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Stock Market Lessons from defeat abroad

6 September 2006 - Features - Editor

What is the stock market supposed to think when a large and powerful company runs away from a major market in the first world? No foreign venture can be taken likely, or be treated as a short term move. So, how does Wal Mart explain its withdrawal from Germany?

The stock market and the public are told that the German economy has not been growing, and that Wal Mart wants to focus on better prospects. What did Wal Mart forecast for a leading European Union market in terms of growth and results when it decided to open more than 80 outlets in that country?

It is not as though Germany is either poor or an emerging country. It is a stable and mature economy, which should be easy to gauge and to make business forecasts. Wal Mart has many product lines which should be impervious to economic stagnation, though margins will always be tight in generic lines.

Wal Mart expects a loss of $1 billion as a result of its decision to leave Germany. Could this strategy have been executed better and in stages, so that U.S. share holders could have been saved this colossal loss of value? What about Metro, the German competitor which has happily swallowed up all of Wal Mart's German business? How will they make money when Wal Mart could not?

One wonders if Wal Mart has something of a cushy position in the U.S. How will it operate in tough markets such as India, which it lobbies so hard to enter, when it cannot trade profitably in Europe? Is the management up to the unforgiving world of modern competition?

Only time will tell whether Wal Mart will see a surge of value as a result of its decision to shut shop in Germany and incur such a colossal loss of share holder funds. It is a matter of some national pride as well, and Europeans must be chuckling at the thought of U.S. defeat in such a prime market. The lessons are clear, in the meantime, for all U.S. stake holders, be they investors or management teams: think hard before you venture abroad, and plan for success!

 



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