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Strategic Management Report On Wal Mart
Strategic Management Report On Wal Mart
DURGAPUR
(DEEMED UNIVERSITY)
SUBMITTED TO
BY
MARCH, 2009
WAL-MART GLOBAL STRATERGY.
INDEX
1. INTRODUCTION TO GLOBALIZATION STRATEGY IN RELATION TO RETAILING ................ 3
2. FACTORS DETERMINING THE EXTENT AND NATURE OF GLOBALISATION IN AN
INDUSTRY: ......................................................................................................................... 3
3. GLOBAL BUSINESS – COMPETITIVENESS ...................................................................................... 3
4. DETERMINANTS OF INTERNATIONAL COMPETITIVENESS ................................................... 4
5. INCREASING COMPETITIVENESS .............................................................................................. 4
6. INTRODUCING WAL-MART ............................................................................................... 4
7. FORTUNE MAGAZINE FRONT COVER FEATURING WAL-MART ........................................... 5
8. WAL-MART AND INTERNATIONAL EXPANSION ......................................................................5
9. INTERNAL ANALYSIS – ANALYZING RESOURCES ........................................................................ 6
10. P.E.S.T. ANALYSIS ....................................................................................................................... 8
11. VALUE CHAIN ANALYSIS .......................................................................................................... 10
12. FIVE FORCE’S ANALYSIS ................................................................................................................. 10
13. GENERIC STRATEGY… .....................................................................................................................12
14. YIP’S GLOBALIZATION DRIVERS ............................................................................................. 13
15. WAL-MART’S COMPETITIVE ADVANTAGE............................................................................. 13
16. CORE COMPETENCES ...................................................................................................................... 14
17. KAY’S DISTINCTIVE CAPABILITIES ................................................................................................ 14
18. WAL-MART’S TRANSNATIONAL STRATEGY .......................................................................... 15
19. WAL-MART AND INDIA ................................................................................................... 15
20. THREATS ......................................................................................................................................16
21. CONCLUSION… .......................................................................................................................... 16
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5. INCREASING COMPETITIVENESS
Rationalization output to get rid of high cost plants
Relocating to places where labor costs are lower
Process innovation
Product innovation
Incorporating the latest technology into investment
Sourcing from abroad where appropriate
Seeking out new market opportunities
Improving relationships with suppliers and customer
6. INTRODUCING WAL-MART
Wal-Mart is the world’s largest corporation (Fortune, 2003). Wal-Mart is also the largest private
employer in the United States of America.
Wal-Mart is U.S.A.’s biggest seller of DVDs, diamonds, groceries, toys, guns, CDs, apparel, dog
food, detergent, jewellery, sporting goods, videogames, socks, bedding, and largest film
developer, optician, private truck fleet operator, energy consumer, and real estate developer
(Fortune, 2003).
Americans save about US$10 Billion by shopping at Wal-Mart. Wal-Mart’s revenue accounted
for 15% of the entire U.S. retail market in 2002, excluding automobiles. Sales globally have been
affected over the recent weeks. International sales increased 14.3% to $10.3 billion. Wal-
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Mart’s revenues are forecast to approach $700 billion in 2010. Wal-Mart has four large scale
retail formats; Wal-Mart Stores, SAM’s Club, Wal-Mart Supercenters and Neighbourhood
Markets.
7. FORTUNE MAGAZINE FRONT COVER FEATURING WAL-MART
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Multinational retailer’s entry is usually by mergers & acquisitions, which is what Wal-Mart did
in its initial entry into Mexico, with a joint venture with CIFRA, the most powerful retailer in
Mexico. This results in a faster and more reliable learning knowledge base. CIFRA enables Wal-
Mart’s entry with stronger networks in the trade especially with vendors and understanding the
local needs and culture while Wal-Mart brings in its competency like logistics and service.
Especially the management is a key resource and enable its contribution to its success. Casse
(1994) argues people are not resources and ethically should not be classified such. In a
remarkable editorial in The Economist (2000), Wal-Mart’s entry into Europe and global
expansion plans have been heavily criticized and undermined due to the inability of global
sourcing capabilities of supermarket products and apart from the already well established retail
networks of chain stores and discounters like Metro, Carrefour, Aldi which all individually and
collectively dominate the market and aren’t up for sale as Wal-Mart would try to.
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Human Resources
Wal-Mart promotes internal staff development and over 60% of their stores managers are
promoted internally then direct recruits. Wal-Mart believes in recruiting people with a flair for
customer service and trains them accordingly to its strong company values. Employees are
treated as owners as more than 70% of employees have shares of the company and incentives
are paid in stock options too.
One of the significant costs for retailers was shoplifting, or pilferage. Wal-Mart addressed this
issue by instituting a policy that shared 50 percent of the savings from decreases in a store’s
pilferage among that store’s employees through store incentive plans.
Physical Resources
Wal-Mart developed its computerized inventory system way back in 1970 that decreased
check-out and reordering times and built highly automated distribution centres, reducing
shipping cost and time. Wal-Mart has continued to be an innovator and has this has led it to
create and sustain its competitive advantage by being the first and to be continuous to replace
systems and processes replicated by competitors.
Intellectual or Intangible Resources
Wal-Mart’s core resources are its customers which total over 176 million consumers in 13
countries. Wal-Mart has over 1.3 million associates (employees) at its stores, worldwide. Wal-
Mart uses its technological capabilities to sustain its cost leadership in distribution and superior
inventory systems.
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Development in technology and satellite systems has given a boost to Wal-Mart. Basic
infrastructure still lacks for effective warehousing and distribution, the lifeline of a retail chain.
Key learning
There appears to be legal and social hurdles ahead for global companies. Expansion into
growing and emerging markets throws in tremendous growth opportunity though localization
would be a critical success factor. Infrastructure needs to be developed to support activities of
a global distribution channel to achieve global competitiveness.
Table: P.E.S.T. Analysis
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Inbound Logistics
Wal-Mart’s primary activity of receiving inventory is planned right from the point of production,
which Wal-Mart is not involved with. Wal-Mart has integrated systems with key suppliers which
communicate in real time data with sales information and stock status so it can replenished in
time. Shipments are timed and slotted and planned in an orchestral way.
Operations
Wal-Mart maintains a lean approach to inventory. Wal-Mart innovated a technique of
replenishment called the Cross-Docking where incoming goods are offloaded into outgoing
trucks directly without stocking them even for a few hours. Most goods pass through the
warehouses within a span of 48 hours, enabling minimum idle time and lowering excess
inventory possibilities. Most of the goods never touch the floor of the warehouse, as goods are
passed on 24 miles length of conveyor belts between incoming trucks to outgoing trucks.
Outbound Logistics
Goods are transferred within 48 hours of receipt from suppliers. The replenishments are also
done twice weekly, which is double the industry’s standard.
Marketing and Sales
Wal-Mart maintains a simple and effective marketing strategy which it has managed to
replicate globally apart it being the focus of its strategy. The Every Day Low Price (EDLP) is
simple and eliminates unnecessary advertising trying to push sales, as Wal-Mart has
successfully sold the concept to the customers, that it sells its products at the lowest prices,
everyday. This is one of the most interesting attributes of Wal-Mart.
Service
Wal-Mart’s aggressive yet subtle ‘People Greeters’ and in its own fashionable and proud way
‘Aggressive Hospitality’ are the foundations for Wal-Mart’s success in the highly competitive
market.
Infrastructure
Wal-Mart maintains its own fleet of 2000 plus trucks which have scheduled deliveries between
warehouses to stores minimizing delays and over reliance from suppliers.
Human Resource Management
Wal-Mart is the only retailer to be in Fortune’s 100 Best Places to Work. Wal-Mart’s
empowerment of Associates is laudable with instances such as allowing its Associates to get on
the network and lower its prices, nationwide if its found to be higher than its competitors, all
this done without any consultation or permission requests from superiors.
Technology Development
Wal-Mart’s technology and inventory management systems and software are better than the
best in the world and also the lifeline of the organization. Wal-Mart’s early innovations and
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experimentation apart from investments light-years ahead of its time into VSAT capabilities
have boosted its success.
Procurement
Wal-Mart’s satellite communication and electronic data interchange links all its stores to over
4000 suppliers creating the finest procurement co-ordinated scenario. Wal-Mart integrates its
supply chain management activities with key suppliers like P&G with direct shipments from
P&G’s warehouses to Wal-Mart’s stores and warehouses. Wal-Mart inventory management is
so effective that over 70% of its merchandise is purchased and paid for by customers, even
before Wal-Mart has actually paid for the same to its suppliers. Wal-Mart has outsourced a
substantial activity to USSO enabling Wal-Mart to maintain its logistics costs.
Cost leadership
Analysis of the value adding activities supporting the generic strategy shows clear elements of
cost focus. Low cost leadership helps the firm above average returns in the industry despite
strong competitive forces. Traces of cost leadership are noticeable in the value chain. Wal-Mart
saves costs by holding stocks for less than 48 hours in its inventory. Wal-Mart is known to
negotiate with suppliers for the lowest cost of the product without any frills and marketing
expenses which adds to the cost later. Wal-Mart’s purchase by the truckload saves costs again
by bulk purchasing. Wal-Mart’s inventory handling and logistics distribution with its own fleet
of 2000 plus trucks help attain a cost effective distribution channel than relying on unreliable
suppliers networks which costs in delays.
Differentiation
Wal-Mart appears to have a differentiation strategy. The differentiation strategy is one of
differentiating the product or service offering of the firm, creating something that is perceived
industry-wide as being unique. It can be design or brand image, technology, features, customer
service, dealer network or other dimensions.
High degree of customer service with store greeters and ’10 foot attitude’ policies reaffirms
Wal-Mart’s differentiation from its competitors.
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Focus
The third generic strategy advocated by Porter is the focus strategy. The focus strategy is
focusing on a particular buyer group, segment of the product line or geographic market as with
differentiation, focus may take many forms. Wal-Mart right from its foundation located its
stores to out of town areas with small populations. This was a segment ignore by its
competitors giving Wal-Mart an edge over competition by locating itself in a low competitive
environment before it creates competition. Wal-Mart’s focus on the segment of people
targeted as well as its location of stores, does give it an attribute of the focus strategy.
Effective implementation of any of these generic strategies usually requires total commitment
and supporting organizational arrangements that are diluted if there is more than one primary
target. Arguably Porter termed organizations attempting cost leadership and differentiation
together as ‘stuck-in-the-middle’ and it does not lead to competitive advantage and its
sustainability.
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20. THREATS
The leaders of the retail market are the 12-40 million tiny mom-and-pop retail shops
which are predominantly run by small family businesses.
The mom-and-pops have an advantage as they are conveniently located on street
corners or in the heart of cities and usually have personal relationships with most
consumers.
21. CONCLUSION
Large economies (Countries) are clubbed together and treated as one. Arguments such as only
a certain percentage of business is generated outside the TRIAD making a business less global
are arguments the author disagrees with. With the EU becoming as one then soon, the world
will become large chunks of amalgamations. The simple definition or presence in different
markets should be taken into consideration of being global. Many strategists do not give
concessions for the time the business has started to expand globally. Wal-Mart for instance has
grown to such a strong position over 40 years, this would take considerable time to replicate
and adapt in international markets.
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