Dorothy YuIain Darroch

Stephanie Falls

Spain? Portugal? Italy?

Table of Contents About Wal-Mart About Wal-Mart International Criteria for Investment Opportunity European Union Country Descriptions Chosen Country Recommendations

STANDARDIZATION Beliefs

Respect for the Individual Service to Our Customers Strive for Excellence

Pricing Strategies Every Day Low Price (EDLP) Rollback Special Buy

Operations 1991: SAM’S Club opened near Mexico City 1993: creation of Wal-Mart International rapid growth and consumer acceptance.

Employment 330,000 associates in Argentina, Brazil, Canada, China, Germany,

Korea, Mexico, Puerto Rico and the United Kingdom. also owns a 37.8% interest in Seiyu, Ltd., a leading Japanese retailer.

Global Expansion building new stores series of acquisitions

Financial results. 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.

Global Strategy, Local Focus. Success: ability to transport the company’s unique culture and

effective retailing concepts to each new country. effort to adapt to local cultures and become involved in the local

community. Local customer needs, merchandise preferences and local suppliers.

INTERNATIONAL

INTERNATIONAL

34 Supercenters 3 Sam’s Clubs 2 Neighborhood

Markets. employs more

than 20,000 associates.

1991: joint venture: Cifra first country for Wal-Mart International 1997, Wal-Mart acquired operates 671 units in 31 states employs more than 105,000 associates

across the country.

1999: acquisition: ASDA 256 ASDA stores 7 GEORGE apparel

stores 21 depots

Employs around 134,000 Wal-Mart name: 1st

appeared on a UK store in 2000

13 ASDA-Wal-Mart Supercentres throughout the UK.

1998: acquisition21 Wertkauf hypermarkets 74 Interspar hypermarkets

employs more than 13,000 associates

• Cultural Problems• Entry Method•“Loss Leaders” banned• Unions

Common EU considerations

Exchange Rates

Translation exposure/Transaction exposure Interest rates All deal with a similar network of suppliers

Evaluation Criteria1. Demand Conditions 2. Market Analysis3. Labour Issues4. Political Risk and Strategies5. FDI requirements and incentives6. Relationship with the US7. Taxation8. Bribery and corruption

Demand Conditions

GDP per Capita, With PPP $US 22,000

Population 40,280,780

2004 2005 2006 2007 2008

Retail sales (US$ m)218,50

3247,40

0251,10

6249,58

0254,22

5

Retail sales volume growth (%) 2.4 2 2.2 2.1 2.3

Market Analysis Young hypermarket sector

Competitors:

El Corte Inglés = Largest

High End

Carrefour = 2nd Largest

enjoys 90% brand recognition.

Rules on new store development

Labour Issues Labour Force: 18.82 million Wages under EU average Worst unemployment in EU:

11.3% Hypermarket do not have to

abide by the “siesta” working hours.

Wages are determined in contracts – no hourly wage

Dues-paying union membership is among the lowest in the EU (10%)

Political Risk and Strategies

Government incentives to companies to create permanent jobs

Government restrictions on the expansion of the hypermarket sector

FDI requirements and incentives U.S. is the largest foreign investor in Spain. Ministry of Economy is ready to offer assistance to companies that are interested in investing in the country Top 3 business functions:  Manufacturing, retail, sales marketing & support

Relationship with the US

Spaniards voted for entering NATO and are fond of American products

Support given for the war in Iraq and Afghanistan

Taxation Corporate tax rate: 35% VAT to end-consumer 16%, reduced =

4-7% – businesses entitled to deduct VAT borne against VAT charged.

Tax on Business Activity (IAE) Local rate depends on many

factors, such as size and location of the business, the type of business, and number of employees.

Bribery and corruption Spain is the 22nd least corrupt nation

in the World - Transparency International

Demand

Lowest GDP per Capita, With PPP $18,100 US

Population: 10,356,117

2004 2005 2006 2007 2008

Retail sales (US$ m) 40,724 47,078 48,446 48,068 48,889

Retail sales volume growth (%) 4.3 4.8 3.9 2.2 2.2

Market Analysis 16 Jumbo & Pao de Açucar hypermarkets Smallest domestic retail sales market in EU Retail is best-performing and most sought-after

property segment in Portugal Going from small independent specialist retailers to

one that is dominated by large multinationals driven down average prices in the retail industry,

making the industry more competitive

Labour Issues Lowest labour cost in the EU Lowest Productivity Overly rigid labour market Low level of unionization General Workers Confederation of Portugal (CGTP) New Labor Law approved by Parliament

aiming to make the labor market more flexible Unemployment rate: 6.4%

Political Risk and Strategies Hypermarkets closing down

small retailers Government may be

putting in expansion restrictions

Legal system Slow and ineffective Leads to binding arbitration

of investment disputes

FDI requirements and incentives No distinctions exist between foreign- owned and

Portuguese- owned companies No limit on the repatriation of profits and/or dividends Tailored incentives package on a case by case basis New incentives regime - PRIME launched July 2003 investments >150000 euros, tax free loans and grants

for a percentage of qualifying investments

Relationship with the US Pro- American After revolutionary war, Portugal was the first neutral

country to recognize the U.S.

Taxation Corporate tax rate: 25% in 2005, 20% 2006 VAT to end-consumer 17% Double Taxation Prevention Treaty

Bribery and corruption Portugal is the 27th least corrupt nation in the World -

Transparency International

Demand Conditions GDP per Capita PPP $US 26,200 Inflation 2.3% (2003) Current Account Deficit $US 21,942 million Change in Net Reserves -$US 11,362 Population: 58,057,477

Market Analysis Retail Sector valued at $US 270

billion (2003) 60 million consumers Sophisticated and high brand

awareness Centre of International Market High competition from European

Chains Carrefour (Worldwide), Crai,

Esselunge (Spa), GS, SMA

Labour Issues Regional Issue

Infrastructure Problems

Women and Youth

Underground Problems

Unemployment: 8.9% (2003), EMU Standard 8.8%

Historical Difference between South 18.4%, Central 6.6%, 3.7%

40% Workforce

4 major – CGIL, CISL, UIL, UGL Important role and notable

activism

Political Crisis expected mid 2005 Deeply divided Silvio Berlusconi – PM and Italy’s richest person

FDI Requirements and incentives $US 15bn – 1.1% GDP No major impediments but high bureaucracy Government Authority & Italian Anti-Trust Conformity with EU Treaty Article 43 Limted Incentives for companies like Wal-Mart Requirements

Reformed 1st Jan 2004 to make easier Bring into line with Western Corporate Models

Relationship with USA Strong and Growing – Economic and Political 2002 trade $US 34.4 billion US imported $US 24.3 billion of Italian GoodsBUT:

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.

Taxation• Italy – US Tax Treaty to avoid double taxation of firms with operations in both countries• Corporate Income Tax (IRES) 33% on Italian source income• Resident or Non Resident?

Bribery & CorruptionHighest among G7 countries – 42nd in Transparency.org rankingsContributing factors (WTO):

BriberyBureaucracy & ConfusingRegulationsPolitical party financing

Low civil servant wagesParmalat,Argentine,Cirio bankruptciesInternational Accounting Standards

The ResultsSPAIN ITALY PORTUGA

L

Demand: GDP

Retail Growth

Market Size

Competition

Labour Issues

Political Risk

FDI

Relationship with the US

Taxation

Bribery & Corruption

TOTALS

2nd 1st 3rd

1st 2nd

3rd 2nd 1st 3rd

1st 3rd

2nd 1st 3rd

2nd

2nd 2nd 1st

1st 3rd

2nd 1st 3rd

1st

3rd 2nd

1st 1st 3rd

2nd 15 23 20

Our Choice: Big Market and growing

GDP High Unemployment: Wal-

Mart creates Jobs High consumer spending Presence of Carrefour for

acquisition Low Union presence

Trade Union Density Italy 44.1% Portugal 25.6% Spain 18.6%

FDI Incentive for services Modernized economy

ACQUISITION “Wal-Mart set to buy hypermarkets

from Carrefour”U.S. retail giant is now negotiating with its

closest global competitor, Carrefour. 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.

Competition: Wal-Mart ruthless in using its huge global resources for waging predatory price wars.

deal between Carrefour and Wal-Mart would be made subject to appropriate trade union action.

Entry Recommendations

“Wal-Mart is said to be interested in Carrefour hypermarkets in Spain”

Wal-Mart wants to buy the twelve Carrefour hypermarkets in Spain

has been eyeing the Iberian market already for long.

“French Fusion” – the economist

Entry Recommendations

2nd largest retailer worldwide Over 10,000 stores in 29 countries Hypermarket, Supermarket, Hard Discount Leader in 9 countries:

France, Belgium, Spain, Portugal, Greece, Brazil, Argentina, Taiwan, South Korea and Indonesia.

$US 120 billion sales 420,000 employees

Carrefour

THANK YOUANY QUESTIONS?