gitam institute of international business

8/14/2019 Gitam Institute of International Business

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GITAM INSTITUTE OF INTERNATIONAL BUSINESS

A CASE ANALYSIS on WAL-MART

BUSINESS STRATEGY

S

ubmitted byMr.

Goutam Dash

MBA (IB)

(2008-10).

Submittedto

Sri G V LSatyakumar


2/11

A-Section.

Reg no:

1224108128Q 1- Evaluate the various elements of strategy of Wal-Mart stores

using the framework learnt in the course?

Wal-Mart Stores Inc. is the largest retail company in the United States and has been

ranked number one on the Fortune 500 Index by Fortune Magazine. Wal-Mart has four

parts to their corporate strategy.

1. Dominance in the Retail Market

2. Expansion in the U.S. and International Markets

3. Creation of Positive Brand and Company Recognition

4. Branch Out into New Sectors of Retail

Wal-mart is based on two main objectives that have guided the firm through their

growth years. The customer is featured in the first objective; "Customers would be

provided what they want, when they want it, all at a value". Team spirit was

emphasized in the second objective, "Treating each other as we would hope to be

treated acknowledging our total dependency on our associate - partners to sustain

our success".

Strategies

Wal-mart contains two set of strategies; Business Strategies and Marketing

Strategies.

Business Strategies include:

1. Same good for less and still earns profit

2. Very good operational efficiency

3. Use of IT in all verticals of business

4. Effective use of logistics management

5. Global Expansion for new market opportunity

6. Bargaining power over suppliers

7. Data used to profile each market

8. Predicts demand, optimizes stock, and

9. Networked to HQ via private satellite

Marketing Strategies include:

Thinking globally, serving locally


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Saving people money so they can live better

Every Day Low Prices is the epicenter of the Wal-mart marketing

strategy.

Wal-Mart's corporate management strategy involves selling high quality and brand

name products at the lowest price. In order to keep low prices, the company reduces

costs by the use of advanced electronic technology and warehousing. It also

negotiates deals for merchandise directly from manufacturers, eliminating the

middleman. Wal-Mart's community outreach focuses on the goals of providing

customer satisfaction, involving itself with local community services, and providing

scholarships. Its emphasis is on children and environmental issues. During the 1970s,

the retail industry became highly competitive, but, at the same time the economy

became weak due to inflation. Sears was the leading retailer in the nation, during the

1970s, however, the recession of 1974-1975 and inflation affected Sears adversely.

Sears targeted middle class families and expanded its overhead. Wal-Mart's strategy

was to compete with its rivals and lower overhead expenses. Compared with Sears,

which consisted of more than 6,000 distribution centers, Wal-Mart had only 2,500

comparable units.

Wal-Mart is also on top of their game because of the management strategies they

employ. The management strategies of Wal-Mart emphasize its workforce and its

corporate culture; that being a morally conservative, religious, and family-oriented

business. Wal-Mart emphasizes how it listens to the needs of its workforce so that

each employee is able to suggest improvements to company policy and practice. At

Wal-Mart, store employees are called "associates." In addition, in order to promote

esprit de corps, the company publishes "Wal-Mart World," an internal magazine for its

associates. The company offers generous financial rewards for employees by means

of profit-sharing plans such as stock-purchase options. Furthermore, the company

provides comprehensive training programs for all employees.

COMPLEMENTARY STRATEGIES

To strengthen its competitiveness, Wal-Mart collaborates closely with suppliers

with strong brand-name who are dominant in their category, who have full product

lines, and who can bring in new and better products to retail shelves. Wal-Marts

procurement personnel spends considerable time meeting with vendors,


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understanding their cost structure, and learning how a vendor could cut down its costs

in order to capture win-win relationships for both parties.

To expand its geographic coverage, Wal-Marts domestic strategy is backward

expansion. The company opens stores in small towns surrounding a targeted

metropolitan and saturates each area before moving into new territory. International

expansion involves a combination of new store construction and acquisition. As Wal-

Mart enters foreign markets, it intends to remain local by customizing its offering to

match the taste and preferences of local buyers and operating through the

management of natives of the foreign countries.

Wal-Mart also employs simultaneous offensive initiatives on many fronts.

Experiments in store layout, merchandise displays, store color schemes, and

promotions are always under way. Wal-Mart also engages in preemptive strikes

especially when it enters a new market by securing a dominant position in the

geographic area and forcing smaller retailers out of business.

SUPPORTING STRATEGIES

Marketing and Sales: Wal-Mart meets customers needs with four different retail

concepts: Discount stores, Supercenters, Sams Clubs and Neighborhood markets.

Technology: Wal-Mart is a first-mover in upgrading and improving its technological

capabilities. It uses computers, satellite, and information systems in communicating

with vendors, electronically purchasing orders, tracking sales and inventory,

identifying slow-selling items and squeezing costs out of the supply chain.

Distribution Center Operations: Several labor-intensive tasks had been automated and

cost-efficient system of conveyors, bar-coding and handheld computers have been

utilized to continuously streamline distribution operations.

SWOT Analysis

Strength

1. Cost advantage

2. Low price and customer oriented

3. Focused strategy

4. Strong supply chain management

5. People are key to success

Weakness

1. Ignore store decoration


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2. Wal-mart sell products across many sectors, it may not have the flexibility of

some of its more focused competitors

3. Managing huge span of control

Opportunity

1. Strong brand equity

2. Put efforts on social welfare better image

3. New locations, and store types

4. Overseas markets

Threats

1. Other competitors

2. Intense price competition

The Companys Low Price image, backed by the strong integrated marketing

strategy is the key success factor of Wal-mart.

People at Wal-Mart believe that, saving money is a good news in any language.

This statement (believe) is certainly true as it helped them acquiring success in

which this concept is not so popular like Germany.

Waltons 10 commandments for business success were:

1. Commit to your business.

2. Share your profits with your associates (employees), and treat them like your

partners.

3. Energies your colleagues.

4. Communicate everything you possibly can with your partners.

5. Appreciate everything your associates do for the business.

6. Celebrate your success.

7. Listen to everyone in your company.

8. Exceeds your customers expectations.

9. Control your expenses better than your competition.

10.Blaze your own path.

Management at Wal-Mart strictly adheres to these commandments, and thats the key

to their success.

Financial Analysis:


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Last year, Wal-Mart earned $1.03 per share from continuing operations in the fourth

quarter, which included a net charge of approximately $0.02 per share for real estate

transactions and certain restructuring of its Japanese operations. Net sales for the

fiscal year were $401.244 billion, an increase of 7.2 percent over fiscal year 2008.

Income from continuing operations increased 3.0 percent to $13.254 billion, up from

$12.863 billion in the prior year. Reported EPS for fiscal year 2009 was $3.35, up 6.0

percent from $3.16 in the prior year. Underlying EPS was $3.42, excluding the

litigation charge.

Net sales (billions of dollars).

Fourth quarter performance

2009 2008 % change

Wal-Mart US 71.464 67.428 6.0%

International 24.696 26.949 -8.4%

Sams Club 11.836 11.831 0.0%

Total Company 107.996 106.208 1.7%

Twelve month performance in net sales (billions of dollars)

2009 2008 % change

Wal-Mart US 255.745 239.529 6.8%

International 98.645 90.421 9.1%

Sams Club 46.854 44.357 5.6%

Total Company 401.244 374.307 7.2%

Operating Income (billions of dollars)

Fourth quarter performance

2009 2008 % change

Wal-Mart US 5.400 5.286 2.2%

International 1.490 1.739 -14.3%

Sams Club 0.427 0.444 -3.8%


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Twelve month performance

2009 2008 % change

Wal-Mart US 18.763 17.516 7.1%

International 4.940 4 .725 4.6%

Sams Club 1.610 1 .618 -0.5%

VALUE CHAIN ANALYSIS

Wal-Mart takes care of all the activities internally except partially outsourcing its

logistics requirements. Its systems integration from inventory, to stores, to

headquarters to suppliers is the lifeline of its success. The core activity remains in its

bulk buying and inventory management which supports Wal-Marts competitive

advantage of pricing and every element shows traces of cost leadership. Wal-Mart

located its discount stores around regional warehouses allowing a streamlined and

low cost physical distribution.

Inbound Logistics

Wal-Marts primary activity of receiving inventory is planned right from the point of

production, which Wal-Mart is not involved with. Wal-Mart has integrated systems with

key suppliers which communicate in real time data with sales information and stock

status so it can replenished in time. Shipments are timed and slotted and planned in

an orchestral way.

Operations

Wal-Mart maintains a lean approach to inventory. Wal-Mart innovated a technique of

replenishment called the Cross-Docking where incoming goods are offloaded into

outgoing trucks directly without stocking them even for a few hours. Most goods pass

through the warehouses within a span of 48 hours, enabling minimum idle time and

lowering excess inventory possibilities. Most of the goods never touch the floor of the

warehouse, as goods are passed on 24 miles length of conveyor belts between

incoming trucks to outgoing trucks.

Outbound Logistics

Goods are transferred within 48 hours of receipt from suppliers. The replenishments

are also done twice weekly, which is double the industrys standard.


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Marketing and Sales

Wal-Mart maintains a simple and effective marketing strategy which it has managed

to replicate globally apart it being the focus of its strategy. The Every Day Low Price

(EDLP) is simple and eliminates unnecessary advertising trying to push sales, as Wal-

Mart has successfully sold the concept to the customers, that it sells its products at

the lowest prices, everyday. This is one of the most interesting attributes of Wal-Mart.

Service

Wal-Marts aggressive yet subtle People Greeters and in its own fashionable and

proud way Aggressive Hospitality are the foundations for Wal-Marts success in the

highly competitive market.

Infrastructure

Wal-Mart maintains its own fleet of 2000 plus trucks which have scheduled deliveries

between warehouses to stores minimizing delays and over reliance from suppliers.

Human Resource Management

Wal-Mart is the only retailer to be in Fortunes 100 Best Places to Work. Wal-Marts

empowerment of Associates is laudable with instances such as allowing its Associates

to get on the network and lower its prices, nationwide if its found to be higher than its

competitors, all this done without any consultation or permission requests from

superiors.

Technology Development

Wal-Marts technology and inventory management systems and software are better

than the best in the world and also the lifeline of the organization. Wal-Marts early

innovations and experimentation apart from investments light-years ahead of its time

into VSAT capabilities have boosted its success.

P.E.S.T. ANALYSIS

Political Influences

The political influences in this industry is probably the most burning concern with

organizations going global and many countries restricting the growth of companies by

many countries. European Customs and Regulations heavily hamper expansion plans.

FDI in many countries are still heavily regulated and global companies are yet to set

foot into emerging markets like India.


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Economic Influences

The recent financial crisis has had a negative impact on consumer spending and

outlook. Disproportionate levels of income and consumer spending in developing

countries like India and China will impact growth of global companies. Exchange rates

affect global sourcing and pricing policies on a day to day basis.

Social Influences

Developing countries are not used to push type marketing and aggressive selling.

Bulk buying patterns predominantly present in USA, is non-existent in Asian countries.

Language and cultural factors is a barrier to globalization. Anti-Globalization

movements in the recent past has affected growth of global companies, especially

companies originated USA.

Technological Influences

Development in technology and satellite systems has given a boost to Wal-Mart. Basic

infrastructure still lacks for effective warehousing and distribution, the lifeline of a

retail chain.

Cost leadership

Analysis of the value adding activities supporting the generic strategy shows clear

elements of cost focus. Low cost leadership helps the firm above average returns in

the industry despite strong competitive forces. Traces of cost leadership are

noticeable in the value chain. Wal-Mart saves costs by holding stocks for less than 48

hours in its inventory. Wal-Mart is known to negotiate with suppliers for the lowest

cost of the product without any frills and marketing expenses which adds to the cost

later. Wal-Marts purchase by the truckload saves costs again by bulk purchasing.

Wal-Marts inventory handling and logistics distribution with its own fleet of 2000 plus

trucks help attain a cost effective distribution channel than relying on unreliable

suppliers networks which costs in delays.

Differentiation

Wal-Mart appears to have a differentiation strategy. The differentiation strategy is one

of differentiating the product or service offering of the firm, creating something that is

perceived industry-wide as being unique. It can be design or brand image, technology,

features, customer service, dealer network or other dimensions. High degree of

customer service with store greeters and 10 foot attitude policies reaffirms Wal-

Marts differentiation from its competitors.

Focus


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The third generic strategy advocated by Porter is the focus strategy. The focus

strategy is focusing on a particular buyer group, segment of the product line or

geographic market as with differentiation, focus may take many forms. Wal-Mart right

from its foundation located its stores to out of town areas with small populations. This

was a segment ignore by its competitors giving Wal-Mart an edge over competition by

locating itself in a low competitive environment before it creates competition. Wal-

Marts focus on the segment of people targeted as well as its location of stores, does

give it an attribute of the focus strategy. Effective implementation of any of these

generic strategies usually requires total commitment and supporting organizational

arrangements that are diluted if there is more than one primary target. Arguably

Porter termed organizations attempting cost leadership and differentiation together as

stuck-in-the-middle and it does not lead to competitive advantage and its

sustainability.

Summary: -

Wal-Mart needs to successfully compete globally to sustain its leadership in the

retail industry. Its current international division is nowhere near as profitable as the

domestic division. The domestic success is primarily due to Wal-Marts excellent

customer service, supply chain management, and brand recognition. Wal-Mart has not

successfully adapted to foreign markets and this is why their customer service and

brand recognition is not very strong in foreign countries.

Implementation:-

Wal-Mart needs to obtain a transnational strategy because it will help Wal-Mart to deal

with the pressures to adapt locally and keep prices low. This international strategy will

allow Wal-Mart to obtain economies of scale, adapt to local markets, locate activities

in optimal locations, and increase knowledge flows and learning. Wal-Marts

knowledge and learning of foreign markets is very important if it wants to have

excellent customer and community service in foreign countries

Q2) Try to symbolize Wal-Mart with a suitable analogy and justify your

symbolism in about 100 words?

Thinking globally. Serving locally.

Wal-mart international stores offer working families the things they need at prices

they can afford, and offer the customer service and convenience theyre famous for.


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In each of their international markets, they use their strength as a global company to

meet the local needs of our customers, and provide help for their communities.

Saving People Money so they can live better.

Saving people money to help them live better was the goal that Sam Walton

envisioned when he opened the doors to the first Wal-Mart. Today, more than 40

years later with operations in 16 markets worldwide, Wal-mart continue to deliver that

promise to families around the globe. Its the focus that underlies everything they do

at Wal-Mart. And for the millions of customers who shop at Wal-mart stores and clubs

around the world each week, it means a lot.

Saving money good news in any language

Every Day Low Price is a epicenter of the Wal-mart marketing

strategy.

From the various factors analysed such as good supply chain management,low

procuring cost, well defined distribution channel, good customer understanding,

Walmart has got the cost advantage over its other competitors by which it has

achived to serve people at low price so I will symbolize Wallmart as a low priced

shopping destination where every strata of people belonging to various economic

classes are invited.

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