business news in context, analysis with attitude

Fortune reports that despite an investment of more than a billion dollars and almost as many man hours to its Seiyu operation in Japan, Wal-Mart continues to struggle there.

“It's a battle that Wal-Mart cannot afford to lose because of the imperative to avoid over reliance on a U.S. market that may be reaching saturation,” Fortune writes. “Having pulled out of Germany and South Korea after faring poorly in those markets, the giant retailer is doing well in China and Mexico under its own brand and reasonably well in Britain under the Asda name.

“But if Wal-Mart walks away from Japan, where it has invested more than $1 billion in a 51 percent stake in Seiyu and in bringing in its own distribution and computer systems, the company's hopes of creating a credible international strategy will take a serious blow. ‘Wal-Mart, being a company that would like to grow around the world, cannot just ignore a market of this particular size,’ says Ed Kolodzieski, Wal-Mart's top executive in Japan.”

Part of the problem apparently stems from Wal-Mart’s decision to fire 25 percent of headquarters staff when it took over 51 percent of Seiyu, a mass firing that rarely occurs in Japan.

“Partly as a result, the fired employees and current ones as well have created a climate of resistance,” Fortune reports. “They are frequently quoted in Japanese media complaining about Wal-Mart's efforts to instill an American operating model in Japan. The company says it is being flexible, but the carping persists: Wal-Mart is moving too aggressively to cut out distribution middlemen; it is making life difficult for managers by mandating that stores remain open for 24 hours; it is introducing products from China and elsewhere that don't meet Japanese tastes or standards of quality.”

In addition, according to the story, local competitors are “fanning the flames of discontent” because they want Wal-Mart to fail so they can acquire the Seiyu chain. And, Wal-Mart is under pressure at home because investors are looking for increased returns and are less willing to be patient with foreign misadventures.
KC's View:
I would be shocked if Wal-Mart were to pull out of Japan. It would represent a loss of face that would be almost staggering in terms of the global retailing scene, and I cannot even imagine it happening…unless, of course, Wal-Mart’s top ranks go through a dramatic overhaul and new management has little or no allegiance to past strategies.

But unless that happens, look for Wal-Mart to be in Japan for the long haul.