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Business Strategy

Diana Brandao De Carvalho


000787604-1

University of Greenwich BUSI 1593

Wal-Mart Case Study 1


BA International Business 10/02/204

Contents

Introduction ...3 Analysis...4 Swot Analysis...6-8 Conclusion...9 Bibliography .10

Introduction

Walmart is the worlds second largest company1, funded by Sam Walton in 1962, employing 2.2 million people worldwide, with revenue of $ 469,162 billion in 20132. The unshakable growth over the years underpinned by offering goods in volume at the lowest cost, provided customers value for money, helping communities living better lives but on the other hand brought an historical number of competitors to their demise. Firstly, in this case study, Walmarts firm model will be analysed, how strategies changed over time and what influenced those changes and which strategies were implemented in order to achieve those strategies and the relationship developed in suppor of achieving ambitious goals. Secondly, a Swot analysis will be laid out to bring to light Walmart potential and impact on other businesses and stakeholders. Thirdly, a conclusion will be drawn as to whether Walmart firm model is effective and bring to light any gaps and flaws of the neo-classical theory.

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CNN Money Fortune Global 500 ranking of America's largest companies Wal-Mart Corporate - 2013 Annual Report

Analysis As a neo-classical firm, Wal-Mart transforms inputs such as raw materials, human resources and capital, trough a production process into outputs as customer goods and services and its main goal is profit maximization, where the output level is MR=MC, or where TR-TC is max. However, with wounds of World War II, the U.S attempted to stabilize its economy, Globalization expanded and so did customers knowledge and the choice for cheaper goods and services increased through the many free trade agreements. Threatening competition was voraciously alive and kicking and Walmarts future became an uncertain reality beyond the their control and because of that, Walmarts response to change was to set short and long term goals to grow comp sales in the U.S, faster than competitors, improve returns at a global level and gear expenses in order to reinvest to expand and improve the business. E-commerce was an innovative strategy, which was certainly a convenient change for the busy customer, specially the Chinese. Shopping online either on a computer or on a mobile phone around the world, saw a healthy growth in sales of 30% globally, within the first six months with expected 32% until 20153, subsequently Walmart geared initiative and capital discipline by closing down an estimate of 56 unprofitable stores in the next 2 years and focusing on online business. However, where e-commerce stimulation for further progress have proven to be profitable, on the other hand the bold decision, probably solicited unemployed associates as a result of such change but naturally, Walmart brainstormed a strategy to tackle the issue, and as a company with gracious turnover, it recruited 1000,000 ex veterans, specially for managerial roles, fulfilling its talent recruitment and compliance strategy, enhancing processes development and procedures offering training programs in order to strengthen leadership by having well trained and focused workforce globally, Walmart progress to defend its position increased. Consequently, when recruiting at a global level, external factors awareness is crucial for continuous growth, and alongside with other leading retailers, Walmart created, The Global compliance program, another short term strategy not only aiming to promote associates with continuous development in different global environments, but also decreasing duplication in auditing and whilst developing trust with teams geographically dispersed to ensure further collaboration and share of information. Under these circumstances, where high profitability through economies of scale is healthy for the economy, on the other hand, is unhealthy the environment, major production factories like China and India has been a long term concern for stakeholders and society as a whole and as a result, Walmart developed relationships with the Environment Development law Centre (EDLC), embracing
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The New York Times Business

its corporate responsibility by enrolling on an Energy Efficiency Program, which led to a 20% greenhouse gas reduction in China by using renewable energy during the production process in order to sustain stakeholders whilst protecting the environment, forecasting an increase to 17% of global energy use by 2020. A setback of a global player like Warmart, is that their goals are not always achievable or realistic for example on their ambitious goal, forecasting to use 100% renewable, where last year only 4% of its energy originated from solar, another failed goal of becoming bag free packaging, diseased at 5% in 20134 Furthermore, its ambitious goals in India to shift from mom and pop shops and expand to 20 wholesale stores, serving restaurants and hotels soon ended, as the Indian Government requires international retailers to purchase 30%5 of goods from local businesses, which frustrated Walmart decisions makers, because they would invest but were disabled from profiting as these small business did not have the capacity to produce at a scale, which Walmart required and therefore, the attempt to modernise Indias economy turned sour, unlike China which share of 20% and Bazil 36%, India only has 4% share controlled by foreign chain stores.

Walmart Swot Analysis

Strengths Mass production Diversity of products Global activities Cost leadership strategy

Weakness Scandals of bribery Bad reputation High employee turnover Small competitor differentiation

Opportunities Emerging markets growth Healthy eating movement E-commerce growth

Threats Online and Physical competitors Rising product price Scepticism from locals

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Making change At Walmart Environment New Times Business Walart Drops Ambitious Expansion Plan for India

Strengths

Mass production

With $ 469,162 billion in revenue, Walmart is the second largest company, employing 2.2 million people worldwide. In economic terms, this means extremely high economies of scale and buying power, allowing its competitive edge offering low prices.

Diversity of products Its endless product from household, perishables, health, etc, are available to serve businesses as well as individuals broaden the range of its products to suit everybodys needs, in any store all year round, attracting many new customers.

Global activities Since the first expansion carried by Sam Walton, Walmart non reliance in the US market, proved to be profitable $135 billion in sales in the year of 2013, in international activities, stimulating more economies to want to partner with Walmart.

Cost leadership strategy This strategy, is behind Warmart success since its first launch in the 60s, the ability to sell its products at the lowest cost, all year round in any store and save in economies of scale, taking businesses by storm every since is what has label Walmart a cost leader in the retail sector.

Weakness

Bad reputation Walmart was investigated for bribery in Mexico, when many working practices were questioned.

High employee turnover

Walmart recruited 1000,000 ex veterans in the new millennium, surely, is not very high for a company of its size, however, the training programs they offer for staff to ensure highly skilled and motivated workforce development, has its downfall.

Small competitor differentiation Walmart sells the same products as its competitors, limiting price changes, whereby aware customers will research the market to find the lowest prices, for their products and services, tools such as compare the market.com and many other online tools, hinder Walmart profitability and competitive edge.

Opportunities Emerging markets growth:

As shown in China, Brazil and Mexico, Walmart revenue growth in these economies, have proven that there are more opportunities in other emerging economies, especially when there was a 5% increase in the retail market last year.

Healthy eating enforcement Huge campaigns fighting against obesity, especially child obesity has promoted an opportunity for Walamrt due to high demand for healthy products.

E-commerce growth: Walmart initiative of closing 56 stores in the next 2 year, after a 30% increase in sales and estimate to rise to 32% in 2015, it proves that online shopping will witness significant growth in the future, allowing Walmart customers around the world to keep shopping online and the company increase sales.

Threats

Online and Physical competitors: Tesco and Amazon offer very similar products, where Tesco is slightly hand in hand matching ASDA, who Walmart partners with, on the e-commerce platform Amazon provides an unshakable amount of goods delivered to customers door, therefore, the constant the rounds to sell the cheapest products are intense, which may impact on Walmart profitability, when trying to match its competitors prices, they will actually make a loss.

Rising product prices

Due to intense competition and loss occurred in the process, Walmart raising its prices would automatically decrease its profits and, lose its competitive advantage, as part of Sam Waltons Low prices everyday, a bold movement like price rise, would surely bring Walmart to its demise by attempting to maintain its leading position. This is a constant worry for Walmart, as customer does not distinguish products they are led by price.

Scepticism from locals

Over the years, many medium sized businesses as well as small business, such as corner family stores were shut down, when Walmart opened their local convenience stores. This not only had great impact in business owners but the whole community. Surely many, did not have a choice but to seek employment at Warlmart, in order to survive.

Conclusion

The issue with neo-classical firms like Walmart, is the fact that intended and realised strategies are underpinned by a centralised decision making mechanism, and despite the efforts of involving stakeholders and associates in the decision making process, there is only so much information that can be shared. Ultimately, decisions will be carried from the top down, especially short term decisions in response to a fast paced market, furthermore, another criticism with this type of model is conflict of interest that may arise among different teams from different branches and different countries, blurring the lines of common goals to individuals goals, which may be used as a form of appraisal system in monitoring performance but on the other hand it may hinder the company with the formation of grapevines. In addition, the many management layers have a deficiency in strengthening relationships and building trust, where the share of information and knowledge is withheld in a department, in a team and even in an individual, which it could be of valuable for effective long term decision making and ultimate Walmart success.

Bibliography

Book

Cashian, P. 2007. Economics, strategy and the firm. Basingstoke: Palgrave Macmillan. Lecture handouts Online Stock.watmart.com. 2014. Walmart Corporate Walmart Annual Reports. [online] Available at: http://stock.walmart.com/annual-reports [Accessed: 10 Feb 2014]. CNNMoney. 2014. Furtune Global 500 Fortune. [online] Available at: http://money.cnn.com/magazines/fortune/global500/index.html [Accessed10 Feb 2014]. TreeHuger. 2014 Walmart Is Crushing Its Ambitious Responsibility Goals. [online] Available at: http://www.treehugger.com/corporate-responsibility/walmart-is-crushing-its-ambitious-globalresponsibility-goals.html [Accessed10 Feb 2014]. Nytimes.com 2014. Log in The New York times. [online] Available at: http://www.nytimes.com/2013/10/25/business/international/wal-marts-china-plan-to-focus-on-ecommerce.html?_r=1& [Accessed10 Feb 2014]. Yahoo Finance. 2014. Walmart Energy Efficiency Program Achieves Evnery Savings of 20% Across 210 Factories in China. [online] http://finance.yahoo.com/news/walmart-energy-efficiencyprogram-achieves-010000051.html [Accessed10 Feb 2014]. Makingchangeatwalmart.org. 2014. Environment Making Change at Walmart. [online] Available at: http://makingchangeatwalmart.org/factsheet/environment/ [Accessed10 Feb 2014].

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