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Analysis and Evaluation of Wal-Mart’s Global / Transnational Strategy

Name Vijay Kodandaraman Bysani


Student I.D.Number 02913971
Course Master of Business Administration
Unit Title Global and Transnational Strategy
Unit Code SM 448
Unit Tutor Ron Phillips
Assignment Topic Analysis and Evaluation of Wal-Mart's Global /
Transnational Strategy

Newcastle Business School

University of Northumbria

Newcastle

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Analysis and Evaluation of Wal-Mart’s Global / Transnational Strategy

Table of Contents

Particulars Page

1 List of Figures 4
2 List of Tables 5
3 List of Images 6
4 List of Appendices 7
5 Executive Summary 8
6 Introduction to Globalisation & Transnational Strategy in relation to Retailing 12
7 Introducing Wal-Mart 14
8 Wal-Mart and International Expansion 16
9 Internal Analysis - Analyzing Resources 18
9.1 Financial Resources 18
9.2 Human Resources 18
9.3 Physical Resources 18
9.4 Intellectual or Intangible Resources 19
10 Culture Analysis 20
11 The Pyramid of Organizational Development 21
12 BCG Matrix 24
13 P.E.S.T. Analysis 26
13.1 Political Influences 26
13.2 Economic Influences 26
13.3 Social Influences 26
13.4 Technological Influences 27
13.5 Key Summary 27
14 Five Force's Analysis 29
15 S.W.O.T. Analysis 32
15.1 Strengths 32
15.2 Weaknesses 32
15.3 Opportunities 32
15.4 Threats 33
16 Value Chain Analysis 34
16.1 Inbound Logistics 34
16.2 Operations 34
16.3 Outbound Logistics 35
16.4 Marketing and Sales 35
16.5 Service 35
16.6 Infrastructure 35
16.7 Human Resource Management 36

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Analysis and Evaluation of Wal-Mart’s Global / Transnational Strategy

16.8 Technology Development 36


16.9 Procurement 36
16.1 Key Summary 37
17 Generic Strategy 38
18 Yip's Globalisation Drivers 42
18.1 Market Drivers 42
18.2 Cost Drivers 42
18.3 Country Drivers 42
18.4 Competitive Drivers 43
18.5 Key Summary 43
19 Competitive Advantage 46
20 Core Competences 48
21 Sustainable Competitive Advantage 49
22 Kay's Distinctive Capabilities 50
22.1 Architecture 50
22.2 Reputation 50
22.3 Innovation 50
22.4 Strategic Asset 51
23 Configuration and Co-ordination 52
23.1 Configuration 52
23.2 Co-ordination 53
24 Pressures for Co-ordination and Integration 54
25 Dicken's Framework 55
26 Transnational Model 56
27 Conclusion 58
28 Limitations of Report 60
29 References 67
30 Bibliography 72
31 Declaration 78

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Analysis and Evaluation of Wal-Mart’s Global / Transnational Strategy

1. List of Figures

Particulars Page

1 Figure 11.1.: The Pyramid of Organizational Development 22


2 Figure 11.2.: Comparative Analysis of K-Mart and Wal-Mart 23
3 Figure 12.1.: BCG Growth Share Matrix for Wal-Mart 25
4 Figure 17.1.: Porter's Generic Strategies 41
5 Figure 18.1.: Visual Representation of Yip's Drivers 45
6 Figure 26.1.: Wal-Mart's Transnational Strategy 57

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Analysis and Evaluation of Wal-Mart’s Global / Transnational Strategy

2. List of Tables

Particulars Page

1 Table 6.1.: The Blind Men and The Elephant 10


2 Table 13.1.: P.E.S.T. Analysis 28
3 Table 14.1.: Five Force's Analysis 31
4 Table 18.1.: Yip's Drivers 44

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3. List of Images

Particulars Page

1 Image 7.1.:Fortune Magazine Front Cover Featuring Wal-Mart 15

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4. List of Appendices

Particulars Page

1 Appendix 1: Wal-Mart Income Statement 61


2 Appendix 2: Wal-Mart Balance Sheet 62
3 Appendix 3: Growth Rate Analysis (%) 63
4 Appendix 4: Wal-Mart Store Details 64
5 Appendix 5: Wal-Mart International Store Details 65
6 Appendix 6: Photographs of Wal-Mart Stores 66

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Analysis and Evaluation of Wal-Mart’s Global / Transnational Strategy

5. EXECUTIVE SUMMARY

Globalisation in retailing is being driven by several factors, including low growth in domestic

markets, information technology, global consumer and shopping patterns, and the opening up

of new markets. However it is not easy for retailers to become global. Performance in foreign

markets depends on careful adaptation of the home formula, since there are still regional

differences and mostly local sourcing

RESEARCH AIMS AND OBJECTIVES

The author attempts to apply theory to practise by applying relevant theories and frameworks

in analyzing the short-listed organization and evaluate the firm’s global / transnational

strategy in accordance of its global drivers. This report has three main aims. First, it attempts

to identify and discuss the relevant frameworks. Second, it aims at applying these

frameworks in analysis to the short listed organisation. And finally, it concludes the direction

and nature of the firm’s global / transnational strategy directions. .

STRUCTURE OF THE REPORT

This report consists of parts, each of which is further divided into sub-sections covering

relevant areas to the topic under discussion.

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The first part introduces the reader to the report and also outlines the structure and topics of

discussion.

The second part defines and set the context to global / transnational strategy in relation to the

retail industry before setting the context to the short listed organization and giving the reader

a good background of current status of the organization with market forces.

The third part identifies key strategic issues with detailed analysis involving the external

environment and internal environment covering the near and far environment extending itself

into the culture and resources of the organization before exploring in greater analysis the

value chain.

The fourth part extends into the generic strategies adopted the organization and then explains

in detail the Yip’s globalisation drivers before concluding the competitive advantages and

core competencies and the sustainable competitive advantages.

The fifth part introduces Kay’s distinctive capabilities with greater analysis and extending

itself with the configuration and co-ordination of activities concluding with the pressures for

co-ordination and integration.

The sixth part introduces in analysis the transnational model. The final part sets the final

context linking all the key frameworks and analysis with the author’s own conclusions and

future directions and expresses the author’s limitation to this report.

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Table 6.1.: The Blind Men and The Elephant

THE BLIND MEN AND THE ELEPHANT


by John Godfrey Saxe (1816 -1887)

It was six men of Indostan


To learning much inclined,
Who went to see the Elephant
(Though all of them were blind)
That each by observation
Might satisfy his mind.

The First approached the Elephant,


And happening to fall
Against his broad and sturdy side,
At once began to brawl:
“God bless me but the Elephant
Is very like a wall.”

The second, feeling of the tusk,


Cried, “Ho! What have we here
So very round and smooth and sharp?
To me ‘tis mighty clear
This wonder of an Elephant
Is very like a spear!”

The Third approached the animal,


And happening to take
The squirming trunk within his hands,
Thus boldly up and spake:
“I see,” quoth he, “The Elephant
Is very like a snake!”

The fourth reached out an eager hand,


And felt around the knee,
“What most this wondrous beast is like
Is mighty pain,” quoth he;
“ ’Tis clear enough the Elephant
Is very like a tree!”

The Fifth, who chanced to touch the ear,


Said: ”E’en the blindest man
Can tell what this resembles most;
Deny the fact who can,
This marvel of an Elephant
Is very like a fan!”

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The sixth no sooner had begun


About the beast to grope,
Than, seizing on the swinging tail
That fell within his scope,
“I see,” quoth he, “the Elephant
Is very like a rope!”

And so these men of Indostan


Disputed loud and long,
Each of his own opinion
Exceeding stiff and strong,
Though each was partly in the right,
And all were in the wrong!

Moral

So oft in theologic wars,


The disputants, I ween,
Rail on in utter ignorance
Of what each other mean,
And prate about an Elephant
Not one of them has seen!

Source: Extracted from Mintzberg, Ahlstrand and Lampel, 1998.

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6. Introduction to Globalisation and Transnational Strategy in relation to

Retailing

Globalisation refers to growing economic interdependence among countries as reflected in

increasing cross-border flows of three types of entities: goods and services, capital and know-

how (Govindrajan and Gupta, 2001). The term globalisation can relate to any of several

levels of aggregation: the entire world, a specific country, a specific industry, a specific

company, or even a specific line of business or functional activity within the company

(Govindrajan and Gupta, 2001).

Transnational strategies although global in nature incorporate a global configuration and a

high degree of co-ordination allowing the business to retain local responsiveness

(Stonehouse, et. al., 2000)

The two most strategic expansion routes for international retail expansion are global and

multinational strategies (Sternquist, 1997). Global retailers replicate a standard format

throughout their expansion worldwide while multinational strategies result in adaptation of

their retail offering (Sternquist, 1997). Multinational retailer’s expansion is generally slower

than global retailers and the management is decentralized. Multinational target markets in

closer proximity. International expansions of retailers are challenging and unpredictable, and

a slow approach is healthy (Voyle, 2003).

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As markets evolve, differentiation becomes more important. It’s interesting to note, most of

the industries, practically all the industries are attempting to globalize today like the

automobile industry has done over the last few decades. Automobile industry peaked during

the 1950s and since then there has been a decline and ever since it’s been growth of the major

players and consolidation of the smaller ones. Success in the motor industry comes not from

size and scale but from developing competitive advantages in operations and marketing these

advantages internationally (Kay, 2003).

Global brands are a recent phenomenon. Until 10 to 15 years there weren’t any global brands,

many companies were multinationals tending to function as a collection of individual

enterprises with separate factories and different products in each country. The manifesto of

global brands emerged in 1983 when Theodore Levitt published “The Globalization of

Markets”. It was the emergence of homogenisation. Enabling this was technology with mass

transport and communication and the disappearance of national tastes and preferences. The

multinational corporation operates in a number of countries and adjusts its products and

practices in each at high relative costs. The global corporation operates with resolute

constancy at low cost, as if the entire world were a single entity; it sells the same things in the

same way everywhere (Tomkins, 2003)

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7. Introducing Wal-Mart

Wal-Mart is the world’s largest corporation (Fortune, 2003; Yoffie and Wang, 2002; Image

7.1.). Wal-Mart is also the largest private employer in the United States of America (Yoffie

and Wang, 2002).

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 (Buffet, 2003). Wal-Mart’s

revenue accounted for 15% of the entire U.S. retail market in 2002, excluding automobiles

(Yoffie and Wang, 2002; Appendix 1). Sales globally have been affected over the recent

weeks. International sales increased 14.3% to $10.3 billion (Buckley, 2003; Appendix 1;

Appendix 3).

Wal-Mart’s revenues are forecast to approach $700 billion in 2010 (Fernie and Arnold,

2002). Wal-Mart has four large scale retail formats; Wal-Mart Stores, SAM’s Club, Wal-

Mart Supercenters and Neighbourhood Markets

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Image 7.1.: Fortune Magazine Front Cover Featuring Wal-Mart

Source: Wal-Mart Annual Report, 2003.

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8. Wal-Mart and International Expansion

Wal-Mart was enticed into international markets by a conviction that it could achieve

competitive advantage abroad by applying its combination of technology, logistics and

human resources with its tremendous buying power with multinational consumer goods

suppliers (O’Higgins and Weigel, 2002).

Wal-Mart’s strategy has been to acquire companies and convert them into the Wal-Mart way

stores (Appendix 4; Appendix 5). European retailers like Carrefour and Ahold, have more

than 20 years of international experience than Wal-Mart.

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 (Sternquist, 1997). 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 (Sternquist, 1997).

The author feels Wal-Mart’s employees; especially the management are 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 an remarkable editorial in The Economist (2000),

Wal-Mart’s entry into Europe and global expansion plans have been heavily criticised 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

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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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9. Internal Analysis – Analyzing Resources

9.1. Financial Resources

Wal-Mart is the world’s largest and most profitable retailer (Goddard, 1997; Appendix 1).

Wal-Mart’s pre tax return on sales was 8% during 1989 which was double the industry

standard and it continues to be the front runner till today (Goddard, 1997). Wal-Mart

commands market value 10 times more than its book value.

9.2. Human Resources

Wal-Mart promotes internal staff development and over 60% of its store managers are

promoted internally then direct recruits (Rugman and Girod, 2003). 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 (Goddard, 1997).

9.3. 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.

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9.4. Intellectual or Intangible Resources

Wal-Mart’s core resources are its customers which total over 40 million per year (Goddard,

1997). Wal-Mart has over 1.3 million associates (employees) at its stores, worldwide. The

author feels this itself is unique which helps Wal-Mart get 1.3 million unique, hardcore loyal

customers. Wal-Mart uses its technological capabilities to sustain its cost leadership in

distribution and superior inventory systems.

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10. Culture Analysis

Wal-Mart’s culture is as unique and distinctive as possible considering the mammoth that it

has grown into today. Usually firms even of a small and medium company find it hard to

maintain and build good customer service but Wal-Mart has always had it as its foundation

and till today preaches and practices exemplary customer service.

Wal-Mart’s Corporate Citizenship actively helps development of the community with

programs spread across education, health, and environment. Wal-Mart’s Code Adam, a

tribute to a lost child in a retail store helps prevent children getting lost in stores today which

make it a safer place for families to shop.

Wal-Mart’s Ten Foot Rule and Sundown Rule all promote the employees to treat the

customer right, first time, always (Rugman and Girod, 2003). Employees are treated as

Associates inspiring their status (Goddard, 1997; O’Higgins and Weigel, 2002).

The everyday morning cheers act as a ritual and cheer and energize the associates making

them part of the organization (Arnold, 2002). Associates acting as ‘greeters’ at the entrance

of every store worldwide is unique and makes the customer more welcome and special

(Goddard, 1997).

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11. The Pyramid of Organizational Development

The pyramid of organizational development (Figure 11.1.) illustrates the six building blocks

of successful organizations (Flamholtz and Hua, 2003). In an interesting breakthrough

Flamholtz and Hua (2003) discuss how strategic building blocks of organizational

development develop into potential sources of competitive advantage. History has witnessed

the loss of sustainable competitive advantage gained by markets and products. Its open for

imitation and even first mover advantage is lost in time.

Analyzing it relation with Wal-Mart reveals an interesting picture of how true this model is.

In the empirical study conducted by Flamholtz and Hua (2003) with the framework in

comparison to K-Mart and Wal-Mart, the two leading discount retailers, the authors conclude

Wal-Mart has significant sustainable competitive advantages over K-Mart and all are

attributable to the firm’s infrastructure. Wal-Mart’s products and market definition are prone

to imitation unlike its infrastructure which can be attempted to be replicated but been

unsuccessful so far by competitors (Figure 11.2.).

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Figure 11.1.: The Pyramid of Organizational Development: The Six Key Building

Blocks of Successful Organizations.

Source: Adapted from Flamholtz and Hua (2003).

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Figure 11.2.: Comparative Analysis of K-Mart and Wal-Mart.

Source: Adapted from Flamholtz and Hua (2003).

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12. BCG Matrix:

Although the BCG Matrix is used traditionally for particular product types within an

organization’s product portfolio, the author tries to represent the different formats of retail

stores adopted by Wal-Mart using the BCG Matrix. This analysis helps analyze the growth

potential of different formats of stores adopted by Wal-Mart and helps allocate necessary

resources.

It briefly appears the new store format ‘Neighborhood Markets’, is exceeding expectations

and this format is being rolled out successfully in new markets, thus placing itself under the

‘star’ (Figure 12.1.). The traditional ‘Discount Store’ continues to be Wal-Mart’s core

concept although it’s being slowly converted into other formats with the changing shopping

patterns but is still highly profitable and makes most of the revenue (Figure 12.1.). The

‘Supercenter’ and ‘SAM’S CLUB’ have established themselves as successful formats with

growth opportunities (Figure 12.1.).

Internationally the focus has been on the ‘Discount Store’ and ‘Supercenter’ format with

modest trials in the SAM’S CLUB format (Appendix 4; Appendix 5).

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Figure 12.1.: BCG Growth Share Matrix for Wal-Mart

Source: BCG Matrix adapted from Mintzberg, Ahlstrand and Lampel, 1998.

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13. P.E.S.T. Analysis

13.1. Political Influences

The political influences in this industry is probably the most burning concern with

organizations going global and many countries restricting the growth of companies by many

countries. European Customs and Regulations heavily hamper expansion plans (O’Higgins

and Weigel, 2002). FDI in many countries are still heavily regulated and global companies

are yet to set foot into emerging markets like India (Table 13.1.).

13.2. Economic Influences

War on Iraq has had a negative impact on consumer spending and outlook. Disproportionate

levels of income and consumer spending in developing countries like India and China will

impact growth of global companies. Exchange rates affect global sourcing and pricing

policies on a day to day basis. Recent developments with Wall Street have helped foster a

better relation and helped in Wal-Mart’s listing and ratings (Table 13.1.).

13.3. Social Influences

Developing countries are not used to push type marketing and aggressive selling. Bulk

buying patterns predominantly present in USA, is non-existent in Asian countries. Language

and cultural factors is a barrier to globalisation. Anti-Globalisation movements in the recent

past has affected growth of global companies, especially companies originated USA (Table

13.1.).

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13.4. Technological Influences

Development in technology and satellite systems has given a boost to Wal-Mart (O’Higgins

and Weigel, 2002). Basic infrastructure still lacks for effective warehousing and distribution,

the lifeline of a retail chain (Table 13.1.).

13.5. Key Summary

There appears to be legal and social hurdles ahead for global companies (Table 13.1.).

Expansion into growing and emerging markets throws in tremendous growth opportunity

though localisation would be a critical success factor. Infrastructure needs to be developed to

support activities of a global distribution channel to achieve global competitiveness.

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TABLE 13.1.: P.E.S.T. Analysis

Political Influences • European Customs and Regulations (O’Higgins and


Weigel, 2002).
• FDI Restrictions
• UK’s Zoning Regulations (O’Higgins and Weigel, 2002).
Economic Influences • War in Iraq
• Global Terrorism
• Exchange Rates
• Low levels of productivity in Asian Countries
• Wall Street Improvements (Fortune, 1998)
Social Influences • Marketing strategies ineffective
• Absence of Bulk Buying
• Language and Cultural Barriers
• Anti-Globalisation Movements
Technological • Advances in Technology and Satellite systems (O’Higgins
Influences and Weigel, 2002)
• Lack of basic infrastructure

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14. Five Force’s Analysis

The competitive environment for Wal-Mart definitely looks competitive (Table 14.1.).

Although Wal-Mart uses its clout around and bargains at the best possible lowest prices

stretching suppliers beyond the limit, it still has a lot of pressures from the market outside.

The bargaining power of suppliers and buyers is low with Wal-Mart having established a near

monopoly in its home market and increasing its market-share in its overseas operations. Wal-

Mart is already Canada’s and Mexico’s top retail chain and in UK is at the third position.

Threat of entry remains low in the home market and globally (Table 14.1.). The entry scene is

limited to existing retail chains as the cost of setup is substantial. Regulatory restrictions are

also a concern here. Threat of substitute products is low to medium with consumers having a

choice from different stores to buy the same product at highly competitive prices (Table

14.1.).

A sixth force, called the complementors enable the firm whose products or services work in

conjunction with enabling a synergistic effect (Grove, 1997; Table 14.1.). Wal-Mart sees

more customers than the banks do these days. Recent antitrust lawsuits over Visa and

MasterCard by retailers, headed by Wal-Mart, alleging the use of expensive debit cards and

the costs borne by the retailers may upset the market (Kelleher, 2003).

The intensity of competitive rivalry can be classified low to medium (Table 14.1.). The

power obtained by the low bargaining power of suppliers and buyers is offset by the threat of

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Analysis and Evaluation of Wal-Mart’s Global / Transnational Strategy

substitutes and threat of entry. Overall a substantial amount of power still lies with Wal-Mart

considering the scale of operations and maturity in its industry.

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Table 14.1.: Five Forces Analysis

Bargaining Power • Suppliers have lost power over pricing and Low
of Suppliers other terms due to Wal-Mart’s size
• Wal-Mart is a key customer to most of its
suppliers and they are totally dependent on
Wal-Mart for business
• Wal-Mart engages in aggressive selling tactics
Bargaining Power of • Wal-Mart is the only store in many locations Low
Buyers isolating competition and limiting consumers
choice
• Community Building
• Proactive customer service
• Attractive and probably the best pricing
Threat of Entry • High Investment Costs Low to
• Extensive investment in Information Technology Medium
• Extensive distribution network
• Scale and scope of operations is high
• Regulatory concerns
Threat of Substitutes • Department stores charge higher Low to
• Wal-Mart has all types of formats serving all Medium
types of customers
• Category killers likes Barnes & Noble and Home
Depot can be a constant threat
• Strong presence of national and international
retail chains and maturity in markets like Europe
- (O’Higgins and Weigel, 2002)
• Loyalty schemes run companies like Tesco in
UK have 10 million members - (O’Higgins and
Weigel, 2002)
• Weakness in home market with Kmart’s closure
of additional 326 stores
• Market weakness with closure of Kmart will help
Wal-Mart maintain better pricing power
improving profitability.
Intensity of • Price wars have reduced margins from 6% to 1% Medium
Competitive Rivalry in the USA - (O’Higgins and Weigel, 2002)
• Bargaining power of Suppliers is Low
• Bargaining power of Buyers is Low
• Threat of Entry is Low to Medium
• Threat of Substitutes is Low to Medium
Complementors • U.S.Mint chose Wal-Mart to introduce its Low
Sacagawea Gold Dollar in 2000 and not any
bank (Fortune, 2003)

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15. S.W.O.T. Analysis

15.1. Strengths

Wal-Mart is the largest corporation in the world (measured by turnover; Appendix 1) giving

it enormous status and recognition in the industry and new markets. Wal-Mart is great at

building and maintaining relationships with suppliers. Wal-Mart is a continuous learning

organization with integrated systems and frequent meetings with store and aisle managers and

systems that receive 8.4 million updates every minute on transactions from its stores

(Goddard, 1997; O’Higgins and Weigel, 2002). More than 70 million customers roam Wal-

Mart aisles each week (Fortune, 2003). Wal-Mart’s distribution centre and logistics

capabilities are a key strength adding value to its entire system. Wal-Mart’s cross-docking

and effective inventory managements gives it’s a 3% cost advantage which helps sustain its

Every Day Low Price strategy (Goddard, 1997).

15.2. Weaknesses

Wal-Mart shows little adaptability to its formats in overseas expansions (Colla and Dupuis,

2002). Wal-Mart is still to develop its expertise in international marketing. Shows weakness

in its expansion by not fulfilling expansion plan of opening 50 new stores in Germany during

2001 (O’Higgins and Weigel, 2002).

15.3. Opportunities

Growing middle class of consumers in emerging markets like China and India, gives Wal-

Mart a tremendous opportunity for global expansion. There is growing consolidation in the

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market with the weak economy which is also leaving many competitors up for sale at below

book value. Growth of e-commerce enables a new business channel and Wal-Mart has

aggressively trying to capture and create its presence in this medium too.

15.4. Threats

Recent years have witnessed anti-globalisation movements affecting global companies and

American companies in general and Wal-Mart can face stiff resistance from consumers in

new markets. Recent wars and outbreaks have affected sales globally. Increased competition

in mature markets like Germany and U.K. with established retail chains dominating despite

Wal-Mart’s entry. Growing trade blocks and zoning regulations hamper Wal-Mart’s

expansion plans.

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16. Value Chain Analysis

16.1. 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 (Fortune, 2003). Shipments are timed and slotted and planned in an

orchestral way.

16.2. Operations

Wal-Mart maintains a lean approach to inventory (Rugman and Girod, 2003). 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 (Goddard,

1997). Most goods pass through the warehouses within a span of 48 hours, enabling

minimum idle time and lowering excess inventory possibilities (Goddard, 1997). 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 (Fortune, 2003).

According to Ananth Raman of Harvard Business School, “Wal-Mart will rather extract fat

from the process than extract from the supplier’s profit” (Fortune, 2003). This statement

reaffirms the working style of Wal-Mart of working together with vendors enabling a win-

win situation for all concerned, the vendors; the organization (Wal-Mart); and the customers

eventually.

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16.3. Outbound Logistics

Goods are transferred within 48 hours of receipt from suppliers (O’Higgins and Weigel,

2002). The replenishments are also done twice weekly, which is double the industry’s

standard (Goddard, 1997).

16.4. 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 (O’Higgins and Weigel, 2002; Goddard, 1997). This is one of the most interesting

attributes of Wal-Mart.

16.5. 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 (O’Higgins and Weigel, 2002).

16.6. 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 (Goddard,

1997).

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16.7. Human Resource Management

Wal-Mart is the only retailer to be in Fortune’s 100 Best Places To Work (Rugman and

Girod, 2003). 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 (Goddard, 1997; Arnold, 2002).

16.8. 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 (Rugman and Girod, 2003). Wal-

Mart’s early innovations and experimentation apart from investments light-years ahead of its

time into VSAT capabilities have boosted its success.

16.9. 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 (Goddard, 1997). 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 (Goddard,

1997). 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 (Fortune, 2003). Wal-Mart has outsourced a substantial activity to USSO

enabling Wal-Mart to maintain its logistics costs.

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16.10. Key Summary

The beauty of Wal-Mart’s Value Chain is the scale of operations and the control it exercises

over each activity. Wal-Mart takes care of all the activities internally except partially

outsourcing its logistics requirements. Its systems integration from inventory, to stores, to

headquarters to suppliers is the lifeline of its success. Transportation undertaken by its own

fleet of trucks is an added advantage. The core activity remains in its bulk buying and

inventory management which supports Wal-Mart’s competitive advantage of pricing and

every element shows traces of cost leadership. Total integration is key here. Wal-Mart

located its discount stores around regional warehouses allowing a streamlined and low cost

physical distribution (Porter, 1990).

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17. Generic Strategy

Analysis of Wal-Mart’s global generic strategy is complex and mystifying (Figure 17.1.). To

redefine that, does Wal-Mart have a global strategy is the argument.

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 (Porter, 1980). 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.

But is Wal-Mart’s strategy based solely on cost or does it have any other attributes based on

its characteristics. 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 (Porter, 1980). It can be design or

brand image, technology, features, customer service, dealer network or other dimensions

(Porter, 1980).

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High degree of customer service with store greeters and ‘no questions asked’ policies

reaffirms Wal-Mart’s differentiation from its competitors. ‘Every Day Low Price’ strategy

helped reinforce Wal-Mart was the lowest price.

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 (Porter, 1980). 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 (Porter, 1980). 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.

Academic criticism is not new and Porter has received his share of it. Most strategists feel

low cost leadership alone, does not lead to competitive advantage unless there is an element

of differentiation (Stonehouse et. al., 2000). A strategy combining elements of low cost, price

and leadership is known as hybrid strategy (Johnson and Scholes, 1999). Mintzberg

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advocated the hybrid strategy for it combines both elements of low cost leadership with

differentiation.

However, the fact can not be denied that Wal-Mart has a focus strategy as well as a

differentiation strategy. Overall the company thrives on cost leadership.

The global validity of these are tested with Wal-Mart’s core strategy in every market it

operates, it maintains cost leadership in all activities as well as it maintains its differentiation

by having exemplary service. The adoption of the focus strategy globally can be critiqued as

Wal-Mart is unable to expand into most markets like UK and Europe with tight zoning

regulations and its entry into these markets have been through mergers and acquisitions. But

the focus of the segment of customers targeted remains undiluted though the focus of location

geographically is understood to be compromised considering the market conditions.

The author feels if the above analysis holds true, Wal-Mart is a unique company which is

highly successful despite having different combinations with varying magnitudes of the

generic strategies.

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Figure 17.1.: Porter’s Generic Strategies

Strategic Advantage

Uniqueness Perceived by the


Low Cost Position
Customer

OVERALL COST
Industry-wide DIFFERENTIATION
Strategic Target

LEADERSHIP

Particular
FOCUS
Segment Only

Source: Adapted from Porter, 1980.

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18. Yip’s Globalisation Drivers

The analysis of the retail industry globalisation / localisation drivers reveals the following

(Table 18.1.; Figure 18.1.):

18.1. Market Drivers

Existence of homogenous consumer needs can not be ignored but at the same time, it is

highly localised due to the nature of products. Global brands are preferred but with local

tastes. Distribution channels hang-in-between global and local as global sourcing can’t be

ignored but lot of sourcing is done regionally. Marketing follows the same principle. Global

marketing with local themes and needs. Lead countries are Germany, France, U.S.A. and

U.K.

18.2. Cost Drivers

Cost drivers are in favour of globalisation except for research and development costs which

are marginal but needs to be catered to each market. Economies of scale are highly important

with margins wafer thin. Transport costs do not discourage centralized sourcing and

warehousing.

18.3. Country Drivers

Country drivers show a shift to localisation in this framework. There is still a marginal

amount of trade barriers though its being loosened up by the W.T.O. and pressure from

industry and markets are being built up.

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18.4. Competitive Drivers

Shift from localisation to globalisation. There is high volume of imports and exports but for

the global markets, there is more of internal sourcing compared with the volume of exports

and imports. Competitive interdependence of major markets is increasing with pressure from

global competitors entering the local markets.

18.5. Key Summary

Yip’s model shows the retail industry maturing in-between globalisation and localisation

(Table 18.1.; Figure 18.1.). Although many elements are in favour of globalisation, quite a

significant amount will continue to favour localisation like marketing and distribution and

customer choices. Maturity of the market can be expected but it will not favour a total

globalized market nor will be become highly localized. It can be classified as a regional

market or matured international market.

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Table 18.1.: Yip’s Drivers – Analysis with Wal-Mart / Discount Merchandisers

Globalisation Localisation
Market Drivers
• Global homogenous customer needs are present but localisation of the products
can not be ignored today as consumers are shifting from globalisation to
glocalisation.
• Global distribution channels exists on the whole but its still more on the local and
national sourcing due to the nature of products dealt with.
• Again marketing as a principle and a guiding policy of the company exists. But
marketing is tailored to local tastes and preferences.
• Lead countries exists like Germany, France, U.S.A., and U.K.
Cost Drivers
• Research and development costs are significantly lower in this industry
• Economies of scale are highly significant
• Transport costs do not discourage centralized production (sourcing/warehousing).
• Wide choice of countries to place production
Country Drivers
• Low trade barriers but being built-up rapidly legally and by the industry and markets.
• Divergence of national standards
• Retention of national cultural and institutional norms
Competitive Drivers
• High volume of imports and exports in the home-country can’t be ignored but the rest
of the operational countries have a limited volume of imports and exports.
• Competitive interdependence of major markets between countries
• New global competitors have entered the local market

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Figure 18.1.: Visual Illustration of Yip’s Drivers

Note: The red line denotes the extent of the force driving from globalisation to localisation.
The blue line denotes the extremes of the forces.
The brown line denotes the mid-range giving a clear view to the extent the industry is.

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19. Competitive Advantage

Analysis of the generic strategy and the supporting value chain, gives us a good insight into

sources of Wal-Mart’s competitive advantage. When two or more firms compete within the

same market, one firm possesses competitive advantage over its rivals when it earns a

persistently higher rate of profit (Grant, 2002).

Wal-Mart’s capability to outperform its rivals is achieved with its ability to outperform its

competitors quickly and effectively. Supporting this is its, highly integrated systems,

technological advances, highly efficient inventory management skills, few markdowns and

few stock-outs. This is supported also by its corporate culture encouraging and rewarding

initiative and innovation.

Wal-Mart’s achieves competencies from:

• Cross docking

• Supply chain management

• Communication strategy with suppliers and associates

• Relationship strategy with suppliers and associates

• People strategy

• Cost strategy

• Location and market strategy

• Ability and inspiration from Sam Walton

• Customer service strategy

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• Knowledge management

• Innovation in I.T. and warehousing and inventory management

Although an exhaustive list, Wal-Mart does achieve and maintain the above in proportions

unseen in its industry. Although they are imitateable, competitors have been unable to

replicate the entire series and sustain it.

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20. Core Competences

Prahalad and Hamel (1990) define core competences as the collective learning of the

organization, especially how to co-ordinate diverse production skills and integrate multiple

streams of technologies. The cumulative learning acquired with experience in an industry

enhances a firm’s competence (Hamilton, Eskin and Michaels, 1998).

Wal-Mart’s core competence can be said to be its knowledge achieved by its inventory

management skills with its supply chain management facilitated by its innovations like the

cross-docking techniques and its innovation in information technology and in relationship

strategy maintained with its customers, suppliers, and associates and its cost strategy

achieved with its scale of operations.

This passes the three tests whereby it’s providing added value to customers and is difficult for

competitors to imitate considering the scale of operations to achieve such economies and

provides access to wider markets.

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21. Sustainable Competitive Advantage

Wal-Mart’s sustainable competitive advantage can be attributed to its cost advantage

supported by its ‘inventory management skills and processes’ and expertise in ‘supply chain

management’ (which can not be replicated considering the scale of operations) and its culture

which promotes aggressive customer service and satisfaction through satisfied and happy

associates.

The ability to build and maintain relationships with its customers, suppliers, and its associates

and its speed in innovation and initiative ness is also a source of sustainable competitive

advantage.

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22. Kay’s Distinctive Capabilities

Kay (1993) explains distinctive competitive advantage in terms of distinctive capability.

Analysis of Wal-Mart’s distinctive capabilities includes the following:

22.1. Architecture

Wal-Mart’s internal architecture with its associates are phenomenal and the way it manages

its one million plus associates. Wal-Mart’s collegiate culture encourages innovation and

learning. Externally Wal-Mart enjoys a unique relationship with its suppliers who go to the

extent of locating their offices near Wal-Mart’s headquarters.

22.2. Reputation

Wal-Mart enjoys tremendous reputation in the industry for its standards and living up to

them. Wal-Mart’s ranking’s in the industry with its phenomenal growth and value for money.

It has also established itself as the lowest price retailer with the highly effective marketing of

the EDLP (Every Day Low Price) concept.

22.3. Innovation

Wal-Mart has a reputation for innovation with the formats of stores introduced and its ability

to replicate with adaptations to suit local markets. Innovations in technology by using VSAT

light years ahead of its times and its warehousing and cross-docking techniques are laudable.

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22.4. Strategic Asset

Although Sam Walton exists no more, he was a strategic asset and still is with his values

deeply imbibed within the company’s culture. Wal-Mart’s benefits from the brand it has it

has created and its market position strategy.

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23. Configuration and Co-ordination

23.1. Configuration

Wal-Mart’s configuration can said to be of ‘concentrated’, understanding its distribution and

warehousing facilities within the USA. The goods are sourced from within as well as

globally; with over $240 billion worth of goods to sell, the sourcing is not limited to one

country or a few countries alone. The main reason for sourcing externally is for cost

advantage. Although Wal-Mart doesn’t manufacture the products it retails, it retails its store

branded products which are sourced from private label manufactures. Most dry groceries and

clothing apart from hand made products are sourced from Asian countries.

As a case in point, Wal-Mart sources goods from China for more than 20 years with growth

every year. During the last fiscal year, Wal-Mart sourced about $10 billion in Chinese made

merchandise, directly from manufacturers in China and from other suppliers that source their

goods from China (World Bank, 2002).

Although the transport costs are usually marginally high, Wal-Mart undertakes its own

distribution and warehousing activities with its strong fleet of 2000 plus high end trucks

which have a turnaround in cycle time better than within the industry.

The complexities of the global value change differ from the traditional value chain.

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23.2. Co-ordination

Co-ordination involves sharing information, allocating responsibility and aligning efforts

(Porter, 1990). Wal-Mart couldn’t have been more successful if it didn’t fulfil this. Wal-Mart

realized in its early years, the ultimate source of its competitive advantage of cost can only be

supplemented and supported by the effective co-ordination of its value chain activities.

Technological advances were done light years ahead of its time. Unattributable sources, part

of the industries talk is, Wal-Mart has more technology capabilities in its head-office than

NASA. Wal-Mart has linked all its stores globally with VSAT technology which relays sales

and product and any other information tracked by its systems to its head-office. This helps it

source the right product at the right time to the right place helping minimize excess inventory

apart from having the most ideal scenario of real time information. Sounds more like Sci-fi

but Wal-Mart has state of the art technologies in place supporting the co-ordination of its

activities.

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24. Pressures for Co-ordination and Integration

Pressures for co-ordination and integration are need for cost reduction and real time

information apart from the need for optimum responsiveness to changes in the market,

globally. Presence of multinational competitors is also key.

Pressure for local responsiveness is the differences in customer’s needs and preferences apart

from the cultural diversity to be taken into account. The shopping habits and lifestyles of the

customers make a total difference. In USA, customers buy in bulk to save costs apart from

time, although this sound ideal to any value conscious customer, in Asian countries,

consumers have limited credit means and purchases are made on a need basis and more

frequently with financial constraints to be accounted for. Even small factors like storage

facilities in Asian countries are a limiting factor. Host government like in China place a lot of

restrictions and demands like timing and employee benefits and in Germany, price has to be

maintained for 2 months to be declared lowest price. Distribution channels are not very

reliable in many countries and need for local responsiveness arises with such instances.

Analyzing the co-ordination and configuration activities of Wal-Mart using Porters (1990)

framework, shows us Wal-Mart has a global strategy with the high co-ordination of activities

with its configuration geographically concentrated.

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25. Dicken’s Framework

The Dicken’s (1998) four production strategies is not illustrated as it’s a framework highly

suited for manufacturing based organizations eliminating its application for a non-

manufacturing company like Wal-Mart.

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26. Transnational Model

A transnational strategy combines global and local strategy features in order to gain

competitive advantage according to the indications of globalisation driver analysis

(Stonehouse, et. al., 2000). Analysis of Wal-Mart applied with the transnational model

framework reveals us the true picture of Wal-Mart (Figure 26.1.).

Considering the changes in the macro-environment and the globalisation drivers, we can

understand the following pressures for globalisation and localisation. There are strong

globalisation forces with the concentration key value adding activities and the emergence and

presence of global brands and advertising. Centralised decision making and global sourcing

also add to the pressures of globalisation.

Acting on the localisation force which is significantly weaker compared to the globalisation

forces are the local variations to the marketing strategy and local product variations. Both

signify the importance of localisation despite the globalization of markets.

The global core competence / distinctive capability, global generic strategy, integration and

co-ordination of global activities, differentiated architecture and participation in key markets

are all elements of Wal-Mart’s global strategy.

On the basis of the Transnational Model, Wal-Mart appears to be a transnational company.

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Figure 26.1.: Wal-Mart’s Transnational Strategy

Global Strategy Options Local Strategy Options

Transnational Strategy

Source: Transnational model adapted from Stonehouse, et. al., 2002.

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27. CONCLUSION

Wal-Mart considering its scale and scope of operations has given a dynamic perspective in

analysis of the many frameworks analyzed with. Strategists like Govindrajan and Gupta, who

specialize in globalisation, endorse and acknowledge Wal-Mart as a global organization and

highly lauding Ironically, Rugman, argues, Wal-Mart as a regional player with regional

strategy considering that Wal-Mart has only 9.6% of its stores outside its home region and

only 16.3% of revenue is generated from stores outside its home country.

Again considering classification such as the NAFTA and the TRIAD, large economies

(Countries) are clubbed together and treated as one which the author disagrees to justify 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.

Analysis using Yip’s Globalisation / Localisation Drivers shows the industry and Wal-Mart

in general moving towards globalisation but yet maintaining key aspects to localisation. This

could be the way ahead. The Transnational Model illustrates the same key aspect. Marketing

strategy and product variation though it can be global, it needs to be tuned to the local market

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catered considering the emergence of localisation preference in consumers. The market has

gone too global, that consumers place an emphasis of localisation.

The author concludes this paper, with scepticism if Wal-Mart is truly a transnational

organization as yet even though most of the analysis favour in that direction.

Acknowledgements are made that the industry is maturing far greater than

Internationalisation but it’s yet to be seen as a global player. But it’s a matter of time before it

expands it to new markets and creates a foothold.

The correlation of the fable used in the beginning of the report, ‘The blind men and the

elephant’, is to exemplify the understanding of globalisation and transnational as yet with

strategists each looking at different paradigms, though this would settle in due course, before

there emerges yet another classification and extension, which time has always witnessed and

will witness.

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28. Limitations of Report

This report tries to emphasize the firm’s global / transnational strategy in accordance to the

global drivers. It has to be taken into account that the subject of discussion is still evolving

and emerging and can be highly disputed.

This report is limited to the fact with considerations to time and information available on the

subject of discussion, apart from the limitation set by the word limit prescribed for this report

and tries to briefly touch upon the most important analysis.

The author tries to emphasize on theoretical knowledge and empirical research and data

already available on the subject of discussion.

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Appendix 1: Wal-Mart Income Statement

Particulars 1998 1999 2000 2001 2002


Net Sales 117958 137634 165013 191329 217800
Net Sales Increase 12% 17% 20% 16% 14%
Other Income 1341 1574 1796 1966 2013
Cost of Sales 93438 108725 129664 150255 171562
Operating, Selling, General & Administrative
Expenses 19358 22363 27040 31550 36173
Net Income 3526 4430 5576 6295 6671

Source: Adapted from Wal-Mart Annual Report 2002; Yoffie and Wang, 2002.

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Appendix 2: Wal-Mart Balance Sheet

Particulars 1998 1999 2000 2001 2002


Current Assets 19352 21132 24356 26555 28170
Total Assets 45384 49996 70349 78130 83375
Current Liabilities 14460 16762 25803 28949 27173
Shareholder's Equity 18503 21112 25834 31343 35102

Source: Adapted from Wal-Mart Annual Report 2002; Yoffie and Wang, 2002.

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Appendix 3: Growth Rate Analysis (%)

Particulars 1998 1999 2000 2001 2002


Net Sales Growth 12.5 16.7 19.9 15.9 13.8
Net Income Growth 15.4 25.6 25.9 12.9 6.0
Total Assets Growth 14.6 10.2 40.7 11.1 6.7
Equity Growth 7.9 14.1 22.4 21.3 12.0

Source: Adapted from Wal-Mart Annual Report 2002; Yoffie and Wang, 2002.

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Appendix 4: Wal-Mart Store Details

Particulars 1998 1999 2000 2001 2002


Number of Domestic Discount Stores 1921 1869 1081 1736 1647
Number of Domestic Supercenters 441 564 721 888 1066
Number of Domestic Sam's Club Stores 443 451 462 475 500
Number of Neighborhood Markets 0 0 7 19 31
Number of International Stores 601 715 1004 1071 1170
Average Wal-Mart Store Size (sq.ft.) 93400 94300 108383 111543 116795
Net Domestic Square Footage (millions) 313.2 333.1 358 386.9 417.8
Net Sales Per Square Foot $348 $413 $373 $384 $403
Gross Margin 20.80% 21.00% 21.40% 21.50% 21.20%
Associates (Employees) 825000 910000 1140000 1244000 1383000

Source: Adapted from Wal-Mart Annual Report 2002; Yoffie and Wang, 2002.

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Appendix 5: Wal-Mart International Store Details

Total No. of SAMS Date of


Stores Supercenters CLUBS Market Entry
Puerto Rico 17 0 7 Aug-92
Mexico 551 63 46 Sep-93
Canada 196 0 0 Mar-94
Argentina 11 11 0 Nov-95
Brazil 22 12 8 Nov-95
China 19 16 2 Aug-96
Germany 95 0 0 Aug-97
South Korea 9 0 0 Jul-98
United Kingdom 250 0 0 Jul-99

Source: Adapted from Wal-Mart Annual Report 2002; Yoffie and Wang, 2002.

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Appendix 6: Photographs of Wal-Mart Stores

Source: Wal-Mart Annual Report 2002.

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Analysis and Evaluation of Wal-Mart’s Global / Transnational Strategy

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31. Declaration

Wal-Mart in this report represents Wal-Mart Stores, Inc.

The word count does not include Tables, Figures, Graphs, Appendices, Headers, Images, and

anything discussed in brackets. The Executive Summary, Limitations of Report, References,

Bibliography and the Declaration do not constitute part of the word limit.

The word count in the main text excluding the aforementioned points is 5117 words.

Report style has been adopted for presentation as per guideline and attempt has been made to

maintain the different parts and tasks as distinctive as possible but yet linking key elements

together to avoid repetition and to communicate the significance.

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Analysis and Evaluation of Wal-Mart’s Global / Transnational Strategy

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