Walmart Goes South
How has the implementation of NAFTA affected Walmart’s success in Mexico?
Prior to NAFTA, Mexico faced many challenges when expanding into Mexico such as import charges on the goods that were being sold into its local stores which prevented Walmart to maintain its competitive advantage and its cost value proposition of “Every Day Low Prices”.
The North American Free Trade Agreement came into effect in 1994; this allowed all tariffs on bilateral trade to be eliminated as well as eliminating nontariff barriers in order to harmonize trade between Canada, U.S and Mexico. The implementation of NAFTA opened many doors for Walmart because NAFTA allows Mexico to reduce tariffs cost from 10 to 3 percent on American goods. Furthermore, with the aid of NAFTA, Walmart was able to invest into Mexico’s public and private infrastructure in order to create efficient and beneficial distribution networks.
Walmart is considered a threat to companies like Comerci, Gigante, and Soriana when trade barriers fell and import fees from Europe and Asia to Mexico was reduced significantly due to the implementation of NAFTA.
How much of Walmart’s success is due to NAFTA, and how much is due to Walmart’s inherent competitive strategy? In other words, could any other U.S retailer have the same success in Mexico post- NAFTA, or is Walmart a special case?
Walmart is a company that was unique in the sense that they wanted to enter into a market where no companies have entered. With Walmart’s firm competitive advantage of offering “Every Day Low Prices” Walmart was able to find a value chain that made them successful. Walmart has created systems that helps reduce cost for example Walmart is able to negotiate with suppliers to reduce prices to a reasonable price for both parties to benefit by working closely with suppliers on inventory levels and using advance information system allowing suppliers