1. Wal-Mart Argentina: Taking “Everyday Low Prices” Below the Equator Luciene De Paulo Gabriel Szulik Jennifer Pogue Esther Montiel Andy Martin

2. Agenda Wal-Mart’s Background and International Expansion Argentina: Analysis and Entry options DCF and Cost of Capital Discussion Recommendation Q & A Should Wal-Mart enter Argentina? If so, which entry strategy should it follow?

3. Wal-Mart: A Successful Story Last 20 years: –Average ROE of 33% –Average sales growth of 25% Everyday Low Price Strategy Advanced Technology Low Margins and High Volume

4. Wal-Mart International Strategic focus on international expansion Stable economies: –Canada –Mexico –Exploring opportunities in Europe Attractive markets: –Argentina –Brazil –China –Higher expected returns, yet highly volatile

5. Argentina: the target Economic Outlook Retail Market Methods of Entry

6. Economic Outlook Positive Open economy Law of Convertibility Increasing consumption and GDP levels Inflation controlled

7. Argentine GDP

8. Argentine Inflation

9. Argentine Market Openness

10. Retail Market Attractive Retail market underdeveloped – Only one hyper market chain (Carrefour) Small businesses threatened by big players Total retail size in 1993: US$ 67.9 billion –US$8.6 billion among supermarkets and hypermarkets Low distribution and technological capabilities

11. Market Considerations Families shop together People buy smaller items, more often Fewer car owners than U.S. Corrupt local business environment - relationships with suppliers and politicians necessary Wal-Mart may need a local partner…

12. Methods of Entry 1.Wal-Mart entering on its own, building stores from scratch 2.Acquisition of a local retailer 3.Joint Venture

13. Disco S.A.: A Possible Partner Largest retailer: 57 branches 4th retailer in sales revenue: US$805 MM in 1993 Outstanding geographic locations Highly competitive prices Strong financials, profitable local established retailer Smaller stores than a typical Wal-Mart Supercenter

14. Evaluation of risks Political –Import controls –Democracy level –Corruption –Taxes Economic –Exchange rate –Inflation

15. Evaluation of risks (cont.) Financial –Interest rates –Banking system Industry risks –Consumer default risk

16. Specific risks of the project Individual entry –Limited leverage with suppliers –Cultural differences –Local opposition Acquisition –Buying inefficiencies Joint Venture –Partner inability to pay –Partner reliability

17. Adjustments to C.O.C. Cost of Capital Individual Entry22.7% Acquisition21.3% Joint Venture21.3%

18. NPV comparison Using a COC of 22.7% and 21.3%: –Individual entry: ($238.10 million) –Acquisition: ($79.98 million) –Joint Venture: ($23.33 million) Recommendation: Do Not Enter Argentina

19. What Happened? “Everyday Low Profits” Below the Equator Wal-Mart Entered Argentina Without a Partner in 1995 Competitive Reaction was Huge – Price Wars, Supplier Boycott, Technology Improvements Wal-Mart has not been profitable in Argentina since entry in 1995 Royal Ahold bought Disco in 1995 and the merger has been very successful

20. Wal-Mart’s Analysis Using a discount rate of 12%: –Individual entry: $172.44 million –Acquisition: ($79.9 million) –Joint Venture: $357.08 million Possibly no suitable partner for Wal-Mart to consider in 1993 Only country Wal-Mart entered without a partner and it has not been profitable

21. Our base scenario

22. Q&A

23. Wal-Mart Base Scenario