Portal de Periódicos da CAPES

Competition between Emerging Market and Multinational Firms: Wal-Mart and Mexican Retailers

2008; Globeedu Group; Volume: 25; Issue: 3 Linguagem: Inglês

2277-5846

Dante Di Gregorio, Douglas E. Thomas, Fernán González de Castilla,

Global Trade and Competitiveness

We analyze how competitive dynamics within the Mexican retail sector have shifted following the entrance and ascendance of Wal-Mart, and how Mexican retailers have responded individually and collectively to Wal-Mart's dominance. We discuss implications for strategic management and international business research as well as for managers of emerging market firms that face dominant foreign competitors. Within fifteen years of entering Mexico, Wal-Mart has become the dominant retailer and controls a larger market than all its rivals combined. Rival Mexican retailers have responded collectively via legal action and a purchasing cooperative as well as individually via heterogeneous individual responses, which include focusing on entering the United States market, altering positioning in the Mexican market, and identifying ways to become more competitive in terms of prices and localization of offerings. In 1991 Wal-Mart entered the Mexican retail sector. Within less than five years, the company owned a controlling stake in the country's largest retailer. Fifteen years after entering the country, Wal-Mart maintains a dominant position and single-handedly accounts for more than half of all retail sales. Wal-Mart has captured over 55% of the Mexican retail market and has become the largest private employer in the nation with 140,000 employees. The company is continuing to expand in Mexico in terms of entering both new geographic markets, particularly rural areas, as well as new product markets, such as financial services. The initial ascendance and continued dominance of Wal-Mart have altered the competitive landscape in Mexican retailing and have elicited a diverse range of responses from Mexican competitors. Certain firms (e.g., Gigante) have responded to increased domestic competition by expanding into international markets (i.e., the United States). Others have sought to change their reputation and positioning in the Mexican market. For example, Comercial Mexicana has shifted from trying to create a patriotic reputation (a very Mexican store) to focusing on being known for lower prices. Soriana, one of the oldest Mexican retail chains, has paradoxically shown great flexibility and emerged as Wal-Mart's chief competitor. Soriana has been able to localize its offerings and has also emerged as a low-price leader. In addition to these idiosyncratic individual responses, Wal-Mart's competitors have responded in the form of collective action by first taking legal action against Wal-Mart in the form of an ultimately unsuccessful antitrust lawsuit and subsequently by forming a purchasing cooperative, Sinergia. In this paper, we analyze the competitive actions of Wal-Mart and the individual and collective responses of the company's Mexican competitors. To analyze these competitive interactions, we draw on the competitive dynamics stream of research within strategic management (e.g., Grimm & Smith, 1997; Smith, Ferrier & Ndofor, 2001; Ketchen, Snow & Hoover, 2004). We show how competitive dynamics have evolved in the Mexican retail industry following the entrance and dominance of Wal-Mart. We conclude with a discussion of the implications for both theory and practice. 1. Competitive Dynamics between Dominant Multinationals and Emerging Market Firms Emerging economies are generally characterized by a rapid pace of economic growth, increasing liberalization of trade and investment regimes, and economic restructuring (Hoskisson et al, 2000). Mexico, for instance, maintained high trade barriers and imposed strict limitations on foreign investment through the mid-1980s. From the point at which Mexico joined the General Agreement on Tariffs and Trade in 1986 through the implementation of the North American Free Trade Agreement with Canada and the United States in 1994 and a broad range of similar agreements with other countries, Mexican firms became increasingly exposed to competitive pressures from foreign firms in the form of imported products as well as foreign-owned operations in Mexico. …