Wal-Mart took its aggressive approach to international expansion to new heights Monday, entering a $4.2 billion bid for South African retailer Massmart. Currently South Africa's third biggest retailer with a presence in 13 other sub-Saharan countries, Massmart's base of operations offers the Arkansas-based retailer the ability to rapidly make in-roads on the continent. Similarly aggressive expansion has paid dividends for the company in China and Brazil. Will Africa yield the same results? A sampling of opinions:
Bold Statement The sheer size of the figures being discussed is astounding, writes The Guardian's Andrew Clark. If it goes through, Clark says, the Massmart deal could "potentially [be Wal-Mart's] biggest overseas venture since its purchase of Britain's Asda chain 11 years ago" for $10.8 billion. As in all its international expansion, Clark contends, Wal-Mart will utilize "'back end' functions such as purchasing, stock-keeping and logistics to make economies of scale."
- Risky Business The company's commitment to international expansion is striking given its "high-profile failures in Germany and South Korea," observes Market Watch's Angela Moore. That these difficulties "haven’t killed its appetite for overseas growth" is a testament to just how great the opportunity in Africa truly is for foreign businesses. "Africa is an untapped market where Wal-Mart can unleash its merchandising prowess," explains Moore. It's also a huge and diverse market that could prove challenging to harness. No one said the road to ruling the retail world would be easy.
- Good Track Record, But... The costly acquisition appears justified in light of Wal-Mart's "good grip on international expansion in the past," admits the Motley Fool's Alyce Lomax. Still, she says, it's an "expensive experiment in international expansion" on a continent fraught with uncertainties. The most striking part of entire deal might be the fact that Wal-Mart is "financially strong enough to take such a gamble in these tough times."
- Struggling at Home The Street's Jeanine Pogi argues Wal-Mart's unimpressive performance in the U.S. is driving international expansion. Domestically, she notes, "the company is coming off five consecutive quarters of sales decline, and will most likely report another drop in its third quarter. On top of a crippled economy which severely weakened the spending power of its core customer, Wal-Mart has also struggled with some internal issues." A recent attempt at "management shakeup...has done little to sooth investors' fears." According to Pogi, the company reasons that while Africa is currently a ""world market won't immediately move the needle when it comes to earnings and top line" they hope that "10 years down the road it will be a big idea that Wal-Mart capitalized first."