The smiley face of Bentonville has big frown today. The Frankfurter Rundschau reports that Wal-Mart is giving up on the German market and will be selling its 85 stores to Metro Group. Wal-Mart tried to force its unethical business model into Germany for eight years, and experienced only losses of $ hundreds of millions.
"Damit wirft Wal-Mart wirft nach acht Jahren in Deutschland das Handtuch. Der US-Konzern hatte 1998 die Wertkauf- und ein Jahr später die Interspar-Märkte erworben. Die 85-Märkte blieben mit ihren Ergebnissen aber hinter den Erwartungen der Konzernführung in Arkansas zurück. «Wir haben den Turn Around nie geschafft», sagte eine Wal-Mart-Sprecherin."
Wal-Mart's success is based on paying workers below-market wages and denying them basic benefits. Health insurance costs, for example, are borne by taxpayers in the US as workers are forced to rely on state Medicaid services. This policy failed in Germany, where trade unions have much more power and workers are not as easily intimidated. The German trade union publication Uni Commerce explains what happened in Germany:
Goodbye, Germany. Wal-Mart was never a good corporate citizen in Europe's largest economy, but its workers were well organised and could keep the company at bay. Now the Bentonville managers have seen that walmartization of working life does not work where unions are strong, be it here or in South Korea which the company is also leaving.
When the Bentonville multinational tried to establish its American business concept in Germany, things started to go wrong. Shopping patterns were different, as was competition. There were also questions asked about whether the company had really bought the right store network.
It was not even enough to subsidise the German operations with money earned through low wages and poor helth insurance in Wal-Mart's main US markets. Allowing the bottom line in Germany to go red by hundreds of millions USD and engaging in brutal price wars in vain attempts to gain market shares, Wal-Mart tried to use its dominant global market position to press its competitors.
"Instead of seeing their personnel as an asset, Wal-Mart resorted to its typical bad employer behaviour when it continued to experience problems in Germany. The works councils started to encounter obstacles when carrying out their functions. Ver.di got a cold shoulder response when it tried to negotiate a collective agreement. Workers' representatives were threatened with store closures if they did not make concessions. These were just some of their unwise measures which also signalled management's nervousness.
Instead of investing in its personnel, Wal-Mart resorted to its Bentonville principles. The results were often so strange that the German workers did not know whether they should laugh or cry. - We are no clowns, we are workers, many said when morning cheers were imposed by management, and made sure they were busy with something else when the circus was on. The ban on love affairs that the Bentonville managers tried to impose was received with wry smiles. But the anonymous informers' hotline that Wal-Mart wanted to install brought back disturbing collective memories to many Germans and other Europeans, and already the proposal to do this was taken very badly by them. "
Now Wal-Mart's misadventure in Germany will make for an interesting case study for the Harvard Business School. It is a cautionary story of how anti-social corporate policies are not sustainable in the long run. There signs that this lesson is already hitting home on Wal-Mart's home turf: yesterday the City of Chicago passed a "living wage" law that will force Wal-Mart to pay its workers a decent hourly wage.