Walmart Customer Service and Market Entry Strategies - Case Study Example

Business Practices in Wal-Mart Table of Contents Executive summary……………………………………………………p.3 Introduction…………………………………………………………….p.4 Finding and discussion…………………………………………………p.5 a. Developing people……………………………………………...p.5 b. Driving the productivity loop…………………………………..p.5 c. Winning in Global e Commerce………………………………..p.6 d. Reinvigorating our customer-focused culture……………….….p.7 e. Leading on social and environmental issues………………..…..p.7 f. Market entry strategies……………………………………….....p.9 g. Success and failure of Mike Duke as CEO of Walmart…………p.9 h. Lack of technological integration to corporate strategies………p.10 i. Unethical business strategies……………………………………p.11 Conclusion……………………………………………………………....p.11 Recommendation……………………………………………………..…p.12 Reference……………………………………………………………..…p.14 Appendices…………………………………………………………..….p.15 Executive Summary Consumer behavior is changing day by day because of the huge developments in science and technology and the subsequent changes in the life styles of the people. Walmart is slow in responding to these changes. They still give more importance to offline sales even though online sales are growing at a much rapid rate than offline sales. Walmart’s mode of entry to foreign market is debatable. For some countries they use merger & acquisition and for other countries, they use joint venture as the market entry strategy. It is easy for walmart to monopolize global retail sector because of their huge financial capabilities and favorable global market conditions. Walmart’s leadership is often attracts criticisms for visionless business strategies. Debate about the replacing of present CEO is going on. Walmart’s failure to incorporate technology properly with the supply chain operations is bringing lot of criticisms. In any case, business practices in Wal-Mart are undergoing microscopic examination at present. In short, Walmart’s business practices need lot of modifications. This business report critically analyses Wal-Mart’s business practices and provides recommendations to improve it. Introduction Founded in 1962 by Sam Walton, American based Wal-Mart is the largest retailer in the world at present. Retail revolutions were taking place in America in the 60’s and 70’s and Sam Walton exploited the opportunities very well with the help of innovative business strategies. “Sam Waltons strategy was built on an unshakeable foundation: The Lowest Prices Anytime, Anywhere. As of 2012, the company employs 2.2 million associates worldwide and serves 200 million customers each week at more than 10,000 stores in 27 countries” (Wal-Mart: History timeline, 2012). Despite of unfavorable market conditions, Wal-Mart was able to maintain its growth in recent years also. “Net sales increased by 5.9 percent to $443.9 billion, and consolidated operating income grew by 4 percent to $26.6 billion in 2012” (50 years of helping customers save money and live better, 2012, p.3). (See appendix 1 for more details about Wal-Mart’s performance in last 50 years). It should be noted that global markets are currently going through a bad patch because of the ongoing recession problems. Yet, Wal-Mart seems to be less affected by these problems. Even though, Wal-Mart’s published financial results in recent times are extremely good, many people believe that the company is facing too many strategic problems at present. It is believed that Wal-Mart is currently struggling to compete effectively with its competitors. Even though Wal-Mart’s financial results are good, its sales growth rate decreased considerably over the last few years. “Recently, Wal-Mart actually pulled out of Germany and South Korea.  In other important countries, such as China, Wal-Mart is behind in market share to European competitors like Tesco and Carrefour” (Problems at Wal-Mart). Mike Duke, the current CEO of Wal-Mart is often accused for the slow growth rate of the company. Another reason cited for Wal-Mart’s slow growth rate is its failure to incorporate state-of-the-art IS/IT technologies in its operations. Finding and discussion Wal-Mart’s five key strategies are central to their future: “1) Developing our people; 2) Driving the productivity loop; 3) Winning in Global e Commerce; 4) Reinvigorating our customer-focused culture; and 5) Leading on social and environmental issues” (50 years of helping customers save money and live better, 2012, p.4). Developing people Even though an organization has many resources, human resource seems to be the most important one. It should not be forgotten that all the other organizational resources are dead resources unless human intervention or supervision is not there. Wal-Mart knows this fact very well and doing everything possible to develop human resources. Empowerment of Wal-Mart employees is done with the help of training. Training helps employees to polish their existing knowledge along with the acquisition of new knowledge. Driving the productivity loop Wal-Mart is doing everything possible to improve the productivity and efficiency of its workforce. Only the satisfied and motivated employees deliver the goods. Wal-Mart knows this fact well and they provide good remuneration and working conditions to the employees. Modern employees are keen in having a work life balancing. In other words, current employees are not much interested in doing regular overtime works. They like to spend their leisure time with friends and relatives. Socializing is a much needed activity for the employees to shed their job stress and to revitalize their energy. Only the employees with less job stress and more peace of mind would deliver the goods to the company. In other words, it is vital to reduce job stress as much as possible to improve the productivity of the employees. Wal-Mart’s work culture is employee friendly and they value their employees more than anything else. Winning in Global e Commerce Online sales are currently developing much rapidly than offline sales, everywhere in the world. Current consumers have lot of personal, social and professional commitments which prevent them from visiting shopping malls for their purchasing needs. E- Commerce is developing rapidly because of the changing consumer behavior mentioned above. Wal-Mart realized these changing trends very well and they are currently giving more importance to online business along with offline business. The worlds largest retailer by sales said it is reorganizing its e-commerce operations in the U.S., U.K., Japan and Canada in a bid to better integrate retailing in stores and online. E-commerce managers in developed markets will now report directly to the executives in charge of stores in each country, instead of reporting to a global e-commerce team (Wal-Mart Shakes Up Its Online Business, 2011). Walmart understands the needs of developing e-commerce as a business strategy to meet future challenges. As a result of that recently they have “assembled a team of 70 developers, computer engineers and researchers — dubbed @WalmartLabs — in an aggressive attempt to position itself at the forefront of social and mobile commerce” (Wal-Mart: The Next Tech Giant?, 2011). Amazon and Ebay like companies are currently dominating online business world. Revenue growth of walmart was only 5.85% in 2012 whereas that of Amazon was 34.63% in the same year (See Appendix 2 for more details). It should be noted that Amazon or e-bay are nothing in front of Walmart in terms of financial abilities or other organizational resources. Walmart was bit slow, in responding to the challenges in the online business. They thought that offline sales alone may bring success to them. They failed to recognize the changing consumer behaviors in time. Reinvigorating customer-focused culture Wal-Mart’s track record in customer servicing seems to be poor even though they accepted it as a core business practice. “Walmart customer service is ranked #220 out of the 606 companies that have a CustomerServiceScoreboard.com rating with an overall score of 42.19 out of a possible 200 based upon 1017 ratings. This score rates Walmart customer service and customer support as Disappointing” (Walmart Customer Service, 2013). It should be noted that companies in the past were focused more on finding new customers. They neglected the needs of existing customers. In other words, after sales servicing records of many companies were poor. Relationship building is accepted as the core of every business strategy at present. Companies have realized that servicing of existing customers is important as finding new customers. Only the satisfied customers spread good messages about a company. Word Of Mouth (WOM) or viral marketing is accepted as an effective marketing strategy by many companies. In order to conduct viral marketing properly, relationship building with the customers is very much important. Leading on social and environmental issues In 2005, “Walmart took a leading role in disaster relief, contributing $18 million and 2,450 truckloads of supplies to victims of hurricanes Katrina and Rita. Moreover, the company made a major commitment to environmental sustainability, announcing goals to create zero waste, use only renewable energy and sell products that sustain people and the environment” (Wal-Mart: History timeline, 2012). Only the socially committed companies are currently earning the respect of consumers. Current consumers evaluate the reputation and brand value of a company before they take any purchasing decision. Companies which follow sustainable business practices are often find places in the minds of consumers. Corporate social responsibility and environmental commitments of a company are scrutinized thoroughly by the modern consumers. That is why Wal-Mart has taken this issue seriously. Walmart’s new Global Women’s Economic Empowerment Initiative empowers women through job training, increased sourcing, philanthropic support and education around the world. The company is increasing affordability of healthy foods and making significant donations to food banks. Their sustainable agriculture program helps farmers earn more and become better stewards of the environment. They continue to reduce greenhouse gases in our supply chain. In our communities, associates spend countless hours serving as volunteers to many organizations (50 years of helping customers save money and live better, 2012, p.5). It should be noted that big companies are exploiting community resources very much and therefore it is ethical for them to give something in return to the communities in which they operate. No company can survive long at a place, if it continues to exploit community resources and gives nothing back. American soft drink manufacturer Coke knows this fact very well. They tried to exploit the underwater resources in Kerala, India and public started agitation against them. Coke forced to close down its operations in Plachimada, Kerala, because of public protests. “It is a fact that the Coca-Cola bottling plant in Plachimada has been shut since March 2004 on government orders”(Lakshman, 2010). Market entry strategies Walmart has many lessons to learn from Coke’s experience in India. They are currently operating in India in collaboration with Bharti group. “In 2010, Walmart Bharti, a joint venture, opened its first store in India” (Wal-Mart: History timeline, 2012). Many people were surprised when they know the joint venture market entry strategy announced by Walmart for its India operations. The capabilities of Bharti group are nothing in front of the capabilities of Walmart. Walmart could have easily acquired Bharti or any other Indian retailer. However, they opted for a joint venture with Bharti. This is because of the fact that India is an extremely diverse country and only a local retailer knows the Indian conditions well. It is impossible for Walmart to operate successfully in India without taking help from the local companies. On the other hand, “in 1994, Walmart expanded into Canada with the purchase of 122 Woolco stores and in 2009, Walmart entered Chile with the acquisition of a majority stake in D&S S.A.” In 2011, Walmart acquired MassMart in South Africa (Wal-Mart: History timeline, 2012). Walmart knows that Canadian culture, Chilean culture and South African culture are not much diverse like Indian culture. Moreover, the cultures in these countries are similar to that of America in many ways. Walmart has plenty of experience in doing busienss in America. Therefore, they can easily utilize that experience in Canada and Chile. In short, Walmart is deciding its mode of market entry to foreign market in a smart way. They establish joint ventures in culturally different countries and acquire small retailers in other countries as a mode of market entry. Success and failure of Mike Duke as CEO of Walmart Mike Duke became the CEO of Walmart in 2009. Even though the company is growing, many people believe that the growth rate is not so good. Mike Duke is often blamed for the failure of the company to improve its growth rate. Many people believe that Mike’s strategies are visionless and meaningless. They argue that Duke’s business strategies are outdated and he should be replaced by a more energetic younger CEO. Duke’s decision to establish joint venture is criticized heavily by the business gurus. They pointed out that even Coke was able to acquire Indian soft drink manufacturer, Thumps Up as a mode of market entry to India. They argue that Duke do not have the courage to enter the Indian market independently even though, they have the largest capacity as a retailer in the world. Duke’s inability to take risks is costing Walmart heavily according to the views of critics. They believe that Walmart has the potential to establish monopoly in global retail market just like Microsoft did in computer OS market. Duke recently, laid out four strategies for building the Next Generation Wal-Mart: “Become a truly global company; Understand the business challenges that retailers will face and solve them; Play an even bigger leadership role on social issues that matter to our customers; Keep our culture strong everywhere” (Wal-Mart CEO Mike Duke Outlines Strategies for Building the "Next Generation Wal-Mart", 2010). Duke seems to be proposing too much and delivering less. In other word, Duke is not trying to implement strategies necessary to achieve the goals set by him for Walmart. Lack of technological integration to corporate strategies Walmart’s failure to incorporate state-of-the-art IS/IT technologies in its operations, is causing big problems now. “The Wal-Mart network, connecting more than 2,400 stores and 100 distribution centers worldwide. At Wal-Mart, we dont implement technology for its own sake," says David Flanagin, Director of Network Engineering”(The Wal-Mart Story, N.d., p.1). Lack of technology use is currently causing problems to the supply chain management operations of Walmart. It should be noted that the consumer behavior is changing day by day and hence it is necessary to increase or decrease the inventory at warehouses to meet business objectives. To do that, coordination between the retails stores and warehouses is necessary. Computer technologies help Walmart in this regard. Unethical business strategies Wal-Mart recently said it would pay a fine to settle federal charges that underage workers operated dangerous machinery, and it also agreed to pay $11 million to settle charges that its cleaning contractors hired illegal immigrants. Meanwhile, it faces a class action lawsuit by female employees who claim Wal-Mart discriminated against them because of their gender (DInnocenzio, 2005). Gender discrimination, racial discrimination, stereotyping, child labor etc are some of the other areas in which Walmart’s reputation has been spoiled a lot in recent times. The morale of the Wal-Mart employees is not so good at present because of the different problems they forced to face in their workplace. Walmart has no hesitation in asking underage workers to undertake dangerous jobs. Child labor is prohibited in many countries by law. Moreover, employing illegal immigrants is unacceptable in most of the countries. Walmart does all these things to reduce labor cost and to reap profit. Conclusion Walmart is growing at a steady rate at present. Even though the financial results of the company is good in recent times, its sales growth rate has been reduced considerably. Walmart is trying to expand its territories to overseas countries. However, its mode of market entry seems to be questionable at least in Asian markets like India. Mike Duke’s business strategies are not bringing the intended results. Stereotyping, racial and gender discriminations are common at walmart workplaces. Walmart should concentrate more on online business because of the increased attention of consumers towards online markets. Recommendations “Recently, Wal-Mart actually pulled out of Germany and South Korea.  In other important countries, such as China, Wal-Mart is behind in market share to European competitors like Tesco and Carrefour” (Problems at Wal-Mart, 2007). At present, global wealth is shifting from American and European regions to Asian region. India, China and South Korea are some of the rapidly emerging economies in Asia. Wal-Mart should give more importance to their business operations in Asia. Instead of joint venture, Walmart should use acquisition as the mode of market entry to Asia. They should try to monopolize the fragmented Asian retail sector. Walmart should improve its technology utilization further. It should give more attention to online sales with the help of superior technologies. Walmart’s e-commerce platform still needs more fine tuning to attract more visitors. Just like Amazon and Google, it is better for Wal-Mart to enter into the search engine business so that it can expand its business portfolios as well as enhance its retail business. Shopperception is a new IT related technology evolved out in recent times to check the consumer behaviors and buying habits. “Shopperception recognizes the customers when they check-in and it remembers previous buying habits and can predict what the customer is likely to want on this visit” (Israel, 2013). Mike Duke’s business strategies are not helping Walmart much at present. Walmart needs the services of an younger CEO now to keep the company competitive in the market. References 50 years of helping customers save money and live better. 2012. Walmart 2012 Annual Report, [Online]. Available at: http://www.walmartstores.com/sites/annual-report/2012/history.aspx DInnocenzio, A. 2005. WalMart struggles with deeper problems.[Online]. Available at: http://wakeupwalmart.com/news/20050519-ap.html[Accessed 13 March 2013] Israel, S. 2013. How Walmart and Heineken Will Use Shop perception to Put Your In-store Experience in Context. 2013. [Online]. Available at: http://www.forbes.com/sites/shelisrael/2013/01/27/how-walmart-and-heineken-will-use-shoppercetion-to-put-your-in-store-experience-in-context/[Accessed 13 March 2013] Lakshman, N. 2010. Coca-Colas response disappoints Plachimada activists. The Hindu. April, 23, 2010. Problems at Wal-Mart. 2007. [Online] Available at: http://mgmt339.wordpress.com/2007/03/28/problems-at-wal-mart/[Accessed 13 March 2013] The Wal-Mart Story. N.d. [Online] Available at: http://www.cisco.com/warp/public/779/ibs/vertical/retail/Wal-Mart.PDF[Accessed 13 March 2013] Wal-Mart: History timeline. 2012. [Online] Available at: http://corporate.walmart.com/our-story/heritage/history-timeline[Accessed 13 March 2013] Wal-Mart Shakes Up Its Online Business, 2011. The Wall Street Journal. Saturday, August 13, 2011 Walmart Customer Service, 2013. [Online] Available at: http://www.customerservicescoreboard.com/Walmart [Accessed 13 March 2013] Walmart CEO Mike Duke Outlines Strategies for Building the "Next Generation Walmart. 2010. [Online] Available at: http://walmartstores.com/pressroom/news/9974.aspx[Accessed 13 March 2013] Wal-Mart: The Next Tech Giant?. 2011. [Online] Available at:http://www.cnbc.com/id/44761412/Wal_Mart_The_Next_Tech_Giant [Accessed 13 March 2013] Wal-Mart Dividend Yield Stands Above, N.d. [Online] Available at: http://www.google.co.in/imgres?imgurl=http://node_charts_production.s3.amazonaws.com/f91dc4391e8a2569c42b0aecc559b97f.png&imgrefurl=http://ycharts.com/analysis/story/walmart_dividend_yield_stands_above_retailers_we_can_forget_an_amazon_payout&h=436&w=550&sz=59&tbnid=lH6uAt_jex6fgM:&tbnh=80&tbnw=101&zoom=1&usg=__26e8Xkae05RNIODWS6TZI9DWLGE=&docid=jyBs2cozwzHr-M&sa=X&ei=q0lBUeH-MsrNrQfPrYG4Ag&ved=0CGcQ9QEwBw&dur=5837[Accessed 14 March 2013] Appendix 1 50 years of performance 1962 2012 $30,000 $15.8 billion Net sales 1962 1972 1982 1992 2002 2012 $250,000 $78.0 million $2.4 billion $43.9 billion $201.2 billion $443.9 billion (50 years of helping customers save money and live better, 2012, p17) Five-Year Financial Summary (Dollar amounts in millions, except per share and unit count data) As of and for the Fiscal Years Ended January 31, 2012 2011 2010 2009 2008 Operating Results Net sales $443,854 $418,952 $405,132 $401,087 $373,821 Net sales increase 5.9% 3.4% 1.0% 7.3% 8.4% Increase (decrease) in the United States 1.6% (0.6)% (0.8)% 3.5% 1.6% Walmart U.S. 0.3% (1.5)% (0.7)% 3.2% 1.0% Sam’s Club 8.4% 3.9% (1.4)% 4.9% 4.9% Gross profit margin 24.5% 24.8% 24.9% 24.3% 24.1% Operating, selling, general and administrative expenses, as a percentage of net sales 19.2% 19.4% 19.7% 19.4% 19.1% Operating income $ 26,558 $ 25,542 $ 24,002 $ 22,767 $ 21,916 Income from continuing operations attributable to Walmart 15,766 15,355 14,449 13,235 12,841 Net income per share of common stock: Diluted net income per common share from continuing operations attributable to Walmart $ 4.54 $ 4.18 $ 3.73 $ 3.35 $ 3.15 Dividends declared per common share 1.46 1.21 1.09 0.95 0.88 Financial Position Inventories $ 40,714 $ 36,437 $ 32,713 $ 34,013 $ 34,690 Property, equipment and capital lease assets, net 112,324 107,878 102,307 95,653 96,867 Total assets 193,406 180,782 170,407 163,096 163,200 Long-term debt, including obligations under capital leases 47,079 43,842 36,401 34,549 33,402 Total Walmart shareholders’ equity 71,315 68,542 70,468 64,969 64,311 Unit Counts Walmart U.S. Segment 3,868 3,804 3,755 3,703 3,595 Walmart International Segment 5,651 4,557 4,099 3,595 3,093 Sam’s Club Segment 611 609 605 611 600 Total units 10,130 8,970 8,459 7,909 7,288 (50 years of helping customers save money and live better, 2012, p17) Appendix 2 (Wal-Mart Dividend Yield Stands Above, n.d.) 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