How has the implementation of NAFTA affected Wal-Mart’s success in Mexico? Free trade zone: Wal-Mart encountered a problem that its imports charges on many of the goods from America. Thus prevent Wal-Mart from being able to offer its “Every Day Low Prices”. After the implementation of NAFTA, Mexico, U.S and Canada become free trade zone. Wal-Mart can reduce the tariffs on American goods sold to Mexico from 10 percent to 3percent.
That can decrease their cost for the products. Solve logistical problem: The transportation of Mexico is really poor. The poor road and scarcity of delivery trucks contribute to the high logistics cost. However, the implementation of NAFTA solves the problem. Because NAFTA encourages Mexico to improve its transportation infrastructure, the logistical cost becomes lower.
Reduce the human cost: The signing of NAFTA opens the gates wider to foreign investment in Mexico. Wal-Mart builds manufacturing plants in Mexico because of the cheap labors. As companies began to build manufacturing plants in Mexico, Wal-Mart can buy these products without paying the high import tariffs. To sum up, lower human cost makes lower import tariffs and thus leads to cheaper products. Therefore, Wal-Mart is really success in Mexico.
How much of Wal-Mart’s success is due to NAFTA, and how much is due to Wal-Mart’s inherent competitive strategy? In other words, could any other North American retailer have the same success in Mexico post-NAFTA, or is Wal-Mart a special case? The reasons lead to the success is not only the implementation of NAFTA, but also the competitive strategy. NAFTA can solve the difficulties Wal-Mart facing, but Wal-Mart has its own superiority. It can keep every day low price. The following points result in its lower price. Larger negotiating power:
Wal-Mart can lower its cost by negotiating with suppliers to drop prices, because it can buy the sheer size and volume of purchases. Wal-Mart is a worldwide business and it has high market shares. Therefore, it has to import high volume of products. Advanced information system: The system informs suppliers when purchases have been made and when Wal-Mart will be ordering more merchandise. The system provides accurate customer demanding to every retailer. Suppliers can then plan production runs more accurately, thus reduce production costs.
Distribution system: It builds super warehouses known as Distribution Centers in central locations that receive the majority of merchandise sold in Wal-Mart stores. It sorts and moves the merchandise via a complex system of bar codes. The central distribution center helps Wal-Mart to negotiate lower prices with its suppliers because of the large purchasing volume. REFID: According to the website of Wal-Mart, it develops a new system called REFID. It can stock with goods more quickly, and track the stocks automatically and immediately. Therefore, the human cost will be reduced.
What has Comerci done in its attempt to remain competitive? What are the advantages and challenges of such a strategy, and how effective do you think it will be? In order to have more negotiating power, Comerci band with two other struggling homegrown supermarket chains, Soriana and Gigante, to form a purchasing consortium named Sinergia. Sinergia faced huge challenges. At first, CoFeCo and Consumer Product Council of Mexico rejected the Sinergia. They feared that Sinergia would use its purchasing power to force unreasonably low prices on supplier.
As a representative body with no assets, Sinergia’s purchases are currently limited to only local suppliers. As for the advantages, the local corporation can improve the sense of cultural identification.
Because the three companies originate from the Mexico, the local residents will prefer to choose things in Sinergia for the similar products. In addition, they understand the local people demand more, so they can reduce their cost or develop more potential products. We think it’s not really effective for the cooperation. First, because of the resistance of CoFeCo and Consumer Product Council of Mexico, their purchasing deciding power is limited. On the other hand, there are many problems because of the cooperation. They have to plan more carefully for the consortium.
What else do you think Comerci Mexicana S.A. should do, given the competitive position of Wal-Mart? Because it’s hard for Comerci to lower its price as Wal-Mart, we think they should focus more on differentiate itself
from Wal-Mart. It can find different class of customers. They can improve their brand image. For example, they can provide some special services. Besides, they can change their decoration of stores or business logo.