The international division at Wal-Mart

The international division at Wal-Mart

When Wal-Mart started to expand internationally in the early 1990s, it decided to set up an international division to oversee the process. The International Division was based in Bentonville, Arkansas, at the company head­quarters. Today the division oversees operations in fourteen countries that collectively generate over $60 bil­lion in sales. In terms of reporting structure, the division is divided into three regions—Europe, Asia, and the Americas, with the CEO of each region reporting to the CEO of the International Division, who in turn reports to the CEO of Wal-Mart.

Initially, the senior management of the International Division exerted tight centralized control over merchan­dising strategy and operations in different countries. The reasoning was straightforward; Wal-Mart's managers wanted to make sure that international stores copied the format for stores, merchandising, and operations that had served the company so well in the United States. They believed, naively perhaps, that centralized control over merchandising strategy and operations was the way to make sure operations would be standard.

By the late 1990s, with the International Division approaching $20 billion in sales, Wal-Mart’s managers concluded that this centralized approach was not serving them well. Country managers had to get permission from their superiors in Bentonville before changing strategy and operations, and this was slowing decision making. Centralization also produced information over­load at headquarters and led to some poor decisions. Wal-Mart found that managers in Bentonville were not necessarily the best ones to decide on store layout in Mexico, merchandising strategy in Argentina, or com­pensation policy in the United Kingdom. The need to adapt merchandising strategy and operations to local conditions argued strongly for greater decentralization.

The pivotal event that led to a change in policy at Wal-Mart was the company’s 1999 acquisition of Britain's ASDA supermarket chain. The ASDA acquisition added a mature and successful $14 billion operation to Wal-Mart's International Division. The company realized that it was not appropriate for managers in Bentonville to be making all important decisions for ASDA. Accordingly, over the next few months, John Menzer, CEO of the International Division, reduced the number of staff located in Bentonville who were devoted to international operations by 50 percent. Country leaders were given greater responsibility, especially in the area of merchandising and operations. In Menzer’s own words, "We were at the point where it was time to break away a little bit…. You can't run the world from one place. The countries have to drive the business…. The change has sent a strong message [to country managers] that they no longer have to wait for approval from Bentonville."

Although Wal-Mart has now decentralized decisions within the International Division, it is still struggling to find the right formula for managing global procurement. Ideally, the company would like to centralize procurement in Bentonville so that it could use its enor­mous purchasing power to bargain down the prices it pays suppliers. As a practical matter, however, this has not been easy to attain given that the product mix in Wal-Mart stores has to be tailored to conditions prevailing in the local market. Currently, significant re­sponsibility for procurement remains at the country and regional level. However, Wal-Mart would like to have a global procurement strategy so it can negotiate on a global basis with key suppliers and can simultane­ously introduce new merchandise into its stores around the world.

As merchandising and operating decisions have been decentralized, the International Division has increasingly taken on a new role—that of identifying best practices and transferring them between countries. For example, the division has developed a knowledge management system whereby stores in one country, let's say Argentina, can quickly communicate pictures of items, sales data, and ideas on how to market and promote products to stores in another country, such as Japan. The division is also starting to move personnel between stores in different countries as a way of facilitating the flow of best practices across national borders. Finally, the division is at the cutting edge of moving Wal-Mart away from its U.S.-centric mentality, and it is showing the organization that ideas implemented in foreign opera­tions might also be used to improve the efficiency and effectiveness of Wal-Mart's operations at home.