Wal-Mart entered the Korean market in 1998 by purchasing four retail stores from a local retailer. However, Wal-Mart struggled due to having too few stores to achieve economies of scale for low prices, and not fully understanding Korean consumers and culture. By 2006, Wal-Mart cut its losses and pulled out of Korea, selling its assets to the company that owns Korea's most successful retailer, Emart. Wal-Mart's failure demonstrated the challenges for foreign companies seeking to break into Korea's insular retail market.

1. Wal-Mart Goes Bust in Korea
After apparently studying the Korean
market for nearly four years, Wal-Mart
took the plunge in 1998. The US giant
purchased four Korean retail locations
from Makro, a local club retailer. The
stores got off to a rocky start as some
dispute emerged in Korea over the use
of Wal-Mart’s globally recognizable
trademark. By the time the Kangnam
store had opened however, in 1999,
Walmart was proudly dispalying its logo.
"Throughout the world, the Wal-Mart
name symbolizes every day low prices,
customer satisfaction and customer value," said Rene Mang, country president
for Wal-Mart Korea. "With the opening of the Kangnam store and the usage of
the Wal-Mart Supercenter trade name, we are confident that we will continue to
provide the highest level of customer service and quality merchandise."
Some analysts believe that Wal-Mart requires a ‘critical mass’ of at least 100
stores to operate profitably and so the move on Korea, with only four stores
nationwide, seemed like a bold step – Wal-Mart’s ‘every day low prices’ are
predicated on margins of about 3% (in 1997) against huge sales volumes.
Volume purchasing is another key factor in the Wal-Mart formula, allowing the
giant to pressure its suppliers and drive down prices, but with only four stores in
Korea volume buying tactics were severely impaired. The Makro real estate
acquisitions were made with good timing, nevertheless, as Korea in 1998 was
just beginning to recover from the Asian cash crisis and Wal-Mart purchased
these properties at bargain-basement prices.
Discussions in Globalization
1) International expansion can be a risky business. How would you advise a
retailer, like Wal-Mart, to enter the Korean market?
2) Do you think that Wal-Mart stores are attractive to Korean shoppers?
3) Which is more important in the Korean superstore experience – low
pricing, or an in-store atmosphere that entertains shoppers?
4) What are the two most common modes of entry to a foreign market?
5) What mistakes, if any, did Wal-Mart make in assesing the Korean
consumer?
6) What mistakes did Wal-Mart make with regards to suppliers and the
marketplace?
7) There are three important factors in retail, they say: “location, location
and location”. Did Wal-Mart make the right choice by moving to
Kangnam?
8) Why has Emart been so much more successful in Korea than Wal-Mart?
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Copyright Allen & Karina Bauer, Karina Communications, 2009

2. Overall, the Wal-Mart globalization strategy has been simple: buy an established
player, exert its influence on small, local businesses and drive out the
competition. In Mexico, Wal-Mart joined forces with the leading retailer Cifra
and eventually obtained controlling interest, creating the Wal-Mart de Mexico
superstore. Wal-Mart’s strategy (kill the competition and monopolize the
market) has been widely criticized of predator pricing and of exercising unfair
pressure on its suppliers. In fact, in 2000, the German Cartel Office found that
Wal-Mart was selling its products at a loss, or unreasonably low, to drive out the
competition. These tactics didn’t work well in Korea, though. The Korean
marketplace enjoys a thriving grey market tradition as traders, engaged in spot-
buying in China and South-East Asia, hawk their wares in Dongdaemun or
Yongsan. If discount pricing were to be the only attraction for Wal-Mart’s
Korean customers, the superstore was up against some pretty stiff competition.
Did Wal-Mart really do its homework before coming to Korea? The Korean
consumer is an altogether different bird than its American counterpart. In fact,
Korea is sometimes called ‘The Hermit Nation’ because of its uniquely insular
culture. Generally speaking, Koreans are not an outward-looking people, and
there is a distinct tendency among them to believe that the whole world revolves
around Korea. The cash crisis, locally referred to as “the IMF time”, truly
galvanized the Korean national spirit as the whole country pulled together to pull
itself out of debt. In 1998, when Walmart chose to launch its Korean initiative,
the IMF had just imposed its will over the domestic economy and there was a
growing attitude of suspicion in Korea, towards all things foreign.
Upscale Kangnam was probably a bad choice of locations. It is one of Seoul’s
wealthiest neighborhoods and Kangnam shoppers, for the most part, are more
interested in exclusivity and a luxurious ambience than discount pricing. In the
suburbs and smaller cities, meanwhile, the Wal-Mart formula failed to address all
the needs of the Korean middle class. Korea is a family-oriented society and
household shopping is a family excursion as well as a form of entertainment.
Wal-Mart’s dry-goods grocery inventory failed to attract the Korean housewife.
Emart, on the other hand, offered a full grocery menu as well as household
inventory, clothing, furniture, appliances and electronics. The Wal-Mart stores
are also quite plain (a warehouse format) in comparison to Emart stores which
are more involved, with eye-catching displays and entertainment for children.
Joint venture is by far a more cautious mode of entry than acquisition. If Wal-
Mart had negotiated a joint venture with an established Korean retailer (as in
Mexico), things might have been different. "Wal-Mart is a typical example of a
global giant who has failed to localize its operations in South Korea," says Na
Hong Seok, an analyst at Good Morning Shinhan Securities. "It failed to read
what South Korean housewives want when they go shopping. In contrast to
Wal-Mart, the British retailer Tesco [Homeplus] is a remarkable case of
succeeding in localizing." Samsung-Tesco is 89 percent owned by the British
retail giant, but has relied heavily on local managers from Samsung. Homeplus
is a Korean success story, generating a third of Tesco’s overseas sales.
On May 22, 2006, Wal-Mart cut its losses at $10 million and pulled out of Korea.
Its Korean assets were purchased by Shinsegae, the company that owns and
operates Emart. Wal-Mart is not the first international company to come up
against a brick wall in Korea. The French retailer Carrefour also shut down its
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Copyright Allen & Karina Bauer, Karina Communications, 2009

3. Korean operations in 2006. Nokia, the world’s largest cell phone producer, has
given up on promoting its products in Korea, while Google remains mired in a
dispute with Korea’s Information Communication Ethics Committee; the world’s
number one internet search engine has been accused of “leading minors to sex
sites”. In any case, Koreans are already hooked on Daum and Naver, though
censorship, or control of information, may be one of the factors preventing
Korea from globalizing as a nation. Apple has finally made a small dent on the
Korean marketplace with its iPod line, after negotiating preferential pricing on
flash memory with Samsung. The bottom line is: Korea remains a tough market
to crack for foreign companies with an eye to overseas expansion and joint
ventures, enlisting seasoned Korean businesspeople, are the safest way to try.
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Copyright Allen & Karina Bauer, Karina Communications, 2009