The Challenges of Mexican Walmart - Case Study Example

Introduction The complications that have arisen from the emergence of Wal – Mart into Mexico have led into changes that have occurred within the corporation. The globalization of the store into Mexico has created alterations in the expectations as well as the ability to grow within the country. Understanding how this works for multinational companies, specifically through various trade agreements, is providing corporations with opportunities for growth. Agreements such as NAFTA, which provides regulations on how corporations can grow, is beginning to alter the effectiveness of corporations in different countries, specifically by changing the way in which cultural concepts are applied within corporations (Huffbauer, 72, 1993). The challenges that Wal – Mart is facing is one that is based on the alteration of needs within Mexico as well as the implications that are based on having a company within this region. For Wal – Mart to move into continuous growth within Mexico, beyond the current situation, is also the need to alter the approach that is used for the success of the company. Implementation of NAFTA in Mexico When Wal – Mart was first brought into Mexico in 1991, there were several cultural clashes and differences that were seen with the expectations of the corporation. Problems that related to the brand identity of Wal – Mart, products offered and the cultural expectations all were highlighted in the region. However, this changed with the NAFTA application in 1994. It was found that this one agreement was able to eliminate most of the cultural differences and the expectations that were found between Wal – Mart and Mexico, all which were able to create a different understanding of the dimensions of expectations that were a part of the growth of the corporation within the region. The main concepts that are attributed to NAFTA are based on trade agreements and regulations between the United States and Mexico. Specifically, the agreement implements tariffs that define which items can be sold as well as what the regulations are under each of the sales. The most important aspect of this is the tariff – rate quotas that are associated with various items. The rates are determined by the age of the product, maintenance that is expected and the regulations for sale that are associated with the agreement. Through this trade agreement, it is expected that different applications will be made not only with the tariff – rates, but also which affect the economy and the product demand within various regions (USDA, 2010). Even though NAFTA is based on tariffs and monetary solutions, there are other applications that have helped Wal – Mart’s growth with the emergence of this agreement. Most specifically, the ability to define the needs for a multinational organization has become a defined part of this particular agreement. It has been found that most corporations that focus on globalization are limited by the expectations of the culture and the growth that is associated with this (Elahee, 799, 2002). Even though corporations are growing into various regions of the globe, most of the sales are taking place within a regional triad of the area in which the corporation is first started. The regional triad is based on the cultural expectations and the services and products that are designed to fit the home region of a specific corporation. The NAFTA concept is one that has provided corporations with guidelines for regional strategies that move outside of this triad and into different arenas. As the understanding of culture continues to grow within Mexico through the NAFTA guidelines, there is the ability to grow the triad and reach the expectations that are incorporated into this area (Rugman, 409, 2003). Competitive Strategies and NAFTA The concepts of NAFTA have provided Wal – Mart with a strong foundation in the region of Mexico. However, it can also be seen that the success of Wal – Mart is partly due to the competitive strategy that is within the region. Any other US retailer could have had the same success in Mexico after NAFTA; however, Wal – Marts understanding of corporate structure and marketing has led to part of the success. The case study shows that the growth of Wal – Mart began before the NAFTA application with the growth being based on the application of brand identity and foundational concepts of the stores. The focus that is able to meet the needs of the culture is based on low costs and convenience of the stores. The growth has allowed Wal – Mart to incorporate products that have led to taking 55% of the market as one of the leading convenience stores. While NAFTA set the cultural differences into place and led to agreements with tariffs and trade, it is the brand identity and overall structure of Wal – Mart that has led to its success (Rocha, 61, 2002). The basis of Wal – Mart’s success is one that is known to begin with the infrastructure that is a part of the corporation and has led to the founding of the company. It is known that each corporation that rises as a global entity has a basic internal environment that drives the company. The infrastructure includes policies, business law and systems that work at a global level and which serve the corporation as it grows and expands into various areas. For a corporation, this is what drives it forward and sets aside a second set of laws and contracts that the company can survive on (Ghoshal, Nohria, 323, 1989). More importantly, the infrastructure that is the basis of the company can be changed and altered specific to consumer demands and monitoring of various regions. If a corporation finds that a global region needs specific consumer options, then the internal structure can be slightly altered with marketing, planning and implementation of various resources (Backer, 1739, 2007). For Wal – Mart, it was the infrastructure and the strategies used after building the company in the region that led to the ultimate success of the company with NAFTA working complimentary to this structure. Porter’s Single Diamond Framework To support the strategy of Wal – Mart are different strategies that can be applied to the emergence of the success in Mexico, including Porter’s single diamond. The first aspect of this is the cost based strategy that is used. The cost that is a part of Wal – Mart’s corporation is based on finding a low cost. This not only is found with products but works as the slogan and foundational structure of Wal – Mart. When moving into Mexico, Wal Mart applied this by changing the slogan to “Every Day Low Cost.” This immediately created a demand by consumers that was applicable to the region. More importantly, it was the cost strategy that was able to lead to a competitive advantage against others in the region. The demand that grew from this moved instantly against other corporations in the region that had the same products but which didn’t offer the same pricing demands (Rugman, 234, 1996). The second aspect that is used with Porter’s diamond is the leadership innovation that is a part of Wal – Mart. At first, the corporation had a difficult time with demand because of the products offered, most which were not applicable to the region. There were two areas of leadership innovation that began to change this problem in the region. The first was the generic framework that Wal – Mart has to sell at a low cost. Wal – Mart doesn’t combine this with specific products that have to be within the market. Instead, different regions can change this toward the demands that are in the area. The leadership innovation that was initiated from the beginning was based on offering discounted prices on the products that weren’t a part of the culture, which instantly drove the demand to the region. This innovation was combined with slowly changing the market and the consumer demand. The concept that was applied was able to incorporate strategic management and development of the corporation that fit with the needs of the community (Grant, 535, 1991). The leadership innovation that was incorporated into Wal – Mart then led into the ability to find a niche within the region. The incorporation of low cost, as well as changing products to meet consumer needs was able to show the main niche in the area. More importantly, Wal – Mart only had 4 other competitors that carried the same concept of offering a super store. However, Wal – Mart was easily able to overcome the limitations of the competitors by the generic foundation that was flexible with products that were in demand. This immediately allowed Wal – Mart to change the competitive advantage over competitors, specifically because of low price and products that were needed in various regions. The ability to do this was able to provide flexibility that is needed in today’s market while finding a competitive edge that instantly applies to different competitive circumstances (Bosh et al, 46, 1997). The competition that was available was then able to lead into support overseas, as well as within the US. More importantly, many were able to define the quality that was associated with the corporation as well as support that helped with the emergence and growth of the company through Mexico (Kogut, Zander, 17, 2003). Comerci’s Competition To combat against the growth of Wal – Mart, are several regional supermarkets that have tried to match the competition. Comerci is one of the main competitors of Wal – Mart, specifically because of the variety of products that are offered. To stay in competition with Wal – Mart, Comerci has begun to lower the prices of their stores. However, the pricing structure that is specific to Wal – Mart can’t be matched, which is still making Wal – Mart move ahead of competitors such as Comerci. The superstore has not only tried to redefine the strategies through the pricing structure but is also working to implement new policies politically for fair pricing. Currently, they are working with the Federal Competition Commission to find different policies that should be applied to NAFTA and which will make a difference in basic pricing structures that are in demand within various regions. The application that Comerci is moving toward against Wal – Mart is one that has some advantages. The first that may apply is a restructuring of policies with NAFTA and Mexico which will lead to stability within the economy. However, the continuous rise and competition of Wal – Mart in the region is already ahead of the competition and may not allow Comerci to match the prices from the structure that Wal – Mart offers. The result is known as a global squeeze, which is taking the resources away from the regional areas of Mexico and other regions and is applying it to a different sense of openness. The competition that Wal – Mart already has, for instance, is creating a demand for specific prices and for products offered by the company. Even though Comerci’s attempts are to change the structure for pricing, the policies may not change because of the demand from the economy which is leading to the global squeeze from the consumers (Glasmeier, Conroy, 2, 2006). The main approach that Comerci has taken is one that, despite the attempts, may only be a reaction to the competition. There are two main paradoxes that are working against the corporation and the movement into defending the structure of pricing through Comerci and against Wal – Mart. The first is based on the socio – economic symmetry that is a part of the corporation. The demand for lower prices is one that socially and economically is more in demand than a specific set of standards. The second aspect of this is based on the dependence that is already initiated at a social and economic level (Delgado – Wise, 1, 2007). Not only is there a dependence on lower prices, but there are also dependencies that have been set in terms of the Wal – Mart structure. Since it has taken so much demand, there are dependencies for employment, internal structures and products that are offered to the community. The defense that Comerci is acting upon will then be evaluated not only in terms of standards, but also with the impact that Wal – Mart continues to make within the system. Finding New Competitive Positions For Comerci and other supermarkets to move back into the competition against Wal – Mart, is the need to reevaluate the business from alternative perspectives. These will each lead to competitive advantages that are within the market and which will help the corporation to begin to move back against Wal – Mart. Currently, the only way in which Comerci is approaching Wal – Mart is through policies and federal applications that are a part of Mexico. However, there are components that can be changed within the internal structure that will help to change the outcome of the corporation. The first changes that will need to be made with Comerci are based on the strengths and opportunities that are a part of the corporation. The first aspect of this is based on the NAFTA applications. Comerci is not under the same provisions as Wal – Mart and understands the cultural implications more than Wal – Mart. Even though there is leadership innovations through Wal – Mart, Comerci can easily find weaknesses through NAFTA and other international trade concepts. The main application that Comerci can move into is from traditional comparative advantages. This will define the market, economy and the culture of Mexico from a more traditional stand point and a regional level. As this is re- evaluated, Comerci will have the alternative of reaching out to several different types of consumers, as opposed to the generic incorporation of concepts that Wal – Mart has (Chichilnsky, 162, 1993). The second aspect that Comerci will need to consider is the threats and weaknesses of their own corporation. By doing this, they will be able to find alternative solutions to the competition that they are facing while moving into different applications for growth. The main threats that are currently a part of the supermarket trends are based on cross – border financial and economic considerations. The infrastructure of Wal – Mart is base don the low pricing and ability to match the economic conditions of the area. The main way in which this is approached is through a structure that meets the macroeconomic conditions of a specific region through the products and cost that is offered (Reinicke, 127, 1997). For Comerci to match this, they will have to move into competition at a microeconomic level, which focuses on the regions of Mexico, as opposed to a global structure. The approach that they will have to take in terms of cost and economics will then provide provisions that help with the overall growth and demand of the corporation. Conclusion The case study of Wal – Mart is one that has provided a change in the understanding of multinational corporations and the way in which competition can move through different regions. The movement into Mexico was able to provide specific considerations that were applicable to the culture and region. The NAFTA concepts and the application of matching the culture through leadership, management and the infrastructure of the corporation have all created a competitive edge to Wal – Mart. More importantly, it has changed the socio – economic dependencies of the region to lead to continuous growth against competition. References Backer, Larry. (2007). Economic Globalization and the Rise of Efficient Systems of Global Private Law Making: Wal Mart as a Global Legislator. Connecticut Law Review (39), (4). Bosch, F.A., Adrianus de Man. Perspectives on Strategy: Contributions of Michael Porter. Netherlands: Kluwer Academic Publications. Chichilnisky, Graciela. (1993). Traditional Comparative Advantages vs. Economies of Scale. ISER. Delgado – Wise, Raul. (2007). The Reshaping of Mexican Labor Exports under NAFTA: Paradoxes and Challenges. IMR (41), (3). Elahee, Mohammad. 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