. Wal-Mart arrived in Korea in 1998 by taking a majority stake in four supermarkets and six plots of land. It left Korea after grabbing a 3.8 percent market share and two years of huge losses. Wal-Mart aimed to become one of Korea’s three largest discount retailers. Wal-Mart and Carrefour faced an uphill climb against local retailers. Both Wal-Mart and Carrefour were slow in broadening the scope of their operations. With a network of only sixteen stores (and just one in Seoul, Korea’s capital), Wal-Mart failed to build market share. Shingsae, the discount store leader in Korea, adds an average 10 stores each year to its E-Mart chain. That network gives Shinsegae bargaining power with suppliers. Wal-Mart also fell short on the product mix by misreading the tastes of local consumers. The frozen imported food it sold in bulk had limited appeal to local shoppers who prefer fresh products sold in smaller bundles. Shoppers also resented the subdued lighting and the height of the shelves. Koreans also prefer service over price. Another barrier was South Korea’s chaebol system of interrelated companies that benefits local retailers who form part of the system. Such conglomerate connections help local retailers with costs and real estate. In contrast to the Wal-Mart and Carrefour, the British retailer Tesco is a remarkable case of succeeding in localizing. Tesco teamed up with Samsung Group to open its first store in 2000. Tesco holds an 89 percent stake in the partnership and pays royalties to use its partner’s name-Samsung Tesco Home Plus. The latter was a clever move, as Koreans trust the Samsung name. Tesco also relied heavily on local managers and hired a Korean chief executive, which both Wal-Mart and Carrefour failed to do. Tesco planned to double its Korean network to 102 outlets by 2009. Martin Roll, an expert on Asian branding, notes that “Asian consumers are showing a form of modernity and sophistication that would challenge even the most experienced brands. The retailers with local market knowledge and distribution network will ultimately emerge as the winners.” Discuss the reasons why Wal-Mart failed in South Korea? Examples should be provided as appropriate.
Wal Mart leaves South Korea
In May 2006, Wal-Mart announced that it had agreed to sell all sixteen of its South Korean stores to its biggest competitor there. Shinsegae. Wal-Mart is not the only outsider that fared poorly in South Korea. The French retailer Carrefour, the second largest retailer worldwide after Wal-Mart, sold its 32 South Korean stores a month earlier. Wal-Mart arrived in Korea in 1998 by taking a majority stake in four supermarkets and six plots of land. It left Korea after grabbing a 3.8 percent market share and two years of huge losses. Wal-Mart aimed to become one of Korea’s three largest discount retailers. Wal-Mart and Carrefour faced an uphill climb against local retailers. Both Wal-Mart and Carrefour were slow in broadening the scope of their operations. With a network of only sixteen stores (and just one in Seoul, Korea’s capital), Wal-Mart failed to build market share. Shingsae, the discount store leader in Korea, adds an average 10 stores each year to its E-Mart chain. That network gives Shinsegae bargaining power with suppliers. Wal-Mart also fell short on the product mix by misreading the tastes of local consumers. The frozen imported food it sold in bulk had limited appeal to local shoppers who prefer fresh products sold in smaller bundles. Shoppers also resented the subdued lighting and the height of the shelves. Koreans also prefer service over price. Another barrier was South Korea’s chaebol system of interrelated companies that benefits local retailers who form part of the system. Such conglomerate connections help local retailers with costs and real estate. In contrast to the Wal-Mart and Carrefour, the British retailer Tesco is a remarkable case of succeeding in localizing.
Tesco teamed up with Samsung Group to open its first store in 2000. Tesco holds an 89 percent stake in the
Discuss the reasons why Wal-Mart failed in South Korea? Examples should be provided as appropriate.
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