Strategic Development History of Walmart - Research Paper Example

Table of Contents Strategic Development History of Walmart 2 Current Strategic Situation of Walmart 4 Strategic Macro-environment Analysis 5 PEST Analysis 5 Strategic Micro-environment Analysis 5 Porter’s Five Forces Analysis 6 Industry Analysis 7 Competitive Environment Analysis 9 Internal Analysis 9 SWOT Analysis 11 Future Strategic Analysis 12 Strategic Recommendation – Localizing Walmart Culture 12 Understating Consumers 12 Training Employees 12 Promotional Strategies 12 Strategic Recommendation – Expanding into Japan 13 Many Small Stores 13 Mergers and Acquisition of Japanese Retailers 13 Bibliography 14 Strategic Development History of Walmart Walmart was created in 1962 by the Walton family in Bentonville, Arkansas (Corporate Watch UK, 2004). The expansion strategy of Walmart became phenomenal therefore; companies usually idealized the Walmart strategic development history. Actually, the exceptional history of strategic development of Walmart in ever-changing global economic system show the rest of the companies that how successfully a company can perform by adopting the right strategies. Actually Walmart offers everything which a person can imagine therefore, wherever Walmart expanded; no retail store was safe from its competition. According to Fortune, Walmart is considered as the second most admired company in the world and its corporate strategy has four components. These components include dominance of Walmart in the retail market, the expansion of company in the United States and international markets, building a positive brand and recognition of company and branching out into new sectors of retail (uscubacommission, 2010). Walmart is also considered as one of the pioneers which gave birth to discount retailing. The owner of Walmart, Sam Walton travelled around the country to learn about discount retailing before opening Walmart and he was convinced of the fact that American consumers were urging for a new type of store. Until 1960s, Sam Walton could only manage to open 15 stores of Walmart because of limited money however; the competitor of Walmart, Kmart was expanding very quickly. The actual growth of the company started when it went public. When company got public and raised a capital of $3.3 million (Anonym, n.d.), company grew its stores to 276 stores in 11 states (Walmartstores). Although the strategic development history of Walmart starts from the opening of its first store in 1962 however, in the following strategic development analysis of the company, the selected timeframe is 25 years from 1982-2007. In the decade of 1970s, the strategy of the company was to reduce the cost of goods sold by building its own warehouse. By adopting this strategy, company got able to buy in huge volumes at attractive prices. Moreover, storing merchandise became easier for the 30 discount stores in the rural states (Anonym, n.d.). In 1984 Walmart entered Virginia. In 1985 it entered Wisconsin and Colorado and acquired Grand Central Shoes. In 1986, company entered Minnesota and in 1987 the Walmart Satellite Network was completed. Through this satellite communication network, all operating units of the company were linked with two-way voice, data and one-way video communication. In 1988, the company expanded to Michigan, Wyoming and West Virginia (Walmartstores). One important strategy of Walmart throughout its expansion was the significant control on all stores of the company. This strategy was adopted to ensure the philosophy and culture of the company. Philosophy: Walmart has always offered low prices and the not showing off luxury goods has always remained the culture at Walmart. The promotional strategy of the company has also emphasized on everyday-low-prices (Anonym, n.d.). The decade of 1990s has appeared very important in the history of Walmart because the company became number 1 retailer of the United States and in 1991; it first stepped into the international market by targeting Mexico City. In the beginning the company targeted the neighbouring states of the United States. In the same year, company promoted itself within and across the U.S. as “Sam’s American Choice”. With the increasing environmental concerns, in 1994, company designed its environment-friendly prototype and also enhanced its social activities. The expansion of the company into European countries started in 1998, when company targeted Germany and United Kingdom and at the end of the decade 1990s, Walmart became the largest private employer in the world (Walmartstores). The decade 2000 has appeared more significant from strategic management point-of-view. The company has already expanded into many states of the world and more focus was given towards the management of the corporate culture and management of Walmart. The year 2007 has been very critical as Walmart entered into India and Japan through the acquisition of Seiyu (Walmartstores). Two key growth strategies of the company remained very significant in the history of strategic development of Walmart. The first strategy of Walmart was to locate the stores in isolated rural areas or small towns with a population of 5000-25000. Second strategy of Walmart was related to its pattern of expansion and in this strategy company has always push from inside out (Anonym, n.d.). The push-out strategy of Walmart means to push out smaller specialized businesses with the help of high volume marketing. Expanding into Europe has been the major strategic growth objective of Walmart. The nature of international expansion of Walmart highlights three strategies of Walmart in international expansion. First, when Walmart started its international expansion, it targeted the neighbouring economies of the United States like Mexico, Canada, Argentina, and Puerto. Second, when Walmart expanded to the other economies of World, it targeted the economies with the biggest family income such as Britain and Germany. Third strategy of Walmart in the international expansion was to target the economies with large population or high population density like Brazil, China and Korea (Corporate Watch UK, 2004). The expansion of Walmart in the retail sector and its expansion into other product areas for an increasing drive for profits influenced the operations of the food and other businesses in the United States. The strategic development history of Walmart shows that company has been acquiring large supermarket chains as an expansion strategy. It is evident from the acquisition of Casino and Auchan by Walmart in France and that of Mycal supermarket in Japan. It is interesting to note that Walmart opened its own stores when it expanded to the neighbouring countries with almost a similar culture. On the other hand, with the expansion of Walmart to the distant countries and culturally dissimilar economies, the international expansion strategies of the company also changed. For example, in Japan because of highly dissimilar culture, the company did not make a direct entrance by opening its own stores rather the company acquired the shares of a Japanese company. Current Strategic Situation of Walmart To analyze the current strategic situation of Walmart, the strategic analysis of Walmart has been done in Japan. Actually, company entered into the Japanese market in 2007 which was a very bold step for the company. From 2007 to present, company has not made any other bold strategic move. Therefore, the position of the company in the Japanese market can best interpret its current strategic situation in the international market. As long as, presence of Walmart in Europe, U.S. and other economies is concerned, company is enjoying successful and profitable operations. Strategic Macro-environment Analysis PEST analysis has been done to understand the macro-environmental factors in Japan. PEST Analysis 1. Political Government has strong influence on the operations of the Japanese retail sector. For example, most of the retail stores are less 500 square meters because of the high land prices and strict regulations. The government aims to reduce the influence of the large stores by making the small stores competitive through regulatory laws. 2. Economic Japanese economy has been significantly hit by recession and the retailers (such as grocery retailers) are facing the continued problems like low consumer confidence, stagnant economy and increasing channel saturation (Marian, 2010). 3. Social The Japanese consumers have fickle taste which usually hampers the progress of foreign retailers in the Japanese market. For example, refrigerators of Japanese are two-thirds of the average size of refrigerators in U.S. and Japanese usually buy products in small amounts (Izumi and Maestri, 2007). 4. Technological Japanese retail sector is enjoying automated technology-based processes. Because of the increasing needs of small retailers and because of the entrance of huge foreign retailers in the Japanese market, significant technology developments have been seen in Japan. Strategic Micro-environment Analysis To analyze the micro-environment, Porter’s five forces, Industry analysis, and Internal analysis of the company have been done. Porter’s Five Forces Analysis 1. Competition between the rival companies The Japanese retail industry is a highly competitive industry because of the presence of a number of small retail businesses. The government of Japan supports the small businesses to make them more competitive and hinders the growth of the large stores. Moreover, the market is significantly saturated therefore; significant rivalry exists in the industry. 2. Barriers to Entry and Exit The distribution system in the retail industry of Japan is very complex, labour-intensive and tightly controlled (Nationsencyclopedia). Moreover, Japanese regulations for the foreign retail companies are very strict therefore; most of the foreign companies face huge entry barriers. 3. Threat of Substitutes In the retail industry, the products of daily use are sold therefore, there are no direct substitutes in the industry however; threat of substitutes comes from the gray market because of which the demand of branded products is affected. 4. Bargaining Power of Suppliers The retailers usually operate in a diverse product range which they get from various suppliers. Moreover, the suppliers include both the international and domestic suppliers and because of the less standardized nature of product and low switching costs, the bargaining power of suppliers is low to moderate. 5. Bargaining Power of Buyers The buyers have a huge choice when it comes to buy the consumer products. Because of the availability of all kinds of brands in the industry, the price competition increases which give advantage to buyers and increase their bargaining power. Therefore, bargaining power of buyers in the industry is moderate. Industry Analysis Walmart entered into the Japanese retail industry because of the attractiveness of the industry. In 2003, the Japanese retail industry was valued at 110 trillion yen and in 2005, it became the second largest retain industry in the world in terms of sales (Japan External Trade Organization, 2006). Figure I: Total and Per Capita Sales of Top Five Retail Markets, 2003 Source: Japan External Trade Organization, 2006 The following figure shows the breakdown of Japanese retail sector based on their business classification. The figure shows that food and beverages make the largest retail segment in the industry. Figure II: Breakdown of Retailers by Business Classification, 2002 Source: Japan External Trade Organization, 2006 The statistics released by Japanese Retail Association (2002) show that the speciality stores in Japan in 2002 were 1,136,143, supermarkets were 123,635, department stores were 357 and convenience stores were 41,769. The statistics show that speciality store is the major type of retailer in Japan. Figure III: Japanese Retail Industry Source: Japan Retail Association Competitive Environment Analysis Since Walmart is operating in all kinds of product markets therefore, for the competitors’ analysis, the three largest successful retailers have been selected. 1. IKEA Japan K.K IKEA started its operations in Japan in 2001and it is a Swedish company which entered into the business of home furnishings in Japan. The company started its operations by opening four to six retail stores in Tokyo and its competitive advantage over the other home furnishing products is the trendy and easy-to-assemble furniture (Japan External Trade Organization, 2006). 2. Coach Japan Coach Japan is a U.S. retailer which started its operations in Japan in 2001 and it is dealing in imported handbags and accessories. It gives a strong competition to Walmart because it is one of the fastest growing brands and stands on number two in terms of market shares in its business classification (Japan External Trade Organization, 2006).. 3. Land’s End Japan The U.S. based company, Land’s End Japan started its operations in Japan in 1993 and it is a catalogue and online retail which offers classic American casual wear in Japan (Japan External Trade Organization, 2006). The sales of the company are growing rapidly with the increasing internet sales trend in Japan. Internal Analysis Resources The efficient utilization of resources has proved as a competency for the organization. When Sam Walton started the company, it did not have much capital however, efficient utilization of resources allowed the company to increase its resources and expand to international market. Today, organization has huge financial assets which are allowing the company to pursue its international expansion strategies. Second, the culture and network of organization with its suppliers, customers and employees is another major resource for the company. Third, presence of the company in the world’s retail industry since 1962 has built a strong name in the world market which is another resource for the company. Competencies The primary competitive advantage of Walmart over its competitors like Tesco and Kmart is the strategic choice of geographical location into small towns and rural areas. It did not only give the first-mover advantage to the company but it also allowed the company to generate profit and expand its customer base. The inventory management strategy of Walmart is another competitive advantage of Walmart. Actually, the inventory management strategy of the company was cost efficient and it allowed the company to achieve its philosophy of low-prices. Another strategy which Walmart adopted to manage the inventory at its stores is the ‘management of merchandizing to meet the local demands by the store managers such as shelf-positioning’. Therefore, rather than following the corporate policy, the stores were fine-tuned according to the local needs of the geographical area. Moreover, the stores of the company adopted a flexible price strategy through which they were able to adjust the prices according to local demand. The operations’ strategy of Walmart is another key competitive advantage to the company. By establishing various distribution channels, company got successful in lowering its overall costs Moreover, computerized tracking of the inventory, satellite communication and electronic scanning were some other systems which gave advantage to the company over its competitors. Walmart has established strong relationships with its vendors which are also considered very significant minimizing the costs and increasing the efficiency of the company. Unlike other decentralized processes, the acquisition and purchasing of the materials was centralized at the headquarters of the company. Moreover, company kept a strong association with the large vendors electronically which did not only help the vendors to keep a check on inventory orders but also reduced the operational costs of the company. The culture of Walmart is another source of competitive advantage for the company. Since the creation of the company, it has been always admired for its customer service, frugality and transparency. More focus has been given towards employee relationship and strong organizational culture in the last two decades. SWOT Analysis Based on the above macro and micro-environment analysis, SWOT analysis has been conducted for Walmart in Japan. Strengths Weaknesses Low cost products of Walmart make them competitive in the Japanese market Culture of the company to build strong relations with customers and suppliers has proved successful in the Japanese market International brand image Huge difference between U.S. business model and Japanese business model Meeting Japanese consumer needs according to their local tastes is no less than a huge challenge for the company Opportunities Threats Developments in technology Growing international brands and their demand Expanding stores in Japan because government promote small retail stores Localizing the Walmart culture Increasing government control to make the domestic small businesses more competitive Strong association with international markets which exposes the economy to the impacts of recession Japanese consumers are culture-defensive and prefer buying their own products Strict regulations such as limited space and working hours etc Future Strategic Analysis In consideration to the above discussion and the challenges and opportunities which Walmart is facing in Japan, following strategic recommendations have been made to the company. Strategic Recommendation – Localizing Walmart Culture Although Walmart store managers are given sufficient independence to manage their stores to meet the local demands and needs however, because of the huge difference between the Japanese and U.S. culture, the growth of Walmart in Japan is being hampered. For example, the employees are given international level training such as ten-foot rule. However, according to one of the store managers in Japan, this rule is not applicable in the Japanese culture because Japanese people are very restrained people. Understating Consumers According to Seiyu President Masao Kiuchi, the biggest challenge for Walmart is to meet the needs of Japanese consumers who think if a product is too cheap, the quality is bad (Guffey, 2008, pp.70). Walmart is making the biggest mistake by offering everyday low pricing. Rather than offering everyday-low-pricing companies can offer weekly-low pricing schemes which the Japanese consumers typically prefer. Therefore, rather than pursuing international corporate philosophy, Walmart should focus on local strategies. Training Employees It is recommended to the company to train the staff of the Walmart stores by giving them local trainings rather than teaching them the rules of Walmart international philosophy. Promotional Strategies Japanese consumers are usually appealed by aesthetics and beauty because they consider it the symbol of quality. Walmart in Japan is not pursuing any promotional campaign targeting local people and communities. Therefore, it is recommended to the company that aesthetic beauty of the stores should be enhanced as a component of the promotional strategy of the company. For example, rather than making typical shelves, the company can keep the statues of famous Japanese people as shelves. Such promotional strategies will not only attract the customers but it will also present the localized image of the company. Strategic Recommendation – Expanding into Japan As a part of audacious expansion plan, Walmart joined the fifth largest supermarket chain of Japan which promised the company to provide an expensive real estate in Japan and a huge supplier network (Guffey, 2008, pp.70). However, because of the limited space regulation of Japanese government, the company could not maintain its stores as it has been maintaining in the other world economies. Many Small Stores Since Japanese laws are very strict when it comes to buy commercial real estate because Japanese government promotes competition and discourages monopoly, therefore, it is recommended to company that rather than seeking for huge size stores, company should adopt “many small stores” strategy. It will allow the company to increase its presence in the Japanese market. Mergers and Acquisition of Japanese Retailers Walmart is financially very strong and company can take benefit of this resource of the company. Walmart should pursue a more aggressive ‘merger and acquisition’ strategy to expand into the Japanese market. Rather than buying huge supermarket chains of Japan, company should also consider buying local small stores in Japan. Although this strategy will require a long term planning, however, it will surely help the company to increase its presence throughout Japan. Bibliography Anonym, n.d. Global Industry Analysis –Case Study Walmart Stores Inc. [Online] Available at: http://www.slideshare.net/Iampinkcrystal/Walmart-ppt-final [Accessed on 2 January 2011] Corporate Watch UK, 2004. ASDA/ Walmart: A Corporate Profile. [Online] Available at: http://www.corporatewatch.org.uk/?lid=800 [Accessed on 2 January 2011] Guffey, E. M., 2008. Business Communication Process and Product. 6th Edition. Cengage Learning. pp.80 Izumi and Maestri, 2007. Walmart’s Japan Choice: Bulk Up or Pull Out. [Online] Available at: http://www.reuters.com/article/idUST10749520070323 [Accessed on 3 January 2011] Japan External Trade Organization, 2006. Industry Profiles Retail. [Online] Available at: http://www.jetro.org/content/334/215 [Accessed on 3 January 2011] Japan Retail Association, n.d. Data Japan Retail Industry. [Online] Available at: http://www.japan-retail.or.jp/english/p4.htm [Accessed on 3 January 2011] Marian, P., 2010. Talking Shop: Japan’s Retailers Look Abroad for Growth. [Online] Available at: http://www.just-food.com/comment/japans-retailers-look-abroad-for-growth_id113006.aspx [Accessed on 3 January 2011] Nationsencyclopedia, n.d. Japan: Country Overview. [Online] Available at: http://www.nationsencyclopedia.com/economies/Asia-and-the-Pacific/Japan.html [Accessed on 3 January 2011] Uscubacommission, 2010. Developing International Strategic Capability: Walmart Stores Inc & Seiyu Ltd. [Online] Available at: http://www.uscubacommission.org/developing-international-strategic-capability-Walmart-stores-inc-seiyu-ltd.html [Accessed on 2 January 2011] Walmartstores, n.d. History. [Online] Available at: http://walmartstores.com/aboutus/297.aspx [Accessed on 3 January 2011] Read More