Wal-Mart Stores Inc Analysis - Case Study Example

A company case report: Wal-Mart Stores Inc. Name Professor Institution Course Date A company case report: Wal-Mart Stores Inc. Executive Summary This report is prepared to describe and analyze key international business challenges the Wal-Mart Stores, Inc. is facing. The report will also make recommendations to the company for addressing its challenges. To achieve its objectives, the paper will start by describing the company background and identify the International Busines challenges, and then use relevant concepts and frameworks to recommend solutions to the challenges. Some of the challenges to be analyzed include economic downtown in Mexico, consumer behavior, employees’ protests and competition. Table of Contents A company case report: Wal-Mart Stores Inc. 2 Executive Summary 2 Table of Contents 3 1.0 Introduction 4 2.0 Company Background 4 3.0 Challenges faced by Wal-Mart 5 3.1 Economic Slowdown in Mexico 6 3.2 Consumer Behavior in China and other markets 7 3.3 Employees’ protests 9 3.4 Competition 10 4.0 Recommendations 11 5.0 Conclusion 13 6.0 References 14 1.0 Introduction Over the years, competition has increased greatly in world markets due to rise in globalization and advancement in technology (Mathews 2006, p.6). In the situation, Wal-Mart has found itself scrambling for markets with established and new companies. Gary & Christian (2009, p.574) contends that Provision of similarly products in many instances has forced Wal-Mart to lower its prices in order to counter and sustain competition. Even though the company has lowered its prices and used other forms of strategies, it has never been enough (Fishman 2006). Recently, it has faced multiple challenges making it unable to reach its potential. Therefore, this report is prepared to describe and analyze key international business challenges the Wal-Mart Stores, Inc. is facing. Some of the challenges that will be discussed include economic slow down in Mexico, change in consumer behavior, particularly in China, employee protest and increasing competition. 2.0 Company Background Wal-Mart Stores Inc. is a global retail corporation which runs chains of discount warehouse and stores. According to Wal-Mart (2014), the corporation was established in Bentonville, US in 1962 by Sam Walton, but incorporated it in 1969. Barstow (2012) posits that the company has since grown and now has more than 10,000 stores within 28 countries. These stores run under a total of 55 dissimilar banners. For instance, in the UK it operates as Asda while in Japan as Seiyu. Wal-Mart became very successful in the late 1980s and early 1990s (Nelson 2009). In these years, it was profitable compared to its competitors such as Sears and Kmart and dominated the Bible Belt based on sales and revenue (Barstow 2012). The company operated through its chains in its products such as cash and carry or warehouse club, apparel or footwear, discount stores, supermarket or hypermarket or superstore, food and drugs, retail grocery and other eCommerce businesses. Even today, Fortune Global 500 list of 2014 ranked Wal-Mart as the largest corporation by and retailer revenue (Wal-Mart 2014). It is also the largest private company globally with more than two million workforce worldwide. Wal-Mart Stores Inc is a family business managed by Walton family. According to Nelson (2009), this family owns more than 50% of the company through their firm, Walton Enterprises. The operation of Wal-Mart is structured into three sets of divisions including Wal-Mart U.S, Wal-Mart International and Sam's Club. In 1792, New York Stock Exchange publicly listed Wal-Mart (Wal-Mart 2014). In the recent years, the investments of Wal-Mart out of North America have registered mixed performance. Fran (2010) claims that whereas of their businesses operations in South America, China and the UK are very successful, South Korea and Germany have declined considerably. 3.0 Challenges faced by Wal-Mart For a very long time, Wal-Mart has managed to create a monopoly through broad expansion and price strategies. However, recently, it has seen the company struggle due to various challenges. Whist domestic business of Wal-Mart Stores has performed poorly in the last two years; its global business has also not performed well (Barstow 2012). Marred with weakness in China, Brazil and Mexico, the international revenues of Wal-Mart rose by a sheer 1 percent and its profits per square feet dropped by 4.2 percent in 2013 (Wal-Mart 2014). Poor performances from Mexico have become a big challenge for this company, because it forms the company’s major global market with nearly 2,310 stores. Even though China does not add much to the company’s profits, this market is of critical significance for its long term success. Hence, addressing these challenges faced here must be among top priorities for Wal-Mart Management. In Mexican front, the recent economic slowdown is regarded as the key reason which has led to Wal-Mart’s bleak sales. The challenges the company is facing are deeper in China compared to Mexico. In this country, Wal-Mart has conducted its business for the last 18 years, but has only managed to open 405 stores (Treffis 2014). The company has had problem with recognizing perceptive Chinese customers since their purchase decisions are not often driven by the prices. Chinese consumers are usually lean towards a shopping atmosphere which portrays a local touch and also tailor-made goods (Teo & Yu 2005, p.457). Whilst the strategies of Wal-Mart to get used to local tastes and preferences have not materialized, local chain of company, the Sun-Art group has extremely performed well. Treffis (2014) argues that Sun-Art group has majorly imitated the business model of Wal-Mart and has understood well consumer behavior; a factor which has enabled it to win the hearts of Wal-Mart’s consumers. 3.1 Economic Slowdown in Mexico Even though, the retail sales in Mexico have risen gradually for the last few years, they have stayed weak in from 2013 because of reduced consumer confidence and the general economic downturn (Fran 2010). In 2013, the economy of Mexico only expanded by 1.1 percent, owing to low demands in export, weak consumption and low government spending (Treffis 2014). The situation marked the sluggish economic growth in the region in the past four years. In addition, in 2013, confidence index the consumer dropped significantly to 89.7, getting its lowest rate in the period of two years. The index further dropped to 84.8 in early 2014 owing to increase in taxes which prevented customers from freely spending. Fran (2010) states that because of weak economic environment in Mexico and continued expansion by Wal-Mart, the company’s comparable sales and general performance in the region averagely dropped by 2.2 percent for 6 successive quarters (Wal-Mart 2014). In nearly these quarterly results, the company quoted low outlet traffic as the major grounds for its sales decrease. Low spending within Mexico has compelled the fourth biggest chain in Mexico, Comercial Mexicana to think of selling this business. Whilst the country has a substantial potential to growth in a long term perspective, its slow growth has continued to disadvantage Wal-Mart stores. 3.2 Consumer Behavior in China and other markets As the second biggest economy worldwide, China has become a lucrative economy for western companies because of its large population, increase number of middle class and growing disposable incomes (Matusitz 2011, p.672). Getting into Chinese market in 1996, at that time, the company became one the first businesses to capitalize on the growth opportunity. Nevertheless, the lack of capacity to understand local market demand has complicated it for foreign companies to gain considerable market presence in China (Lessard, Lucea& Vives 2012, p.3). It is in this perspective that Wal-Mart has also struggled to improve its market share. According to Treffis (2014), Wal-Mart store in China contributes roughly 2 percent to the overall revenues of the company which is unexpected taking into consideration that Chinese market is one of the rapidly growing economies in the globe. Wal-Mart’s attempt to grow in China has been checked by the dominance of Sun-Art Group (Treffis 2014). Porter (2008, p.81) claims that without considering prices, Chinese consumers are often apprehensive of quality and authenticity of the products. Whilst “every day low prices” strategy adopted by Wal-Mart has become successful over the years across the world, it has been considered as unsafe and cheap in Chinese market. On the other side, Wal-Mart store’s Chinese competitor Sun-Art Group has performed well with its localized strategy (Porter 2008, p.83). In spite of the low presence compared to Wal-Mart Store, Sun-Art group has a high share of the market (Paul, Qingyuan & Hayagreeva 2010, p.67). It is believed that better recognition and understanding of Chinese consumers by Wal-Mart has become its competitive advantage. Chinese consumers are adapted to purchasing groceries at domestic markets. Treffis (2014) pines that Sun-Art offers such experience by offering domestic “Chinese street look” with its seafood crabs exhibited on noodle stands and table tops. A mixture of a supermarket and street market has become more attractive to consumer in Chinese market. Reasonably, Wal-Mart’s usual big box approach holds a lower attraction making its efforts against local companies not to be successful (Barstow 2012). The company sources almost 95 percent of its products locally and employs Chinese citizens to operate its outlets, which has helped to some extent, but Wal-Mart must implement localized approaches better or equal to that of Sun-Art so as to draw more customers (Mathews 2006, p.14). The retailer requires doing away with the big box look and to modify its outlets whilst maintaining its daily low price strategy. 3.3 Employees’ protests Another challenge experienced by Wal-Mart in international market is the frequent employees’ protests (Barstow 2012). According to Wal-Mart’s website (2014) today, Wal-Mart is ranked as the leading company with more employees in the US, employing nearly five times more than IBM. As a company which has expanded and operates in 27 countries across the globe, it has employed people from different cultural background and with different needs. Hence, meeting all their demands has become very difficult. While in some culture, encouragement is appreciated as a form of motivation, in other words, culture rewards of salary increment and other financial works much better (Matusitz 2011, p.669). Low wages and other forms of motivating factors are some of the grounds under which protest have happened at Wal-Mart. Paul, Qingyuan & Hayagreeva (2010, p.57) argue that with nearly 2.2 million workforces globally, Wal-Mart has undergone a stream of issues and lawsuits regarding its employees. As stated earlier, some of the reasons for protest have been poor working environment, low wages, and poor health care, including the retailer’s extreme anti-union policies (Norman 2004). National Labor Relations Board (NLRB) announced in 2013 that it had established that Wal-Mart in 13 states in the US pressured staff to stay away from strikes on Black Friday (Alana 2013). They went ahead to unlawfully discipline employees who engaged in protests. Opponents point out the high rate of turnover at Wal-Mart as the proof of unhappy employees, even though other aspects could be involved. Abrahamson (2004) affirms that research conducted by Oklahoma State University indicates that about 70 percent of the staff resigns almost each year. High rates of employees have significance effects on the companies. Employees’ turnover have a high negative effect on the company performance. It lowers employees’ morale since they will always work thinking of his job security (Abrahamson 2004). Also, organization in which employees’ plight is not being listened to, as witnessed with Wal-Mart is a ground for low morale and lack of job commitment. In times when employees protest, operation has frequently been interrupted leading to loss of profits. Similarly, in the event that the company sacks employees, the management has to commit extra costs to recruitment for new employees. Protests have dented the image of Wal-Mart as a company which does not care for the welfare and human rights of its staff. Hill (2013) holds that a research by RainMaker Group considers that the situation can cost approximately one-half o the skilled employees’ salary to get a replacement for the employee who has resigned. On the other hand, replacing an international a high level manager is likely to cost the company three or five times of his or her annual salary (Hill 2013). 3.4 Competition As stated earlier, Wal-Mart is ranked by Fortune Global 500 list of 2014 as the largest corporation in the world based on its revenue. The company does well in some market like UK where its chain Asda is ranked number two (Wal-Mart 2014). However, that does not mean that the company does not face challenges. In fact competition has become one of Wal-Mart's strong challenges. Gary & Christian (2009, p.577) contend that in America alone, particularly North America, the company faces major competition from department stores such as Publix, Kmart, ShopKo, Meijer, Giant Tiger, Target, The Real Canadian Superstore from Canada, and Soriana and Comercial Mexicana both from Mexico. Just like the US division, Wal-Mart’s division Sam's Club face fierce competition from Costco, and BJ's Wholesale Club in eastern US. In 1990s, the company even tried to diversify its products and ventured into the grocery business and made it to compete against big supermarket chains in Canada and the US (Wal-Mart 2014). Even in this segment, Wal-Mart has continued to receive a strong competition from a grocery company WinCo Foods. Numerous smaller companies, majorly dollar stores like the Dollar General and Family Dollar have in the past established niche market and currently competes with Wal-Mart in home consumer products category (Gary & Christian 2009, p.578). Also, Wal-Mart reacted by creating its dollar model and set “Pennies-n-Cents in 2004” (Wal-Mart 2014). The company had strong competition in Germany and only managed to attain 2 percent growth from 1997 when it entered the market. The stiff competition from Addi Company which had 19% market share made it to withdraw its operations in 2006. While withdrawing it operations, the management sold its stores to Metro Company. Porter (2008, p.86) maintains that Stiff competition in terms of product similarity has led Wal-Mart to withdraw its operations in other markets such as South Korea. After making an entry into South Korea in 1998, the company sold and withdrew all 17 stores to Shinsegae for $884 million in 2006 (Wal-Mart 2014). Competition denies Wal-Mart from making maximum revenues and even withdrawal from its target market. 4.0 Recommendations The company has faced several challenges in the recent years and must therefore change its strategies to be sustainable during economic down, understand customer behavior, sustain competition and contain employees’ protests. The following recommendations are proposed; One of the challenges that has led to Wal-Mart’s revenue drop is the economic downtown in Mexico (Treffis 2014). It can therefore be suggested that the Wal-Mart’s management to invest in strategies which can sustain the company even in economic difficulties. There are many opportunities to seek to revamp the profits of this company. Some of the strategies involve selling some shares to its competitors such as Sun-Art Group, Soriana and Kmart among others (Kiechel 2010). This will result to two things; increased of revenues and buying of Wal-Mart Products using competitors’ stores. Over the years, Wal-Mart has adopted a low price model which it calls “low price everyday”. However, in some instance like in China, it has not worked well because not all customers are price-oriented (Luo & Tung 2007, p.485). Chinese consumers are usually lean towards a shopping atmosphere which portrays a local touch and also tailor-made goods. Treffis (2014) suggests that Wal-Mart needs to reposition itself as a premium pricing company yet providing products with local touch. Such strategy would help the company compete with strong local companies such as Sun-Art Group. Premium pricing is beneficial in that it can be used to rapidly break even and recover funds used in the expansion. It also creates a perception that the company actually provides high quality products (Weigelt 2013, p.7). In most cases, the company like Wal-Mart has entered directly into new markets including Argentina, Mexico, China, South Korea, Canada, Brazil, the UK and Canada (Gary & Christian 2009, p.579). The company has struggled in China and South Korea because it has failed to recognize consumer needs. To reduce competition and the inability to satisfy customer needs, Wal-Mart can create a joint venture with local companies so as help them understand and appreciate customers’ needs. In that way, they can be able to develop and sell products which are tailored specifically to Chinese consumers. Cuervo-Cazurra (2007, p.261) claimed that by creating a strategic partnership with strong luxury brands, the company will have the capacity to leverage off the high profile of its partner and its customer base. Repositioning strategy has an outstanding effect on Wal-Mart. Mathews (2006, p.12) contends that the basis of this approach is that it will create a robust market analysis matrix and risk mitigation which is aligned with market strategy of the new locations. When such strategies are in place, the company is able to review its external environmental aspects related to new locations and aligning them with Wal-Mart core competencies. Porter (2008) postulates that while at it, internal factors like brand alignment, organizational resources and market significance has to be taken into consideration and weighed against external factors to realize organizational risk and value in the market selection. Lastly, Wal-Mart must devise an effective way of motivating employees. First, the leadership approach must be changed to transformational, which incorporates employees’ involvement. As the biggest assets in the company, keeping the morale high make them to own the company and work towards improving performance (Paul, Qingyuan & Hayagreeva 2010, p.67). Therefore, involving them in decision-making and allowing them to join union to negotiate labor relations is healthy for an organization performance. 5.0 Conclusion The research has discovered the Wal-Mart enjoys dominance as the largest company and the strongest brand in the retail market. In the recent past the company has faced a strong competition from established and new companies forcing the management to sometimes withdraw from the market. The challenge is however thrown to the management that if they want to continue leading in the retail market, they must ease competition by seeking new opportunities. Some of these opportunities include trying to invest in successful and similar markets, and creating joint venture and partnership with established companies in new markets to reduce global business risks. 6.0 References Abrahamson, E 2004, Change without pain: How managers can overcome initiative overload, organizational chaos, and employee burnout Boston, Harvard Business School Press. Alana, S 2013, Fully staffed NLRB investigates complaints against Wal-Mart, latimes.com Barstow, D 2012, Wal-Mart Abroad, The New York Times. Cuervo-Cazurra A 2007, Sequence of value-added activities in the multinationalization of developing country firms, Journal of International Management Vol.13, No.3, pp. 258-277. Fran, D 2010, Head of Walmart tells WFU audience of plans for growth over next 20 years, Winston-Salem Journal. Fishman, C 2006, The Wal-Mart Effect: How the World's Most Powerful Company Really Works—and How It's Transforming the American Economy, New York, The Penguin Press. 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