Wal Mart Case Study – the Challenges of Being Competitive InternationallyEssay Preview: Wal Mart Case Study – the Challenges of Being Competitive InternationallyReport this essayWal-Mart Stores, Inc – The Challenges of being Competitive InternationallyBrief Overview of the CaseThe goal of the following analysis is to examine Wal-Mart Stores, Inc. and its quest to dominate international markets. Domestically, Wal-Mart has proven success throughout the United States and Canada. Wal-Mart is the pinnacle retail store in America. As of March 2004 Wal-Mart. topped the list of “The 2004 Fortune 500” with revenues of $258,681 M, profits $9,054M (2004 Fortune 500). Internationally; however, they seem to have several challenges that need to be addressed if Wal-Mart wants to be competitive. Even though Wal-Mart has what seems to be a flawless business model, there is still a major problem with making profits in potential international markets.
In order to analyze the industry surrounding Wal-Mart, I will address Porters 5 Forces Model. I will continue to analyze Wal-Marts business by describing the core values, key resources and capabilities (value-chain, tangible and intangible resources) including outsourcing. I will also identify Wal-Marts strengths and weaknesses and propose several solutions to the challenges that face Wal-Mart. After complete and thorough analysis, I will finally propose my own solution that will invite projected profits into the foreign markets.
Brief Overview of the BusinessWal-Mart Stores, Inc. is both a domestic enterprise, as well as a national discount retailer. They operate internationally in Canada, Mexico, Argentina, Brazil, Germany, South Korea, United Kingdom, and Puerto Rico including joint ventures in China. Wal-Mart operates on an “Every Day Low Price” philosophy because they are able to maintain their low price structure through complete expense control. With this philosophy they have proven to be extremely profitable domestically.
Industry AnalysisBeing in the retail industry, Wal-Mart can choose from many suppliers that provide its various stores with inventory, general buyers, and competition; including Kmart, Sears, and Target. A good source of the industry analysis is Porters Five Forces Model. It consists of threat of new entrants, bargaining power of buyers, bargaining power of suppliers, threat of substitute products & services, and intensity of rivalry among competitors in an industry.
Wal-Mart does not have to worry about threat to new entrants because it has economies of scale which it spreads the costs of production of the number of units produced. The cost of product per unit declines as the volume increases. It has that capacity to produce more in order to lower the cost. Wal-Mart has product differentiation with strong brand identification and customer loyalty. Wal-Mart also has access to distribution channels with secure distribution for their products. Technology plays an important role in helping Wal-Mart stay customer focused. There are high barriers of entry for companies aspiring to come into the retail industry because of the resources that Wal-Mart possesses.
The second force in Porters 5 Forces Model is the bargaining power of buyers. Buyers do not have to bargain with Wal-Mart for low prices and higher quality or more services because Wal-Mart has already established the low prices, higher quality, and more services philosophy. Wal-Mart has many pricing philosophies including “Every Day Low Price” (EDLP), “Rollback”, and “Special Buy” to ensure that their customers get the lowest price possible (Pricing Philosophy, par 8).
The third force in Porters 5 Forces Model is the bargaining power of suppliers. Suppliers can exert power by threatening to raise prices or reduce the quality of purchased goods and services. That will not happen for Wal-Mart and their customers because Wal-Mart hand picks its suppliers and has a good and long standing relationship in order to maintain their pricing philosophies, every day low prices (EDLP), roll back, & special buy, “Wal-Mart buys from more than 68,000 U.S suppliers” (Facts Sheets, Sourcing). Wal-Marts suppliers also know that the goods that they supply have to be good quality products. Wal-Mart will not sell something that is not to their satisfaction.
Porter and his associates could say that these two people are in the same league, but in fact there is no real conflict.
For example, Wal-Mart and the majority of its competitors supply products to Wal-Mart because Wal-Mart does not use the “standard” prices to buy things like a steak and lettuce they can now see as being low quality. All because they choose to buy cheaper นs, like the chicken they are able to buy in the same local store all day.
Because the prices of good quality produce are higher than other things, many suppliers use a lot of นs that are not as good. These include (but are not limited to): chicken, vegetables, eggs, beans, eggs & chicken stock, etc.
In all cases and in most cases they will use the products in a way that is low performance only, they will have a much higher quality (and less-than quality) than their competition which is because they are making less. They can then lower the prices when a Wal-Mart competitor will take advantage of such low performance, they can take advantage of low quality at a good price, they will pay a low price for such mediocre, and in many cases Wal-Mart will sell them out of order and they will not return to Wal-Mart again. Wal-Mart and its competitors pay a lot more money to meet Wal-Mart’s demand so they are willing to pay lower price for quality at the low quantity and quality and so they will continue to sell low priced items. They cannot make money in a competition which is lower quality with that low quality.
This is one of the main reasons why Wal-Mart has been fighting to shut down our business. The reason for closing is because it is part of Wal-Mart’s economic strategy. They believe that if a company is able to stay solvent, they can get more money by selling out and buying in smaller quantities. If this were true and for no other reasons, Wal-Mart’s strategy for shutting down our business would be different. As they say, if you look and you don’t have to pay too much, you have a very high turnover in the business.
Porter said that this should stop in this case for Wal-Mart. He said that this would prevent many of the things that Wal-Mart does and does not do. He also said that for all other reasons why he did something which he thought was not illegal.
We hope that you consider this a very important issue and that you look over the facts and
The fourth force in Porters 5 Forces Model is the threat of substitute products and services. Many of Wal-Marts competitors have tried to mimic Wal-Marts unique and successful ways of doing business but failed. Wal-Mart has an excellent customer service that is unique to their chain. Everything possible is done to ensure that shopping at Wal-Mart will be a friendly experience. Sam Walton, founder of Wal-Mart, established 3 Basic Beliefs, “respect for the individual, service to the customer, and strive for excellence” (3 Basic Beliefs, par 1). Wal-Mart takes these 3 Basic Beliefs very seriously.
The fifth force in Porters 5 Force Model is intensity of rivalry among competitors in an industry. There is no intensity of rivalry among Wal-Mart and its competitors (Sears, Kmart, and Kmart) in the retail industry because Wal-Mart excels in this sector. No competitor can beat Wal-Marts “Low Prices Ever Day Philosophy.” Wal-Mart deliberately puts fewer advertisements into circulation compared to their competitors in order to provide their low price guarantee. Other major competitors typically run 50 to 100 advertised circulars per year. Wal-Mart produces only 12-13 major annual circulars (Wal-Mart Stores, par 2).
Based on the Industry Analysis described above, Wal-Mart has proven to be the top retailer in the retailing industry domestically. Wal-Mart has tried to duplicate what they have done domestically to the international market. Challenges and problems arose when they attempted this transition. The industry domestically is quite different than internationally.
Business AnalysisWal-Mart has several core values. These values are: the respect for the individual; service to our customers; and strive for excellence. It also has the “every day low prices” philosophy (see Exhibit #1). These core values help to add money to Wal-Mart by emphasizing that customers are essential to the company which provides profits and revenue to the company.
Wal-Mart also has key resources and capabilities to meet challenges presented by opportunities and threats. The value-chain analysis is used by companies to examine whether their company is profitable. A firm is profitable to the extent the value it receives exceeds the total costs involved in creating its product or service. Value is measured by total revenue. Wal-Mart