Wal-mart was founded by sam Walton in 1962. The idea behind was to bring discount shopping stores to rural America. It grew rapidly with huge popularity. Today it has 3708 Wal-mart U. S. Units, 569 U.S. Sam’s Club and 4112 International units. It toppled GE and became No.1 in Fortune 500 Company list with annual revenue of 405 Billion USD and employs about 2 million associates. It has presence in multiple sectors across retail industry like grocery, Auto, Pharmacy, Jewelry, Clothes, electronics, books etc. Let’s consider strategies in place and changes during last 25 years of Wal-mart. Mission: We save people Money so they can live better. Deliver Quality products at lowest possible price. Values and Culture:
In my opinion Wal-mart’s values are keys to its sustainable success. Here are some key values and words about company culture. * Respect to individual.* Open door. Listen to customers and associates.* Give best service to customer.* 10-Foot Rule – greet and ask for help to customer within 10 foot of distance. * Sundown Rule – Combine efforts to answer to any requests or resolve any complain by end of business day. * Leaders are also servants.
Many of these values helped Wal-mart developing two important feedback loop for any organization, which drive for constant improvement, are Internal and external Feedback. Strategy:Let’s analyze five elements of strategy diamond to understand how placed Wal-mart itself in this industry and became global player.
Areas: Wal-mart has decided to compete in retail segment keeping in mind to be one stop place for customers. Wal-mart made rural area as their business places. This in long run helped them to lock out competitors, helped Wal-mart to use as entry barrier. Customers can get almost everything they want from one place saves time and money both. It decided to have its own distribution network. Use of technology was and is a big helping factor for Wal-mart. It employed computer system back during 1970s and still reaping benefits of having excessive amount of data available. Wal-mart pushed retailed industry to have universal bar-codes.
With bar code tracking of products became easy. Data derived from these technologies was used to plan stores, products to be sold, inventory management etc. In turn, it helped Wal-mart developing thin, effective supply chain and as a result ensured lowest prices for consumers. Recently, Wal-mart implemented RFID technology in some of its stores. The outcome of experience over 8 months was reduction of out-of-stock merchandises by 16%. This technology helped in serving customers better and saved cost. Vehicles:
Wal-mart developed all its stores as organic development meaning it developed by its own in USA. However, this has changed since Wal-mart decided to go International during 1990s. They widely used Joint-Ventures and acquisitions as their vehicles. By choosing these vehicles that they have shortened learning curve to understand local trends, needs. However, this road has been with lots of obstacles for Wal-mart and they have closed operations in Germany in year 2006.
Differentiators:Key differentiators of Wal-mart from other stores are as below * One stop shops by offering wide range of products.* Lowest possible cost every possible day.
* IT system for inventory handling and logistics management. * Better Customer Handling and response.* Designed Sam’s club for small retailers who buys in bulk. Staging:
Wal-mart has been smart in planning and entering into new market places. It has delayed international market for long to focus and capture home market first. Later on it moved huge untapped international market which is source of Wal-mart’s further growth. Here also it expanded country by country and leveraged learnings. Recently, it decided move to international markets starting with closet countries like Maxico, Canada, Puerto Rico etc. It has used brand, learnings, technology to other markets. This has huge impact on company’s structure, ways of working. As said earlier, Wal-mart used joint ventures, mergers and acquisitions. Creating positive synergies between both companies, aligning work cultures, processes and tools are major challenges.
Wal-mart allowed international operations to be local. They used knowledge of their partners, alliances at the same time ensured that Wal-mart’s basic values are present. They had exchange program in place where people from different geographic location worked at other location. This improved learning and made sure that Wal-mart’s culture and values are preserved while customizing value chain to local demands. Today, Wal-mart Internation business is earning 100 billion yearly. However, it took almost 7 years before it got profitable for Wal-mart. Also, there have been sat-backs in Russia and Germany. Wal-mart in India has also not grown much. Economic Logic:
Wal-mart has three pillars which helped Wal-mart to be profitable business. * Low cost always.* Use technology and drive for efficient operations.* Strong Corporate culture.Wal-mart earns its profit because of volume of sales on low cost products. It achieved economies of scale and scope both. It purchased products from low cost countries. The aim was to have low cost products at acceptable quality. Wal-mart emphasized on cost and quality over brand. It negotiated tough with suppliers and asked them to reduce prices cumulatively every year. Wal-mart never emphasized on brand product but it rather focused on product which delivers value at low cost. It keeps the cost down by use of latest technology and careful planning of its inventories, logistics and decision about which products make to shelves.
Early use of computers, barcodes and recently using RFID is telling about how keep the giant is to use technology for efficient operations. Corporate culture created based on values mentioned above has contributed significantly as cost advantage due to waste reduction at every stage of operation. It also spends lots of money for employee training. Recently, company has taken up “sustainability program”- an initiative to address their social responsibility towards environment. Wal-mart has taken two fold approach, it is driving initiative internally as well as externally.
Wal-mart has over 100,000 suppliers. It is in a position to influence them to produce more environment friendly products and in turn many industries as across the lines. Wal-mart is driving this initiative in a way that it not only addresses environmental issues but also helps improving business efficiencies, saves cost. Another strategic move is online store of Wal-mart in USA. It offers wide range of products and consumers has choice to get the product delivered at desired store location or home delivery. Delivery on stores is free and customers can pick up items from stores once notified. Wal-mart at present:
Wal-mart’s international operations have grown extremely big. They have operations over 14 countries outside of USA and have 600,000 employees working outside USA. It is complex to evaluate present strategic position of such a huge organization with 2 million employees and operations across many continents. Its strategy is to Grow, Leverage and Return.
Retail industry is in mature state in many developed countries like UK, Germany, France, Japan and whole USA. But it is at growth stage in many developing nations like India, China, Brazil, South Africa, Russia, South Korea and so on. It is visible that Wal-mart has tried and much extend succeeded to achieve minimized risk by balancing expansion between mature and growth markets. It has employed transitional strategy ever since it started global expansion. It has three main attributes, * Local Responsiveness.
* Use of Brand, tools and buying power globally.* Utilize worldwide learning effectively.Local Responsiveness plays key role to success as distance covered increases in terms of administrative, cultural, geographic and economic differences. CAGE framework is an important tool for Wal-mart to decide which market to be penetrated next and which vehicles to use based on distance travelled. If distance covered is greater than joint venture or acquisition could be a good entry vehicle instead of organic growth all by itself.
However, this tool needs to be used specifically for each country by entering local parameters with respect to Wal-mart. In few countries like Canada Wal-mart bought local retailer and expanded on existing base. The growth was more of organic growth later on. In Brazil it chose a local retailer as partner. In China, Wal-mart started alone but later formed Joint Venture with China International Trust and Investment Corporation as opportunity presented, to open stores in eastern China.
Use of Wal-mart as a brand and use its basic value and process framework is important for a local unit so that it can be part of Wal-mart Global operations. Wal-mart also encourages employees to switch work between different geographies. This helps in sharing learning and creating synergies between different geographies. Also, its buying power and supplier relations can be used as a benefit to local operations. Utilizing knowledge from one market to another market is important. For example, knowledge acquired of space utilization and planning of store in highly populated cities of China can be used in India since big metro cities of both countries has same problems.
Moreover, Wal-mart already posses great knowledge base from US operations about retailing, logistics, it already has established itself as global brand, it has its own tools, systems, processes and strong relations with suppliers. All of this can be leveraged to expand in other countries and can be tailored to local needs. Since it is a global company we need to look at both PESTEL Analysis and Porter’s five force model. Porter’s Five Forces is a perfect tool to analyze Retail Industry and competitive positioning of Wal-mart. Rivalry:
Wal-mart has gained significant advantage over its competition. There is no single arch rival for Wal-mart like Pepsi and Coca-Cola. But different competitors are threat to Wal-mart in different markets. Some of them are international retailers. For example, Carrrefour in France and Brazil, Metro in Germany and Makro Netherland, etc. are competing with Wal-mart in international markets. Moreover, Local Retail chains also present huge challenges to Wal-mart like Reliance and Big Bazzar in India. This attribute today presents low to medium risk for Wal-mart depending upon local market while considering Wal-mart size, supplier relations and Global learnings. Power of Suppliers:
Wal-mart has as many as 200 million customers each week worldwide in 15 countries. This huge demand gives power to Wal-mart to negotiate with suppliers very hard. Suppliers will get benefits of economies of scale. Moreover, in retail industry there is very little element of monopoly in any product segment. Wal-mart has as many as 100,000 suppliers. Given this Bargain power of suppliers is very low. Power of Buyers:
Buyers have lots of options in terms of where they will buy product from.They have very low switching cost. Even though, Wal-mart has tried to add some switching cost by having membership schemes. But this alone cann’t prevent customer switching. Buyers are always looking out for lowest possible price available. Today, with spread of internet buyers have become more informed and they have lot more options to buy from. Hence, Wal-mart has clear advantage. Threat of substitutes:
Low cost model can be copied by other retailers as well. Product discounting can be done any other retailer as well. There are many other retailers are selling same products as Wal-mart. Hence this is very high threat for Wal-mart and it needs to be at its toe to keep prices down. Threat of new comer:
Entry for newcomer is difficult since investment needs to be high and they will not have bargain power of Wal-mart with suppliers. Hence, competing against giant like Wal-mart is difficult. So this very less likely threat for Wal-mart. Looking at above five forces analysis Wal-mart is holding quite strong and advantageous position in retail industry. External Environment and Wal-mart:
PESTEL is acronym of Political, Economic, Socio cultural, Technological, Environmental and Legal aspects in which firm is operating. These elements have an impact on firm’s operations as well as strategic decisions due to opportunities and threats. Wal-mart has operations in many countries factor like Political, Economy, Culture and social trends and Legal aspects varies from country to country. Political:
Trade agreements between countries and also regulation put by government has impact for Wal-mart in selection of new market to expand. Stable government is good for businesses and consumers. Tax policies and other regulations on trade will not change frequently under same government. Political stability will have positive impact on consumer confidence and spending. For example, Wal-mart was impacted due to unstable government in Argentina and put its plans of expansion in Argentina on hold for a while. Economic:
Countries economic state has an impact on Wal-mart’s operations. Current and future projected interest rate, inflation percentage, local employment level and availability of trained labor and credit, GDP growth and exchange rate will impact not only on operations but also on profitability of Wal-mart. For Example, during 1999, Wal-mart in Brazil was dependent on imported good since it did not have employees who can speak local language and handle local suppliers. This dependency became problem for Wal-mart when central bank of Brazil decided to devalue the currency. On the other hand, low interest rates and easily available credit in USA stimulates growth of Wal-mart. Socio-cultural trends:
This is a deciding factor for what products to be sold in stores, what should be layout, how consumers should be treated. Aging and birth rate will also impacts on variety and quality of products makes it to shelves. Wal-mart does adapt to local trends, needs and culture. For example, Wal-mart China has adapted to Chinese concept of “Fresh” meaning “live” with tanks containing live fish, snakes and frogs. Techonological:
As recent technological change, internet is becoming popular. Wal-mart started selling product online via its website. To support online store Wal-mart need to adapt some aspects of its supply chain. Like logistics, Order handling and tracking tools needs to be deployed, stores needs to be prepared for handling goods arrived for pick-up. Staff needs to be recruited and trained. At strategic Implementation level it requires change in organization structure, pricing and return policy, IT infrastructure. It will have impact on cash conversion cycle, customer support organization needs to be setup. Emphasis on support and services to consumer will increase. Environment:
More and more governments and consumers are concerned about environmental issues. Many governments want to cut on green house gas emissions, energy. They also want to use recyclable materials. Consumers are demanding ecological and green products. As described, Wal-mart has already started taking steps into this direction. It also adjusted its reward system for employees to encourage working on this initiative. Final Outcome of this initiative is not fully measurable since it will be accomplished in coming years. Wal-mart is expected to cut 20 million metric tons of green house gas from its supply chain in next 5 years. Eventually, Wal-mart wants to see following outcome, * Fully supplied by renewable energy sources.
* To create zero waste.* To sell products those sustain people and environment.This will bring changes at all level in company and almost every process. For example, to achieve green house gas emission target, one of the break down target is to improve truck fleet efficiency by 60%. Legal:
Wal-mart needs to adapt to local consumer laws. Also, some countries have entry barrier meaning without partnership with local company it is not allowed to carry out operations. Wal-mart has collaborated with Bharti Enterprise in India to meet such requirement. This will have positive impact on both firms. Wal-mart will gain knowledge about local requirements, trends, political structure and contacts from Bharti.
On the other hand, Bharti will gain access to framework, tools, brand, learnings and buying power of Wal-mart which are essential for success in untapped Indian market. As a part of international expansion strategy, Wal-mart expanded country by country. It realized that it is necessary to adapt to local conditions since differences will be huge based on CAGE and PESTEL Analysis.
As a response Wal-mart changed its corporate structure to multi-divisions, Wal-mart stores(US), supercenters, Sam’s club, Wal-mart International. The structure fits well with company operations and complexity of operations. Each division has clear goals and empowered to tailor framework and tools to their unique need. Wal-mart redesigned jobs and put up schemes for job rotation to ensure that learnings are shared across divisions. For example, pricing strategy of one store is visible to another. Next Generation Wal-mart:
SWOT Analysis is good tool to plan and build strategies for organization. Below is SWOT analysis for Wal-mart based on current positioning. Strengths:* Strong organization culture.* High Customer focus.* Supplier network and relations.* Huge amount of information available in IT system and Capability to utilize available data. * Tremendous amount of experience and learnings in retail sector. * Globally recognized brand.
* Economies of scale achieved, it gives huge buying power to negotiate lowest prices with suppliers. * Financial Resources and trained Human Resources are accessible. Trained Human Resources can be useful to train next batch of new hires. Weaknesses
* Slow online expansion.* Not able to adapt to local needs quick enough at times. Example, failure in Germany. * Slow international expansion.* Lack of Online presence outside USA.* Lack of branded items available in stores.Opportunities:I believe following three major areas of future will make next generation of Wal-mart. Each of this defines some areas and characteristics which need to be addressed by Wal-mart for growth, sustainability and improvement going forward. * According to United Nationals world’s population will grow by at least a billion people in next 20 years. Asia will lead the population growth. Wal-mart being a global company will be benefited due to raise in absolute number of consumers. However, to address and capture part of these consumers, Wal-mart needs to plan its supply chain to meet increased demands. It needs to have right products at stores located at best possible locations. *
It is being seen that world is making a transition in technology meaning that during late 1990s and early 2000, it was internet from PCs. But it is going to be accessible internet from everywhere and becomes “Internet at Hands”. In some countries it is a reality. New segment of products called connected devices, mobile phones, tablets, e-book readers, photo frames, cameras, health devices, shopping, trading etc.will be connected over internet.
Some of these are already connected to internet. However, the point is in future people will use these devices extensively for not only for information but also for purchasing. * Sustainability meaning environment. Products which are environment friendly will be accepted by government and consumers both. Stores needs to be environmental friendly as well. * Growing middle class population in developing countries. Threats:
* Local Retailers who have captured market and has better understanding of local trends, culture and needs. Also has good supply chain already in place. * Global Retailers like Carrefour, target, Makro etc. can capture market share in untapped markets and imitate strategy of low price. * Bad publicity in media.
* Keep up the pace with changing environment and implementing change might be difficult for corporation size of Wal-mart. * Preserving basic values will be difficult as Wal-mart become Global player who tailor its operations to given national trends, heritage, needs and laws. * Low consumer loyalty. Consumer will have access to information about best possible deal available in market. If Wal-mart fails to keep promise resulting decrease in sales. Recommendations
Given above SWOT analysis, here are some recommendations for Wal-mart for sustainable future growth. * Invest in assets like land and buildings at critical growth locations where population growth and economic growth is expected. * Improve on supply chain and rely on local suppliers.
This gives more benefits to consumers and avoids lots of financial risks like Currency devaluation. * Indentify potential leaders and invest in training to prepare next generation leaders. * Plan and adapt logistics to local needs. Work with local suppliers, when needed provide support and training for latest technology. Like farmers in developing country may not have all technology available to them. * Develop local brands with which people can attach themselves immediately.
Like seiyu in Japan. * Wal-mart has started selling products online but it is still a small part of business. There is need for expansion of online business model in international markets as well. Many small countries which are developed and have huge number of internet users can be reached by online retailing. Nordic countries are example of it. Most Cities in Nordic country are not big enough for Wal-mart economies of scale. Moreover, labor costs are high.
But these countries has huge internet base. Online services can be used by Wal-mart to tap this market along with small neighborhood market concept. Wal-mart can have huge warehouse in low cost European country like Poland from where it can ship products to Nordic countries. European Union is free trade market so Wal-mart will be benefited by lower taxes as well. Metro cities in countries like India and China where shopping is tiring experience due to travel time in city, traffic conditions, crowded shop floor, online retailing is attractive option for consumers. Wal-mart should try to address this segment as well. *
Moreover, Wal-mart online store application for mobile devices should be developed. This application will enable users to shop using mobile phones, e-book readers like iPAD, Galaxy Tab etc. * Prepare for support and services for online and mobile customers. Explore opportunities to outsource to low cost countries like India to save cost. * Wal-mart needs to improve its current infrastructure and invest in upcoming technologies to retail and increase its market share. It also needs to understand needs of products and support as well as behavior new kind of consumers segment which is internet consumers. *
Keep an eye on Near Field Communication technology in mobile phones. Meaning phone will be used as payment gateway. Once it reaches to maturity implement it into stores using special terminals. It can increase efficiency of customer handling. * Use facebook, twiter like social networking website for free of cost marketing campaigns and promotional tools. Also, clarify rumors, bad publicity due to altered or misunderstood information. *
Work with suppliers for environmental issues. Develop relations and enable farmers with tools for organic farming. Also with other manufacturer to develop product sustainability index. This is very important since there is growing concern in consumers as well as governments across the globe on environment. This actually is an opportunity for organization side of Wal-mart to drive for innovation. With innovative environmental friendly ways, money can be saved while serving customers with eco-friendly, recyclable products. * Apply BCG model to decide which market should be of focus. Allocate resources accordingly. Move into emerging markets (stars) quickly since there is local competition which is growing stronger and eventually be difficult to surpass.
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