Ever since the opening of its first store in 1962 in Rogers, Arkansas , Walmart today has grown into the biggest retail chain, largest private employer and the biggest company in terms of revenue in the world. Currently, Walmart employs around 2.2 million people across its 11,500 stores located in over 28 countries, out of which about 1.4 million are in the U.S . The company was officially incorporated in 1969 as Wal-Mart Stores, Inc. and went public in 1970 . The company, which is into running supermarkets and hypermarkets in retail, wholesale and other formats operates under three major segments-
Walmart U.S: Operates in all the 50 states in the US, Washington D.C. and Puerto Rico in three formats and digital retail .
Walmart International: Manages the operations in 26 countries outside of U.S and operates in numerous formats under retail, wholesale and other categories
Sam’s Club: These are membership only warehouses and digital retail that operates in 48 states and Puerto Rico .
The company’s consolidated revenue for the fiscal 2015 (year ending January 30, 2015) stood at $ 486 B which is an improvement of 2% over the corresponding period in the previous year . The company is headquartered in Bentonville, AR and competes with other retail giants like Costco Wholesale, Amazon, Target, Home Depot etc.
Government Regulations and Domestic Operations
The government regulations that have been in existence over the years have played a significant role in shaping up Walmart to the position that it is today. Walmart, or most of the bigger organizations engage in lobbying with the Government quarters to get the policies and regulations formulated in their favor. In an ideal free market economy, the Government regulations will be minimal and the success or failure of a business house will depend on the market forces and the competitiveness of the organizations. However, in the real world, the Government has to intervene and formulate regulations to ensure a fair game and level playing field so that no company gets any undue advantages over the others. This section will look into some of the recent regulations that have impacted Walmart both positively and negatively. One such example is the new regulations enacted by the DC Council that requires big retail chains ($ 1 billion in sales or more with stores larger than 75,000 square feet of retail space) to raise the worker’s pay to $ 12.50/hour . This law has put considerable strain on companies like Walmart, Home Depot and Target, but has spared the smaller ones. Though Walmart had contemplated pulling out of DC, it has managed to run 3 stores in the city till date. However, the company has decided to abandon its plan to open two new stores in DC very recently . Similarly, on the back of the new minimum wages law enacted by a majority of the states and a few cities, Walmart had to increase the starting wages to $9/hour in 2015 with a promise to make it $10/hour in 2016 with other significant changes in their pay structure. There also have been many allegations about the Government toeing in line with Walmart’s interests as Walmart being able to capitalize its position as the largest private employer in the U.S and any move that upsets Walmart will prove to be counterproductive for the Government. Some of the examples include the government’s handling of the bribery allegation in Mexico that involved Walmart and the company’s ability to dictate its suppliers with its own rules and regulations pertaining to greenhouse gas emissions and sodium content. Yet another point is the attempt made by Walmart to expand its financial service offerings and to operate as a bank, which remains unfulfilled due to unfavorable regulations .
Government Regulations and Global Operations
As in the case of domestic environments, the various policies and regulations have impacted Walmart in their international operations as well. As mentioned above, Walmart has operations in 27 international countries across continents and has had to face significant legal and policy hurdles in many of them. One of the primary examples from the recent past is the company’s decision to drop its ambitious plan for expansion in India. Walmart entered India in 2009 in a joint venture with Bharati Enterprises Ltd. by setting up the wholesale outlets named as Best Price. However, this partnership set up in 2007 broke in 2013 as Walmart found it too difficult and non-sensible to expand the business in India due to multiple unfavorable conditions including regulations. One of the major regulations which ultimately led to Walmart’s decision to abandon its expansion plans was the requirement for the foreign retailers to procure 30% of its total portfolio from the local small and medium producers/businesses . To make matters worse, this regulation was applicable only to the foreign retailers and not to the home grown well established retail business houses. This combined with the India government’s decision to investigate Walmart’s $100 million interest free loan to Bharati Retail led to this break up and a halt on its expansion plans.
Technology Landscape
Walmart is one of the pioneers not just in retail, but across the industries, when it comes to the adoption of technology for streamlining the processes, cutting the flab and implementing the most efficient workflow systems. Technology adoption plays a critical role particularly in the retail and wholesale industry scenario as it involves satisfying the customer by offering them with the best and latest at competitive prices. Walmart has realized this long ago and has been the champion in adopting the latest in technology, which in turn has played a very large role in building the organization to become the largest in the world.
Currently, Walmart adopts a global approach in implementation of the enterprise wide applications. They have an in-house team dedicated to building, running and maintaining applications across their locations as well as outsource a significant portion of their technology and business process related tasks to third party vendors. Walmart continues to invest significant amount of money on newer technologies in an effort to improve their customer experience, e-commerce and digital initiatives. One of the examples is Walmart’s investment in mobile capabilities with the aim to improve alternative access points, which has been successfully implemented at all Asda stores in the United Kingdom . Similarly, Walmart has made considerable technology investments including mobile technology in its attempt to improve both in-store and online customer experience, as a result of which their global e-commerce sales witnessed a growth of over 22 percent during the last fiscal . Currently the company is working on improving the integration between their e-commerce platform and mobile applications with their physical stores and clubs- Click & Collect piloted at Asda is one of the examples. The company also targets greater customer experience and satisfaction in their online formats like online grocery delivery and pickup by providing the customers with access to their stores at any time of their choice. Walmart has been one of the earliest adopters of the RFID technology when the technology was its nascent stage during the early 2000s. The company is reaping the rewards for this bold initiative as now they are able to serve their customers in the quickest possible turnaround time. The technology investments that the company is making in e-commerce is focused around four priorities- global technology platform, a highly efficient fulfillment network, talent and merger of online and physical retail . For the current fiscal (2016), the company has committed around $ 300 million investment in the areas of fulfillment network technology in its attempt to further improve the store and online experience for its customers . Further, the company is also planning to make investments in software and hardware to the tune of $ 1.5 billion for online platforms and m-commerce applications . Clearly, the company banks a great deal on technology to reduce their operating expenses and streamline the process flow.
Political and Legal Barriers
The political legal barriers for Walmart in both the domestic and international environments will be discussed in this section. The following are the political factors that act in favor and against the Walmart’s interests in both the domestic and international circuits-
Lobbying: In the U.S, Walmart enjoys a considerable clout among the political circles. Walmart is considered as one of the top political donors in the country, the biggest beneficiary being the Republican Party . Walmart has been successful to a great extent in getting the various regulations in their favor
Bribing (International): One of the significant barrier that Walmart is facing in many international markets is the issue of bribes. Walmart has been in difficult situation in countries like Mexico, China and India in the past.
Wages (Domestic): The increased pressure on Walmart to provide increased wages to its workers have upset the company’s plans to expand.
Image: Walmart’s image as the representative of American capitalism may act as a hindrance, at least at some of the major international markets.
Economic slowdown: Irrespective of the geography, an economic slowdown can significantly affect the company’s profit avenues.
Some of the major legal barriers include-
Regulations: Regulations against the company’s interests are occurring in multiple markets as seen with the example of India above.
Some of the other regulations that has affected Walmart in both the domestic and international markets include regulations related to food safety, employment and tax law reforms.
Socio-Cultural Factors
Similar to the political and legal factors, there are several similarities and differences in the social and cultural factors between the various nations that Walmart is operating in. Walmart’s greatest success stories outside the U.S has been with the countries that have a similar culture and economic environment like Canada and U.K. Even though Mexico shows no cultural or financial similarity with the U.S, it has been one of Walmart’s greatest success stories outside of the U.S. The reason cited for this has been the admiration of Mexican public towards the brands across their border. Mexicans have seen Walmart’s birth and growth and they embraced the company when it hit their shores. Walmart’s ‘everyday low prices’ strategy may have worked wonders for them and helped in building the brand in the U.S, but the very same strategy proved to be an utter failure in China. In China, consumers are more vigilant about the authenticity and quality of products rather than price. Most often, they associate low price with low quality and try to stay away from the stores that make such offers . However, China, still is one of the better run international locations of Walmart and they operate their stores there respecting the Chinese customs and traditions. Another classic example is the case of Germany, where Walmart had to exit after a decade long unsuccessful struggle to establish themselves in the market. Major reasons for the failure included the company’s inability to benefit from economies of scale resulting in higher prices compared to the local home grown retail chains . Also, as in the U.S, the Walmart stores were located at the outskirts, far away from the cities, which just didn’t worked with the Germans who prefer nearby stores . Also, the company had to instruct its staff, particularly the sales clerks to stop smiling at customers and also had to scrap the Walmart chant as these were proving to be counterproductive in Germany . Yet another stark contrast was that in Germany, the companies and unions are closely connected and work together, which was a position polar opposite to Walmart’s policies and guidelines . Not to forget some of the legendary blunders committed by Walmart like trying to sell golf clubs in Brazil or ice skates in Mexico. Height of racks, exposed ceiling, absence of locals in the senior management, selling frozen meat in markets that prefer to buy fresh meat from the butcher etc. are some of the practices which Walmart tried to blindly replicate in the foreign markets and failed.
Compare and Contrast
One of the most debated topics concerning Walmart’s operations in the U.S is with regard to the relation between prices and wages. The critics of Walmart have always pointed out the high handedness of Walmart when it comes to its employee wages, supplier margins and its impact on the local economies. On the contrary, the supporters bank on the low prices offered by Walmart to offset any other arguments against the retail giant. Upon closer analysis, it can be found that the overall consumer price index (CPI) is largely dependent on the rentals, logistics cost, utilities and medical services and a lower CPI does not necessarily mean the outcome of Walmart’s strategies. Another argument in favor of Walmart is regarding the number of jobs that it create when they start operating a store in a locality. However, it has been proved that the local businesses in that locality run out of business quickly and will be forced to stop their operations. With globalization in force, retailers like Walmart sources goods from the cheapest locations from various parts of the world. U.S with a comparatively lower cost advantage, loses out here as Walmart will not find it economically viable to source goods from the local market owing to its high costs. This point brings us to the case of India and China. In India, the company decided to abandon its expansion plans owing to a regulation that requires the foreign retailers to source 30 percent of its merchandise from the local small and medium manufacturers/businesses. This clause puts the company in a disadvantageous position vis-à-vis the local retailers in India who do not face any such restrictions. Whereas in China, the company sources as high as 85 percent of its merchandise from the local market. Another phenomenon that has been widely observed is the lowering of wages across the retail industry whenever Walmart expands into a particular location. Collectively the wages of those in the retail industry witnesses a dip and that definitely is impacting the living standards of those resources. People who are arguing for Walmart will state that even though the wages have witnessed a small dip, the purchasing power has increased as a result of Walmart’s presence. This may be true when the prices of groceries and other household items are considered. However, when it comes to the things which cannot be brought from Walmart like healthcare, housing and education whose prices are consistently on the rise, the employees at the retail stores including Walmart are at a disadvantageous position.
Strategy for Success
Many of the success factors of Walmart in the U.S gets applicable to its international segment as well. Technologically advanced supply chain systems, economies of scale, advanced logistics methods, a unique culture etc. are some of the critical factors to succeed. However, the company should be careful about the various PESTEL factors in international markets, so that it can avoid any further disasters like that happened in Germany.
Based on the analysis, the recommended expansion strategy of Walmart should focus on following four parameters-
Internationalization- Framing the future strategy by focusing only on the U.S market may not be sensible any more. Further expansion can be made possible only by expanding the company’s footprint onto the still untapped markets. The important decisions to be made include identification of the markets, strategy for the markets and the mode of entry.
Expansion of online retail- One of the greatest threats for the retail houses including Walmart is the widespread expansion and ever rising popularity of online retail. Walmart is already into it and now should focus on expanding it further and bringing it mainstream. The current idea of the blend of online-in store package seems to be working well for the company. Now is the time to tighten this combination package.
De-centralizing the strategies- The Company can share the vision, mission and general policies. However, the strategies that worked wonders in one country may not always repeat itself in another geography. The company has to be careful in devising the strategies and has to consider many political, legal, social, economic, cultural and environmental factors that are suitable for a particular geography. Walmart has to ensure the decentralization in order to avoid the repeat of Germany experience.
Maintaining the USPs- Irrespective of the geography, the company should ensure the hallmark of Walmart everywhere- price, access, assortment and experience.
References
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