As worldwide travel and pan-continental business expansion becomes the norm, it is natural to assume that there are hundreds of global brands. In practice, there a very few truly global brands, and particularly in the consumer goods industry. We take a look at globalization in the world of grocery retailing.

Globalization can be defined as the expansion of business into countries worldwide. However, this should not be confused with simply exporting, as globalization incorporates developing manufacturing plants and retail outlets in those countries. So what is a global retailer? Why should globalization take place at all? And is it as straightforward as building a Tesco store in Prague and filling it with food?

What is a global retailer?
The tag of global retailer can be applied all too readily, so for the purposes of this study, certain criteria have been put in place. First, the retailer should operate on a minimum of three continents. Second, the retailer should have more than 20% of sales outside the country of origin. Third, there should be a consistency of brand image or fascia.

Starting with retailers that have already branched out into other countries, Wal-Mart is by far the biggest – for 1999 Wal-Mart made $165 billion worldwide. But by our criteria, until recently Wal-Mart could not be classed as a global retailer. The vast majority of this business is done in the United States with some stores in South America. While they are expanding into Germany and the UK with their take over of Asda, they cannot yet be classed as an outright global success. However, news has just emerged that Wal-Mart is to set up a subsidiary in Japan, so yet another continent is being broached.

The Dutch retailer Ahold may not have the turnover to challenge Wal-Mart financially, but is a massive force in the United States, whereas it only achieves 23% of its turnover in the Netherlands. The French Carrefour Group is the world's second largest retailer with annual sales of $80 billion. First and foremost, Carrefour operates in Europe but also has stores in Asia and South America.

An example of truly global retailing is Internet retailer Amazon. A few years ago such a phenomenon simply would not have been possible, but the very nature of the Internet means that physical boundaries do not apply and a couple of tweaks are all that is needed to ensure success. This is to take nothing away from the thought and application to make it a success initially. Amazon now has around 17 million customers in 150 countries and achieves 22% of its sales outside of the United States, its country of origin.

Going global
As consumers in the West become more accustomed to the lower and lower prices of their every day shopping, competition inevitably increases, which in turn causes retailers to fight harder for their profits. A sensible and natural progression is to expand the business into countries where there is a potential gap in the market and to fill it, using similar practices that made the retailer successful in the first place. One of the most obvious benefits of globalization is the economy of scale that such an undertaking can offer. Goods purchased by retailers will invariably cost less the more that is bought and so the likelihood of profit-making increases with globalization.

However, going global is not always just about increasing profits; it can also be about satisfying the expectations of the company's employees. At Wal-Mart, the wealth of the employees is directly linked to the market value of the company's stock. Also, by remaining in only the US, Wal-Mart was missing 96% of the world's potential customers - and therefore a good proportion of potential revenue.

Barriers to globalization
Establishing that globalization is likely to prove a positive business move is one thing; actually putting it into practice is another entirely. However, as multicultural and open-minded we might like to see ourselves, there are still huge barriers to globalization if only in terms of culture. A comparison of the top 10 grocery brands in the UK, the United States, the Netherlands and Italy shows that Coca-Cola is the only brand to feature in all four countries. Lay's is the equivalent to Walkers in the UK, but other than that the similarities are strikingly minimal.

How Wal-Mart did it
So why has Wal-Mart been so successful in the US and can it extend its Midas touch outside of small town America? One of the keys to the success of Wal-Mart has been its firm and constant belief in EDLP. Consistently low pricing has developed immense loyalty, and the way in which Wal-Mart has grown in the smaller towns has also been a factor in nurturing a sense of community around the store. Another area that Sam Walton realized was vital, is the distribution network. Wal-Mart, it has been quoted, has more trucks than the US Army and perhaps even more importantly, has invested heavily in information technology. By automating processes it not only saves money, but it also makes it easier to identify and rectify problems as and when they occur.

Initially, Europe was not selected as a suitable choice for expansion as it is a mature market with similar and already successful retailers such as Metro and Carrefour. Asia was recognized as having huge potential but the markets being so geographically distant was a hindrance, as was the considerable resources required to fund a start-up and establish a presence. For these reasons, Wal-Mart chose Mexico in 1991 and then South America as it points of global entry. Finally in June 1999, Wal-Mart made his way into the UK with a much-publicized take over of Asda for $10 billion.

Another point of view
Meanwhile, manufacturers face a paradox in this world of globalization. The growth of the global brand provides scale to manufacturers but this in itself allows the global retailer to exert downward pressure on their profit margins. In this way, retailers can leverage their relationship with global brand owners to gain better prices. The manufacturer can and indeed does counter this by introducing greater differentiation between brands, in terms of variants, pack sizes, and formulation. The problem with this approach is that it reduces the synergies of global branding and those benefits of scale.

Globalization has become an inevitability in the consumer goods industries but despite the potential, it is by no means a simple or guaranteed path to success. With accessibility to the Internet growing as rapidly as it is, there seems to be no doubt that online shopping will grow. But whether brick and mortar retailers can use it to their advantage will depend upon how serious they are at making a success of it and the investment they are willing to put into this sector. It will also be interesting to track whether having stores across a number of continents, as Wal-Mart now has, will make any transition to e-tailing easier or whether it will have little or no influence. Only time will tell.