This report is based on the analysis of an intercultural aspect of business and it aims to shed light on how the intercultural issues can affect the performance of an organisation. The entire report has been carried out by considering the case study of Wal-Mart’s downfall in the German market. In this report, the identified cross-cultural issues have been discussed, which are highly responsible for the failure of Wal-Mart in the German market. Then a systematic understanding of the event of cultural shock has tried to be provided. And finally, the theatrical approach of Hofstede’s Cultural Dimension has taken into consideration a detailed evaluation of the role of intercultural issues in the failure of Wal-Mart in the German market.
Table of Contents
- Identified intercultural issues from the case study of Wal-Mart
- A Systematic Understanding of the concept of Cultural Shock
- Application of relevant theory (Hofstadter’s Cultural Dimensions Theory)
- Reference List
- Appendix-1: Case Scenario: Wal-Mart Move into Germany
In the present era of globalisation, the term “intercultural competencies” is becoming increasingly important in the business world due to the expansion of the businesses beyond the nation’s boundary or any specific geographical area that enables the business to operate within different cultural zones. The term ‘culture’ can be defined as the summation of the different ways of living life, including values, belief, societal practices and so on (Zelenková., 2020). It is comprised of both implicit and explicit rules through which experiences are interpreted. Consideration of the cultural aspect is crucial for any successful business operation. With the change of cultural dimension, the various issues associated with business operation changes include consumer behaviour, employee issues, communication issues, diversity issues, etc. Due to globalisation, the present world of business is extensively interconnected and further leads the businesses to operate within the intercultural arena of business mostly with a diverse workforce with its own advantages and disadvantages. According to (GOLOVACH., 2018), Intercultural competence is the potential to build targeted knowledge, attitudes and skills which are effective and appropriate for the field of intercultural interactions.
This report aims to provide a comprehensive analysis of the intercultural issues faced by business organisations. And in order to fulfil the aim of the report, the case scenario of American multinational retail giant Wal-Mart has taken into consideration. The focused case study highlights the intercultural issues faced by Wal-Mart in the German market and the inability to identify and tackle those issues becomes one of the major cause behind the downfall of the company in the German market.
In this report, the identified intercultural issues from the case scenario of Wal-Mart has been discussed in the first place. Followed by a discussion on the concept of culture shock. This report further focused on the theories and models of intercultural aspect for explaining the workforce diversity, conflicting values and beliefs within the business set-up. Secondary analysis will be conducted for accruing the data and information giving special emphasis on the undertaken case study of Wal-Mart. Based on the entire discussion on conducted in the main body of this report a conclusion will be drawn and based on the identified issues recommendations will be provided focusing on the findings of the cross-cultural scenario of the undertaken case-study of Wal-Mart.
Identified Intercultural Issues From the Case Study of Wal-Mart
The American Multinational company Wal-Mart is one of the leading retailers around the world and presently it is also known for its inclusive intercultural approach. But, the global organisation faced major failure in German which is one of the core markets of Europe. In the Year 1997, Walmart entered the German market with the acquisition of the German company Wertkauf and it acquired Intersparin in 1998. But, in spite of a grand entry in the German market, Wal-Mart failed to successfully capture the market and after making consecutive losses, the company decided to leave the market in 2007 (Burke., 2017).
Figure 1: Percentage of Wal-Mart International Sales
(Sources: Burke., 2017)
The given case study in Appendix-1 suggested that cultural factor plays a major role in the downfall of Wal-Mart in the German market. The identified intercultural issues in the case study are discussed below:
Work-Force Related Issues
- Wal-Mart imposes American employee management practices in the German workforce without considering the German cultural aspect. For instance, the Wal-Mart employees had to participate in the morning exercise where the before the start of the shift the employees had to jointly chant “WALMART! WALMART! WALMART!”. Such kind of practices was considered useful for boosting employee morale in the USA but in the German context, such practices were highly annoying.
- The organisational culture of Wal-Mart was not appropriate with respect to the German context. In Wal-Mart the spying culture on other employees was very prominent and it does not see as the misconduct but in German, such kind of activity within the workplace is not seen as a sign of positive working environment. Besides that, Walmart also imposes some strict rule regarding building personal relationship among the employees, such as, two employees are not permitted to develop a personal relationship and the organisation actually give reward to the employees who report such event. The German culture was not accustomed to such kind of irrelevant practices and for the German employees, the organisational culture of Wal-Mart was not really positive. In 2005, the German industrial court ordered Wal-Mart to discontinue such kind of practices within the organisational setting (, 2017).
- Wal-Mart failed to understand the importance of German unions for employee-related matters. Unlike America in Germany, the unions are closely connected to the companies and the German unions are quite active on the matters associated with employees. As stated earlier, within the organisational setting Wal-Mart encourages the unethical practices like spying on the co-workers which may not be a major issue in other countries where the company operates and considered as a part of internal politics but in German, these practices are highly criticised (Tsui-Auch & Chow., 2019). The German unions didn’t like such practices and these issues present the company in front of the union as a profit seeker company which does not consider the factors of employee satisfaction and the overall well being of the employees.
- The feedbacks of the employees are completely ignored. In German culture, every employee treated with dignity irrespective of their positions. So the German workers are used to with the culture. But in Wal-Mart, the feedback of the lower division employees was completely ignored and the higher management did not consider the issues they are facing (Walmart’s Downfall in Germany: A Case Study., 2020). Such issues play a major role in downing employee morale and in turn their productivity
Customer Behaviour Related Issues
- Wal-Mart did not conduct a proper analysis of the local market and the characteristics of the behavioural aspect of the German market. One of the most visible characteristics of German customers is, they are always in hurry and mostly spend very little time while it comes to shopping of groceries and related items. But the stalls of Wal-Mart were placed in such a manner, that the customers had spent more time (Okocha & Issa., 2016). So due to such kind of ignorance of customer behaviour, Wal-Mart restricts its chances to become a popular brand in the German retail market.
- The highly dominant penetration pricing strategy was acceptable in the German market. Price leadership is one of the core strategies of Wal-Mart for getting a competitive advantage in the market and it uses the strategy as well in the German market without analysing the external factors of the market. As a result, the German business owners take the help of the law and Wal-Mart was ordered to reduce the price level. So the pricing strategy of Wal-Mart did not provide any benefit to it in the German market.
- Wal-Mart failed to consider the German culture. According to Fessmann and Fessmann (2019), the common belief of American businesses is quite prominent regarding that all the European countries has the same sort of culture, which is not true. In America and also some of the European countries such as the UK, the over-friendly and chatty behaviour of the store assistant is considered a symbol good service but the in German culture it is not the same. Wal-Mart trained all its store employees to the same manner which was found quite “non-German” and sometimes unauthentic to the German customers. besides that, it was also awkward for a German shop keeper to get unnecessarily friendly with customers as that gesture is not the part of German culture
- The late 90s was a time when the awareness of greenness and environment conservation started momentum in Germany and that is also a major reason behind the unpopularity of Wal-Mart in Germany. At that time, Wal-Mart completely ignores the event and it continues to use plastic packaging which also created annoyance among the customers about the brand (Hunt, Watts & Bryant., 2018).
A Systematic Understanding of the Concept of Cultural Shock
According to Rafika, Indawan Syahri, & Susanti (2018), the cultural shock is the sense of confusion, uncertainly, anxiety, that a person experience when stepping in a new cultural zone which is different his/her own. The social norm or cultural beliefs are significantly varied in different countries and even in different areas of the same country. The cultural shock mostly arises due to the unfamiliarity of an individual about the local languages, customers, social norms, behaviour and so on.
When it comes to businesses, cultural shock can be very much depressing for the employees and that can impact on the productivity level of the employees as well (Delahoussaye., 2017). In the world of international business, it is a very common scenario that, the businesses expand their operations in different countries and hire the local people from the countries as happened in the case scenario of Wal-Mart. In such a situation, as a cultural interaction happened, it is important for the organisation to consider the issue and take necessary measures to reduce the impact of cultural shock on the multi-cultural diverse workforce. In the undertaken case study it has been seen that Wal-Mart expand their business in German and within a very few years it has to exit from the German market with a huge burden of loss around $200 to $300 per annum (Vulture., 2020). The lack of consideration of the intercultural issues has been considered a major reason behind the event.
Wal-Mart expands its business operations in Germany through the accusation of two German companies, Wertkauf and Interspar in 1997. With the accusation in the businesses, Wal-Mart introduces the American employee management practices which are not fitted to within the German context, so it was like a completely new workplace environment for the employees. On the other hand, the management employees of Wal-Mart who are mostly from America are unaware from the German cultural aspect also goes under a different kind of situation due to unfamiliarity of the cultural elements like language, code and ethics, beliefs and so on. So, a cultural shock situation lies in the workforce. According to Tsui-Auch, & Chow (2019), the inability to effectively communicate is the core of the problem of cultural shock. In Wart-Mart the feedback of the lower division employees was ignored which create a major communication gap and make the process of adaptation more difficult for them.
Application of Relevant Theory (Hofstadter’s Cultural Dimensions Theory)
Considering the scenario of the undertaken case study it can be seen that, the cultural dimension plays a major role in the success or failure of a business organisation in different countries. Wal-Mart is one of the leading retailers around the globe and it is successfully operating in more than 27 countries. But it could not able to make its position in the German market place, and one of the core reason behind that is could not able to effectively consider the cultural dimension of the German market. In order to analyse the aspect of cultural dimension, the theory of Hofstede’s Cultural Dimension has been undertaken.
The Hofstede’s Cultural Dimension Theory provides a framework for understanding how cultural differences play a significant role in the success or failure of an organisation within different countries (Lerro et al., 2016). In other words, this theory is used to make a distinction between the different national culture and cultural dimensions and also assess their impact on the performance of the business.
Figure 2: Hofstede’s Cultural Dimension
(Source: Lerro et al., 2016)
This theory identifies six dimensions for understanding the culture of a country. Each of the dimensions is discussed below with respect to the case scenario of Wal-Mart.
Power Distance Index
This dimension is about the evaluation of how social inequality is being perceived in different countries. The larger the power distance the more is the existence between inequalities, which causes the less powerful people more dependent of the powerful ones and in turn, the less powerful people get polarised upon dependency and counter dependency (Dongxuan., 2020). So considering the case scenario, it can be said that, in Germany people belief in more of equality and tend to work in the cluster for achieving the goals, while in American cultural authorised decision making and its imposition in more common. That is why, when the American company ignores the aspect of the lower division employees and impose unethical codes, the German employees get stressed. On that other hand, an organisation with a higher concentration of power also suffers a lack of proper coordination among the different hierarchical divisions. As happened in Wal-Mart, when the employees express their feelings about various practices within the organisational setting the higher authority ignores their opinion. Besides that, the pay difference is also a major issue with organisations with more power concentration. Wal-Mart paid also lesser in German, compared to its pay in UK and USA. So due to the larger power distance, Wart-Mart has to face issues like high employee turnover and less productive workforce.
Collectivism vs. Individualism
The study conducted by suggesting that, the people of German mostly more tend to work collectively while it comes to achieving the goals, so the workplace environment of Wal-Mart Germany does not support an effective team building environment due to presence of various hindrance factors. One such factor is the language, the employees of the Wal-Mart stores were ordered to use English as the official language which not only creates a communication gap between the employees but also the customers. As is Germany, the German language is the official language and most of the workers are not effectively proficient and in English.
The ignorance of the feedback of the subordinate employees is another major factor, which restricts the collectivism approach of the workers. The ignorance of the subordinate’s feedback restricts the upper management to work as a team with the subordinates and also it restricts the betterment of the organisation which make the employees de-motivated.
Besides that, generally, the individualistic approach within an organisational setting does not lead an entire workforce to adapt with the new culture at the same time, some adapt it faster than others. So in such scenario, the organisation should take measures to make every employee familiar with the new culture but Wal-Mart, Germany did not implement any such measure which make the German workers familiars with the American working culture and that notably reduces the performance of the global retail giant in the German market.
Uncertainty Avoidance Index
According to Lerro et al (2016), uncertainty avoidance index measures the level of uncertainty the practitioner of a culture feel in situations related to the adoption of a different culture. Uncertainty avoidance is one of the crucial dimensions while it comes to making the difference between the cultural difference between the USA and Germany. In the undertaken case scenario it has been seen that, in Wal-Mart, as a part of their morning practice, the employees have to chant “WALMART!”, this type of practices had simply designed for boosting the employee morale and energy considering the American culture but for German workforce, such practices are meaningless and annoying and they also felt uncomfortable to participate in such practices.
Besides that, the ethical code of Wal-Mart also a major reason behind the uncertainty situation Wal-Mart German employees. Within the organisational setting of Wal-Mart, there are various restrictions about which the German workers were completely unfamiliar such as the restriction in making the personal relationship between the workers. And also Wal-Mart promotes unethical acts like spying on the co-workers by rewarding the employees who complain against other employee’s misconduct (Tsui-Auch, & Chow., 2019). So such acts might be seen as a part of the organisational politics in the USA but the case was completely opposite in German. Due to such kind of practices, most German workers had found the organisational culture of Wal-Mart negative and also feel uncertain.
Femininity vs. Masculinity
The dimension of femininity vs. Masculinity is about the degree of diversified gender functions, where the women mainly focused on tender values and the men are focused on the degree of competition. As per the study by Kaelberer (2017), the culture of German is more feminine than the USA, as the more focus is given on employee satisfaction and quality of life than the wealth-building. Wal-Mart was mainly focused on profit generation and issues associated with employee well-being and other associated issues were mostly ignored, which was a major reason behind the conflict between the German unions and Wal-Mart. Though there has not been found any major gender-biased issue in Wal-Mart German around 74% of the employees of Wal-Mart were male which suggest, male-dominated workforce of the company.
Short-Term vs. Long-Term Orientation
This particular dimension is about the degree to which the people own a dynamic long-term oriented approach rather focusing more on short-term goals (Jing., 2019). In the German market, the intercultural issues faced by Wal-Mart were mostly due to their lack of environmental analysis and implementation of strategies like penetration which almost lead the organisation to legal obligations. Besides that, the company also not made any consideration of the behavioural aspect of the German, such as their nature spend less time on retail shopping lead the organisation to inefficient store design strategy. So it can be said that, in the hurry to get short term benefits, Wal-Mart lose their long-term orientation.
Indulgence vs. Restraint
This dimension refers to the extent to the tendency of society to fulfil the desires. In other words, this dimension is about to what degree the society can control individual desires and impulses (Altaher & Asmahan., 2018). The more the indulgence a society is a more free gratification the individual get for enjoying life and the vice-versa. German society is more indulgence than in the USA. The Wal-Mart imposes such restrictions on employees regarding the personal relationship within the workplace. Such kinds of restrictions are not quite common within the societal context of German and the employees felt that the organisation was restricting their freedom.
From the entire discussion, it can be said that the cross-cultural issues play a major role in determining the success or failure of an organisation within different countries. the Global Retail Giant has successfully operated not only its home country the USA but also 27 other countries around the world including, UK, Mexico, India and so on but it faced major failure in the German Market. And one of the core reasons behind that was the inability of the origination to consider the cultural dimension of the Country which is different from its home market USA from multiple directions. From the nature of the Identified cross-cultural issues, it has been evidence that Wal-Mart went wrong in the German market due two major causes, the first one is the mismanagement of human resource in which the cultural aspect of the German has totally ignored and the practices based on the USA are forcefully imposed which are difficult for the German workers to adapt, besides that, the feedback of the subordinates also ignored which increases the issues like employees turnover, de-motivated workforce and so on. The second one is the lack of analysis on the consumer behaviour of the German people, which lead the organisation to various misleading strategies such as price dominance, improper store designing, improper approach to customer attention and so on, In this report, the event of cultural shock has been discussed in a detailed manner based on the case scenario. And lastly, the application of the Hofstede’s Cultural Dimension theory has been done to analyse how the inability to incorporate the cultural dimensions of Germany leads the organisation to fail in the German market.
Based on the entire discussion the following recommendation can be made based on the findings of the report
- Wal-Mart needs to conduct a detailed and efficient environmental analysis before expanding its business within a different country
- Wal-Mart also should undertake the Hofstede’s Cultural Dimension Theory-based analysis for expanding its operations in a new country in order to understand the cultural dimension related gap between its approach and the culture of the country. And in case the gap was detected, Wal-Mart should design its strategies based on the factors identified of that particular country.
- In terms of employee management, the organisation should consider the feedback of the employees from every position as, the ignorance of their feedback not only reduces the employee engagement but also restrict the organisation from the betterment of its organisational culture.
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Appendix-1: Case Scenario: Wal-Mart Move into Germany
In 1997 and 1998 Walmart acquired two companies – Wertkauf and Interspar – in Germany. During its expansion Walmart managed to also successfully enter a number of international markets including Canada, Chile, Brazil, India, and China.
However, during this whole period of expansion Walmart also experienced a number of defeats. Germany was one of them.
Culture factors in play
Analysts still argue about the reasons behind the failure of Walmart in Germany. However, among them are a number of culture-related issues that come up rather often. There were two groups of factors, which contributed to Walmart’s failure in Germany.
The first cluster is related to mismanagement.
Firstly, some of the American employee management practices just didn’t fit in the German context. For example, each employee before the shift had to participate in a morning exercise. In could be seen as harmless, but the best thing about this practice was that they had to do it chanting “WALMART! WALMART! WALMART!” . If in America such practice could be used to boost morale and inspire loyalty, then in Germany it was looked upon with annoyance, to put it mildly.
Secondly, Walmart’s ethical code caused much frustration as well. For example, the practice of actually spying on your co-workers and reporting any misconduct may be acceptable in the U.S. However, in Germany it is not the case. One only has to think back to the 1940s and post-war Germany when citizens were actually doing this on a social level – thus the modern abhorance.
Thirdly, the feedback of the employees was ignored. Top management apparently didn’t listen to anything the lower employees and subordinates had to say.
Such a situation caused enormous amount of frustration among the employees. Morale was significantly undermined as well. This in turn, had a negative impact on the overall efficiency of the venture.
The second set of factors is related to the lack of analyses of the local market and the specifics of local customers’ demands.
- Firstly, store merchandising was wrong . Walmart put all premium products at eye level, while all the discount products were stored either at the bottom shelve or on the top one. This irritated German customers a lot.
- Secondly, as strange as it sounds, habits of the average German customer weren’t taken into account. Germans are known to be efficient and spend as little time in the shops as possible. However, Walmart’s stalls were placed in such a way that the customer will have to spend more time shop.
- Also, at the check-out desks, the cashiers were ordered to always be smiling. In Germany it is considered not normal to smile at total strangers. So the German cashiers, who were not in the habit of smiling at strangers, attempted to follow the orders but felt uncomfortable. As a result, the smiles didn’t seem sincere, which again, aroused not the best feelings towards Walmart in its customers.
- Thirdly, the brand name wasn’t particularly popular in Germany. The reason lies in the uprise of “greenness” in Germany . The ideas of conservation of environment and recycling were gaining momentum. That is why Walmart’s plastic bags and redundancy of plastic packaging aroused more annoyance rather than enjoyment .
The cumulative effect of poor management and total absence of analyses of the local market or culture could not but have had serious impacts on Walmart’s position. Frustrations of both employees and the customers played a major role in the downfall of Walmart in Germany.
As for financial performance, Walmart never officially published the losses it experienced during its stay in Germany. However, some analysts estimate that the losses of Walmart were US$ 200-US$ 300 million per annum.
Even though the exact number will remain a mystery, the retreat of the giant who is not particularly used to failures, speaks louder than numbers. Walmart did fail in Germany, and cultural factors did play their role in it.