Business
Executive Summary
Wal-Mart has attained constant and strong growth in profit and sales. It has however maintained its leading position in the retail industry and is the world’s largest retailer. The barrier to entry factor of five forces indicates that the barriers to entry for competitors are sufficiently high because of advance features and facilities offered by the store. The value chain and resource based analysis indicate that Wal-Mart is successful in the implementation of the low cost strategy as it is inculcating the efficiency of cost in management style, corporate culture and operations. It has adopted advanced technology in order to streamline the supply chain. Wal-Mart has gained much strength that helps it to maintain the leading position and also open doors to the several opportunities for expansion of business. It is also facing threats from expanding on vast level that makes it susceptible of losing the control. In order to overcome the weaknesses and threats Wal-Mart has to design a consistent growth strategy.
Introduction
Wal-Mart has maintained continued and sustainable growth in the ferociously competitive retail industry for last four decades. It has undergone continuous expansion of products and services ranges, as well as increase in the number of stores worldwide. On one side this expansion has helped in generating attractive profits for the stakeholders and given the company a strong position financially (See Figure 1). But, on the other hand it has also presented noteworthy challenges for maintaining the growth, profitability, performance, and controlling the company, which is continually growing larger.
Figure 1: Wal-Mart’s Revenue Analysis
(Source: Alden, M: Wal-Mart Stores Inc. (WMT) Stock Analysis 2013, Divident Monk, May. 2013)
The Wal-Mart’s Top management is now trying to address the issues i.e., whether similar strategy that it is currently following is suitable for strengthening and maintaining its present growth rate and the position of the market, and for leading it into the subsequent decade. Moreover, the company should do international expansion carefully and patiently after the extensive market survey. The company’s current business level strategy is to be a cost leader by offering low price to the customers. In order to be a cost leader the company is maintaining management information system that is very cost effective. Effective trainings are conducted for the human resources to ensure consistent practices and policies for reducing turnover costs. The company is developing easy to use investment and manufacturing technologies for reduction of cost. For effective procurement, procedures and systems are utilized in order to ensure low cost.
As far as corporate level strategy is concerned the company has undergone no vertical integration and horizontally it is expanding the business through acquisition. For example, in 1997, it has acquired Wertkauf Hypermarkets in Germany (Needle). The international level strategy of Wal-Mart is global and emphasize on the economies of scale. The international strategy of the company is now focusing on the developing markets i.e., the company is thinking of the expansion in the markets of the developing countries. This is due to the reason that most of the people in developing countries fall in low income category and to provide them with goods and services at lower cost will increase the good will of the company.
The company has also adopted cooperative strategy in order to come up with innovative ideas. For example it has adopted this strategy of cooperation with Netflix and this is beneficial to both as both can innovate (Hitt, Ireland, and Hoskisson ). The innovations resulting from the cooperative strategy become evident in the future. These aspects are important due to the fact the it they help to analyze which strategy the company is following, what changes the company is making in its strategy in order to avoid the past mistake and to improve the position of company. This is also significant due to the reason that it helps to analyze that it helps the company to adopt another strategy if their adopted strategy is not working properly.
External Analysis
The General Environment segment and element of Wal-Mart comprise majorly of the economic aspect. Considering economic segment, the company has reported sales of $443.90 in 2011 as shown in figure 2 and $466.11 billion in the year 2012 and expect increase in sales to $480 billion in by the end of 2013 (Wohl).
Figure 2: Annual Sales Growth of Wal-Mart from 2001-2011 in billion
(Source: Supply Chain Digest: A Detailed Look at Wal-Mart Statistics in Chart Form, Aug. 2012).
Wal-Mart stores are meant to target the low income segment of customers (Chiou). The company however, homogenizes the market by letting small towns and districts dictate the popular and prevailing culture. With its efforts Wall mart stores are working efficiently in Brazil, Mexico, Argentina, Germany, Europe, United Kingdom, Korea, and Japan etc (Gielens, Van de Gucht, Steenkamp, and Dekimpe). Wall Mart is providing employment to majority of people in the private industry (Basker).
The industry five forces also indicate the external situation of company. From the competitors analysis it is evident that the barriers of entry are high due to Wal-Mart’s exceptional distributional system, capital, brand name and accessible locations (Gereffi, and Christian). Wal-Mart is offering innovative products through advance technology at low rates in timely that are affordable by the majority of people (see Figure 3); the competitors are unable to do so hence their entry barriers are increasing and Wal-Mart’s performance is increasing.
Figure 3: Wal-Mart’s Innovations, Technologies Increasing its Performance with Passage of Time. (Source: Christensen, Clayton M: The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail, March. 2012)
Moreover, Wal-Mart’s complementor i.e., Sam’s Clubs of wholesale is owned by the company itself and is contributing to company’s profitability by not affecting the business model of the company (Teece), the competitors are lacking this quality that is also a barrier for their entry in the market. The major competitor of Wal-Mart is Target and its strengths are that it is now also offering discounts and is competing with Wal-Mart for prices of products (Steverman). The weaknesses of Target are that it is not sufficiently diversified; facing high employee turnover rate and the variations in stores according to region are little and is not enjoying good market share as compared to Wal-Mart (See below figure 4). The future action of target is to go global and to open stores in accordance with the priorities and needs of the inhabitants of region.
Figure 4: Market Share of Target, Wal-Mart and K Mart.
(Source: David, Shim: Big Box Retailer Market Share, Placed, Inc., Dec. 2012)
These aspects are important due to the fact that they assist to identify the actions, which correspond to the identified elements. By utilizing the results of analysis of these aspects the company can improve its situation and can reduce likelihood of those developments that depressingly affect the operations and business of the company when it is improving its performance.
Internal Analysis
The value chain of Wal-Mart comprises of core competencies, among which human resource management is the most significant (Ketchen, Rebarick, Hult, and Meyer). Human resource and the practices of interaction between the company and its affiliates are based on high and positive expectations, respect, clear communication, understandable objectives and incentives. Employees however receive low pay but they enjoy several other benefits, which include plans for retirement, and health care, profit incentives, and plans for purchasing stocks. The employees enjoy high degree of freedom and autonomy and the company is offering policy of open door and the employees are also benefitted with good promotion opportunities that help in developing unique culture in the company. Such culture adds value to value chain of the company by creating a good and friendly working environment for the employees so that they remain devoted to their job and provide best services to the customers.
If we analyze the liquidity ratios of Wal-Mart (see table 1 in Appendix), then we can conclude that the current ratio, which indicates the company’s ability to pay debts, has declined in 2013 as compared to previous years, furthermore, the quick ratio, which is the ability of the company to use its cash to meet its current liabilities without delay has also declined as compared to previous years. The cash ratio of the company, which shows the liquidity position of the company is also reduced in 2012, but remain same in 2013 (See Figure 5). Stat
As far as non-financial factors are concerned the social responsibility of the company is noteworthy (See Figure 6). The major goals of Wal-Mart are no waste generation and renewable energy resource utilization that will produce more products and sustain environment as well as people (Gunther).
Figure 6: Social Responsibility Performance of Retailers
(Source: Greenbiz: Marks & Spencer, Tesco, Wal-Mart Lead Retailers' Sustainability Efforts, Greenbiz, April. 2010)
Wal-Mart’s Global Responsibility Report 2013 shows that the renewable energy imparts 21% of company’s electricity worldwide. An analysis that is based on the Resource Based View model is performed in order to identify the competitive advantage for the company’s sustainability (See VRIN table 2 in appendix). It can be concluded from the VRIN table that the capability of generating high sales for enjoying low price from the human resource, decentralized operations, superior system of logistics and suppliers are of temporarily advantageous competitively. Supply chain that is integrated with technologies represents competitive parity. Management practices, routine and supportive culture are the sustainable advantages competitively.
SWOT Chart
Based on SWOT analysis chart (See Figure 7 in appendix), the company can utilize its main strength of integrated technology enabled supply chain for enhancing its opportunity of business expansion in Asian and European markets. These markets can strongly help the company for generating revenues. This strength of supply chain with sophisticated technology together with opportunity of extension of business helps the company limit its threat of marinating position and helps in retaining its position as the biggest retail giant. The major weakness of company i.e., lack of consistent strategy is limiting the opportunity of company to expand its business in Asian and European countries by opening its stores there and it is increasing the threat for the company as other competitors are opening their stores in the locations where Wal-Mart is not present and are targeting large number of people.
Critical Strategic Issues
Based on the above analysis, the most critical strategic issue that Wal-Mart is facing is that it does not have any consistent growth strategy due to which it is unable to do expansion and earn more profit. The stores that do not have a continuous and reliable growth strategy will remain deprived of the detailed information and bear loss (Rumelt). Wal-Mart acquires the existing local chains for entering into market and it helps Wal-Mart to lower its costs of market penetration and adapt quickly to the local market culture and demands. However, this practice is raising the issues of weakening the corporate culture and diluting the ability of the company to reinforce the consistent management strategy and practices (Landler & Barbaro). International expansion will be very risky if not done with proper care and patience.
Recommendations
It is recommended that the store i.e., Wal-Mart should focus on its growth strategy for expanding the product ranges in order to meet varying demands. The company’s international expansion has faced several organization and strategic issues, and for this reason its success has been incompatible in the international markets. This fact is a strong evidence of losing control and focus. This aligns with the SWOT analysis of Wal-Mart as, when it has overcome its weakness of non-consistent growth strategy, it will be well informed about the market and has an opportunity to go globally and offer the product at low price and maintain its identity, brand name and market position as it has maintained previously (See Figure). It will also limit the competitor i.e., Target’s power to compete on the lower prices as offered by Wal-Mart.
Figure: Wal-Mart’s leading position in Market
(Source: Marketing Charts: Top Ten Departmental Stores, Marketing Charts, Jan. 2012)
Wal-Mart expansion allow it to offer more products at affordable price, since the expansion of Target’s business is less so it has to keep the prices slightly higher in order to earn more profit. Finally, Wal-Mart will be succeeded in attracting more customers. The implementation efficiency can be achieved when for the particular action of international expansion; Wal-Mart’s emphasis is on the markets where it can perform well, such as Mexico and Canada. Before entering in markets of Asia and Europe, it should conduct market research thoroughly and the focus should be on a few markets having less competition and the greatest potential.
The required 7 S change is majorly of strategy which is the most important and hard element of organization. If the strategy of growth is changed and is managed properly then the store can enjoy rapid growth and increased revenues. The other elements such as structure, systems, shared values, style, staff, and skills are satisfactory.
References
Wohl, Jessica. "Wal-Mart predicts sales will grow faster next year." Reuters, 15 Oct 2013. Web. 11 Nov. 2013.
http://www.reuters.com/article/2013/10/15/us-walmart-meeting-idUSBRE99E0FO20131015.
Steverman , Ben. "Target vs. Wal-Mart: The Next Phase." Market and Finance. Bloomberg Businessweek, 18 Aug 2009. Web. 12 Nov. 2013.
http://www.businessweek.com/investor/content/aug2009/pi20090818_319142.htm.
Gunthen, Marc. "Walmart's CSR Report Shows the Power, and Limits, of Efficiency." Green Biz, 25 Apr 2011. Web. 13 Nov. 2013.
http://www.greenbiz.com/blog/2011/04/25/walmarts-csr-report-shows-power-limits-efficiency.
Landler, M., & Barbaro, M. (2006). Wal-mart finds that its formula doesn’t fit every culture . The New York Journal, Retrieved from
http://www.nytimes.com/2006/08/02/business/worldbusiness/02walmart.html?pagewanted=all&_r=0
Chiou, Lesley. "Empirical Analysis of Competition between Wal-Mart and Other Retail Channels." Journal of Economics and Management Strategy,. 18.2 (2009): 285–322. Print.
Gielens, Katrijn, Linda M Van de Gucht, Jan-Benedict E.M. Steenkamp, and Marnik G. Dekimpe. "Dancing with a Giant: The Effect of Wal-Mart's Entry into the United Kingdom on the Performance of European Retailers." Journal of Marketing Research. 45.5 (2008): 519-534.. Print.
Basker, Emerk. "The Causes and Consequences of Wal-Mart’s Growth." Journal of Economic Perspective. 21.3 (2007): 177-198. Print.
Gereffi, Gary, and Michelle Christian. "The Impacts of Wal-Mart: The Rise and Consequences of the World." Annual Review of Sociology. 35. (2009): 573-591. Print.
Teece, David J. "Business Models, Business Strategy and Innovation." Long Range Planning. 43. (2010): 172-194. Print.
Rumelt, Richard. Good Strategy/Bad Strategy: The difference and why it matters. Pine Street London: Profile Books Limited, 2011. Print.
Needle, David. Business in Context: An Introduction to Business and Its Environment. 5th ed. Hampshire, United Kingdom: Nelson Education Limited, 2004. Print.
Hitt, Michael A, R. Duane Ireland, and Robert E. Hoskisson. Strategic Management Concepts. 7th ed. Mason, United States: Thomson Corporation, 2007. Print.
Ketchen, David J., William Rebarick, Tomas M Hult, and David Meyer. "Best value supply chains: A key competitive weapon for the 21st century." Business Horizons. 51. (2008): 235 – 243. Print.
Appendix
Figure 7: SWOT analysis of Wal-Mart
