We assume you have already been familiar with Walmart‘s sources of competitive advantage in other classes or references. Could you summarize Walmart’s competitive advantages in U.S. and its business model? We have studied before the supply chain of Walmart and how it led the success in America. We believe Walmart’s success accounts its greatest portion for its excellent operational management, which is in other sense its competitive advantage.
First of all, the business strategy of Walmart is “Every Day Low Price (EDLP strategy)”, which attracts customers by offering the products with the lowest price. Its fuctional strategies are exceptionally well-aligned to EDLP. Thus their strategies are strategically fit.
In terms of the supply chain, Walmart shows an efficient supply chain. It has relatively little variety of products (less customized), longer production lead-times, high set-up costs, and larger batch sizes that allow the firms to supply at a low unit cost. The six major drivers (facility, inventory, transportation, information, sourcing, and pricing) and their roles are also critical in creating this characteristic. For instance, Walmart has purchased and been operating its own logistics system (transportation driver), and could take advantages in terms of inventory costs. All the supply chain factors of Walmart mesh perfectly well together to lower its supply costs and thus enable the EDLP strategy.
Evaluate Walmart’s globalization strategy over the last two decades. Where did Walmart struggle? Where did it do well? Can location characteristics explain the differences in Walmart performance? What are the location characteristics that affect its performance? Our team has summarized whether Walmart has struggled or succeeded in different countries (we scored them in a 5 points scale), and the characteristics of these locations on the table below. Some explanations are also followed by.
Mexico 5 Used Mexican center and brought EDLP strategy into the country
NAFTA helped the extension
Cheap labor force was available
Qucikly changed mistake
Retained former employees
Acquired poorly managed company
Similar to Walmart’s US stores but differentiated
W/O local partner
Expanded using smaller stores; similar with Mexico and
Used US-based format
Slow to adapt to local tastes in Brazil
Covered up both northeastern and southern part
Launched middle market targeted middle class
Urban intensive life
Missed target positioning
Acquired poor chains
Price oriented tough competition and customers’ high
loyalty on existing market
Suppliers’ strong loyalty on existing competitors
Strict regulation on pricing and location
Strong influential labor union
Cultural difference in consumers opposed to U.S.
Valued luxurious image
Customer focused on different values
UK 5 Acquired retailers that had similar business model to U.S.
Unsuitable starategy (Low Price with Low Quality)
Acquired major retailer
Allowing store’s local identity
Acquired successful domestic payer
Local partner has similar customer and operations to U.S.
Local partner’s other business entice customers
Operated under Massmart
Lack of infrastructure
Corrupted governmentHence, we believe the locations’ distinctive social cultures (market, orgnizational,consuming behaviors), geographical features (residential), political factors (regulations, trading barriers), and other retail industry status all affected the performance of Walmart.
What are your team’s recommendation to a company which is researching any global operations in the retail industry?
Our recommendations to global operations in the retail industry are shown below in regarding to the four location characteristics that affected the performance of Walmart.
Consuming and organizational behaviors differ greatly. It is hence highly recommended to deploy a thorough research on the consumption patterns, and hire local employees. (ref. German case) Geographical
Population density and accessibility must all be considered.Industries should be located in the areas within the local customers interest, and with high accessibility to distribution systems and infrastructure.
Local regulations and international agreements affect operation and management. It must be checked whether international treaties and local regulation are favorable to entry and operation. (ref. Mexico case)
If the industry status is similar to that of domestic market, it could possibly retain its core competencies by acquiring similar companies. (ref. UK case) If not, the best option seems to be acquiring a local network or company with high performance records.