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Giant Lessons for Wal-Mart Behemoth

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ClientSide News Magazine pictureAt the 2006 ClientSide News Expo, Echo International shared a fascinating case study involving global awareness and cultural sensitivity. CSN is pleased to share the case study in more detail. Many thanks go to Echo International for sharing this research.

Based in Pittsburgh, Pennsylvania, Echo International provides expert solutions in the areas of intercultural training, technical translations, multi-language content management, software localization, and Web globalization. Echo helps clients to be globally fluent, globally aware, and globally successful.

When retailing giant Wal-Mart entered Germany in 1997-98, few would have predicted the immense struggles the retailing giant would incur in its efforts to conquer the world’s third-largest retail market. But last month the company sold its 85 stores to a competitor. After nine years of futility and roughly a billion dollars in losses, Wal-Mart beat an inglorious retreat back across the Atlantic.

There are many reasons why Wal-Mart’s business model failed in Germany. Strong competition, poor store locations, and ill-conceived acquisitions all contributed to what one economist referred to as a fiasco. But beneath these basic economic decisions were a host of basic cross-cultural mistakes that fueled the company’s poor strategic planning.

There are many reasons why Wal-Mart’s business model failed in Germany. Strong competition, poor store locations, and ill-conceived acquisitions all contributed to what one economist referred to as a fiasco. But beneath these basic economic decisions were a host of basic cross-cultural mistakes that fueled the company’s poor strategic planning.

Wal-Mart seems to have recognized its hubris in the wake of its departure. Wal-Mart’s international spokeswoman, Beth Keck, acknowledged that Germany was a good example of the company’s international naiveté.

What were these mistakes and what can be learned from them? Three errors stand out in particular.


Wal-Mart failed to take into account Germany’s cultural attitudes, especially with regard to such matters as labor law and the role of unions. While the company’s anti-union stance has been core to its US success in holding down costs and thus its ability to offer discount pricing, Germans generally see a closer link between labor unions and democracy. When Wal-Mart “exported” its domestic labor regulations that discourage or forbid fraternization among employees, this was considered in Germany to be anti-democratic and an impermissible intervention into the private lives of employees. Europeans, in general, tend not to generally accept corporate work rules that regulate their private lives. In Germany, companies typically enjoy a close connection with their unions. Wal-Mart’s failure to appreciate and adjust to this attitude was the start of its adverse image in Germany. Worse than the damage done to its employee relations was the spread of this negative image through the media to the German society and thus to German consumers.

Some of Wal-Mart’s employee practices may have been standard practice among companies in the US but they served to infuriate Workers Councils in Germany, and were quickly challenged. The challenges included costly and well-publicized litigation damaging to the Wal-Mart image.

A labor court in Wuppertal ruled in a lawsuit filed by local employees that parts of Wal-Mart Germany’s ethics code contravened German law. The code of conduct included a ban on relationships at work and provided a hotline for employees to report on rules violations by co-workers. Wal-Mart also ran afoul of requirements that workers’ representatives be consulted before introducing changes in working conditions.

The court case highlights the potential pitfalls awaiting companies that try to export ethics codes and regulations wholesale to other countries. Had Wal-Mart been open to learning about the culture it was entering, it might have understood, for instance, the traumatic historical memories its worker hotline induced in those who had suffered under the secretive and repressive East German regime, or the Third Reich before the war.


Wal-Mart failed to appreciate whether and how American consumer habits and expectations might differ from those of consumers in new markets. It is not difficult to understand, for example, that what is considered “customer service” in one country may be wholly inappropriate or even offensive in another. Thus, Wal-Mart’s German competitors gleefully observed Wal-Mart offend its new customers by bagging their purchases. These competitors knew that thrifty German shoppers prefer this task not be done by strangers. While more affluent German shoppers might appreciate this “service”, German discount shoppers regarded this as an intrusion into their privacy for which they were paying a hidden labor cost.

Wal-Mart’s gaffe was compounded by its use of plastic bags in a society highly sensitive to issues of sustainability and matters of ecology. Thus, for reasons of both privacy and ecology, Germans will take their own large bags to supermarkets to bag and carry their own purchases.

This example is representative of Wal-Mart’s failure to appreciate its customers. The company’s use of greeters and its employment of the “ten-foot rule” whereby employees would offer support to shoppers were counter-productive choices in a discount market environment. Many shoppers were unnerved by these practices. Some even felt molested.

By comparison, grocery store chain, Aldi, which originated in Germany, is a good example of what Germans expect from a discount store. At Aldi, customers bag their own groceries, shopping carts are available with the deposit of a quarter, and the store hours are reduced to save on operational costs. The shelves are lined with products still in the boxes they were shipped in, to cut down on stocking labor. Boxes are even available for customers to use to carry their purchases to their cars, in place of plastic bags.

Cultural differences did not always result in giving offense. Sometimes they merely produced economic waste. Super-sized pillowcases that were apparently attractive to Americans held no appeal for German shoppers and wound up piled up high in German warehouses.

Overall, the perception of Wal-Mart’s “targeted customer group” was that the company did not deliver on its proposition to offer the lowest prices and excellent customer service. In its retreat, Wal-Mart admitted that its formula is not a fit for every culture.


Wal-Mart entered the German market with a degree of cultural arrogance that undermined its chances for success. Having conquered the world’s largest consumer market, Wal-Mart seemed to venture abroad expecting a similar triumph. Its first German chief executive, for instance, spoke not a word of German and was apparently uninformed regarding German business culture. As a result, his company appeared as the embodiment of the stereotypical “Ugly American.”

Indeed, Wal-Mart did not have a second chance to make a first impression.


Dr. Napiersky, a German national, holds a PhD in Industrial Psychology from Christian Albrecht University in Kiel, Germany. As a cross-cultural expert, a certified professional coach, an HR consultant, and a professional psychologist, Dr Napiersky has more than 13 years of international experience in people assessment and coaching. His international consulting experience has taken him to Germany, Singapore, U.K., Austria, Switzerland, Netherlands, France, China, Philippines, Russia, Hungary, and Dubai. He is the author of numerous cross-cultural and psychology articles and working papers, and has been featured in the Journal of Applied Psychology.


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