Walmart Goes South

1) How has the implementation of NAFTA affected Walmart’s success in Mexico? The implementation of NAFTA has affected Walmart’s success in Mexico by lowering/abolishing the tariff’s which Walmart was originally subject to prior to NAFTA. This has allowed the Walmarts in Mexico to offer the same “Every Day Low Prices” to its consumers on both sides of the border without having to raise prices due to tariff fees. Prior to NAFTA, Walmart was experiencing strong levels of success in the Mexican region but the largest challenge it faced was incorporating the import charges on the goods it sold in its stores. NAFTA implementation in 1994 not only lowered tariffs from 10 to 3 percent on all American goods travelling into Mexico, but it also encouraged the Mexican government to improve its infrastructure.

These improvements to unsatisfactory roads and transportation routes helped to bridge the logistical issues foreign companies were having transporting goods into the country and thus resulted in an influx of foreign investment interest. The new interest in foreign direct investment also worked to Walmarts advantage as it lead to the stationing of new manufacturing plants by some internationally owned supply companies such as Sony, an electronics manufacturing company based out of Japan which sells its products to Walmart.

2) How much of Wal-Mart’s success is due to NAFTA, and how much is due to Walmart’s inherent competitive strategy? In other words, could another US retailer have the same success in Mexico post-NAFTA, or is Walmart a special case? As aforementioned, Walmart had experienced success in Mexico prior to the NAFTA implementation and this is largely due to the company’s competitive strategy.

The company’s operations are second to none in minimizing costs and their system of purchasing large quantities from suppliers at the lowest negotiable rates and then storing them in central locations to be shipped off to various retail locations gives Walmart a large competitive advantage over any other retailers. The fact that Walmart has software with computing power second only to the pentagon for mappingits logistics is a testament to their cost-cutting dedication and their ability to offer consumers the lowest prices. NAFTA may have propelled Walmart to the successful position it finds itself in the Mexican market currently, but I feel that in the long-term a company such as Walmart would have made the steps necessary to attain this position.

Companies like Comerci, or Soriana’s which have been strong players in the retail market would have remained much more competitive if indeed NAFTA had not given Walmart the ability to import goods at such a low cost but in the long-term they would have had to adopt some of Walmarts strategies or become victim to the giant. In terms of other retailers trying to break into the Mexican retail market post-NAFTA, I feel that their success would be limited to their supply and logistics systems; or that indeed Walmart is a special case of a company being able to enact its strategy in a foreign market.

3) 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 an attempt to remain competitive with Walmart, Comerci along with two other Mexican retail companies; Soriana, and Gigante, formed a purchasing consortium called Sinergia in 2004. The goal of creating Sinergia was to lower the costs for each of the retailers by buying supplies together in bulk and thus negotiating prices.

The advantages of creating such a consortium are that retailers like Soriana’s, Comerci, and Gigante can now effectively lower their prices within reason to compete with a company the size of Walmart who’s 55% share in the market allows for such large purchasing negotiation. By lowering the cost of supplies the members of Sinergi will not significantly lower their margin when they reduce prices for consumers. There are significant disadvantages as well however with banding together to form a consortium which Sinergi will have to address in order to successfully compete with Walmart.

The first problem Sinergi faces and which it has already experienced issues with are from Mexico’s Competition Commission (CoFeCo), the governing board which deals with complaints about unfair pricing forced on suppliers and monopolistic behavior. When Sinergi was first created, CoFeCo rejected their proposal and reasoned that their combined buying power would put unreasonable forces on local suppliers to lower prices but was then accepted when Sinergi restated that creation of the consortium was in response to Walmart’s low prices and control of the market. Many issues resulted from Sinergi’s acceptance as a single buying body and of these; things like keeping a fully disclosed record of deals and purchases, and being limited to only local suppliers are only two of the disadvantages.

If Sinergi’s strategy is carried out with diligence and all three members cooperatively do their part in disclosing and being transparent with purchases then I feel they will effectively compete with Walmart in the retail market. Low costs of supplies has been one of Walmart’s keys in their strategy to succeed in the retail market, and the low costs to the members of the Sinergi agreement are what will ultimately allow them to be on a level playing field and to compete with Walmart.

Although other factors like differentiation of product and creating a more suitable environment for consumers may attract more business, I feel that ultimately low price will trump other factors in holding a strong foot in the retail market.

Works Cited-Daniels, John D., Lee H. Radebaugh, and Daniel P. Sullivan. International Business: Environments and Operations. Upper Saddle River, NJ: Pearson Education/Prentice Hall, 2011. Print.