Dancing with a Giant: The Effect of Wal-Mart's Entry into the United Kingdom on the Performance of European Retailers

The authors examine the value-destroying and value-enhancing effects of a giant player's foreign entry on incumbents operating in that region. They use Wal-Mart's entry into the United Kingdom, through its acquisition of Asda, as the empirical context. Drawing on the marketing, strategy, and finance literature streams, the authors develop hypotheses as to why some incumbents are negatively affected whereas others actually may benefit from the entry of a giant competitor. Their measure of performance impact is the change in shareholder value around the announcement date, which has recently been recognized as an important metric to evaluate the effectiveness of marketing actions. The authors find strong support for the conceptual model, which distinguishes between the seriousness of the threat to the incumbents and their capacity to withstand the threat. The authors validate their findings using three alternative measures of company performance: percentage growth in the incumbent retailer's sales, earnings before interest and taxes, and return on assets between 1998 (the year before the Asda takeover) and 2002 (three years after the takeover). The authors discuss various managerial implications of their results. By acting proactively, incumbents can mitigate the negative performance consequences, while maximally benefiting from the positive implications of a giant competitor's entry.