Sunday, February 24, 2013

How to Fail as a Company in Germany

In 1997, Wal-Mart made the move into Germany.  To be honest, they brought their US business model with them.  They figured....it worked in the US and various other nations....so it'd work in Germany.

By 2006, Wal-Mart admitted defeat, put up a plan to leave, and in roughly nine months....were gone from Germany.

The Wal-Mart experience into Germany was deemed a failure by the company.....but the explanation has a curious twist to it.  Some journalists will point to using the purchase of InterSpar as a jumping board in the beginning, and that InterSpar was never much of a success....so that failure just blended into future problems of Wal-Mart and brought them down.

Here's the big picture.....Wal-Mart has a general plan as they move into each town. They put up a major building and they want cut their prices to the bare minimum, gut the competition just in that town, and within three years....start seeing the competition in that town shut down. At that point, the prices at that one single Wal-Mart will rise by two-to-four percent overnight. Then they can relax because they've got customers glued into shopping at the store, and occasionally offer up some great deals, but not like the original first three years.

The German stumbling block is that German stores really don't like new competition appearing in their town. So they go to the local city council and make life miserable for Wal-Mart as they apply and try to get property/building space. In a number of cases....like Kaiserslautern....the city council just wouldn't allow them to go forward.

Then the competition business came around to pricing. Wal-Mart has a secondary trick of going to Pepsi and Coke.....buying massive truckloads of soft-drinks, and then selling each drink for five percent less than they paid for the 'unit'. For each drink, there's zero profit, and even a loss which would normally appear on the books.

Strangely enough, there is a German law forbidding this type of aggressive pricing (you can't sell less than what you bought the item for). So week after week.....they were taken into court. Court costs, lawyer fees, and fines were deemed fairly excessive after a couple years of this practice.

Wal-Mart just simply kept looking at this practice as one of their major ways to get ahead and get addicted shoppers. At some point, between the hostile competition situation, and the fines....the leadership of Wal-Mart deemed Germany as a place where you can't launch and make a profit with the business model that the company uses.

Rather than change a business model proven successful, Wal-Mart packed up in less than nine months and left. They will never come back....as long as the current business model stays the same way.

Yes, Wal-Mart has used this business model in roughly fifteen countries.  Currently their China operation is surging ahead, and there's an awful lot of optimistic views in India over what Wal-Mart may accomplish in the next decade.

Most people who study business and how failures occur, will readily that Germany has a unique atmosphere.  There are rules to protect business operations, jobs, and to ensure a stable business environment.  To the public, it all makes perfect sense.  To a guy wanting to establish a new business or bring an international business into Germany....it's a pain.

In plain terms....business in Germany isn't a simple task.  Even Germans, with German business models, end up every year with failed businesses.

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