Case analysis Wal-Mart

Problem The central problem facing Wal-Mart management is establishing ways of sustaining the companys growth which has been seen over the years. A strategy is needed when the global and home expansion have been attained in the market. To do so, Wal-Mart has to nurture and identify the main areas which have facilitated to He Company to the position it is currently. Wal-Mart's growth is mainly attributing to its ability of fulfilling the customers needs by providing varieties of products needed to fulfill the demand of consumers at a very affordable cost. This ability is as a result of the various competencies which Wal-Mart has its organizational boundaries and also based on the individual skills of its members. Wal-Mart is best known as the leader of channel management, customer oriented services, distributor of consumer services and inventory control. These factors are attributed to the companys ability to manage and coordinate distribution network, manage complex information and managed suppliers relations with efficiency. This is possible through WalMarts ability of a seamless stream of information and incorporating new technologies (Wal Mart Stores, Inc 2011). The extensive communication of Wal-Marts runs see-through all the warehouses, stores suppliers and officers. These aspects are what have made Wal-Mart to serve its customers with the needed goods at an affordable value and at the same time the suppliers have benefited a desirable value with a sales of goods channel which is ever available. The channels of distribution provides high efficiency in inventory and demand, unit sales feedback loop and a supply system of management which us available just in time as well as needs based position which is effective(Wal Mart Stores, Inc 2011). Discount retailing industry, in the USA of 1950s Discount retailing in the United States started during the 1940s. The discount stores came at a time when there was economic boom after the end of the Second World War II, to serve the baby boomers familys consumer needs. The main aim of the discounts retailing stores was to operate within low prices and within the level of basics services. The available retailers began to compete for price among the stores offering a wide veracity of household products such as toiletries, appliances, groceries and household goods. The discount stores were within the town regions serving over100,000 people but according to Sam Walton the founder of Ben Franklin variety store, letter to be called Wal-Mart believed that the discount retailing stores could also thrive well in the rural areas as long as it sold products at the right value(Wal Mart Stores, Inc 2011). Sam Walton strategy was to establish ways of attracting people from different regions by establishing a large size store in the rural areas which no one had thought about. By 1962 Walton had opened 30 Wal-Mart stores in medium size and small size towns in Missouri, Oklahoma and Arkansas. The initial problem faced by Wal-Mart was on distribution which could later be solved by opening it own distribution centers which would enable the company to buy in large volume store the merchandise and sell it to customers at an attractive price. Through expansion of Wal-Mart sheer size and careful bargaining, it slowly gained the power to control the suppliers and purchase variety of goods at

affordable prices than its competitors. Through private branding, Wal-Mart was able to differentiate itself and to gain its own identity which is Sam's Choice. Apart from differentiation, Wal-Mart was able to be less depended on the manufacturers brand rendering the role of suppliers powerless. This strategy enabled Wal-Mart to further exploit its initial strategy of opening more stores in small mind medium sized towns which were still neglected. Wal-Mart in these newly opened stores managed to provide low priced goods at a steady supply through the strategy of low costs inventory making the company to establish barriers entry by other rival in operating within its standards (Pioch, Gerhard, U. et al. 2009). The early discounters did not sell grocery and food products like in the supermarkets but majored on non-food goods such as sports equipments, hardware, auto supplies and toys. These goods were according to the manufacturers branding alone. Advertising and high pricing was also a common aspect in the early retail industry. The industry lacked information technology. The products sold by the early retailing industry were standard in terms f discounts, and only based on the manufacturers branding. Before 1975 resale price maintenance in the USA was legal. This means that the manufacturers were able to stipulate price of the sold products in a given store. This meant that the retailers were not able to enjoy any price benefit and pass the same lowered prices to the customers. Michael potters fives forces can be used to establish the retail store industry. These forces are the buyers bargaining power, threats of new rivals to the industry, the suppliers bargaining power and the competitors rivalry. Wal-Mart is an s gigantic business in the retail industry which many rivals have found it difficult to copy. This company operates at the lowest price and ensuring that there is constant sappy of a variety of fast moving goods required by the consumers. This means that the logistics and expertise in distributions the 1980s ware houses have been changed to day to become unique whole sale distributors .This is known as Sams Clubs which depicts a different form of distribution format. Most discounts stores of Wal-Mart offer a wider range of products up to 50,000 SKUS compared to the wholesales outlets which only stocked 4, 000 SKUs. Information transfer from one store to another and from various warehouses around the nation enables constant supply of merchandise and goods at the different stores. The complex information system used by Wal-Mart enables the company to extract data from various levels such as sales employee turnover, inventors levels and much more. The suppliers are able to receive information on which product has been sold and the time the product is sold. Suppliers have the power of knowing which product needs to be restocked and be sent to Wal-Mart after the managers have made orders. The buying power of Wal-Mart is also very high because the company has a smart business, of providing a variety of products at an affordable cost and ensuring that the products are always available at all time. Technology enables Wal-Mart to sale goods at a low price. This means that the culture of saving is also passed to the customers which make customers to constantly visit Wal-Mart store. Wal-Mart is able to generate money from this project (Wal Mart Stores, Inc 2011). One worry of Wal-mart is the threat of substitution. The company just like any other develops strategies to sell at a low costs but this is not the solution. It constantly has to ensure that its products are exactly what the consumers need. This means that high quality products at an affordable price should also be part of Walt Mat strategy of being competitive. Through product differentiation Wal-Mart has

become the chosen retail store for many. Rivals have been kept away through the customers preference to Wal-Mart which is a store that has existed since they were young. The threat of entrants is also possible because of the high capital required. Wal-Mart has been able to grow from the few stores which have lead to development super centers. To be like Wal-Mart, a company will take decades or take a huge loan. The barriers have also been made possible Wal-Marts access to distribution, brand equity, cost switching and absolute cost advantages (Wal Mart Stores, Inc 2011). 2. Wal-Marts competitive advantage in the USA. Retail discounts stores are designed in a way which they can operate at a Low costs within the services and makeup levels. Compensation of the low price is attained through achieving high turnover of merchandise and high volumes of sales. E.J Korvettes was among the earliest discount stores in America. The other competitors of Wal-Mart are Sear, and K Mart. Wal-Marts competitive advantage can be seen in all the sectors of business the company deals with. The success of a company is measured in terms of dominance and sales over the rivals. The main strategy which Wal-Mart has used is that of selling goods at a very low prices, which has made the company to expended and to out do the competitors. Wal-Mart does anything possible to beat its competitors. The original mode used by Wal-Mart is that of establishing more stores in places which had been neglected. The stores then expanded to become bigger by also incorporating other retail sectors like distribution within its business activities. Each step taken by the company is to dominate the other competitions and to make money. Other competitors have also been shut down because of too much competition from Wal-Mart. By 2004 Wal-Mart was seen as the main retailing store in the U.S of which the stores were almost 2/3rd of the overall sales. The traditional stores of Wal-Mart are from year to year being replaced the companys super centers which are larger and have a combination of both supermarket and discount stores. This concept was adopted from the hypermarkets of Europe which has made Wal-Mart to venture into a whole range of products. With a 20% share in groceries, Wal-Mart is the U.S market leader in this sector (Pioch, Gerhard, et al. 2009). The strategy of low prices culture is applied in all the businesses of WalMart as well as genuine services. This is part of the companys mission. Sam Waltons core philosophy and beliefs on his company are the aspects of respecting the customer as an individual, offering high Quality services to the consumers and striving for excellence in all the sectors. The respect of individual is also about properly taking care of the Wal-Mart employees and empowering them to succeed in their daily activities. This enables them to be committed to the company and to provide satisfactory services to customers. Striving for excellence is a culture which has enabled Wal-Mart to be innovative, to see its growth and to invest in new markets. Aggressive hospitality is provided to the customers who are seen by the work done by door greeters in all Wal-Mart stores. Another aim of WalMart is to be in support of the local community efforts through the provision of charitable contributions which can be seen in its ability to be an affiliate of Childrens Miracle Network and the United Way (Pioch, Gerhard, et al. 2009). The retail industry reached its competition peak in the 1970s. Walton managed through the completion by establishing his first distribution center to serve around 20 of the other discounts stores. These

years also saw Wal-Mart expanding to other regions across the country like Kansas, Texas, Missouri, Oklahoma, Tennessee, Illinois, Alabama, Louisiana and Mississippi. The regional expansion of Wal-Mart stores was visible in all the 50 states of America. The high competition among retail discount stores was mainly challenged by the weak economy as a result of inflation. The expansion of Wal-Mart the small towns was a major strategy while all the other retailers were focusing on the urban centers. Due to bad economy during the 1970s people were will to go to the small towns at Wal-Mart Stores to purchase their goods at a low price (Wal Mart Stores, Inc 2011). The leading retailer in the US was Sears, but the 1974-1975 recessions greatly affected Sears. The strategy which Sears was using was that of expending its overhead by targeting families of the middle class. The strategy used by Wal-Mart during this time was that of lowering the overhead expenses in order to compete with the rivals. Wal-Mart at this time only had 2,500 distribution centers while Sears had over 6,000 of them. Wal-Mart was further supported by the chamber of commerce during the 1980s because it believed that the company would improve the economy through the provision of low price high quality products. Some critics have viewed Wal-Mart as the source of problems for other merchants which were destroyed. WalMart support by the chamber of commerce was also due to its ability to employ people with the plenty of job opportunities it had in opening new stores in various business environments (Pioch, Gerhard, U. et al. 2009). Wal-Mart has since then been on top of the game through employing its management strategies which emphasize on its corporate culture and its workforce of being religious, conserving morality and being a business which is family oriented. Wal-Mart is a keen listener to the problems and needs of the workforce and they are encouraged to come up with suggestions of improving the companys practices and policies. They are not regarded as employees but associates in the business. The associates are also offered with plans on profit sharing like options to purchase stocks as well as generous financial rewards. They are also given extensive training programs which improve the employees loyalty and commitment to the company which leads to knowledge retaining. Through positioning and choice WalMart has managed to create activities for money. The support activities are provided by the Human Resources, the infrastructure of the firm, technology development management and the procurement department (Arndt, 1999, pp 62). How sustainable is Wal-Marts competitive advantage in discount Retailing in the USA? Scarcity or hold ups divert the suppliers and consumers and compliment the ones with bargaining power seen in her global venturing of new markets like in germane. It has also managed to acquire stores like 74 Spar Handel and 21 Werkauf. Wal-mart also ventures in the UK in 2009 by acquiring 219 outlets of ASDAs (Bert and Sparks 2001, pp 456). What has continuously made Wal-Mart to be successful are its strong organizational culture, high quality services to customers and efficiency in the operation of its activities. The market position of Wal-Mart can be examined through its patronage behavior. This is through placating importance in the international retail strategy and norm various depending on the market it has ventured into. The company also squarely scrutinizes the market position and retailer norm adherence relationship (Wal Mart Stores, Inc 2011).

After the Second World War, Wal-Mart adopted the style of discounting (Hayden, est. all, 2002) on its products. But competition from target and Kmart made the company realize that this was not the best strategy to start with. The idea of passing the earned profits and savings to customers was then adopted. For a company to gain competitive advantage, Porter (2000) indicates that the company has to combine strategy with operational effectiveness. Through this approach, the company can out do its rivals. One main aspects which Wal-Mart has done is to develop strategic positioning such as offering a variety of goods, at an access-based position to fulfill the need base position. The price of Wal-Mart stores is also much lower than other stores through the high quality purchase which is associated earning of the margin costs and passing customers with savings. Stiff competition is faced by Wal-Mart from its rivals such as Tesco and Super Target. Operation effectiveness is what makes Wal-Mart sustainability in the market which is much better than the operations carried out by the rivals. Through the low prices at Wal-Mart, customers are always attracted to visit Wal-Mart stores any time they want to buy something. Through advertising Wal-Mart has been able to promote are low price goods much lower that the price sold by the other retailers. The company also has the opening price concept which is the lowers price a new brought in the store can be sold at. This makes consumers to believe that Wal-Mart is actually the best retail to buy goods (Race Cowgill, 2005). The major thereat of Wal-Mart is how to sustain its international and national market position. Another thereat is that as the leader in the global arena in the retail industry, Wal-Mart is faced political and the socioeconomic challenges of countries in the countries. Wal-Mart can overcome these challenges through shaping the norms, offering incentives for high performance, boding resources and sustaining and shaping norms. Added value can also be attained through sustaining the cooperative advantage. Wal-Mart has managed to sustain its international operations through offering national subsidiaries which facilitates the companys underlying approach and principles in retailing in a given national culture and an economic structure which is distinctive. Wal-Mart has various approaches which are highly differentiated to suits the countries they are retailing in. Wal-Mart also adopts different opportunities of entering a country, for example the strategy of joint ventures in South America and in Mexico which shows the companys access to utilize the resources and the knowledge of using strong local players (Alexander and Hayley 2000, pp 334-353). Of foreign direct Investment (FDI), in UK and Germany By 2005, Wal-Mart was considered the world largest retailer with total sales of $285.3 billion. International markets sales amounted to 20% of the overall sales in markets like the UK and Germany. With the effort to penetrate in every country with the hypermarket culture, Wal-Mart experienced various challenges. It acquired two German retails in 1997 for an amount of 1.6 billion dollars. But this venture proved unprofitable making it to close the German stores in July 2006. The failure of Wal-Mart in Germany can be attributed to cross cultural inconsideration. This means that Wal-Mart was ignorant and inadaptable to the German local culture affecting the whole global business in then country. Understanding the aspects surrounding the local market is important even to a global successful corporation.

Learning the cross cultural approach in any global venture mean interpreting the culture of the people. This does not involve one to one translation of the foreign language but instead being able to correctly interpreting the language aspects. It also involves shaping the HR practices and business models, proper marketing message and branding (Knorr, Lemper, and et al. 2003). The aspects of value also depend on the context. In cross cultural boundaries quality serves more of a consideration to value. FDI is a good way to invest in a country. This is about selecting the leader in the targeted market. Foreign direct investment is about establishing long term partnership with a company in a foreign country. Wal-Mart could have selected the best performing company in Germany which they could agree on joint venture, technology and expertise transfer and also share management. German market proved to be difficult place to gain success because of low profits margins and prices, intense competition and excess selling space. Wal-Mart ventured in the UK and the situation here was different this was in 1999 when the UK government was highly concerned about food prices which the British retailers were selling at. The entering of Wal-Mart into this European market proved to create high competitive environment on prices seen by the low price strategy used by Wal-Mart. The entry mode into both Germany and the UK by WalMart was not supported by the government incentives. This is because of the methods of entry of acquiring the foreign companies and through FDI. The governments saw that they would benefit from FDI inward benefits (Pioch, E., Gerhard, U. et al. 2009, pp 56).