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  1. 1. Dorothy Yu Iain Darroch Stephanie Falls Spain? Portugal? Italy?
  2. 2. Table of Contents <ul><li>About Wal-Mart </li></ul><ul><li>About Wal-Mart International </li></ul><ul><li>Criteria for Investment Opportunity </li></ul><ul><li>European Union </li></ul><ul><li>Country Descriptions </li></ul><ul><li>Chosen Country </li></ul><ul><li>Recommendations </li></ul>
  3. 3. <ul><li>STANDARDIZATION </li></ul><ul><ul><li>Beliefs </li></ul></ul><ul><ul><ul><li>Respect for the Individual </li></ul></ul></ul><ul><ul><ul><li>Service to Our Customers </li></ul></ul></ul><ul><ul><ul><li>Strive for Excellence </li></ul></ul></ul><ul><ul><li>Pricing Strategies </li></ul></ul><ul><ul><ul><li>Every Day Low Price (EDLP) </li></ul></ul></ul><ul><ul><ul><li>Rollback </li></ul></ul></ul><ul><ul><ul><li>Special Buy </li></ul></ul></ul>
  4. 4. <ul><li>Operations </li></ul><ul><ul><li>1991: SAM’S Club opened near Mexico City </li></ul></ul><ul><ul><li>1993: creation of Wal-Mart International </li></ul></ul><ul><ul><li>rapid growth and consumer acceptance. </li></ul></ul><ul><li>Employment </li></ul><ul><ul><li>330,000 associates in Argentina, Brazil, Canada, China, Germany, Korea, Mexico, Puerto Rico and the United Kingdom. </li></ul></ul><ul><ul><li>also owns a 37.8% interest in Seiyu, Ltd., a leading Japanese retailer. </li></ul></ul><ul><li>Global Expansion </li></ul><ul><ul><li>building new stores </li></ul></ul><ul><ul><li>series of acquisitions </li></ul></ul><ul><li>Financial results. </li></ul><ul><ul><li>2004 fiscal year end sales reached $47.5 billion, a 16.6 percent increase over the previous year, and that operating profit rose to $2.3 billion, an increase of 18.6 percent over the prior year. </li></ul></ul><ul><li>Global Strategy, Local Focus. </li></ul><ul><ul><li>Success: ability to transport the company’s unique culture and effective retailing concepts to each new country. </li></ul></ul><ul><ul><li>effort to adapt to local cultures and become involved in the local community. </li></ul></ul><ul><ul><li>Local customer needs, merchandise preferences and local suppliers. </li></ul></ul>INTERNATIONAL
  6. 6. <ul><li>34 Supercenters </li></ul><ul><li>3 Sam’s Clubs </li></ul><ul><li>2 Neighborhood Markets. </li></ul><ul><li>employs more than 20,000 associates. </li></ul>CHINA
  7. 7. <ul><li>1991: joint venture: Cifra </li></ul><ul><li>first country for Wal-Mart International </li></ul><ul><li>1997, Wal-Mart acquired </li></ul><ul><li>operates 671 units in 31 states </li></ul><ul><li>employs more than 105,000 associates across the country. </li></ul>MEXICO
  8. 8. <ul><ul><li>1999: acquisition: ASDA </li></ul></ul><ul><ul><ul><li>256 ASDA stores </li></ul></ul></ul><ul><ul><ul><li>7 GEORGE apparel stores </li></ul></ul></ul><ul><ul><ul><li>21 depots </li></ul></ul></ul><ul><ul><li>Employs around 134,000 </li></ul></ul><ul><ul><li>Wal-Mart name: 1st appeared on a UK store in 2000 </li></ul></ul><ul><ul><li>13 ASDA-Wal-Mart Supercentres throughout the UK. </li></ul></ul>EUROPEAN EXPANSION UNITED KINGDOM
  9. 9. GERMANY <ul><ul><li>1998: acquisition </li></ul></ul><ul><ul><ul><li>21 Wertkauf hypermarkets </li></ul></ul></ul><ul><ul><ul><li>74 Interspar hypermarkets </li></ul></ul></ul><ul><ul><li>employs more than 13,000 associates </li></ul></ul><ul><li>Cultural Problems </li></ul><ul><li>Entry Method </li></ul><ul><li>“ Loss Leaders” banned </li></ul><ul><li>Unions </li></ul>EUROPEAN EXPANSION
  10. 10. Common EU considerations <ul><ul><li>Exchange Rates </li></ul></ul><ul><ul><li>Translation exposure/Transaction exposure </li></ul></ul><ul><ul><li>Interest rates </li></ul></ul><ul><ul><li>All deal with a similar network of suppliers </li></ul></ul>
  11. 11. Evaluation Criteria <ul><li>Demand Conditions </li></ul><ul><li>Market Analysis </li></ul><ul><li>Labour Issues </li></ul><ul><li>Political Risk and Strategies </li></ul><ul><li>FDI requirements and incentives </li></ul><ul><li>Relationship with the US </li></ul><ul><li>Taxation </li></ul><ul><li>Bribery and corruption </li></ul>
  12. 12. <ul><li>Demand Conditions </li></ul><ul><ul><li>GDP per Capita, With PPP $US 22,000 </li></ul></ul><ul><ul><li>Population 40,280,780 </li></ul></ul>2.3 2.1 2.2 2 2.4 Retail sales volume growth (%) 254,225 249,580 251,106 247,400 218,503 Retail sales (US$ m) 2008 2007 2006 2005 2004
  13. 13. <ul><li>Market Analysis </li></ul><ul><ul><li>Young hypermarket sector </li></ul></ul><ul><ul><li>Competitors: </li></ul></ul><ul><ul><ul><li>El Corte Inglés = Largest </li></ul></ul></ul><ul><ul><ul><ul><li>High End </li></ul></ul></ul></ul><ul><ul><ul><li>Carrefour = 2 nd Largest </li></ul></ul></ul><ul><ul><ul><ul><li>enjoys 90% brand recognition. </li></ul></ul></ul></ul><ul><ul><li>Rules on new store development </li></ul></ul>
  14. 14. <ul><li>Labour Issues </li></ul><ul><ul><li>Labour Force: 18.82 million </li></ul></ul><ul><ul><li>Wages under EU average </li></ul></ul><ul><ul><li>Worst unemployment in EU : 11.3% </li></ul></ul><ul><ul><li>Hypermarket do not have to abide by the “siesta” working hours. </li></ul></ul><ul><ul><li>Wages are determined in contracts – no hourly wage </li></ul></ul><ul><ul><li>Dues-paying union membership is among the lowest in the EU (10%) </li></ul></ul>
  15. 15. <ul><li>Political Risk and Strategies </li></ul><ul><ul><li>Government incentives to companies to create permanent jobs </li></ul></ul><ul><ul><li>Government restrictions on the expansion of the hypermarket sector </li></ul></ul>
  16. 16. <ul><li>FDI requirements and incentive s </li></ul><ul><ul><li>U.S. is the largest foreign investor in Spain. </li></ul></ul><ul><ul><li>Ministry of Economy is ready to offer assistance to companies that are interested in investing in the country </li></ul></ul><ul><ul><li>Top 3 business functions:  Manufacturing, retail, sales marketing & support </li></ul></ul>
  17. 17. <ul><li>Relationship with the US </li></ul><ul><ul><li>Spaniards voted for entering NATO and are fond of American products </li></ul></ul><ul><ul><li>Support given for the war in Iraq and Afghanistan </li></ul></ul>
  18. 18. <ul><li>Taxation </li></ul><ul><ul><li>Corporate tax rate: 35% </li></ul></ul><ul><ul><li>VAT to end-consumer 16%, reduced = 4-7% – businesses entitled to deduct VAT borne against VAT charged. </li></ul></ul><ul><ul><li>Tax on Business Activity ( IAE ) </li></ul></ul><ul><ul><ul><li>Local rate depends on many factors, such as size and location of the business, the type of business, and number of employees. </li></ul></ul></ul><ul><li>Bribery and corruption </li></ul><ul><ul><li>Spain is the 22 nd least corrupt nation in the World - Transparency International </li></ul></ul>
  19. 19. <ul><li>Demand </li></ul><ul><ul><li>Lowest GDP per Capita, With PPP $18,100 US </li></ul></ul><ul><ul><li>Population: 10,356,117 </li></ul></ul>2.2 2.2 3.9 4.8 4.3 Retail sales volume growth (%) 48,889 48,068 48,446 47,078 40,724 Retail sales (US$ m) 2008 2007 2006 2005 2004
  20. 20. <ul><li>Market Analysis </li></ul><ul><ul><li>16 Jumbo & Pao de Açucar hypermarkets </li></ul></ul><ul><ul><li>Smallest domestic retail sales market in EU </li></ul></ul><ul><ul><li>Retail is best-performing and most sought-after property segment in Portugal </li></ul></ul><ul><ul><li>Going from small independent specialist retailers to one that is dominated by large multinationals </li></ul></ul><ul><ul><li>driven down average prices in the retail industry, making the industry more competitive </li></ul></ul>
  21. 21. <ul><li>Labour Issues </li></ul><ul><ul><li>Lowest labour cost in the EU </li></ul></ul><ul><ul><li>Lowest Productivity </li></ul></ul><ul><ul><li>Overly rigid labour market </li></ul></ul><ul><ul><li>Low level of unionization </li></ul></ul><ul><ul><li>General Workers Confederation of Portugal (CGTP) </li></ul></ul><ul><ul><li>New Labor Law approved by Parliament </li></ul></ul><ul><ul><ul><li>aiming to make the labor market more flexible </li></ul></ul></ul><ul><ul><li>Unemployment rate: 6.4% </li></ul></ul>
  22. 22. <ul><li>Political Risk and Strategies </li></ul><ul><ul><li>Hypermarkets closing down small retailers </li></ul></ul><ul><ul><ul><li>Government may be putting in expansion restrictions </li></ul></ul></ul><ul><ul><li>Legal system </li></ul></ul><ul><ul><ul><li>Slow and ineffective </li></ul></ul></ul><ul><ul><ul><li>Leads to binding arbitration of investment disputes </li></ul></ul></ul>
  23. 23. <ul><li>FDI requirements and incentive s </li></ul><ul><ul><li>No distinctions exist between foreign- owned and Portuguese- owned companies </li></ul></ul><ul><ul><li>No limit on the repatriation of profits and/or dividends </li></ul></ul><ul><ul><li>Tailored incentives package on a case by case basis </li></ul></ul><ul><ul><li>New incentives regime - PRIME launched July 2003 </li></ul></ul><ul><ul><li>investments >150000 euros, tax free loans and grants for a percentage of qualifying investments </li></ul></ul>
  24. 24. <ul><li>Relationship with the US </li></ul><ul><ul><li>Pro- American </li></ul></ul><ul><ul><li>After revolutionary war, Portugal was the first neutral country to recognize the U.S. </li></ul></ul>
  25. 25. <ul><li>Taxation </li></ul><ul><ul><li>Corporate tax rate: 25% in 2005, 20% 2006 </li></ul></ul><ul><ul><li>VAT to end-consumer 17% </li></ul></ul><ul><ul><li>Double Taxation Prevention Treaty </li></ul></ul><ul><li>Bribery and corruption </li></ul><ul><ul><li>Portugal is the 27 th least corrupt nation in the World - Transparency International </li></ul></ul>
  26. 26. <ul><li>Demand Conditions </li></ul><ul><li>GDP per Capita PPP $US 26,200 </li></ul><ul><li>Inflation 2.3% (2003) </li></ul><ul><li>Current Account Deficit $US 21,942 million </li></ul><ul><li>Change in Net Reserves -$US 11,362 </li></ul><ul><li>Population: 58,057,477 </li></ul><ul><li> </li></ul>
  27. 27. <ul><li>Market Analysis </li></ul><ul><li>Retail Sector valued at $US 270 billion (2003) </li></ul><ul><li>60 million consumers </li></ul><ul><li>Sophisticated and high brand awareness </li></ul><ul><li>Centre of International Market </li></ul><ul><li>High competition from European Chains </li></ul><ul><li>Carrefour (Worldwide), Crai, Esselunge (Spa), GS, SMA </li></ul>
  28. 28. <ul><li>Labour Issues </li></ul><ul><li>Regional Issue </li></ul><ul><li>Infrastructure Problems </li></ul><ul><li>Women and Youth </li></ul><ul><li>Underground Problems </li></ul><ul><li>Unemployment: 8.9% (2003), EMU Standard 8.8% </li></ul><ul><ul><li>Historical Difference between South 18.4%, Central 6.6%, 3.7% </li></ul></ul><ul><li>40% Workforce </li></ul><ul><li>4 major – CGIL, CISL, UIL, UGL </li></ul><ul><li>Important role and notable activism </li></ul>
  29. 29. <ul><li>Political </li></ul><ul><li>Crisis expected mid 2005 </li></ul><ul><li>Deeply divided </li></ul><ul><li>Silvio Berlusconi – PM and Italy’s richest person </li></ul><ul><li>FDI Requirements and incentives </li></ul><ul><li>$US 15bn – 1.1% GDP </li></ul><ul><li>No major impediments but high bureaucracy </li></ul><ul><li>Government Authority & Italian Anti-Trust </li></ul><ul><li>Conformity with EU Treaty Article 43 </li></ul><ul><li>Limted Incentives for companies like Wal-Mart </li></ul><ul><li>Requirements </li></ul><ul><ul><li>Reformed 1st Jan 2004 to make easier </li></ul></ul><ul><ul><li>Bring into line with Western Corporate Models </li></ul></ul>
  30. 30. <ul><li>Relationship with USA </li></ul><ul><li>Strong and Growing – Economic and Political </li></ul><ul><li>2002 trade $US 34.4 billion </li></ul><ul><li>US imported $US 24.3 billion of Italian Goods </li></ul><ul><li>BUT: </li></ul><ul><ul><li>NATO bombing in the Balkans in spring 1999, some retail outlets identified with the U.S. were the targets of attacks, almost always after hours, that resulted in minor damage (broken glass, graffiti) but no injuries to personnel. </li></ul></ul>
  31. 31. <ul><li>Taxation </li></ul><ul><li>Italy – US Tax Treaty to avoid double taxation of firms with operations in both countries </li></ul><ul><li>Corporate Income Tax (IRES) 33% on Italian source income </li></ul><ul><li>Resident or Non Resident? </li></ul>
  32. 32. <ul><li>Bribery & Corruption </li></ul><ul><li>Highest among G7 countries – 42 nd in rankings </li></ul><ul><li>Contributing factors (WTO): </li></ul><ul><ul><li>Bribery </li></ul></ul><ul><ul><li>Bureaucracy & Confusing </li></ul></ul><ul><ul><li>Regulations </li></ul></ul><ul><ul><li>Political party financing </li></ul></ul><ul><li>Low civil servant wages </li></ul><ul><li>Parmalat,Argentine,Cirio bankruptcies </li></ul><ul><li>International Accounting Standards </li></ul>
  33. 33. The Results 2 nd 1 st 3 rd 1 st 2 nd 3 rd 2 nd 1 st 3 rd 1 st 3 rd 2 nd 1 st 3 rd 2 nd 2 nd 2 nd 1 st 1 st 3 rd 2 nd 1 st 3 rd 1 st 3 rd 2 nd 1 st 1 st 3 rd 2 nd 15 23 20 Bribery & Corruption TOTALS Taxation Relationship with the US FDI Political Risk Labour Issues Competition Market Size Retail Growth Demand: GDP PORTUGAL ITALY SPAIN
  34. 34. Our Choice: <ul><li>Big Market and growing GDP </li></ul><ul><li>High Unemployment: Wal-Mart creates Jobs </li></ul><ul><li>High consumer spending </li></ul><ul><li>Presence of Carrefour for acquisition </li></ul><ul><li>Low Union presence </li></ul><ul><ul><li>Trade Union Density </li></ul></ul><ul><ul><ul><li>Italy 44.1% </li></ul></ul></ul><ul><ul><ul><li>Portugal 25.6% </li></ul></ul></ul><ul><ul><ul><li>Spain 18.6% </li></ul></ul></ul><ul><li>FDI Incentive for services </li></ul><ul><li>Modernized economy </li></ul>SPAIN
  35. 35. <ul><li>ACQUISITION </li></ul><ul><ul><li>“ Wal-Mart set to buy hypermarkets from Carrefour” </li></ul></ul><ul><ul><ul><li>U.S. retail giant is now negotiating with its closest global competitor, Carrefour. </li></ul></ul></ul><ul><ul><ul><li>possible purchase of the 12 hypermarkets, 15 supermarkets and 12 smaller stores that Carrefour must sell, as a result of the merger with Promodes last year. </li></ul></ul></ul><ul><ul><ul><li>Competition: Wal-Mart ruthless in using its huge global resources for waging predatory price wars. </li></ul></ul></ul><ul><ul><ul><li>deal between Carrefour and Wal-Mart would be made subject to appropriate trade union action. </li></ul></ul></ul>Entry Recommendations
  36. 36. <ul><ul><li>“ Wal-Mart is said to be interested in Carrefour hypermarkets in Spain” </li></ul></ul><ul><ul><ul><li>Wal-Mart wants to buy the twelve Carrefour hypermarkets in Spain </li></ul></ul></ul><ul><ul><ul><li>has been eyeing the Iberian market already for long. </li></ul></ul></ul><ul><ul><li>“ French Fusion” – the economist </li></ul></ul>Entry Recommendations
  37. 37. Carrefour <ul><li>2 nd largest retailer worldwide </li></ul><ul><li>Over 10,000 stores in 29 countries </li></ul><ul><li>Hypermarket, Supermarket, Hard Discount </li></ul><ul><li>Leader in 9 countries: </li></ul><ul><ul><li>France, Belgium, Spain, Portugal, Greece, Brazil, Argentina, Taiwan, South Korea and Indonesia. </li></ul></ul><ul><li>$US 120 billion sales </li></ul><ul><li>420,000 employees </li></ul>