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Country Risk and Strategic




1;Country Risk and Strategic Planning Analysis Paper for Wal-Mart Global Expansion into Israel;Kevin Bjerke, Brian Merkley, Elona Ermak, Terry Shipp, Godfrey Teed;MGT/448;August 12, 2010;Jerry Eike;Country Risk and Strategic;1;Country Risk and Strategic Planning Analysis Paper for Wal-Mart Global Expansion into Israel;When expanding business operations to another country, it is important to consider the;social and cultural risks. In this paper the social and cultural risks associated with the Wal-Mart;in Israel will be discussed. Research will focus on the individual risks and then attention will be;given to the management techniques to mitigate those risks. Several other pertinent topics will be;discussed as a mechanism to compliment the financial and non-financial risks associated with the;Wal-Mart Expansion. The key to successful business expansion is to calculate risks and develop;a risk mitigation plan even before they fully materialize.;Analysis and Management of the Following Risks in Israel;To conduct business in Israel, importance must be given to the local political climate.;Israels government represents a framework of a parliamentary representative democratic;republic, whereby the Prime Minister of Israel is the head of government, and of a multi-party;system. Several parties exist in Israel, ranging from conservative (Likkud) to socialist;(Democratic). Similar to the United States, the ruling party will determine the priorities and taxes;to be imposed on businesses and individuals. Currently the Likkud party headed by Benjamin;NetanYahu is in charge of the government.;Israel's legal system combines English common law, civil law, and Jewish law. It is based;on the principle of state precedent and is an adversarial system, where the parties in the suit bring;evidence before the court. Court cases are decided by professional judges rather than juries.;Israel has also a system of specialized Labor Courts, similar to those found in Continental;Europe. The Labor Courts have unique jurisdiction over labor matters. Israel has a system of;small courts and civil courts, which mirror the aspects of many Western European courts.;Several laws apply to the Wal-Mart global business venture in Israel.;Country Risk and Strategic;1;In 2010 Israel's corporate income tax rate is 25% down from 26% in 2009. In;comparison, the corporate tax rates in the United States is 35%, considerably higher than in;Israel. The modestly lower corporate tax rate makes investment and business in Israel a rather;rewarding option. Israel does tax individual income tax and capital gains tax in a similar manner;to the U.S.;Exchange and Repatriation of Funds Risks;Because Israeli currency, the shekel is vibrant and strong, there will be no long-term;issues stemming from exchange rates. The Israeli currency is relatively stable. Currently one;Israeli shekel equals 0.26 Dollars.;Repatriation of funds refers to when a company invests in another country and then;intends to bring any portion back to the home country, in this case the United States. Many;countries have restrictions or regulations concerning repatriation of funds. Repatriation of funds;can have tax implications in one or both countries. In the case of conducting business in Israel;the U.S. has a special formula to tax justly the companies that have earnings overseas. Several;loopholes in federal laws allow businesses to conduct business and write-off or avoid high tax;penalties.;Competitive Risk Assessment;Competitive risk assessment will be defined as processes and tools that will enable WalMart to best determine the likely next responses of a competitor to a planned retail market;improvement, acquisition, expansion, or other business actions. With this definition of;competitive risk assessment, several questions will be addressed.;Country Risk and Strategic;1;What competitors exist in the retail department landscape being investigated? A;primary competitor for Wal-Mart in Israel would likely be Alon Holding Blue Square-Israel Ltd;as its new name, previous called Blue Square Israel Ltd, and states at its website;70 years since our pioneering entry into Israels dynamic retail market;Alon Holdings Blue Square Israel Ltd continues to innovate with new marketing;concepts, state-of-the-art technologies and best-value products and services;These policies have succeeded in creating significant value for the Companys;shareholders in the past, and Management is committed to continuing to increase sales;and operating profit steadily in the future. (1).;How committed are competitors to add developments in this area? Alon Holdings;Blue Square Israel Ltd has plan to grow its business in the area stating at its website, The;foundation of its policies, however, remains consistent: the pursuit of total customer satisfaction;innovation to improve the shopping experience, expanded penetration of existing and new;markets, and pursuit of efficiency in all operations, (1). Managing this risk would require;greater understanding of competitors market interest in local area that either responds through;wait and see mode or enter marketplace and create direct competition with a competitor on their;turf.;Are competitors working now or have they developed other areas? Alon Holdings;Blue Square Israel states it is expanding its new store layout to new markets. Managing this;risk would require greater understanding of competitors market interest and either respond to;their growth and delay entry or make an aggressive move to develop area with a Wal-Mart;franchise before a competitor enters.;Country Risk and Strategic;1;How is the retail market developing? Alon Holding declares, over the past decade;Israels retail food market has become much larger, more competitive and professional. Alon;Holdings Blue Square - Israel Ltd has led the way, leveraging its deep market understanding to;drive change in the design of its brands, store formats, product mix and services, (1). This retail;market development grown creates opportunity for Wal-Mart to enter this growing market and;possible regional expansion at a steady but slow entry pace to monitor revenue strength.;Are there development barriers? Business expansion in the most stable Israeli markets;can be impacted by political climate on who gets the rights to develop preferred areas nearing;construction capacity. Cost of land could impact area developed and reduce building size to less;than desirable.;Are there solutions to the barriers? A marketing assessment and internal connections;through business representatives or local hired talent could increase favorably for a business like;Wal-Mart to be welcomed by political officials and the general consumer population.;How can Wal-Mart Manage Competitive Risks? Bjerke, K., Ermak, E., Merkley, B.;Shipp, T., & Teed, G. (2010) presented part of managing the competitive risks as: (a) separating;Kosher and Non-Kosher into two separate areas or stores. This includes food, apparel, and all;items affected by religion, and (b) maintaining the physical appearance of the stores as Wal-Mart;specific. Wal-Mart may also use the Internet to supplement sales.;Taxation and Double Taxation Risks;When Wal-Mart decides to do business as a retail organization, one thing for sure is;Israel has a capital gains tax, which is 20% flat rate. Also taxed gains are inflation adjusted.;Double taxation, on the other hand, is a corporation taxed twice for the same income. In 2010;Israel double taxation prevention treaties were the discussion of all the countries that were a part;Country Risk and Strategic;1;of the Double Taxation Prevention Treaty (2010). Wal-Mart must do intense research on the;double taxation law in Israel because, as of August 6, 2010 the United States was not a part of;this agreement.;Market Risks (Four Ps);One of the tools that Wal-Mart must implement in doing business in Israel is the four Ps;which stands for Product or Service, Place, Price, and Promotion.;Product/Service. Wal-Mart must consider wants and needs, and how the product/service;will satisfy the customer. Wal-Mart must also focus on the brand, how the product is different;from Alon Holdings Blue Square, its competitor. Most importantly, is the cost to provide to;consumers and how adequate is profit. (Juden, 2008).;Place (Israel). Doing business globally, Wal-Mart must also do a thorough research on;how the consumers purchase products. Will the consumers be able to only shop in store, online;or catalogue? Wal-Mart will need to make sure that they have access to the correct distribution;channels. Research what the competitor (Alon), are doing and how will Wal-Mart differentiate;themselves (Juden, 2008).;Price (Product/Service). This is the value of the product/service to the consumers. Price;points are reputable in Israel, how receptive are the customers to the prices of the products, and;how will Wal-Mart prices differences from (Alon), the competitor.;Promotion (Merchandise). Wal-Mart is well known in the advertising world, which is;seen daily in the United States. This strategy must be carried on over into Israel, global is where;Wal-Mart must get the inside scoop of when and how to get the marketing message out to the;consumers by advertising on TV, radio, or the Internet. The environmental dilemma poses a;Country Risk and Strategic;1;threat to timing of marketing. Seek out what methods the competitor is using in advertising, and;how will it affect Wal-Mart style of promotion (Juden, 2008).;Distribution and Supply Chain Risks;Wal-Mart must take action in managing distribution and supply chain risks, to;accomplish this Wal-Mart must first relate and evaluate the risks (Stoffel, 2008).;Five key areas of distribution supply chain risks exists.;Supply disruptions. Hurricanes, floods, blizzards and ice storms can cause delays for;several days, weeks, and months. Transportation infrastructure overcrowding is another type of;disruption at airports, roadways, railways, shipping ports are concerns of global businesses;because of the higher traffic volume.;Changes in demand. Changes in demand can happen with a bad economy, competitors;introduce a new product, or customers have a change of taste. The demand must equal the supply;in order for Wal-Mart to succeed in Israel because the two problems that can occur are stock-outs;and unnecessary inventory, both can cause risks and extra expenses (Stoffel, 2008).;Financial Risks. Wal-Mart selecting to go global in Israel is a possibility that being paid;could take up to 120 days, where in the past it took only 30-90 days for payment to be fulfilled.;Currency plays an important role as sometimes it is difficult to price the product and manage cost;(Stoffel, 2008).;Legal and Security Risks. These risks are highly anticipated and require, if;organizations does not comply with regulations, fines and delays affecting the value of goods to;be shipped on time. After September 11, 2001, security levels have reached an all time high both;domestic and global. The best way to avoid problems is to adhere to legal and security risks;Country Risk and Strategic;1;practice Customs-Trade Partnership against Terrorism and Free and Secure Trade (Stoffel;2008).;Reputation and Brand Risks. Companies are often faced with shady black market;suppliers, where items are sold at a lower price, ineffectually affecting an organizational brand;image. Wal-Mart cannot avoid distribution and supply risks but must manage them effectively.;Physical and Environmental Challenges to Entering and Operating in a Target Market;The physical area Israel encompasses is 8572 square miles containing vast coastline and;land rich in plant life. The population contains a culture-mix of modernism and historical;immigrants from 100 countries and five continents, similar to the makeup of the United States.;The lack of space likely means retail land coverage would be unlike the United States and would;require downsizing of building footprint, but elevating in multiple level constructions, much like;a hotel or office building. Understanding the shopping habits and items consumed in a new;environment is essential to reduce risk of revenue loss.;Social and Cultural Risks;Expanding operation to Israel does not come without cultural and social risks. Israel;mixes many modern elements with the ancient world. Israel has, however. several cultural and;social elements that must be considered and understood successfully to promote a Wal-Mart;center there.;Israel has a very strong culture and therefore it is essential that the products sold at WalMart appeal to the different segments of Israeli society. It is important to note that depending on;the neighborhood where the Wal-Mart center will operate there may be Israelis, Arabs and;tourists. In the case of most Israelis, culturally there are certain dietary laws to which most;Country Risk and Strategic;1;residents adhere. It is for this reason it is important that food sold at the Wal-Mart location be;tagged in a way in which shows authenticity and legitimacy in the eyes of the locals.;Social risks. These include not being sensitive to: Israeli national and religious;sentiment, Israeli religious law, Israeli customs, or security sensitivities.;Cultural risks. These include: appearing as a foreign hub or agent of the United States;using Arabic instead of Hebrew for official documents and activities, and not setting the store;location in a manner that is appropriate for all segments of Israeli society.;Cyber or Technology Risks;The Global Property Guide website states the following concerning Israels economic;growth, The countrys economy is technologically advanced. The telecommunications;semiconductor, and software industries symbolize Israels dominance in information;technology, (2010, 4). Due to technology strength and skilled Israeli workforce advancing;technology and capacity there would be limited risk to cyber activity and likely no barriers in;conducting business operations. Current and advancing technology is present to support data;storage requirements for a retail stores inventory, accounting, payroll, and sales records.;Summary of Strategic Planning Process;Define and Clarify Mission and Objectives;Saving People Money so they can live better, is Wal-Marts mission. Sam Walton;founder of Wal-Mart implemented and believed strongly in this mission and that every employee;respect customers the same way management respects employees. Always supplying customers;with low-prices on retail products, everyday low prices and the most noticeable advertising is the;Rollback Prices commercials seen and heard by millions weekly on television, radio and the;Country Risk and Strategic;1;Internet. This is what customers have grown to expect, and the three basic beliefs are respect the;individual, service to our customers, and strive for excellences (Wal-Mart, 2010.;SWOTT Analysis of Israel;The ability for an organization to view strategic challenges that it may face will be;critical for its survival. The firm must be able to make rapid adjustments to an ever-changing;competitive environment. One of the tools that a company can use to identify trouble or;opportunity is a SWOT analysis. SWOT stands for Strengths, Weaknesses, Opportunities, and;Threats. For the purpose of the business venture, Team A will do a SWOT analysis of the;country of Israel. Israels strengths are its ease of doing business, a diverse mix of industries and;a healthy economy. According to the Doing Business Project study, Israel ranks 29th out of 183;economies for the ease it has of doing business (International Finance Corporation, 2010). Israel;also ranks very high in the rankings of obtaining credit and protecting investors (International;Finance Corporation, 2010). Israels economy has a diverse mix of industries that range from;high technology, wood products, beverages, tobacco, cement diamond cutting, textiles, and;footwear (Index Mundi, 2010). The weaknesses of Israel are that it is relatively small;geographically, has a low population count, and has a strong dependence on the United States for;support. The entire country size is smaller than the state of New Jersey and the population is;around 5.6 million people (JRank, 2010). Israel ranks number one in foreign aid from the United;States since World War II. The United States has provided nearly three billion dollars in grants;since 1985. President Bush announced that the administration would increase the assistance by;another $6 billion over the next 10 years (Sharp, 2009). This dependence could put it at risk if;there is a change in United States foreign policy. The Opportunities in Israel are advancements in;the peace process, improved technologies, and the removal of international trade barriers. The;Country Risk and Strategic;1;threats in Israel consist of terrorism, the threat of war, and lack of friendly nations for trading;surrounding the country.;Make Strategy Selection, Select and Justify Appropriate Mode of Entry for Your Global;Product or Service;Hill (2009) describes Wal-Mart production as selecting the items to sell, inventory;stocking, and collecting money from the customers. Because Wal-Mart specializes in dealing;with lower and mid-income shoppers, the site needs to be accessible to the target consumers.;Opening one kosher and one non-kosher store might restrict clashes better than one store;divided into two sections. Other options are noted in the chart in the Devise Contingency Plan;Paragraph. In addition to Wal-Mart opening brick and mortar stores, let customers continue;ordering via the Internet. Opening a store in Israel also provides Wal-Mart with a new location;economy for goods purchased in Israel. To encourage Israelis to shop at their new Wal-Mart;hire as many locals, including management, as possible to work in the Wal-Mart stores and buy;as many products as possible from Israeli merchants and farmers. Also tailor the products for;Israeli customers similar to how Wal-Mart operates in the States. For example, when in;Minnesota a customer may usually obtain Twins or Vikings sports apparel, while in Wisconsin;Packers team apparel is normally available. Team member, Teed (2010), has also shopped in;Wal-Mart stores in which this difference extended to local school sports teams.;Control and Evaluation;The best way to guarantee control is store ownership. Another part of control will include;training new employees on the Wal-Mart Way. Wal-Mart should use the companys current;methods of control and evaluation to assess the sustainability of operating in the Israeli market.;Logically, the primary factor assessed will be profit.;Country Risk and Strategic;1;Devise Contingency Plan;If the initial brick and mortar plan does not perform as expected, Wal-Mart could expand;by allowing consumers to order products via the Internet with pick up at their local Wal-Mart;store. As an added incentive, include free shipping, when the order ships with a regular;scheduled Wal-Mart order.;Initial Entry;Option A, two Stores one-kosher, one non-;Future;Additional stores, or worst case scenario, pull;kosher, based on availability of buildings or;out of Israel completely.;construction sites. Option B, one store divided;into kosher, non-kosher sections. Option C;purchase an existing Israeli store or chain.;Option D, joint venture with an Israeli;company.;Internet purchases combined with new store or Possibly, Internet purchases with free delivery;stores;Apparel, food, etc. geared toward Israeli;when shipped with normal Wal-Mart shipment;Eyeglasses;Culture (Kosher and non-Kosher), targeting;middle and lower income consumers;ATM that dispenses local and American;ATM that dispenses currency in multi-;currency;currencies for international travelers and;tourists;International money orders;Coordinate with utility companies for;customers to pay bills here;Other items identified by local employees and;shoppers;Cell phones, compatible with the local region;Country Risk and Strategic;1;and the same method of payment. For example;when a team member, Teed (2003) was;stationed in Italy, the customer bought the cell;phone, then charged it with the carrier he or;she preferred by swapping out cards.;Customers only paid for outgoing calls.;Contracted travel agency;Conclusion;Risks on Wal-Marts move into Israel include physical challenges, distribution and;supply chain, and local competition among many other factors. Actions to deal with the risks;such as a kosher and non-kosher store and researching shopping habits are some of the methods;chosen to counteract the risks. A summary of the strategic planning process included a SWOTT;Analysis and a contingency plan. Of course, when sales do not meet expectations, the company;always has the responsibility to reassess and make changes as needed.;Country Risk and Strategic;1;References;Alon Holdings Blue Square Israel Ltd, (n.d.). When our customers talk, we listen. Retrieved;from;Basic Beliefs-Wal-Mart Ethics (2010). Retrieved August 08, 2010 from;;Bjerke, K., Ermak, E., Merkley, B., Shipp, T., & Teed, G. (2010). Wal-Mart Israeli Global;Business Venture Comprehensive Analysis Outline. Saint Louis Park, MN: University of;Phoenix.;Global Property Guide, (2010). Housing bubble feared as property prices soar in anew in Q1;2010. Rapid economic growth despite political conflicts in Israel, 4. Retrieved August 8;2010 from website:;Hill, C. W. L. (2009). International Business. Competing in the Global Marketplace (7th ed).;New York, NY: McGraw-Hill Companies.;International Finance Corporation. (2010). Doing Business, Measuring Business;Regulations. Retrieved from;economyid=95#StartingBusiness;Index Mundi. (2010). Israel Industries. Retrieved from;;Israel Double Taxation Prevention Treaties (2010). Retrieved August 08, 2010 from;;JRank. (2010). Encyclopedia of the Nations. Retrieved from;;Country Risk and Strategic;1;Juden, Sharon (2008). The Marketing Mix and 4 Ps, Retrieved August 08, 2010 from;>Problem solving;Sharp, J. M. (2009). U.S. Foreign Aid to Israel. Congressional Research Service. Retrieved from;;Stoffel, Bob (2008). Risky Business, Retrieved August 08, 2010 from;


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