Every year many international
businesses form collaborations. Due to inevitable cultural differences, conflicts
between the two parties are highly likely.
This paper starts by defining joint ventures
and international collaborations in general. To help understand the concept the
paper then describes the history of Wal-Mart Stores, Inc. and Bharti
Enterprises. This is followed by a description of the economic situation in
India in 2006 and an enumeration of reasons why Wal-Mart chose an Indian
partner to merge with. The main topic of this paper is a cultural analysis and
interpretation of both countries, in order to investigate
if the cultural differences have an effect on business collaborations,
and if so, to what extent.
The hypothesis is whether the cultural differences have an effect on
business collaborations. After reading this paper, one will know about joint
ventures and other types of international collaborations. Additionally, it will
be clear if and which cultural differences between the United States and India
influence their partnership and whether it was a success.
Definition of joint venture and other international collaborations
A Joint Venture is a collaboration between two or more existing
Joint ventures can occur between legally and economically independent companies which share common
business interests, management values, and business ethics. Both contribute
capital and experience into the new partnership which is established for a
certain purpose,1 meaning to gain new market
shares in foreign regions.
Other forms of international collaborations are exporting, licensing,
franchising, subsidiaries and wholly owned companies.
A common obstacle of all kinds of international cooperation to get over
is the cultural barrier, and promoting teamwork successfully which enables
profiting of each other’s knowledge.
3. Who is Walmart and Bharti Enterprises?
The American company Wal-Mart Stores, Inc. is largest retailer in the
world with more than 11,695 stores in 28 countries2.
Walmart justifies its international success to the fact that “in every location
we operate, we are local.”3
Walmart is following its mission purpose saying “saving
people money so they can live better”4.
Before the joint venture Bharti Enterprises was a leading Indian
cellphone operator who served more than 30 million customers around India.5
In 2007 the partnership between Bharti and Wal-Mart was established
aiming to create a completely new wholesale cash-and-carry business in India by
building up to 20 superstores across the country.6
These two companies merged together, hoping to use Bharti’s retail
distribution network and knowledge about the local market including the buying
behavior of the middle class while Wal-Mart can provide the needed logistics, purchasing
4. Economic situation in India
To understand the challenges Wal-Mart had to deal with, one first needs
to know about the economic situation in India in 2006.
India’s economy was extremely different to the American economy.
So-called Kirana stores which are small, family-owned grocery stores play a
crucial role in India’s retail sector. They are spread out all over the country
regardless if it is an urban or rural area. Every household in India has at
least one Kirana store around the corner which makes it possible for them to do
their grocery shopping at any time. Living in close proximity to Kirana stores
which they go to regularly means a deep and trustful relationship between the
retailer and the customer from which both parties benefit.8
India at that point was undeveloped, access to transportation in rural areas
more or less non-existent.
In terms of buying power, Wal-Mart and Bharti were vastly different.
Traditions, values and various food habits and tastes of the Indian population
were also issues Wal-Mart had to effectively address in order to develop a
successful collaboration with Bharti.9
Not only does the complexity of infrastructure mean that delivering
groceries straight from the Wal-Mart stores to every household a big issue;
Wal-Mart also has to deal with undertaking a whole change of retailing culture.
5. Opportunities for Wal-Mart in India
In 2006 India was the fastest growing world economy with an annual market
growth of 7% between 2003 and 2006. The Indian retail sector was expected to
rise impressively, resulting in much – so far- unused potential for the retail
Wal-Mart had already successfully conquered the Brazilian and Chinese
market so India with its world’s eighth largest market in 2006 and a middle
class of 300,000,000 potential customers was a truly attractive marketplace for
an internationally expanding firm like Wal-Mart.10
6. Culture analysis
Both cultures of India
and the United States are analyzed to figure out how misunderstandings between
the partnership developed and how each society focuses on which values.
Geert Hofstede, a
Dutch social psychologist, extended an existing study of cultures across modern
nations. He proposed that culture can be characterized into different national
values so-called dimensions which are mentioned below.11
cultural analysis, the following dimensions are examined: high versus low power
distance, individualism versus collectivism, masculinity versus femininity,
high versus low uncertainty avoidance, long-term versus short-term orientation
and indulgence versus restraint.
6.1 Analysis of India and the United States
Figure 1 shows that
the two countries vary in some points like Power Distance, Individualism and Indulgence.
India has a
high-power distance meaning that Indian employees strive for a clear hierarchy
in a company with a top down communication.
Staff are not
empowered. They will execute what they are being told without criticizing being
under permanent control. It is a belief that people in positions of authority
should have considerable power compared to their subordinates13.
Workers in the United
States have a lower power distance meaning that management and their
subordinates communicate on the same level and creativity as well as one’s own
initiative is encouraged. Employees work independently and unless a process
goes wrong or does not led to the desired outcome then input from management is
In a collectivistic
culture like India, people are more focused on the well-being of a group, and
they have a high preference for belonging to one. Decisions at work will
therefore be taken for the well-being of the majority even though the decision
may not be the most profitable for the company.
The United States, in
contrast, have a highly individualistic society. Individual interests are more
significant than group interests. People put their own needs and desires above
the group wishes and they are not empathetic to others in the process.
An indulgent society
it is all about showing desires and impulses. Americans are more likely to do
so and give leisure time and gratification an important role in their lives,
they do not focus on social norms and the suppression of needs as Indians do.
distance derives from the caste system. People do not complain or try to break
out of the social class that they born into. The employees who worked at the
Wal-Mart stores in India did notice that some processes went wrong but as they are used to strictly
executing processes handed down from management without question, they did not
point these problems out to their superiors.
cultural difference between the two analyzed countries which affected the daily
business heavily in the Wal-Mart-Bharti partnership is the fact that American
supervisors expected Indian employees to visually show their happiness by
smiling at the customers continually.
Indian consumers who
are not used to being shown feelings that obvious felt like this behavior was
artificial and became uncomfortable while shopping at the cash-and-carry shops.14
superiors did not know how a collectivistic society behaves.
In India people care
for each other and the well-being of the group is more important than the
individual. As every family knows the owner and his family of the Kirana shop
one can see that Indians are used to individual and personal relations to these
Even if a family
cannot afford the groceries they need, the Kirana store owner will provide the
goods to the family on a credited basis without any concern. They will put
their customers’ needs above their own, making sure the family has enough to
eat is more important for the business owner than receiving their income
When Wal-Mart tried
to establish the big retail shops in India people could not identify themselves
with the idea not having their familiar grocer.
The clash of American and Indian culture led to a breakup of the joint
venture in 2013.16
Wal-Mart with relatively successful establishment of new stores in many
countries across the globe underestimated the strong-willed Indian culture.
Indians were not able to adapt to that many changes in their lives at
the same time.
Forcing people not to behave in the way they are used to leads then to
feelings out of their comfort zone. Indian employees felt unnatural and
artificial when smiling at the customers all day long. Feeling uncomfortable at
work results in lower work productivity which in return leads to less profit
for the company on the long-term. This process Wal-Marts initiated unknowingly
created a multitude of new problems.
Had Indian people been used to acting as empowered employees and
informed their supervisors, then these would have been aware of the problems
and could have attempted to find solutions.
They falsely assumed that they had sufficient international experience
to merge with an Indian company. They should have carried out a detailed
analysis of the Indian market they entered. This was their downfall.
That example proves the hypothesis started at the beginning of this
paper that international collaborations are affected by intercultural
One of the results here can serve as advice for businesses planning on
establishing any kind of international collaboration is that retail is a local
business, every country and even every city in a country have cultural