Wal-Mart’s requirement to continue its extraordinary growth
Since the 1990s Wal-Mart’s massive global expansion plan can be attributed to the application of SWOT analysis in its operations. Since 2005, Wal-Mart has been listed among the largest companies in the world, an attribute due to strategizing its internal operations to focus on its internal environment and overcoming its weaknesses while at the same time growing stronger. This has enabled it to boast of about $260 billion in sales, managing more than 5,000 stores globally as well as creating employment of over 1.5 million people throughout the world. The realization that the majority of the business operates through price drivers has enabled Wal-Mart to divert vast numbers of customers from other companies to its mainstream, significantly improving its revenue and growing both its market and financial strength.
However, the company faced a lot of threats from the external environment whereby related companies were doing the best to reverse the situation and win Wal-Mart’s customers to their company. This saw the rise of competition against Wal-Mart Company with Target and Costco companies being the vigorous competitors who were determined to fight constantly for the market share in merchandise of discount, home deports, and the new breed of specialty discounters. Due to this threat faced by the company, it was forced to seek new opportunities in the market by changing its operations, products, and marketing strategies. This posed a great challenge to Wal-Mart, which had created a need for the company to strengthen its strategies by intensively incorporating the existing ones with more vigorous, effective, and practical ones. To ensure this, the company had to focus on; the store format, societal cultures, technology, human capital, internalization among others to maintain its extraordinary growth which apart from offering new opportunities also increased it is market dominance and strength (Financial post, P.546).
For instance, the size and the number of its discount store format were to be re-visited to ensure that their size and the number of these store agrees with the market demand in the country or place they are located. In countries with a promising, stable, and sustainable healthy economy, Wal-Mart should consider many large stores because the market absorption of the products is highly promising. This will provide the company with enough capital to open up other stores in other countries. Also, as the company has been doing, the transition of the discount store into supercenters will be of great importance in maintaining the extraordinary growth of Wal-Mart. However, this transition should intermarry with the markets’ demand level about the place of the locality. That is, where the demand is high, the transition is more profitable than when the demand is low.
Besides, Wal-Mart’s technology has contributed to the vast growth of the company thus; needs to be upgraded to make the company more aggressive and competitive than that of other companies. This will enhance better communication of all departments in production and distribution. For example, the current working Wal-Mart system has managed to relay information within the stores, across them, and with the suppliers. However, a more networked system that can manage the company to improve communication to other companies as well as its customers together with the quantity and quality of its products, is crucial in enabling the company to retain and improve its growth substantially.
The automated production systems, inventory systems, advertisement, and delivery systems should be incorporated to enable faster and efficient operation of the company’s activities. Besides, maintaining and improving the online sale should be given high priority, since this makes it easy for far and busy people to access the company’s commodities. For example, this has been proved in 2005, where about 6% of the total sale was made online ( Mack, et al, p.369).
Creating a healthy working condition for the employees is another critical factor in the contribution of Wal-Mart’s extraordinary growth and strength. The company is known to hold a great number of the world’s workforce. This gives Wal-Mart the widest possible link between its products and the customer due to the interaction of the employees with the outside world. Hence, any positive treatment of the employees will be an advantage to both the production ability of the company and the market friendship. The company has been criticized for its exploitation of its employees in terms of low payment as well as reliance on part-time and temporary employment aimed at reducing expenses experienced by companies associated with benefits packages. This is associated with low-quality product produced by the low paid employees, as well as the negative criticism which allow other companies to expand their market at the expense of Wal-Mart’s market loss. On the other hand, relocating its stores in the countries where cheap labor is available is an important factor to consider thus enabling the company to cut down the cost of production and maximize the revenue which will enable it to expand its store worldwide thus maintaining the growth trend it has established.
Furthermore, the company has been facing additional threats due to constant conflicts with the cultures of different nations affecting the distribution of its products. For instance, when the company moved to Indonesia, it experienced a heavy loss due to cultural resistibility, particularly from the religions which were against the company’s products. To eliminate these elements which affect the company’s’ growth, the company should exercise flexibility in its production which will allow it to adjust to the demand of the places of the business location. Thus, the company can grow both physically and financially. To achieve this, the company needs to change the appearance of the products to suit the ethics and standard of its customers. This is the reason that has contributed to the company thriving in the western and European countries because much of their culture agrees with the company’s strategies and products while performing poorly in the other countries whose mode of dressing, eating, and communication among others are contrary to the companies standards.
As indicated above, Wal-Mart has incorporated SWOT analysis which calls for both the internal analysis, which focused on the company’s strength and weakness, and the external analysis, which focused on the new opportunities they sought and the ways of overcoming the threats that they faced in their operations, therefore, making it very successful and profitable.
Limits towards the growth
Despite the requirements that this company needs to continue with its extraordinary growth, some factors will make it difficult to realize these adjustments. The company is being faced with political, socioeconomic, technological, environmental, and legal hurdles in its daily operations especially as it expands to other new markets. Due to this, the company managers have to make sound decisions for the company by using PESTEL analysis to classify the factors surrounding their operations.
The social cultures of the people around the world are changing as people change their lifestyles and embrace fast foods. Additionally, the market of the fast food, with McDonald being the major distributor, has taken effect in the world and as a country’s economical factors also change aiding in this shift towards fast foods which were considered very expensive initially thus, people are increasing their consumption of the fast foods. This is highly affecting and is promising to continue doing so to the branches of Wal-Mart’s grocers throughout the world. As people look forward to differentiating their classes, they boost the fast-food companies at the expense of the Wal-Mart green market. Also, electronics and truckers companies in other countries such as Japanese are taking over the market due to their quick flexibility, diversified and differentiated models of their products aimed at meeting the tastes of different people globally. It is also important to note that any adjustment made by Wal-Mart will not only be noticed by the other companies but will also be adopted by them and as a result, the competition will never subside, unless a confidential innovation is invented using technology, the competitive threat will continue ( Bianco, p. 213).
The other factor which will limit the company’s growth is the political aspects of a given country due to its policies and regulatory requirements of the countries. Different countries have different policies regarding foreign investors, importers, and exporters to and outside their countries. Wal-Mart has experienced resistance toward expanding its stores in other countries due to terms and conditions held by these countries. For instance, when the company was relocating to Japan, the terms in Japan were not suitable for it to develop and grow, and as a result; it had to look for a loophole to establish its store in Japan. To do this it was forced to first invest in one of the Japanese ailing retailer: Seiyu, through which its gate pass to the Japanese market was obtained. Though eventually, Wal-Mart picked on, the terms pulled back the company’s growth (Hicks, 54).
Also, governments impose many different types of legal requirements that should be fulfilled before one can operate in their country. These legal requirements regarding the location of Wal-Mart in their countries will more than not create an impact on the growth of the company. For instance, high taxation in some countries will significantly deter the company’s growth both within and without that country. Despite the poor economy in some countries, which creates a low consumption of the products, the government in these countries may maintain high tax imposition to foreign business to maintain the government’s operation. Hence in locating to such countries the company profitability will be affected in both its operation within that country and those in other nations thereby affecting the total intended growth of the company (Brunn, 315)
Also economically, the current fluctuating world economy is, and will still be the main hindrance to the company’s growth. This is attributed to the effect on the market of the company’s products. For example, during a high peak, the company will experience a vast sale enough to boost its growth significantly. However, the inflation occurrence does force the company to use the already accumulated revenue to sustain its operations, hindering expected, and necessary company growth. Also due to the current economic condition, the rate of unemployment has increased thus lowering the purchasing capability of the market resulting in very low sales.
Impacts of Asia and Europe to Wal-Mart dominance in the international market
Asia and Europe have offered Wal-Mart opportunities for international market dominance. This can be explained by considering Porter’s 5 rival forces, which are, supplier power, buyer power, barriers of entry, threats of substitutes, and degree of rivalry. It has a supplier power over rivals and reduced the degree of rivalry with competing firms through mergers and acquisitions. For example, Britain’s best value food and clothing superstore was adopted by Wal-Mart as part of its family. Wal-Mart exercised the freedom and the advantage loophole it came across and by 2005 Wal-Mart had managed to secure management over 256 ASDA stores, 7 GEORGE apparel stores, as well as 21 depots across the U.K. The company also employed thousands of people. By 2004 the company had attained control of over 13 ASDA-Wal-Mart supercentres throughout the U.K. Gradually Wal-Mart overtook the U.Ks biggest clothing company Mark & Spenser and emerged as the leading children’s wear retailer. In Germany, Wal-Mart joined partnerships with Aldi Group securing about 21 Wertkauf hypermarkets. Later on, the company acquired 74 units of the Interspar hypermarket chain. By 2004 the Wal-Mart had molded these stores and was in total operating 92 supercenters (Ferrell et al, p 26-8).
One of the main target markets for Wal-Mart’s discount retailers was Asia, however, it was faced with many barriers to entry into the market, for instance, the Asian financial crisis riot hindered the best penetration of Wal-Mart in Asia in the 1990s. To enter into Korea, Wal-Mart was forced to acquire and convert four macro stores for it to fit in the country. In China, the company had to get into a partnership with the Thai-based Charoen Pokhand Group. Even though their partnership never lasted, it was the gateway of the Wal-Mart in China and to keep rivals at bay. Besides, regardless of the Wal-Mart acquiring control over its operations in China, the Chinese Government pressured the company with restrictions till it gave in to government demand of enabling Chinese workers to unionize (Fishman, p. 174).
As a result, it appears that though Wal-Mart picked up and even led in some of the European and Asia companies, these continents never allowed Wal-Mart to internationally dominate the market by putting barriers to entry in the markets. In all the countries the company has located its stores; it was faced with a recommendation of first joining a certain company within that country. As a result, it ended up boosting other company’s product at the expense of its products, since Wal-Mart’s product popularity was not increasing to enable it to dominate the global market. For instance, in Japan, despite the collaboration of Wal-Mart Company with Seiyu, only Seiyu products remained to be popular in the market while Wal-Mart’s were rarely known (Fishman, p 69).
Wal-Mart sells quality products to its customers in all its destinations and ensures that its products are more superior to its rivals, this makes its products more price elastic, and thus it can overcome the threat of substitutes (products from in external industries) in the market.
Wal-Mart’s requirement to propel itself through
For Wal-Mart to take advantage of its global reach to propel itself through the years to come, one of the main strategies it can implement is the generic strategy (corporate strategy). The generic strategy entails the following: Firstly, the cost leadership strategy; this is focused on the broad market in which it operates and can be attained by cutting down its cost of production, thus it can profitably sell its products at lower prices as compared to the rivals in the market. Even with the price wars in the industry, its market can grow with time while its product price declines since the company could produce more cost-efficiently, thus remain sustainable for many years. To succeed in achieving cost leadership, Wal-Mart can: achieve a high asset turnover, this is by producing more products to attain a bigger market share and creating barriers to entry of rivals, who cannot produce at the company’s costs and prices; reducing its direct and indirect operating expenses; taking control of the supply/logistic chain to cut on costs; outsourcing materials optimally; and adopting vertical integration of decisions and policies. However, for Wal-Mart to implement the cost leadership strategy it needs to have efficient distribution links, high levels of process expertise, access to investments to implement projects, and adequate skills in product design.
Secondly, the differentiation strategy involves developing goods or services, which make them more superior and preferable to its consumers due to their utility value and distinct features. Due to the attractiveness of its products, Wal-Mart can be able to price its products at a higher price hoping that the extra cost of producing the good will be covered. Since Wal-Mart’s target consumers are not-sensitive or its products are price elastic, the differentiation strategy creates a barrier of entry of rivals in the market, thus leading to more profits for the company and makes it more sustainable for a longer period. The company also needs to re-adjust its system and exercise flexibility in its production. Besides producing a variety of products it should practice intensive product differentiation to absorb the market demand as well as gain popularity. However, for Wal-Mart to attain a differentiation strategy, it needs to have, access to market research, skills, and creativity in product development, highly specialized sales personnel, and retain its corporate goodwill and innovation. Contrary, differentiation strategy can make the company exposed to imitation by rivals and sudden changes in consumer preferences (Brunn, p.164).
Thirdly, the focus strategy is directed at a small group, within which the firm aims to maximize cost leadership and product differentiation. The firm assumes that the demands of a segment can be better met by committing to it fully. For a big market player like Wal-Mart competing in the broad market, a focus strategy will enable it to gain more consumer loyalty, which discourages rivals to compete directly with it. However, Wal-Mart has to ascertain the demands of the broad market and compete on price or product differentiation.
However, these corporate strategies may not be compatible together for Wal-Mart, so the implementation of each strategy depends on what advantages it aims to attain, but for long-term success, it is argued that the firm should adopt one of the three corporate strategies.
Brunn, Stanley. Wal-Mat world: the world’s biggest corporation in the global economy. Boca Raton: CRC Press, 2006. Print.
Bianco, Antony. Wal-Mart: the bully of Bentonville: how the high cost of everyday low price is hurting. Philadelphia: Currency Doubleday, 2007. Print.
Ferrell, Owen, Fraedrich, John & Linda, Ferrell. Business Ethics: Ethical Decision Making and Cases. Boston: Cengage Learning, 2009. Print.
Financial Post. Wal-Mart Annual report, 2004.124-1142. Print.
Fishman, Charles. The Wal-Mart effect: how the world’s most powerful company works– and how it’s transforming the American. New York: Penguin Group, 2006. Print.
Hicks, Michael. The local economic impact of Wal-Mart. Buffalo: Cambria press, 2007. Print.
Mack, Barbara & Yoffie David. Wal-Malt. Boston, Harvard Business School, 2005. Print.