Walmart Launch Times Retail Industry Assessment - Essay Example

? Wal-Mart - Case Study - Number and Number Number of Words: 3,285 Q How attractive was the discount retailing industry in the USA when Wal-Mart first began operations in the 1950s. In 1950s, Wal-Mart started its grocery retailing business in rural and small towns particularly in Arkansas, Rogers, and Walton (Scholasticus, 2011; Gross, 1997, pp. 269 – 272). Since the establishment of small retail store outlets in isolated areas made it easier on the part of Wal-Mart’s target consumers to purchase consumer products without having the need to travel to far-away places, Wal-Mart as a brand has created a positive image which made the company gain the loyalty of its existing consumers (Taub, 1986, p. 30). To determine how attractive the discount retailing industry in the United States when Wal-Mart started its business operations back in 1950, Porter’s five forces framework will be used in analyzing external business environment. Porter’s Five Forces Analysis Framework Barriers to Entry and Industry Competitors Specifically the low capital requirement in establishing small- and medium-scale grocery retailing business tightens the market competition within the grocery retailing industry in rural and small town areas. Using the Porter’s five forces framework, the threat of entry is high since anyone can easily establish small- and medium-scale supermarket retailing store outlets throughout the different geographic areas in the United States. In order to gain competitive advantage as compared to small- and medium-scale grocery retailers in US, Wal-Mart decided to continuously expand the number of its existing retail store outlets in Arkansas, Rogers, and other parts of the United States (Scholasticus, 2011; Gross, 1997, pp. 269 – 272). Through economies of scale, strengthening its brand equity, increasing the quality service rendered to its target consumers, and maximizing the use of its existing human and technological resources, Wal-Mart was able to increase its competitive advantage against its close competitors (Schonberger, 2008, p. 113). These strategies empowered Wal-Mart in terms of preventing small- and medium-scale grocery retailers grab a bigger market shares within the discount retail industry in the United States. Bargaining Power over Suppliers As the number of Wal-Mart discount retail store outlets in the United States increases, the volume of food and non-food supply requirements also increases. It is the ability of Wal-Mart to order food and non-food consumer items by bulk makes the retailing store outlet’s bargaining power over its accredited suppliers high. Since Wal-Mart’s demand for food and non-food supplies is continuously increasing, the company has been exerting effort in locating local American manufacturers of food and non-food items that are willing to supply consumer products to all Wall-Mart discount retailing stores at the lowest possible price (Ungson and Wong, 2008, p. 164; Taub, 1986, pp. 30 – 31). Bargaining Power over Buyers Wal-Mart is selling homogenous food and non-food products. It means that any small- or medium-scale grocery retailing stores can easily sell the same commodities that Wal-Mart is selling. This makes Wal-Mart’s bargaining power over its buyers relatively low. Selling homogenous products at a higher selling price as compared to other sellers would make price-sensitive consumers decide to purchase their grocery items from other grocery stores that sell cheaper consumer products. Upon analyzing the case of Wal-Mart, it is clear that Wal-Mart is not in the position to dictate the selling price of its basic consumer products. Threats of Product Substitution Any person can easily establish their own grocery retailing business. Having in mind that the threat for food and non-food product substitution is high, the target buyers of Wal-Mart have the power to simply decide on purchasing its preferred grocery items from other nearby grocery stores. Discussion Back in mid-1950s, discount retailing within the supermarket industry started to emerge in the United States. Since market competition within the grocery retailing industry is tight, Wal-Mart had to maintain the loyalty of its valued customers by strengthening its competitive advantage as compared to its close competitors. Pertaining to Wal-Mart’s competitive advantage, the features of the US discount retailing industry back in 1950s focused on selling food and non-food products at a relatively low margin (Hill and Jones, 2010, p. 86; Taneja, 2004, p. 112). In line with this, the process of being able to sell consumer goods at the lowest possible price increases the attractiveness of Wal-Mart as one of the most competitive discount retailing stores in the United States. As a way of creating value, Wal-Mart was able to purchase consumer goods items cheaper as compared to small- and medium-scale grocery retailers. Likewise, the company’s decision to maximize the use of its existing human and technological resources made the company able to sell the food and non-food items at a lowest possible market price (Hill and Jones, 2010, pp. 86 – 89). Conclusion The discount retailing industry in the USA when Wal-Mart first began operations in the 1950s is very attractive. Given that the business philosophy of Wal-Mart has been successful in terms of capturing the attention and willingness of Wal-Mart’s target consumers to purchase high quality food and non-food products at relatively low prices, a lot of other grocery retailers inside and outside the United States today are following the business concept which was once pioneered by Wal-Mart back in 1950s. Q.2 With reference to the key components of its Business Model, describe the sources of Wal-Mart’s competitive advantage in the USA. Business models are commonly used in enabling business organizations become successful in terms of increasing its business profitability and capturing the biggest market shares. To meet its customers’ preferences and product requirements, Wal-Mart employed the process of combining low-cost and loyalty business model in order to increase its business success rate. To effectively describe the sources of Wal-Mart’s competitive advantages in the US market, it is important to identify and determine the factors that define these models followed by relating it to Wal-Mart’s actual business scenarios. Low-Cost Business Model One of the key success factors of Wal-Mart lies behind its principles of being able to offer Everyday Low Prices (EDLP) to its valued consumers (Schonberger, 2008, p. 111; Fernie et al., 2006). Based on this particular business philosophy, the ability of Wal-Mart to sell consumer goods at a low price enabled the retailing business able to build and maintain the trust of its customers when it comes to pricing (Hill and Jones, 2010, p. 86). As a result of significant increase in sales volume, Wal-Mart is able to earn higher profit margin as compared to its close competitors who are selling grocery products at a higher price (Rhodes and Stelter, 2010, p. 139). As part of selling grocery items at the lowest and most reasonable prices, Wal-Mart established a self-service supermarket setting that has invested on limited fittings and fixtures in each of its store outlets (Hill and Jones, 2010, p. 90). This is one factor that could differentiate Wal-Mart from the rest of its competitors. Since other grocery retailers back in 1950s hire excessive manpower to give extra service to the consumers, other traditional grocery businesses were unable to sell food and non-food products at a very low price. Aside from having the competitive advantage of selling food and non-food products at reasonably low market prices, Wal-Mart was able to build its value propositions that were heavily based on the company’s ability to meet the specific needs and preferences of its target consumers. In line with this, satisfying the specific needs and wants of Wal-Mart’s target consumers contributes to a significant increase in customers’ satisfaction. As a result, the company was able to win and maintain the loyalty of its valued customers. Selling food and non-food products at a relatively low market price, the business system of Wal-Mart was designed in such a way that the company will be able to cut down its daily operational costs without sacrificing the delivery and availability of high quality food and non-food products and/or services at the right market channels. To prevent the risk of product obsolete and spoilage of frozen and canned food items, Wal-Mart invested on information technology for business monitoring and logistics. Through the use of radio frequency communication tools, Wal-mart was able to reduce the risk of not being able to sell its food and non-food items on time (Ungson and Wong, 2008, p. 165). In fact, having an effective procurement and distribution network made it possible for Wal-Mart to maintain close to zero inventory level as much as possible (Hill and Jones, 2010, p. 90). Aside from effectively reducing the cost of inventory and logistics (Schonberger, 2008, p. 113), the low-cost business model of Wal-Mart made it possible for the company to immediately respond to each of the customer demands (Hill and Jones, 2010, p. 90; Schonberger, 2008, p. 113). Since the use of effective procurement and distribution network enabled the company minimize unnecessary daily operational costs, establishing an effective supply chain management was one of the key factors that has contributed to Wal-Mart’s competitive advantage against its competitors. Loyalty Business Model Wal-Mart’s loyalty business model is not only focused on building close business relationship with its target consumers but also with their accredited suppliers and employees. To increase the quality service rendered by Wal-Mart employees to its valued customers, the company takes care of its employees’ needs by empowering them with proper training programs, the company’s profit-sharing plans, and employment benefits associated with awarding them with increase in company’s stock price (Taneja, 2004, p. 112). To win the loyalty of its target customers, the owner of Wal-Mart decided to sell consumer products at a relatively low price (Gupta, Govindarajan, and Wang, 2008, p. 71; Fernie et al., 2006; Taneja, 2004, pp. 112 – 113). Aside from maintaining a high quality customer service by training employees to be friendly and courteous to the customers, the company also ensures that whatever its target customers’ need can be found in Wal-Mart store outlets as a one stop shop, regularly renovates and keeping its discount store outlets attractive in the eyes of the consumers, and maintaining the cleanliness in each of Wal-Mart’s store outlets in order to provide its customers a sense of value and belonging (Gupta, Govindarajan, and Wang, 2008, p. 71; Fernie et al., 2006). There is a strong need for Wal-Mart to be able to offer a wide-range of food- and non-food products that its customers could choose from (Fernie et al., 2006). To establish a close business relationship with its accredited suppliers, Wal-Mart maintains a small group of accredited suppliers so that the company will be able to ensure that Wal-Mart will be able to purchase high volume of consumer products from its accredited suppliers (Ungson and Wong, 2008, p. 164). Q.3 How sustainable is Wal-Mart’s competitive advantage in discount retailing in the USA? Since 1950s, Wal-Mart was able to establish its competitive advantage as a company that offers low market prices on food and non-food products. Aside from the continuous expansion of Wal-Mart’s retail store outlets within and outside the United States, the company also heavily invested on its information technology improvements in order to enhance the efficiency of its procurement, inventory and delivery system. Specifically Wal-Mart’s decision to continuously increase the number of its retail grocery store outlets aims at making it convenient on the part of its target consumers to purchase low-cost food- and non-food items that can be found in Wal-Mart’s retail stores (Fernie et al., 2006). Upon analyzing the business strategies that was adopted by Wal-Mart, it is clear that the company’s sustainable competitive advantage has been focused on pricing (Fernie et al., 2006; Jensen, 2001, p. 107). By continuously finding ways to cut down on its daily operational costs, Wal-Mart is able to offer its customers with a wide-range of products at the lowest possible price. At the end of the day, the main purpose of Wal-Mart’s sustainable competitive advantage is to increase the company’s profit margin. Even when the company is selling food and non-food products at a lower market price as compared to its competitors, the fact that Wal-Mart is capable of capturing a bigger market share makes the company able to earn bigger profit at the end of the day. Since grocery items are price-sensitive products, Wal-Mart’s decision to cut-down its operational cost and take advantage of economies of scale in order to sell consumer products at a lowest price possible is highly sustainable (Fernie et al., 2006). Selling grocery products at a lowest price possible makes Wal-Mart become one of the most competitive cost leaders within the grocery retailing industry in the United States. Without spending much money on advertising cost, Wal-Mart is able to establish a brand equity that is known for its ability to sell low-cost food and non-food products (Fernie et al., 2006; Bianco and Zellner, 2003). This particular brand image makes Wal-Mart able to persuade most of its target consumers especially those individuals who makes purchasing decisions based on price. In other words, the ability of Wal-Mart to establish strong and influential brand equity makes the company able to encourage more people throughout the United States to patronize food and non-food items being sold in one of the Wal-Mart store outlets. Wal-Mart had to implement a cost leadership strategy by maximizing the use of its available resources. In line with this, another sustainable competitive advantage of Wal-Mart includes its decision to revolutionize on the development of its supply chain system (Czerniawska and Potter, 2001, p. 3). Given that Wal-Mart’s supply chain system is already well-integrated through the use of competitive information technology, the company was able to cut down the number of its currently employed workers (Sedy, 1992). Likewise, it is easier on the part of the company to accurately monitor and replenish the goods available in each of Wal-Mart’s store outlets on a timely basis. As part of maximizing the company’s expected annual profit, Wal-Mart’s highly efficient and low-cost distribution system is one of the company’s sustainable competitive advantages which small- and medium-scale grocery retailers will find it difficult to copy (Pride and Ferrell, 2010, p. 44). Tapping the international markets does not only benefit the company in terms of taking advantage of economies of scale but also prevents the business from facing the risk of saturating the market in the United States. As compared to small- and medium-scale retail grocery business, Wal-Mart has a competitive advantage of being able to expand its market distribution outside the United States. As part of Wal-Mart’s business expansion in different countries outside the United States, the company was able to establish and operate several Wal-Mart retail store outlets in the central and eastern European markets, the United Kingdom, Germany, and some parts in the Asian markets (Fernie et al., 2006). Q.4 With reference to Dunning’s Eclectic Paradigm of foreign direct investment (FDI), compare and contrast Wal-Mart’s entry into the German market in 1997 with its subsequent entry into the UK market in 1999. Why was Wal-Mart unsuccessful in Germany, withdrawing in 2006, and relatively successful in the UK? Based on the theory of firm, location theory, organizational theory, and trade theory, Dunning developed a unique eclectic paradigm for foreign direct investment. Particularly with regards to companies that are engaged in foreign operations, Dunning’s eclectic of FDI stated the three specific conditions known as: (1) firm-specific advantages or ownership – referring to the competitive advantages of Wal-Mart in relation to the type of ownership and assets like technology; (2) internalization advantages – referring to Wal-Mart’s internal organization’s ability to receive high returns on its assets; and (3) country-specific advantages or location – referring to the ability of Wal-Mart to select a foreign country that has lucrative business, political, and economic environment that will be for the business advantage of the company (Boddewyn, 2008, p. 161; Phisalaphong, 2004, pp. 19 – 20; Gray, 2003, p. 16). Gray (2003, p. 16) explained that firm-specific advantages and country-specific advantages are two significant factors that are closely interrelated with one another even though firm-specific advantages and country-specific advantages has been categorized as two separate factors. Upon analyzing the case of Wal-Mart in Germany and UK, it is clear that the reasons why the company failed to become successful in Germany is because of problems related to firm-specific advantages or ownership and mostly because of country-specific advantages or location. Firm-Specific Advantages or Ownership In reference to Dunning’s eclectic paradigm of foreign direct investment (FDI), Wal-Mart penetrated the German market through acquisition of Wertkauf’s 21 store outlets and Spar’s 36 retailing store outlets (O'Brian, 2000). On the other hand, Wal-Mart penetrated the UK market through merger and/or joint venture (Pradhan, 2006, p. 119). Since Wal-Mart penetrated the UK market through merger and/or joint venture, the company was able to take advantage of having its business partner(s) guide them with regards to the business and cultural practices of the English people including its unique business policies and regulations (Bekier, Bogardus, and Oldham, 2001). Having information regarding these matter enabled the company develop and implement effective business strategies that could benefit the company in the long-run. Specifically in the case of Wal-Mart in Germany, the problem with aggressively acquiring an existing retailing business in foreign countries lies behind the fact that Wal-Mart failed to have reliable allies that could educate them with the way business is being conducted in Germany. As compared to ownership acquisitions alone, entering into a joint venture with an existing retailer in a foreign country is much better in terms of learning more about the business culture, legalities and business regulations including the list of accepted business practices in another country (Bekier, Bogardus, and Oldham, 2001). By entering into merger or a joint venture with an existing retailing company in Germany, Wal-Mart could have prevented going through labor problems caused by miscommunication and lack of knowledge with regards to the practice of accepted business culture. Likewise, Wal-Mart could have had a better idea with regards to the actual market price of existing retail store outlets in Germany (O'Brian, 2000). Country-Specific Advantages or Location Unlike Wal-Mart in UK, Wal-Mart’s retailing business in Germany failed mostly because of the less attractive business practices and business environment. In general, most of the retailing businesses in Germany are family-owned. Since being listed in public stocks is not a typical business practice in Germany (Rehm and Syre, 2003, p. 20), it was difficult for Wal-Mart to generate sufficient amount of money which can be used in continuously expanding the number of Wal-Mart store outlets in Germany. This particular business limitation combined with the zoning regulations of not more than 2.500 sp. meters for large-scale stores (Griepl and Tager, 2001, p. 34f), the anti-trust laws which obliged Wal-Mart to follow the retailers’ pricing policies which prohibits the selling of food and non-food items below the average cost (Wirtschaft and Wettbewerb, 2002), and the legal maximum of 80 hours per week store opening hours excluding the fact that retail store outlets are not allowed to operate on Sundays and holidays (KMPG / EHI, 2001, p. 10) makes it difficult on the part of Wal-Mart to make its merchandizes easily accessible to its target consumers. Unlike the political and economic barriers that are present in Germany, the business regulations and business practices in UK is more lucrative for retailing business that offers relatively low market prices of food and non-food products. In line with this, Wal-Mart in UK is allowed to operate at least 168 hours each week including Sundays and holidays (KMPG / EHI, 2001, p. 10). Aside from a more lenient working hours, Wal-Mart is free to construct, open, and operate its retail store outlets without having the need to considering very strict zoning regulations or anti-trust laws which could adversely affects Wal-Mart’s decision and principles of selling food and non-food products at the lowest possible price. Conclusion The overall business environment and business practice of retailing business in UK is more lucrative as compared to the business environment in Germany. Considering that the business problem behind Wal-Mart’s failure in Germany is caused by firm-specific advantages or ownership and country-specific advantages or location, Wal-Mart had no other choice but to completely stop its business operations in Germany to cut down further business loss. With regards to the strict business regulations in Germany, the fact that Wal-Mart’s principles of selling its food and non-food items at a relatively low price made it close to impossible on the part of Wal-Mart to gain substantial amount of profits within the German market (Griepl and Tager, 2001, p. 32). *** End *** References Bekier, M., Bogardus, A., and Oldham, T. (2001). Why mergers fai. The McKinsey Quarterly , No. 4. Bianco, A., and Zellner, W., 2003, October 6. BusinessWeek. Is Wal-Mart Too Powerful?: Low prices are great. But Wal-Mart's dominance creates problems -- for suppliers, workers, communities, and even American cu. [online] Available at: [Accessed 15th February 2011}. Boddewyn, J., 2008. International business scholarship: AIB fellows on the first 50 years and beyond. 1st Edition. JAI Press. Czerniawska, F., and Potter, G., 2001. Business in a virtual world: exploiting information for competitive advantage. Macmillan Press Ltd. Fernie, J., Hahn, B., Gerhard, U., Pioch, E., and Arnold, S., 2006. The impact of Wal-Mart's entry into the German and UK Grocery Markets. Agribusiness , 22(2), pp. 247-266. Gray, P., 2003. Extending the eclectic paradigm in international business: essays in honor of John Dunning. Edward Elgar Publishing Ltd. Griepl, E., and Tager, U., 2001. In Knorr, A. and Arndt, A. (eds) "Why did Wal-Mart Fail in Germany?" Globalisierung der Weltwirtschaft. 2003. Gross, D., 1997. Greatest Business Stories of All Time. First edition. New York: John Wiley & Sons, Inc. Gupta, A., Govindarajan, V., and Wang, H., 2008. The quest for global dominance: transforming global presence into global. John Wiley & Sons, Inc. Hill, C., and Jones, G., 2010. Strategic Management Theory: An Integrated Approach. South-Western Cengage Learning. Jensen, M., 2001. The Everything Business Planning Book: How to Plan for Success in a New Or Growing Business. Adams Media Corporation. KMPG / EHI., 2001 Status Quo and Prospects in the German Food Markets, Cologne. [online] Available at: [Accessed 15th February 2011}. O'Brian, K., 2000. Bloomberg Markets. Wal-Mart: Angst in Europe. No. 11. [online] Available at: [Accessed 15th February 2011}. Phisalaphong, R., 2004. The impact of economic integration programs on inward foreign direct investment. Rozenberg Publisher. Pradhan, S., 2006. Retailing Management 2E. Tata McGraw-Hill. Pride, W., and Ferrell, O., 2010. Marketing. South-Western Cengage Learning. Rehm, T., and Syre, R., 2003. In Knorr, A. and Arndt, A. (eds) "Why did Wal-Mart Fail in Germany?" Globalisierung der Weitwirtschaft. 2003. Rhodes, D., and Stelter, D., 2010. Accelerating Out of the Great Recession: How to Win in a Slow-Growth Economy. Boston Consulting Group, Inc. Scholasticus, K., 2011. Buzzle. History and Facts about Wal-Mart. [online] Available at: [Accessed 15th February 2011}. Schonberger, R., 2008. Best practices in lean six sigma process improvement: a deeper look. John Wiley & Sons, Inc. Sedy, H., 1992. The two sides of Wal- Mart. The New York Times. Taneja, N., 2004. Simpli-Flying: optimizing the airline business model. MPG Books Ltd. Taub, S., 1986. Gold Winner: Sam M. Walton of Wal-Mart Stores Takes the Top Prize. Financial World , pp. 28-33. Ungson, G., and Wong, Y.-Y., 2008. Global strategic management. M.E. Sharpe, Inc. Wirtschaft, and Wettbewerb, 2002. In Knorr, A. and Arndt, A. (eds) "Why did Wal-Mart Fail in Germany?" Globalisierung der Weitwirtschaft. 2003. Read More