Opportunity for Expansion - Wal-Mart - Case Study Example

Opportunity for Expansion - the case of Wal-Mart Table of contents Introduction 3 2. Expansion in new markets – Wal-Mart 3 2 Background 3 2.2 Evaluation of the firm’s current expansion strategies 4 2.2.1 Organizational expansion in theory 4 2.2.2 Modes of expansion used by the organization 6 3. Conclusions - Recommendations for increasing the effectiveness of the firm’s expansion plans 7 References 11 1. Introduction The standardization of organizational performance in highly developed markets is often difficult to be achieved. Firms that have already achieved a high level of performance need to continuously update their strategies in order to secure their market position in the long term. The expansion of a firm in the international market is often considered as the most effective method for increasing organizational competitiveness and ensuring a long – term growth. In practice, this strategy can be risky, especially if it is not carefully planned. The level at which opportunities for expansion need to be used by organizations for improving their market position is reviewed in this paper. Reference is made to a specific organization, Wal-Mart, a major competitor in the global retail industry. Currently the firm operates in about 27 countries (Wal-Mart 2012, corporate website). Despite its success, the firm tries to secure its market position through continuous expansion; in US market, where the firm is based, the chances for further growth seems to be limited. The expansion in the international market seems to be the firm’s only chance for achieving a long – term growth. 2. Expansion in new markets – Wal-Mart 2.1 Background Wal-Mart is a leading firm in the international retail market. The firm’s stores are dispersed globally, making Wal-Mart one of the most powerful competitors in its industry. The firm was first established in 1962, in USA (Wal-Mart 2012, corporate website). The employees of the organization are estimated to 2.2 million worldwide (Wal-Mart 2012, corporate website). In 2009 the profits of the organization for its international activities reached the $100 billion (Tice 2010), a fact, which is considered as quite encouraging in regard to the prospects of the firm for further expansion in the international market. In 2010, the firm planned to increase their international stores, approximately by ‘600 stores worldwide’ (Tice 2010). For the US market, the establishment of just 160 new stores was considered as sufficient for responding to customers’ needs (Tice 2010). In 2012, the firm plans to invest a high amount of money, about $750 million (CBC News 2012), for expanding its operations in Canada. The above investment involves in the ‘renovation and expansion of the firm’s existing stores creating 14,000 new jobs across Canada’ (CBC News 2012). It should be noted that in 2011, the firm had developed a major plan of expansion in the US market, adding ‘hundreds of small stores across US under the name Wal-Mart Express’ (Bustillo 2011). This is an effort for expansion in the internal market, as combined with the expansion internationally, which is considered as quite important for standardizing the firm’s performance in USA. The opportunities of expansion given to Wal-Mart, as described above, are analyzed below; reference is made to appropriate theory but also to the practical implications of the particular initiatives. Also, the potential effects of these strategies on the organization’s performance are discussed, as they can be estimated by using the figures presented in the firm’s financial reports for the last 5 years, a period during which the firm’s efforts for expanding internationally have become intensive. 2.2 Evaluation of the firm’s current expansion strategies 2.2.1 Organizational expansion in theory The decision of organizations to expand their activities internationally can be based on different criteria. According to the ‘monopolistic advantage theory’ (Luo 1999, p.27), organizations may decide to expand in the global market in order to identify ‘monopolistic advantages’ (Luo 1999, p.27). Such advantages are more likely to exist in developing markets; thus the above theory can be applied only when the expansion of a firm in a developing market is attempted. From a different point of view, the internationalization theory focuses on the potentials of multinational firms ‘to transfer resources’ (Luo 1999, p.27). Reference can be made for example, in the case of transfer of technology (Luo 1999). This theory could be possibly used when evaluating the efforts of Wal-Mart to expand its operations – at least, in regard to the entrance of the firm in foreign markets, such as the Canadian market, an issue discussed above (CBS News 2012). On the other hand, Cummings & Worley (2008) noted that the expansion in the global market is often attempted as a means for increasing a firm’s competitiveness towards its rivals, a condition that seems to exist in the case of Wal-Mart. In any case, it seems that the effective development of expansion strategies requires that the resources required are available; this fact is highly emphasized in the study of Cummings & Worley (2008) where reference is made to two critical factors of expansion plans: highly skilled employees and advanced technology. It should be noted that expansion is not always an effective method for improving organizational performance. This issue is highlighted in the study of Aldrich (2007) where reference is made to the following fact: often organizations with non-integrated culture use expansion as a means for increasing their range of activities (Aldrich 2007, p.247). Indeed, such organizations are more likely to welcome different cultures and ethics, and have more chances to succeed in the global market, at least if compared to organizations which are highly centralized, and which tend to reflect to all their activities the culture of the home country. In Wal-Mart no such problem seems to exist. Instead, the organization promotes diversity and emphasizes on the need of flexible policies, which respond to the needs of each market. 2.2.2 Modes of expansion used by the organization Since its establishment, Wal-Mart has achieved a significant growth, as already explained above. This fact allowed the continuous expansion of the organization across USA. However, soon, another problem appeared: the further expansion of the firm within the US market seems to be difficult, due to ‘the saturation of the particular market’ (Tice 2010), as related to the branches of the specific organization. More specifically, the wide spaces available for activities similar to those of Wal-Mart are now rare in USA (Tice 2010). The firm’s managers had to seek for such spaces in the global market. Indeed, in 2010, an increase of the firm’s stores worldwide was decided; in the context of this decision, the firm would establish about 600 more stores internationally (Tice 2010). The potential increase of the firm’s investment on specific countries was also examined; in 2012, the firm’s strategic managers decided to proceed to a significant investment, of about $750 million, on the firm’s stores in Canada (CBC News 2012), identifying probably key opportunities for long term organizational growth; in Canada, the expansion of the organization has been combined with ‘the launch of Target stores’ (CBC News 2012). In both the above cases, the firm’s plans involved in the establishment/ improvement of stores controlled by the central offices of the organization; this means that the firm has not used an ‘adaptability strategy, which focus on the establishment of units being able to respond to changes’ (AlMaraghy 2011, p.167). At the same time, the firm has expanded its activities in the internal market, establishing small stores across USA inaugurating a new organizational unit: the Wal-Mart Express (Bustillo 2011). In other words, the expansion of the firm both locally and internationally has been developed combining three different practices: the opening of new stores, the development of strategic alliances – merger and the alteration of existing business structure/ image. 3. Conclusions - Recommendations for increasing the effectiveness of the firm’s expansion plans The firm’s current expansion strategies, as described above, would be analyzed by referring to the relevant suggestions of the literature, so that risks are minimized. According to Plunkett, Attner & Allen (2007) a business level strategy can offer to a firm a competitive advantage in the following ways: in the context of the business level strategy, the firm’s internal and external environment are aligned (Plunkett, Attner & Allen 2007), a fact that reduces risks when new organizational plans are to be applied. However, the business level strategy should be enforced using one or more of the following four strategies: ‘prospector, defender, analyzer and reactor’ (Plunkett, Attner & Allen 2007, p.181). Expansion is part of the prospector strategy, which is appropriate for the development of organizations, which are ‘flexible, creative and innovative’ (Plunkett, Attner & Allen 2007, p.181). Under these terms, in order for Wal-Mart to be highly benefited by expansion, as a strategy for supporting organizational growth, it should ensure that its operations are based on flexibility, creativity and innovation. The firm’s existing policies and practices seem to met the above terms; however, more emphasis should be given on these factors so that the success of the firm’s expansion attempts to be secured. The firm’s managers could also use the ‘Malcome Baldride criteria’ (Hertz 1999, p.1) in order to ensure the success of their organization’s expansion plans. The above criteria set the terms of performance excellence, meaning that if they are incorporated in a business strategy, the chances for success are significantly increased. These criteria are presented in Figure 1, below. It is clear that managers in Wal-Mart would focus on the specific sectors during all phases of the firm’s expansion plans; in this way, risks would be minimized while the firm would be given a competitive advantage towards its rivals. Figure 1 - Malcome Baldride criteria of performance excellence, as in Hertz, 1999, p.5 Another framework that would be possibly used for the increase of effectiveness of the firm’s expansion plans would be the EFQM Business Excellence Model (Milgate 2004, p.45). The above framework is based on the following idea: the firm’s existing strategies would be evaluated by using three different approaches: the Total Quality, which promotes the interests of shareholders, the Business Excellence Framework, which focuses on ‘the increase of value of a firm’s daily operations’ (Milgate 2004, p.45) and the Balanced Scorecard, which allows the use of the firm’s financial results for estimating the potential effectiveness of a critical organizational strategy. In this context, the firm’s existing expansion plans should be reviewed and updated, taking into consideration the following issues: a) are the firm’s expansion strategies going to promote shareholders’ interests, b) are the firm’s daily operations appropriately structured and monitored; reference is made in particular to the new stores of the organization both in local and the international market, and c) which would be the profits expected by these new stores? In other words, would the investment made on the firm’s expansion plans be fully repaid? According to Lusthaus (2002) the evaluation of organizational performance would be developed in four, distinctive, levels; this means, that when measuring the performance of a particular organization managers should focus on four different performance indicators: ‘employee performance, group performance, program performance and organizational performance’ (Lusthaus 2002, p.107). This means that the performance of each organization depends on the performance of each employee, as revealed through Figure 2, below. In Wal-Mart the success of the firm’s expansion plans would be depended on the measures taken by managers so that employees involved in these plans are appropriately trained for responding to the customers’ expectations and promoting the goals of the organization. Figure 2- Performance indicators (Lusthaus 2002, p.107) From a different point of view, Ketikidis (2006) emphasize on the importance of WWW as a factor influencing business performance. The above researcher notes that the chances for success of business plans are highly increased if emphasis is given on the image of the organization in the online community; in other words, the use of social media for promoting the firm’s initiatives is considered as quite important, under the terms that it is well organized. Wal-Mart has already established an effective online feature, the ‘Site-to-Store online shopping program’ (Tice 2010), which allows customers to review the firm’s products and ‘make orders to the firm’s nearest store’ (Tice 2010). Still, the online presence of the organization would be further improved, meaning especially the promotion of the firm’s products and plans using the social media (such as Facebook, Twitter, Linked In, You Tube and so on). An important term for the success of organizational plans is highlighted in the study of Greve (2003). According to the above researcher, the measurement of business performance should be based on the organizational learning theory (Greeve 2003). This theory is based on the idea that the performance of each organization can be effectively monitored using performance feedback (Greeve 2003,p.10), which can help to reveal gaps and weaknesses in a firm’s plans and operations. It is clear that a series of strategies and techniques are available to the organization for increasing the effectiveness of its expansion plans. The level at which each of these strategies could be applied depends on the ability of the firm’s managers, the willingness of each employees but also the response of customers to the firm’s initiatives. The performance of the firm in the last 5 years (Graph 1, Appendix) verifies the success of the firm’s expansion efforts; in fact, the units of the firm in the international market are more than its units within USA, indicating the value of expansion as a core strategy of the organization. References Aldrich, H. (2007). Organizations and Environments. California: Stanford University Press. AlMaraghy, H. (2011). Enabling Manufacturing Competitiveness and Economic Sustainability: Proceedings of the 4th International Conference on Changeable, Agile, Reconfigurable and Virtual Production (Carv2011), Montreal, Canada, 3-5 October. New York: Springer. Bustillo, M. (2011). Wal-Mart to Expand Express. March 11, 2011. Wall Street Journal. Retrieved April 5, 2012 from http://online.wsj.com/article/SB10001424052748704823004576192730258339252.html CBC News (2012) Wal-Mart targets Canada with $750M expansion. February 7, 2012. CBS News. Retrieved April 5, 2012 from http://www.cbc.ca/news/business/story/2012/02/07/walmart-canada.html Cummings, T., & Worley, C. (2008). Organization development & change. Belmont: Cengage Learning. Greve, H. (2003). Organizational Learning from Performance Feedback: A Behavioral Perspective on Innovation and Change. Cambridge: Cambridge University Press. Hertz, H. (1999) Criteria for Performance Excellence: Baldrige National Quality Award. Darby: DIANE Publishing. Ketikidis, P. (2006) e-Technology and Manufacturing Enterprise Competitiveness. Bingley: Emerald Group Publishing. Luo, Y. (1999). Entry and cooperative strategies in international business expansion. Westport: Greenwood Publishing Group. Lusthaus, C. (2002). Organizational assessment: a framework for improving performance. Washington: IDRC. Milgate, M. (2004). Transforming corporate performance: measuring and managing the drivers of business success. Westport: Greenwood Publishing Group. Plunkett, W., Attner, R., & Allen, G. (2007). Management: Meeting and Exceeding Customer Expectations. Belmont: Cengage Learning. Tice, C. (2010) Walmarts Huge Overseas Expansion Distracts From Its Domestic Saturation Problem. April 23, 2010. CBS Money Watch. Retrieved April 5, 2012 from http://www.cbsnews.com/8301-505123_162-43940402/walmarts-huge-overseas-expansion-distracts-from-its-domestic-saturation-problem Wal-Mart (2012) Corporate website. Retrieved April 5, 2012 from http://walmartstores.com/AboutUs/ Appendix Graph 1- Net sales of Wal-Mart from 2007 up to 2011 (Source: Wal-Mart Annual Report 2011, p.2) Graph 2 – Presence of Wal-Mart worldwide in terms of operational units (Source: Wal-Mart Annual Report 2011, p.2) Read More