Wal-mart Brazil

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Wal-Mart Operations in Brazil


Professor Masaaki Kotabe of The University of Texas at Austin Graduate School of Business and Kleber G. de Godoy and Moacir Salzstein of Fundação Getúlio Vargas, São Paulo, Brazil, prepared this case as the basis for class discussion rather than to illustrate either effective or ineffective management of a situation described, 1997. Copyright © 1997 by Masaaki Kotabe

Introduction

In September 1994, Brazil was experiencing a new thrust in its economy. After several years of hyperinflation, the "Real Plan", implemented in March, 1994, an economic stabilization program that indexed the Brazilian currency to the U.S. dollar, began to reduce inflation to reasonable levels. In February 1994, a monthly inflation rate was 40%, whereas by September it was a relatively low 3%. Lower inflation rates would help improve the purchasing power, particularly of the lower socioeconomic segment of the population.

The optimistic scenario encouraged many foreign companies to make new investments in Brazil. If Brazil is the leading economy in Latin America, with a population of more than 150 million, why not invest there, now that a better business horizon lies ahead in this continental country? Wal-Mart Stores, the world leader in retailing, announced on May 9, 1994 that it had decided to invest heavily in Brazil, through a partnership with Lojas Americanas, Brazil's leading department store chain.

Wal-Mart Stores would own 60% of Wal-Mart do Brasil, whereas Lojas Americanas would retain the remaining 40%. The North-American "giant" was known to provoke a market revolution in every country it decided to enter. Wal-Mart not only announced the decision to enter the market with Supercenters (stores with 20,000 m2 of area and more than 50,000 different items) and Sam's Club stores (a buyers' club, founded in 1976 in the U.S.).

Brazilian competitors had good reasons to be concerned. Wal-Mart was known ...