Array

CHICAGO, Sep 18 (Reuters) In a five-year spree in the mid-1990s, Wal-Mart Stores Inc. bought the 229-store Asda chain in Britain, 122 stores in Canada, 95 in Germany, and 4 in South Korea. It also opened its first locations in Argentina, Brazil and China.

But in just the past four months, the world's biggest retailer has bailed out of South Korea and Germany, and some on Wall Street expect the company to exit Argentina too.

Global retailers like Wal-Mart are finding out the hard way that more is not always better when it comes to international expansion, and they are focusing their resources on a select group of countries such as China and India that promise fatter returns.

''It's a vote for allocating resources toward where they think they have a competitive advantage or where they think the biggest opportunity lies,'' said Jerry Black, managing director and Asian specialist at global consulting firm Kurt Salmon Associates.

Wal-Mart sees such opportunity in China, the world's most populous nation; India, where it is lobbying to be allowed to open stores; and Latin America.

Wal-Mart is not alone in narrowing its international focus.

The world's second-largest retailer, France's Carrefour , also gave up on South Korea to focus on China, and has pulled out of Mexico and Japan in recent years.

Tesco Plc , Wal-Mart's biggest rival in Britain, is largely sticking to the northern hemisphere, and planning its first foray into the United States next year. Tesco left Taiwan last year, swapping its stores for Carrefour locations in the Czech Republic and Slovakia.

''We chose Asia over South America just because we felt there was more real economic substance to the economies in Asia over South America at that time,'' Andrew Higginson, Tesco's finance chief, said at a recent Goldman Sachs conference.

''You want markets where you can open new stores. You want markets where the economies are going to be growing,'' he said.

BIGGER REWARD, BIGGER RISK For mega-chains that are nearing saturation at home, global expansion has obvious appeal because growth rates can be considerably higher.

Carrefour reported earlier this month that first-half operating profit rose 7.5 percent in Europe, but jumped 68.6 percent in Latin America. Wal-Mart's second-quarter operating income rose just 4.2 percent at its U.S. discount stores, but increased 24.8 percent in its international business, excluding a hefty charge for selling its German stores.

The risks are bigger too. Wal-Mart's failure in Germany cost it nearly $1 billion and led to its first profit decline in more than a decade last quarter.

The retailer acknowledged that it had underestimated labor regulations and misread local tastes -- key issues for retailers whenever they venture abroad.

Added to that is a hidden cost of the drain on talent and senior management attention.

Analysts say the most successful international retailers readily adapt to new markets, and European players seem to have an advantage there because they are accustomed to operating across a continent with multiple languages and cultures.

''American companies can be excellent at logistics and supply chain issues, as Wal-Mart is, but that doesn't necessarily make you a successful retailer to a consumer in another country,'' said Merrill Weingrod, head of consultants China Strategies.

Another risk is overestimating the market in China, where a population of more than 1 billion people has a considerably smaller number of people with significant spending power.

''You can go to Shenzhen and Shanghai, and it looks like the day before Christmas almost any day of the week,'' Weingrod said. ''There's a lot of people out shopping. That doesn't mean they're spending a whole lot of money.'' While Carrefour has said it will continue to spend, there are signs that Wal-Mart may be pausing.

It has said it expects its debt-to-capital ratio, which rose after big investments in Japan's Seiyu Ltd and acquisitions in Central and South America, to return to more normal levels by the end of the year, which could mean no more big acquisitions for now.

Carrefour announced in March that it plans to spend about 10 billion euros on investments through 2008 as it opens 1,000 new stores. That excludes any acquisitions. The news prompted at least two ratings agencies to lower their debt ratings on Carrefour.

REUTERS KR HS1140