Walmart

Executive Summary

At the beginning of 2009, Wal-Mart top management faces the question of whether the same strategy that it has been adopting in the past can be used to maintain the company’s remarkable performance and growth in the next decade.

In the last 10 years, Wal-Mart has achieved strong and constant growth in sales and net income. It has maintained the leading position in the U.S. discount retail industry and has become the largest retailer in the world. With the maturity of the industry, coupled with the intense competition from rivalry companies, maintaining the current level of high performance becomes very challenging.

The Porter’s Five Forces analysis reveals that the competition among rivals is the driving force of the industry, in which price is the most critical factor. The value chain analysis and resource based view analysis show that Wal-Mart has been very successful in implementing the strategy as the low-cost leader by inculcating cost efficiency in its corporate culture, management style, and operations. It has been the pioneer in adopting cutting edge technology to streamline its supply chain, and to understand and respond timely to customer demand. Wal-Mart has developed many strengths that help guard its leading position and open door to many opportunities for expanding the business. However, it also faces threats from growing too big and in many areas, which makes it vulnerable to losing control, weakened cooperation among stores and regions, and competition in multiple fronts.

Wal-Mart should be caution in its growth strategy, especially in the expansion of its international presence. Although its financial strength, management skills, and operation efficiency allow it to enter many overseas markets, it should be selective in choosing the destinations. Wal-Mart can focus on emerging markets where customers are price sensitive such as China and India in Asia. In Latin America, it should focus on Mexico and a few key markets that it previously achieves success. In Europe, it can target regions that lack the presence of large retailers such as Tesco and Carrefoure. Although Wal-Mart’s common practice of acquiring existing small local chains to enter a market has helped Wal-Mart lower its market penetration costs and quickly adapt to local market demands and culture, this practice also raises the issues of diluting corporate culture and weakening the company’s ability to reinforce coherent management practices and strategy. Therefore, international expansion should be implemented patiently and carefully.

Over the last four decades, Wal-Mart has achieved significant successes to become the world’s largest retailer. The company has maintained sustainable growth in a fiercely competitive U.S. retail market environment. It has been continuously expanding both in the range of goods and services, and in the number of stores in the U.S. and worldwide. While this expansion has generated handsome profits for its stakeholders and put the company in a strong financial position, it has also presented significant challenges for sustaining growth and performance, and managing a company that is incessantly becoming larger. Top management now is trying to address whether the same strategy that the company has been pursuing is suitable for maintaining and strengthening its current growth rate and market position, as well as for leading the company into the next decade.

This report will present: 1) an analysis of the external environment of the company; 2) a discussion of the company’s internal resources and capabilities; 3) a diagnosis of the external and internal factors; and 4) recommendations of how the company should move forward.

1. External Environment

In this section, an analysis of the Porter’s five forces of the discount retail industry and Wal-Mart is presented. For each force, the discussion first provides a general overview of the industry in the U.S., and then focuses on Wal-Mart.

- Potential entrants: the threat of potential entrants is considered low due to the following reasons:

 Discount retail industry is a highly competitive environment with mostly big players competing for market shares.

 Price is mainly the key factor for competition.

 Existing companies have established strong and stable supplier networks.

 Wal-Mart has a superior logistics and distribution system, cutting edge technology to support all phases of its operation, a well-established brand name, a large number of stores nationwide, and a deep financial resource.

 Wal-Mart also has cost advantage over its competitors due to its large purchase volume.

Wal-Mart can deter potential entrants.

- Substitutes: the threat of substitute is low.

 Consumers can buy from small mom-and-pop stores or specialty stores, but these stores do not offer a wide range of products, nor do they offer competitive prices.

 On-line purchase can be a substitute means for shopping; however, it may not be a good choice for goods that are consumed daily because shipping costs may lead to higher final prices, and shipping time can delay the need’s fulfillment.

- Industry competition: the competition among existing firms is high because:

 This is a mature industry.

 There are few but large competitors, who dominate the majority of the market.

 Price is the focus of competition, and firms are forced to cut cost to stay competitive.

- Bargaining power of suppliers: the power of suppliers is low.

 In general, most suppliers rely on retailers to distribute their products to the end consumers; therefore, the role of retailers in the distribution channels is critical.

 Wal-Mart not only carries a wide range of products, but also possesses thousands of stores in the U.S. and worldwide. This combination places Wal-Mart in a very strong negotiation position with suppliers and gives it great flexibility in choosing and working with a wide range of suppliers and vendors. As stated in the case, Wal-Mart is “both desired and feared by manufacturers”.

 With a fleet of 4,000 trucks, Wal-Mart also has capability to independently operate part of its transportation logistics without relying solely on outside vendors.

 Wal-Mart also carries some of its own Great Value private-label products tailored to local demand.

- Bargaining power of buyers: the power of buyers is considered moderate.

 Switching costs of buyers is low.

 Buyers are price-sensitive. They can be easily lured to competitors to buy products that are offered at a lower price.

 The differentiation in the products and brands among different discount retail stores in this industry is low.

 Since most of the products offered are commodity, buyers usually choose the store that is closest to their home or their workplace for convenient shopping.

 Wal-Mart provides a wide range of products and services, and offers very low prices. In addition, it has many stores serving different geographical areas. Hence, it has a large and loyal customer base.

Interest groups such as organized labor unions, environmentalists, and human rights activists can interrupt the business. When a retailer expands internationally, it can face political challenges, as well as differences in culture and practices which may support or deter both the establishment and growth of a company in a country.

In the discount retail industry customers focus on a few elements, including price, convenient location, range of products, and good service. Therefore, the key success factors of the industry require that the firms need to: (1) Maintain low cost by having efficient and effective operations, making bulk purchases from vendors to enjoy volume discounts, and paying low wages; (2) Create differentiation by having large stores carry a wide range of products, easy and accessible locations for convenient shopping, and products that meet local customer preferences and needs; and (3) Fast response to market demand.

The nature of the external environment of the discount retail industry dictates that potential entrant firms can only achieve moderate profit. The driving force of the whole industry is the high competition among rival companies, in which price is the most critical factor. In order to survive and be profitable, firms have to offer competitive prices. This translates into high efficiency in operation, low costs of goods sold, and low operating expenses. The industry may discourage small investors, but because the U.S. is one of the world’s largest retail markets, it can attract potential investors with strong financial strength, especially international retail chains, to enter the U.S.

2. Internal resources and capabilities

Wal-Mart’s purpose is revealed in its founder Sam Walton’s statement, “If we work together, we’ll lower the cost of living for everyone…we’ll give the world an opportunity to see what it’s like to save and have a better life.” Its mission statement is, “Saving people money so they can live better”. Its mission statement is very brief and broad, but it reflects the purpose of the company and its founder. With the way that mission statement is written, it can be considered as the company’s vision statement because of its broad sense.

Wal-Mart’s corporate strategy is to be a low cost leader, which reflects precisely the purpose of the company’s existence. In the past decade, its strategy has been very effective and successful. It has been continuously growing in sales revenues and net profits from 1998 to

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