Strategic Management of Walmart
Wal-Mart is the largest private employer in the United States and the biggest retailer in the world. The company started in 1962 with only a small number of employees and has hugely grown since then. Throughout this essay we will analyse how a small family business managed to become the leading retailer in the world.
We will start by critically comment on the organisational culture of Wal-Mart.We will then apply Porter’s 5 forces Framework to this company. We will continue by undertaking a PESTEL analysis and discussing WAL-Marts key drivers for change. We will finish by critically comment on the strategies used by this leading retailer to expand outside the USA. Table of Contents Executive Summary2 Introduction3 I)Critically comment on the organisational culture of Wal-Mart.
5 II)Porter`s Five forces on Wal-Mart6 What are Porter`s five analysis? 6 The threat of Competitors6 Threat from New Entrants7 Porters Five force Diagram7 Suppliers` Power8III)PESTEL Analysis for Wal-Mart9 Political9 Economic10 Social11 Technologic11 Environmental12 Legal12 PESTEL conclusion12 IV)Global Expansion13 Analysis of Wal-Mart International Expansion Strategy13 Conclusion18 References19 I) Critically comment on the organisational culture of Wal-Mart. Wal-Mart created its organizational culture from the beginning of composition by Walton in his first opened in 1950. It is one of the few who are called to their employees “associates” and give them stock, and store and exchange data with them. Wal-Mart employees do not work for them, but they share.Wal-Mart’s message to them is that people who work hard will be involved in the company’s profit sharing program to become rich and happy. You will discover the organization culture of Wal-Mart from the first day on the job by just walk through the door and for the customer you will learn a lot about Wal-Mart culture just by crossing by first walk through its store.
(www. prenhall. com) Wal-Mart’s founder, Sam Walton, preceded respect and concern for his staff from the beginning of the company. This led to an atmosphere of confidence until this day.Walton also modelled the behaviour that he desired from his employees, especially customer service (both to internal and external customers), by visiting his stores, meeting customers, and greeting the staff by their first name. It also included, encourage change in order to maintain competitiveness, and development of staff through them to work in different environments.
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come 10. set forth 11. advance 12. show 13. tender 14.
move forward 15. chip 16. recede 17. bring forward 18. produce 19.
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give in 25. return 26. come back 27. turn in 28. proffer 29. become old 30.
be age-old 31. become timeworn 32. display (Golnaz Sadri and Brian Lees, 2001, pp. 853 – 859)Wal-Mart’s three basic rules are the customer is boss, “Get it done by sundown” and “Greet any customer who is within 10 feet. ” Company logo is “Exceed customer expectations.
” Wal-Mart culture is low cost. Wal-Mart’s culture is the key to their success, until today, the staff continues to believe that how Sam would have done it when making decisions. www. prenhall. com) II) Porter`s Five forces on Wal-Mart What are Porter`s five analysis? The five force analysis is a technique for identifying and listing those aspects of the five forces most relevant to the profitability of an organisation at that time.
(Porter 1980s, 1985 David B, Management, Prentice Hall, 3rd Edition 2005) The ability of a firm to earn an acceptable return on investment highly depends on how business managers handle these forces in their immediate business The objective of this script is to critically study the Wal-mart five force analyses.These five forces are the ability of potential competitors, the threat of new products, the buying power of consumer, and finally the bargaining strategies of suppliers. The threat of Competitors The most visible threat in the retail business across the United State is Competition. The quality of competition in the U S as a sub-region has significant influences on business within its borders, and these are due to the following factors; technological, economic, social and political factors. Wal- Mart is directly faced with competitors like K-mart, Target, Winco, Albertsons and wholesale retailers like Costco.The threat form is slightly different in scale putting into account the span of business activities and ability to match dominant actors.
Wal-Mart`s price low cost and discount strategies often leaves less room for competition from small firms in the business and it takes the likes of Target and K-Mart to follow suit in the low cost price strategy. The level of threat is medium given the resource available, brand awareness, service strategies, economies of scale, and the available product option that Wal-Mart provides.The Wal-mart supply chain have turned to be a guideline towards a low cost sales strategy with major competitors likely or forced to discount much lower to stay in business. These eliminate or possibly scale down the force against Wal-mart from new entrants concerned about attractive profit margins. Threat from New Entrants The threat from new entrants is quite low given the customer loyalty associated with the everyday low cost strategy that Wal-Mart offers.
Retailers are generally profit oriented and a short term profitable venture seems to be unforeseeable for new entrant in the US retail industry.Would new entrants afFord to counteract the Wal-Mart low cost model, economies of scale, diverse products range, and brand awareness? Maybe, but with a significant impact on Wal-marts current market shares High entry cost and unavailable capital for investment (resource) could be key barriers among other things. Competitors Consumers Suppliers New Products Porters Five force Diagram Suppliers` Power Commodity Suppliers to Wal-mart and other discounters associated with it`s supply chain has limited power or little control over its cost generic strategy.Overall Suppliers role are set and driven largely on Wal-mart terms and conditions, with reference on the everyday “low cost” and “to meet or beat” pricing for customers leaves the supplier’s with limited control or bargaining power to influence price and mode of supply. Suppliers have to adapt to standards and values set by Wal-mart, and typical evidence was how suppliers are compelled to adapt to its retail software systems.
Technologies in areas to standardise its supplier chain and for suppliers to adopt in order to receive supplier contract were visible control mechanisms in its supply chain.Software systems and data bases to increase efficiency in collecting, transmitting and analysing larger volumes of safety and quality related data was largely compromised by Wal-mart suppliers (Ref; Food Standard Agency, 2000; Wilson ;amp; Clark, 1998). III) PESTEL Analysis for Wal-Mart In the macro-environment there are several factors which can have an effect on the decisions of the managers. Some of these factors could be for example taxation policies, interest rates, inflation, ageing to work, environmental issues or competition laws and many others. So understating how PESTEL factors might impact on and drive change in general is only really a starting point. Managers need to understand the key drivers of change and also the differential impact of these external influences and drivers on particular industries [.
.. ]” Johnson G. , Scholes, K. and Whittington, R.
(2008), Exploring Corporate Strategy, Prentice Hall, London. The authors are saying that PESTEL is just a tool used for strategic analysing. The retail managers need to take into consideration the factors which can have an impact on their business. These decisions can change their strategies and their development.To analyse and apply these factors to Wal-Mart we will analyse and classify them by using PESTEL method. Political This part is about government policy and the degree of intervention in the economy.
During the presidency of Ford and Reagan the citizen were not happy with the slow economy. It was a period of recession. This was a period of instability and distrust. The unemployment was very high with a peak around 10%. The government encouraged customers to consume to maintain the economy.
All of these factors were very profitable to discount retailers and Wal-Mart took advantage of it in order to progress and develop.Economic Wal-Mart started to develop in the early 1960 and its growth coincides with the decrease of the GDP growth rate. GDP Growth Rate Whilst more and more Americans were living below the poverty line, discount retailers like Wal-Mart prospered. People had less money, so they preferred to buy discount products instead of brands. Interest rate The interest rate was at a peak in the 80’s, which meant that Americans citizens and companies at that time could not borrow money to consume or invest. Fluctuations in the stock market can also badly affect the results of a company like Wal-Mart.
SocialThe social life style changed in the 80s because there were more and more single families and the householders had less money. During Carter‘s presidency there was an increase in personal savings instead of consumption. At the same time the costumers were better informed because there were more and more TV and Radio advertisements. Even today Wal-Mart uses these types of advertisements daily to promote their products. Consumers want to buy cheaper products whilst still being interested in quality.
At the same time Wal-Mart promotes their products to be of “high quality and cheaper everyday”. TechnologicThis part is about new technologies which create new products and new processes. Wal-Mart dedicates a great part of their budget to research and development. The retailer started very early to install and develop new technologies for their operations. They were one of the first retailers to use and adopt bar codes for scanning data.
They use the RFID (Radio Frequency identification) for their operations and have the same information systems with all their suppliers. Today they have one of the world’s largest private satellite communications systems. When they started Walmart. com, Wal-Mart was one of the first retailers to do business online.The retailer attracted Jeanne Jackson, talented in IT, and this venture made them one of the pioneers in online shopping because they mixed the knowledge of technology and retailing.
To broaden their offer they started to offer new services like “downloading music” and “1 hour photo”. Environmental President Carter tried to implement a strategy to improve the fuel efficiency on cars. In 1977 he established CAFE “Corporate Average Fuel Economy”. During Clinton presidency he invested more than $3 billion, which means an increase of 50% in annual financial support for research and develop clean energy technologies.We know that the Americans do not have a lot of laws concerning the environment but Wal-Mart tries to have green politics. When listening to the CEO Mike Duke: “Sustainability is an important part of our culture.
It helps us to remove waste, lower cost and provide savings to our customers. ” They involve all their actors like the suppliers and the costumers. They now started using solar energies for their stores and donate around $6 million to create green jobs in United States in 2009. Another way they save gas emissions is thanks to their transportation plan.After a truck has delivered a store, it gets products from a supplier on the way back to the warehouse.
All these actions give them a positive image and they play with the image of being a green company to attract customers because people like it when a company is responsible of the environment. Legal They are always in disagreement with their competitors because they use very low prices to compete with them. Sometimes they even sell some products below the bought prize but they keep this policy to attract as many customers as possible and of course to beat the competitors. PESTEL conclusionWal-Mart during its development and growth since 1960 took advantage of a favourable environment. They did most of their expansion between 1960 and 1990 during a period where the US economy was instable and full of distrust.
The unemployment was very high and people didn’t have a lot of money to spend. Wal-Mart prospered thanks to their policy to offer discount products of high quality. IV) Global Expansion Why Wal-Mart needs to go international? “We need the growth of Wal-Mart some day when the United States slows down,” said John Menzer, former president of the international division of Wal-Mart.His vision is one where Wal-Mart becomes a global brand, just like McDonald’s or Coca Cola. The need for Wal-Mart is that its U.
S. operations were slowing down, as the market slowly became saturated. The company had no choice but to expand rapidly abroad. Wal-Mart has over 4,263 stores and 660,000 workers outside the United States in 15 countries. Twenty five percent of the company’s sales now come from international operations.
Analysis of Wal-Mart International Expansion Strategy The main idea of the company’s vision is focused on meeting the needs of the consumers and providing the best possible services.The fact that the Wal-Mart brand helps in promoting its trademark: low cost, best value and greatest selection of quality merchandise as well as highest standards of customer service. One of the main features Wal-Mart has been known for is its pricing strategy. The purpose of the pricing policy of Wal-Mart is to “meet or beat” the retail prices of competitors for highly competitive and to create “low-price leadership” in the local marketplace, which enables them to attract a disproportionate number of customers into the store and achieve profits through economies of scale.When Wal-Mart decided to expand globally, it had an array of choices: It can acquire an existing player or build an alliance with an existing player. Wal-Mart moved abroad in the early nineties.
Wal-Mart’s first international expansion was the opening of Club Aurrera, a smaller version of Sam’s Club, in the suburbs of Mexico City through a joint venture between Wal-Mart and Mexico’s leading retailer, Cifra. It had to face initial problems, significantly poor distribution system and network in Mexico, which led to raised costs and prices.Therefore, around mid-1990s, Wal-Mart formed a partnership with the Mexican trucking company and built factories near the Mexican DCs to overcome these problems. In 1998, Wal-Mart acquired the controlling interest in Ciftra and in 2000 Ciftra changed its name to Wal-Mart de Mexico. The Mexican experience proved Wal-mart it can compete outside US.
Wal-Mart’s next move was into Puerto Rico in 1992, where the government tried to block Wal-Mart’s purchase of a local supermarket chain, arguing that it violated antitrust laws. Despite all, in 2002, Wal-Mart still purchased 35 Supermercado Amigo supermarkets.For further expansion in Latin America, Wal-Mart entered into Brazil through a joint venture – with Lojas Americana, a local retailer. In Brazil, Wal-Mart used attack strategy when it decided to overtake Carrefour, the French retailer, had been operating in Brazil since 1975 by aggressively pricing its products. This strategy backfired, as Carrefour cut prices as well. Wal-Mart realized that its global sourcing did not provide any built-in price advantage.
So Wal-Mart chose to focus on areas where it could differentiate itself: customer service and merchandise mix to entice shoppers away from Carrefour.The entry into Brazil gave Wal-Mart even greater experience in Latin America, and so it chose to enter Argentina through a wholly owned subsidiary. This decision was taken by the fact that there are only two markets in Argentina of significant size. Wal-Mart’s global expansion strategy has been forceful and powerful. First it tries to gain entry into a foreign market through takeover of a leading retailer. After buying a retailer chain, Wal-Mart changes the stores to its own.
The next major strategic advance by the company was into Canada in 1994. Wal-Mart entered by buying a weak and ailing Woolco stores.It was a time when a combination of high costs and low productivity had driven the Canadian company into the red. Wal-Mart quickly reconfigured and transformed Woolco along the lines of its successful United States model, a strategy facilitated by the similarity between the United States and Canadian markets. This transformation occurred in four central areas: 1. Work force: Defining Wal-Mart’s core beliefs and practices to the new Woolco associates.
2. Stores: Wal-Mart brought every outlet up to its own standards. 3. Customers: Wal-Mart introduced its “everyday low prices” approach to a market accustomed to low retail pricing. . Business Model: A broad merchandise mix and excellent customer service were among the core attributes that were successfully transplanted into Wal-Mart’s Canadian operation.
Wal-Mart used a similar approach in its entry into Germany in 1997; it acquired the dominant Wertkauf hypermarket chain of stores, one of the most profitable hypermarket chains in the country. However it quickly realized that building new hypermarkets in Germany is prohibited due to the mature European market and strict zoning laws. The German market was not been easy for Wal-Mart.It failed to understand Germany’s retail culture, the regulations that requires five years or more to the launch a new hypermarket and faced stiff competition among some other hypermarket chains in a stagnant market. Company faced losses and it was also breaching the German pricing regulations in 2000. The company got into trouble with the German unions, its expansion plans of adding 50 hypermarkets to its German store network got failed because the major shareholders Metro’s Real hypermarket refused to sell.
Despite the bad German experience, it did not stop the company from moving into another major European market, the UK.The strategy was the same to buy an established player. In the UK, Wal-Mart took over Asda in 1999. The two companies were a perfect match. “The Asda culture was modelled on Wal-Mart,” says one ex-employee.
The best parts of the Wal-Mart culture existed within Asda before Wal-Mart came along” the former employee continues. Wal-Mart became the biggest retailer in England by 2005, surpassing current market leader, Tesco’s. As Wal-Mart looks set to dominate the UK market, one Wal-Mart insider said that “It’s all about being able to expand in parts of the UK where our model is not yet available. In Asia, Wal-Mart’s South Korean operations were failed because of bad locations, too high prices and poor selection of merchandise. The company failed to realize that no matter how cheap Wal-Mart products are, South Koreans do not go a long distance to purchase food lacking freshness. But difficulties in South Korea have not stopped Wal-Mart’s Asian expansion.
In 2002, Wal-Mart purchased 6. 1 percent of the stock of Seiyu, a Japanese retail chain. This was followed with an unsuccessful attempt to acquire an even larger retailer, Mycal. However, Wal-Mart has increased its ownership to 66. percent over time in Seiyu.
Wal-Mart’s entry into China provides insights into the process of local adaptation process strategy. Wal-Mart accepted that most Chinese tend to buy in small quantities, and that language differences required tailored product labelling and brand names. Wal-Mart responded by experimenting with different store formats to see which had the greatest customer appeal. It built a hybrid store combining a supercenter and a warehouse club and began testing smaller satellite stores that seemed to fit better with the buying habits, as well as the transportation and shopping trends, in China.In addition to varied formats, Wal-Mart tested merchandise items to determine what would have the greatest consumer appeal and fit best with the Chinese culture.
As a result, Wal-Mart began to carry a wider range of products, particularly perishable goods that appealed to the Chinese taste. Similar to China, Wal-Mart went to India in 2005. At the time regulatory hurdles barred international retailers from directly entering the Indian market. However, in 2006, Wal-Mart beat out Tesco for a joint venture opportunity with Indian mobile services leader, Bharti. The reason was because the company wanted an early entry.As per the agreement between the two corporate giants, Bharti would manage the front-end of the business, while Wal-Mart would take care of the supply chain, logistics and other back-end operations.
According to the plan, Bharti would have 100 percent ownership of the front-end stores and will form a 50/50 joint venture with Wal-Mart to provide wholesaling and logistics. Despite stringent FDI laws, India is a ripe and appealing market for Wal-Mart with its growing middle class and economic growth. In the latest news, Wal-Mart announced to buy Massmart Holdings Ltd. In South Africa, giving the company its first stores in Africa.This specific strategy of taking over other corporate gives Wal-Mart an advantage upon entering new market, in one moment a big competitor is removed, giving Wal-Mart real estate, employees and a huge presence in the new market. This shows effective application of Wal-Mart’s size and financial power.
Wal-Mart creates brand familiarity. Slowly as the domestic Wal-Mart starts to make profit, and the local management evaluates their competition situation, Wal-Mart starts to re-decorate the acquired stores so that they look similar to “Wal-Mart’s”, later Wal-Mart starts to build igger stores in the new market. The success of this strategy can be attested by the fact that presently, Wal-Mart is the biggest retailer chain in UK and Canada. Conclusion Competition within the business world is universal, and retailing industry is no exception. Companies must undertake strategic planning, to identify objectives and evaluate the internal and external environment, to create a strategy, carry out the strategy, assess its progress and make the needed modifications to remain on the right track.Wal-Mart was able to become the world’s largest retailer by understanding this concept of strategic management and utilized it well to achieve the success it enjoys today.
In addition to these, other factors have contributed to the retail company’s success. Values have played a significant role to make Wal-Mart of what it is at present. It strives to improve itself to achieve better performance. Its willingness to try generating new ideas and practices has made Wal-Mart an innovator of standards in retailing. Making necessary changes within the store when deemed appropriate has made Wal-Mart a stronger business.
Limited barrier between management and associates resulted in production of new and better programs and policies that greatly benefited the business. Upon analysing Wal-Mart’s practices and environment, one aspect that is significantly emphasized is the company’s strong attachment to meeting customer needs. From this case discussion, it has been illustrated that how a simple greeting or thank you to shoppers can make a difference.References * David, F. (2005), Strategic Management: concepts and cases, Prentice Hall, Upper Saddle River, NJ.