Kreller Hot Topic Report | Careful What You Wish For: Lessons From Walmart Brazil

Posted By:
Kreller Group
July 23, 2019

By Lauren Caryer, PhD

Brazil Expansion Goes South Due to Compliance Issues
Despite well-documented missteps in Germany and South Korea, the late 2000’s were a dynamic time for Walmart’s expansion efforts worldwide. Beginning with forays into Canada, Mexico and the UK in the mid-90’s, by 2015 Walmart International had become an empire unto itself, operating in 26 countries and accounting for over a quarter of the retail giant’s net sales. Quoted in an August 2, 2006 New York Times article, Deutsche Bank analyst Bill Dreher stated “I’m hard pressed to name a U.S.-based general merchandise retailer that is doing better than Wal-Mart International.” This explosion in growth was especially evident in Brazil, following Walmart’s 2004 acquisition of the 118-store Bompreço chain and a 2005 purchase of the 140-store Sonae chain. As noted in a December 14, 2005 piece by MarketWatch, the $757 million Sonae deal nearly doubled Wal-Mart’s presence in Brazil. Walmart’s Annual Reports also touted this expansion, charting the chain’s presence from 15 stores in 2000 to 434 units at the close of the decade.

However, the recent conclusion of a multi-year investigation into Walmart’s international operations underscores the risks of such a single-minded focus on growth. On June 20, 2019, Walmart agreed to pay $282 million in fines following a civil suit and criminal charges filed by the U.S. Department of Justice alleging violations of the books and records provision of the Foreign Corrupt Practices Act (FCPA) by the company’s subsidiaries in Mexico, India, China, and Brazil. The criminal charges brought against Wal-Mart’s Brazilian subsidiary, WMT Brasilia S.a.r.l. provide a useful cautionary tale when thinking through the possible hazards of expansion into high-risk territories without clearly defined and adhered to anti-bribery policies and procedures.

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