Bae 1 Joonho Bae Donovan Ramage EAP 159 Aug 11th, 2008 Why did Wal-Mart’s Business in Korea Fail? Have you ever thought about business front-runner Wal-Mart’s failure? Or have you even heard about the existence of Wal-Mart in Korea? Wal-Mart stores settled down in Korea to expand their business in 1998. Wal-Mart Inc adhered to only their concept like management style, interior and traditional ways of doing things. In spite of their attempt, they their business in Korea couldn’t succeed. And they even made several unrecoverable management mistakes. They made an investment in the Korean market, even though they didn’t understand Korean culture and market style. Therefore, they had to remove their operation in Korea in 2002. It was a big impact for Wal-Mart Inc and many business specialists have analyzed and found out the reasons why Wal-Mart failed their business in Korea. There are several reasons for this failure, including location, the merchandise offered, store design, and communication problems. Choosing location is the most principal decision to start business. In my view, Wal-Mart Inc, the best discount warehouse in the world, has a lot of employees who have high-scholastic ability and many experience for their management. However they couldn’t find out suitable place to run their business in Korea. According to Dr. KyeChung Song, who is one of Korean exchange professor, “Most of the Korean department stores have centralized locations downtown in areas easily accessible by subway but Wal-Mart has built facilities in remote locations.” (Gutormson 2). Most supercenters in the United States are located far from residential areas. Because of this fact, Americans would like to purchase numerous and large quantities of goods at once in supercenters.
Bae 2 It’s the reason why those discount department stores sell large amount products. However this system was distant from Korean’s life style. People who live in Korea can easily go to Korean company’s supercenters located in downtown whenever we want. Because of this advantage, products in large could be a burden for Korean who can go shopping near their residential areas frequently. Because Koreans think that if they purchase large quantities of products, they can’t finish using the products, and finally they are going to throw those away. Another problem was MD1. With the development of Korean economy, Koreans have started to prefer well-known brands. Most Koreans believe that only well-known brand’s companies produce high quality goods. Even though there were plenty of foreign products in Wal-Mart in Korea, most products such as clothes and household goods couldn’t attract Korean’s desire to purchase products with reliance because those were anonymous brands. Most of the section in Wal-Mart in Korea amounted to foreign products; therefore the sections for Korean brands ought to have been reduced in the stores. Ordinary people also echoed this sentiment. For example, Mrs. Byun, who is my friend’s mother from Pusan, Korea, said, “There were no Korean customers except a few foreigners in Wal-Mart in Pusan. Because of that, I could enjoy uncrowded shopping, though there were lots of products which were unfamiliar brands in the store, so it was inconvenient shopping for me.”(Mrs. Byun). According to Mrs. Byun’s interview, most Koreans prefer one-stop shopping which means that purchasing everything whatever they want in one place for convenience; therefore, Koreans might have had same opinion with her. That was also one of the big reasons why nobody wanted to shop in Wal-Mart. In addition, normally westerners consume processed-foods instead of organic 1
Merchandising
Bae 3 foods. Wal-Mart’s grocery shelves stock frozen fish rather than the fresh fish preferred for the Asian diet (Gilbert). This system was unusual for Koreans who often prepare dishes using fresh ingredients. Because of those reasons, Wal-Mart was defeated by Korean supercenters displaying well-known brands and fresh foods which are familiar to Koreans. The interior was also one of the reasons for Wal-Mart’s failure in Korea. According to Dr. Kye-Chung Song, the brick and tile interior does not provide any sense of wealth or status, important points of Korean culture (Gutormson). Korean warehouses – E-Mart and Home Plus – have invested immense money for interior in their stores and manage quasi-department stores. They have created splendorous shopping environments somewhat removed from the original purport of warehouse reducing interior expenses and selling on the cheap. Wal-Mart Inc pursued ‘a globalstandard’ in Korea. However, it didn’t work; therefore they tried to change their management style. However it was too late. Generally if ranges of price are much the same, customers want to purchase products in the stores which have good facilities. In addition, the store’s design was not altered to accommodate the average Korean’s height; therefore, the shelves and displays are higher than in the other stores (Gutormson). Wal-Mart displays their products like a warehouse and has high shelves, but E-Mart has display gondolas which are no higher than the shoppers’ heads. Koreans, who have got used to those shopping style, felt rather awkward shopping in Wal-Mart. Lastly, one of the biggest problems is management. According to Hong-Suk Na, an analyst at Good Morning Shinhan Securities in Seoul, “A big part of Wal-Mart’s problems started with the fact that the corporate headquarters are in the U.S.A, and there was a lack of communication between them and the Korean division” (Choe).
Bae 4 Wal-Mart Korea hired 3500 of Korean employees; however president and vice president who could have made the final decisions are Americans. In case of Wal-Mart, they decided to hire Korean employees who could speak English. Even though the employees spoke English, they didn’t have any enough knowledge for business. In the other hand, even though the employees had knowledge, they couldn’t speak enough English to communicate their intentions with headquarters. Moreover they lost a chance to invest at optimum time. In 2002, Korean economy became worse. As Korean economy went down, they decided not to invest and observed how the Korean economy changed. In 2003, they couldn’t extend any stores although in 2004, they opened a single store in PoHang, Korea. While Wal-Mart was holding back, small Korean warehouse companies attacked Korean market and spread out their business. In consequence, as Korean discount department stores expanded, Wal-Mart lost their leader status and this became a reason for their failure. To sum up, business should be based on knowledge. Companies planning to business abroad should organize enough information about the consumers’ desire and should be able to utilize about it. Working of a business in overseas market is not easy target for attack. If companies want to run their business in foreign countries, firstly they should grasp the countries’ inclinations carefully. “Location is the most important step to sell products.” Donald Trump, who is the president of a real-estate company in New York, said. After organizing, they should choose location in where most people want to gather. And then, they must be slid into the countries’ cultures to create their business project and combine together with. As mentioned above, there are several considerations in managing a company in the other countries. Wal-Mart might have thought it was easy to expand their business in Korea. They might have been self-satisfied by themselves. However the result was
Bae 5 pitiful. If they had endeavored and prepared enough to start running company in Korea, they wouldn’t have seen the miserable end. Therefore, in my opinion, if American companies are going overseas, they should do their homework first.
Bae 6
Works Cited Choe, Sang-Hun. “Wal-Mart selling Stores and Leaving South Korea”. International Herald Tribune. 23 May 2006. 25 July 2008. <http://www.nytimes.com/2006/05/23/business/worldbusiness/23shop.html>
Gilbert, Mark. “Wal-Mart’s China Challenge VIEWPOINT BUSINESS ASIA by Bloomberg”. International Herald Tribune. 23 Oct 2006. 25 July 2008. <http://www.redorbit.com/news/business/703151/walmarts_china_challenge_vie wpoint_business_asia_by_bloomberg/index.html>
Gutormson, Kara. “Wal-Mart venture disappointing in Korea, fails to adapt to Asian Market”. SDSU collegian. 05 Dec 2007. 20 July 2008. <http://media.www.sdsucollegian.com/media/storage/paper484/news/2007/12/05/ News/WalMart.Venture.Disappointing.In.Korea.Fails.To.Adapt.To.Asian.Marke t-3134165.shtml>
Mrs. Byun. Personal Interview. 27 July 2008.