Walmart’s competitive advantage

Walmart’s main competitive advantage is that they focus on being the industry leader in several key areas. Walmart focused on maintaining high employee morale, judging exactly how far they can push suppliers to force discounts, cutting edge management information systems, and masterfully planning their logistics chain to minimize cost by maximizing volume shipping are key competencies.

Maintaining high morale while keeping compensation at low levels is a great benefit in managing costs. Walmart strong corporate culture recognizes employees for achievement, is honest about compensation and has a strong tendency to promote to management from the associate rank and file. Walmart does have a high turn-over rate with associates. However, in my opinion the personnel react in similar ways as do personnel inducted into the military.

Most soldiers receive low pay, but are enmeshed in the military’s “espirit de corp”, slow but steady pay increase, and job security. I believe Walmart follows the same philosophy, and its recruitment base demographics is very similar to the militaries. A key advantage is that Walmart employees are not sent into life threatening situations (except for the possible exception of black Friday).

Walmart is not afraid to send clear messages to their workers about forming worker’s unions. When Walmart’s meat cutters agreed to form a union Walmart immediately out sourced meat selection. Likewise any store that voted to unionize would likely be closed immediately.

 Their distribution centers are strategically located to cover large areas and can service from central distribution centers strategically located to service large areas. Walmart basically invented the concept of using automated systems to integrate their suppliers, warehouses, and retail stores to enable just-in-time ordering which reduces the amount of stock on hand significantly lowering money tied up in inventory and material handling charges Sustainable advantage

Walmart’s competitors have attempted to duplicate Walmart’s business model and have nibbled away at Walmart’s large lead in competitive advantages to varying degrees of success. Other large retailers have open large discount center, create efficient supply chains, located stores in similar demographic areas. However, I believe that Walmart’s growth has been slowed more by its sheer size than by their competitor’s efforts. Corporation may have an upper limit in size where they become unwieldy and can’t respond effectively to the market.

I believe that Walmart’s competitive advantages will substantially remain unchallenged by their current competitors. Walmart large lead will remain even as their historic competitors gain ground-their lead is too great. Where I think their main business danger will develop in the medium to long term is in the emerging markets. These markets still have government protection for domestic markets.

Implementation of overly protective measures usually hobble native sources and reduce a country’s standard of living relative to the rest of the world and often hobbles domestics markets. Protectionism in Argentina reduced their economy from 8th largest in the world during the late forties to not even making the top 50 in 2013,

Where there seems to have been a paradigm shift is nations are encouraging local and regional competition in order to develop their own versions of the developed world heavyweights. China 10-15 years ago did not have giant retailers and transnational corporations as have now developed or are in the process of developing into transnational companies. Walmart’s greatest completion in the post 2020 may be Africa or Asian based.

How transferable is the advantage to:

NEW FORMATS

Walmart has been able to graft their corporate culture into new formats-as long as these formats don’t stray from their original model. They had remarkable success by incorporating groceries into their business model. An effort to merely increase the traffic flow through their stores developed into a major profit center for them. They have some successes by trying to adapt their advantages to smaller sized stores. However, people have developed certain expectation about their Walmart experience.

Smaller is a hard sell, and opens the door to the same inefficiencies other stores content with, e.g. partial truck loads. They have not had the same advantages in on-line selling. Notability, the founders of Amazon all worked for Walmart’s e-commerce division before founding Amazon.

INTERNATIONAL OPERATIONS

THE INTERNATIONAL MARKET HAS OFTEN PROVED TO BE A TOUGH NUT FOR WALMART TO CRACK. WALMART HAS HAD SOME SUCCESS BY BUYING SIMILAR RETAILERS IN THE NATIVE MARKET. HOWEVER, DIERENT CULTURAL VALUES, LEGISLATION, TRANSPORTATION NETWORKS AND SO FORTH HAVE SLOWED WALMART GROWTH OVERSEAS. A NOTABLE EXAMPLE IS GERMANY. THE AUTHOR LIVED IN GERMANY FOR MOST OF THE 1990’S AND I SAW SEVERAL GERMAN CHAINS ATTEMPT TO REPLICATE WALMART’S LEAD.

THEY WERE ABLE TO ACHIEVE SOME SUCCESS BUT NOT TO THE LEVEL OF THAT WALMART ACHIEVED IN THE UNITED STATES. AN EXAMPLE OF A BARRIER CONCERNS BUSINESS HOURS. UP UNTIL THE MID-1990S GERMAN LAW MANDATE MOST STORES CLOSE BY 5:30 PM. ONCE A MONTH ON THE THIRD THURSDAY STORES WERE ALLOWED TO STAY OPEN UNTIL 7 P.M. THIS WAS TO ALLOW SMALL SHOP KEEPERS TO STAY COMPETITIVE WITH CHAINS, AND BECAUSE THE PEOPLE FELT EVERYONE SHOULD BE AT HOME WITH THEIR FAMILIES. THE WALMART BUSINESS MODEL DOES NOT TRANSLATE WELL IN MANY COUNTRIES.