Strategic analysis of the Wal-Mart - Essay Example

?Select an organization in the retail sector and conduct a strategic analysis of the company. Table of Contents Select an organization in the retail sector and conduct a strategic analysis of the company. 1 Table of Contents 2 Introduction 3 Background 4 Strategic Positioning 4 Competitive Positioning Strategies 6 Internal Capabilities and Constraints 8 Strengths 8 Weakness 9 Opportunities 9 Threats 10 Strategic Paradigms 10 Conclusion 11 References 13 Appendix 15 Introduction Globalisation has changed the business dynamics of the present day business organizations. Organizations are trying to go beyond their traditional markets to explore new markets that offer them considerable opportunities. The aspect of free trade and opening up of economies has fuelled the growth of transnational corporations across the world. It has also increased the aspect of inter firm rivalry that has become more intense with organizations engaging in predatory pricing and price wars to thwart out the competitors. The present study would analyse the business strategies of Wal-Mart. The retail sector has experienced considerable growth and is one of the fastest growing sectors of business. A research report on the global retail industry pegs the total value of retail sales of the top 250 retailers across the globe at 3.76 trillion US dollars in 2009. The industry has recovered from the losses during the recessionary period as the markets have shown signs of recovery. Geographically, US and Europe in particular UK remain the largest markets for organised retail sector (refer appendix 1). However emerging market like China and India also hold considerable opportunities for the global retailers (Deloitte, 2011, p.4-8). Companies in the retail sector are making a beeline for nations like India and China, with major retailers making a presence in the two lucrative markets. Online retailing is another important channel that has been adopted by leading retailers to make their presence felt across the globe. The major players in the retail industry are largely based out of US or Europe. The illustrative lists of the top global retailers are shown in appendix 2. The present study would analyse the business strategies of firms in the retail sector especially Wal-Mart that is the global leader in the retail industry segment. Background Wal-Mart is one of the largest and formidable players in the global retail industry. Since its establishment by Rogers Ark in the year 1962, the company has grown by leaps and bounds with a presence in about 28 nations with about 9759 stores across the globe. The company provides direct and indirect employment to 2.1 million individuals globally. Wal-Mart is also listed on the bourses of the New York stock exchange where its stocks are being actively traded. It has been consistently ranked among the top brands by leading agencies like Fortune and Forbes. The company derives its competitive edge on the basis of its famous EDLP (Every Day Low Price) strategy and has a cost leadership approach towards generating competitive advantage in the market. A successful logistics and supply chain management strategy of the company using ERP is the backbone behind the successful recipe of success of the company (Wal-Mart, 2011). Strategic Positioning Michael Porter stated three generic strategies that can also shape up positioning of a product or a brand in the market. Positioning is defined as the image of a product or service in the minds of the target market audience. The three strategic alternatives given by Porter include focus, differentiation and cost based leadership. Firms undertaking a focus strategy generate competitive advantage on the basis of concentrating on a single product line or a specified customer segment. A differentiation strategy involves competing in the market on the basis of differentiation in products and services that involves providing a product or service that is unique in the industry and deriving competitive advantage from the aspect. Cost based differentiation includes a strategy under which a company provides products and services at the lowest possible cost and gains market share and maintains sustainability in the market. Wal-Mart has adopted a cost based leadership strategy under which it provides products to customers at very cheap rates and competes with its competitors on the basis of cost. The focus of the company has been to generate profits on the basis of volumes rather than margins. The positioning strategy of the company has been essentially a need based strategy under which the company has a strategy of satisfying customers by offering them low prices. The cost leadership based EDLP strategy has been able to help the company position itself as a value for money retailer. This has been possible due to the sustained efforts of the organization with regards to its management of supply chain and logistics. The ERP based supply chain management strategies of the company have helped it to become a cost leader in its category. The value and cost based positioning has helped Wal-Mart to compete with its rivals and establish itself as a major retailer. The positioning strategy also seems to have gone well with the customers as they have been satisfied with the service offering of the company. In addition to this the global presence and scale of operations have also contributed towards generating a strong image about the brand in the minds of the customers. The brand image of the company has helped it to make a good connect with the customers. The long term association with the industry has also enhanced the image of the brand in the minds of the consumers. It has given a sort of impression in which customers can rely upon the brand. In spite of low cost of products, Wal-Mart has also been able to provide a good service delivery to the consumers that has been able to generate positive sentiments about the company with regards to its competitors. Focus on quality has also helped position the image of the company as a favourable entity in the minds of the consumers. Wal-Mart is considered to be a role model in management of supply chain and in its cost based differentiation strategy. The large scale of operations has helped it to generate economies of scale and scope that has led to generating a business model that can help the company to sustain its cost leadership strategy and maintain its current positioning in the market. The penetration strategy of the company under which it has stores in various regions also helps it to maintain good reach that ultimately helps generate a good positioning in the customer’s mindset. In addition to positioning of the brand in the minds of the customers it is also essential for a firm to have a good image in the minds of other stakeholders that includes employees as well as the suppliers of the company. Wal-Mart has an employee friendly HR strategy that helps ensure a good job culture at the organization. The company believes in providing greater flexibility and an open communication channel to generate motivation among the employees. With regards to suppliers the company has played a key role in acting as a mentor and supporter of the business model. The company has a strategy under which it seeks to promote business development of the suppliers as well. This has also ensured better and cordial relations with the suppliers of the company that has helped it to generate a favourable positioning with the suppliers of the company as well (Time Management, 2011). Competitive Positioning Strategies The main competitive edge of Wal-Mart comes from its Every Day Low Price strategy. This strategy has been replicated by the company in almost all the markets. The main strategy behind this lies in an effective supply chain management strategy of the company. It has used Enterprise Resource Planning (ERP) to integrate its business units as well as suppliers under a single system. The interlinking of different suppliers as well as stores helps in sharing real time data with the suppliers. Real time data interchange allows the company to maintain an optimum inventory levels. This in turn helps eliminate instances of overstocking or stock outs. This further helps in reducing the inventory carrying costs for the company. Real time data interchange with the suppliers also helps in keeping adequate stocks of goods that are high in demand and vice versa eliminating instances of stock outs. This ensures that stores are never out of supplies and no business opportunity is lost. It also gives a good image of the company in the minds of the customers as they find the store considerably reliable giving it an edge over its competitors in the market. In addition to this the warehouses of the company simply act as places of interchange. A unique process named as cross docking ensures that goods are immediately sorted and passed on to the trucks that are headed straight to the stores. This ensures that goods are not stocked for even a single instance that reduces the inventory carrying costs of the company. Hand held devices and barcodes are used for screening the goods that are stored as pellets. Such a strategy helps eliminate the cost of inventory. This cost savings are ultimately passed on to the customers in the form of cheapest possible price and helps the company maintain its EDLP strategy. The large scale of operations has also led to generation of economies of scale and scope that again has reduced the variable costs of the company to a very large extent. The cost benefits generated here are also used to help sustain the EDLP strategy of the company. It has also helped in creating entry barriers for new entrants who find it difficult to compete with Wal-Mart. A cordial relationship with suppliers has also helped the company generate competitive advantage. The large scale of operations and huge customer base of the company helps in reducing the bargaining power of the suppliers giving it an edge in the market. Suppliers are under the threat of losing a large contract in the event of Wal-Mart terminating their contract and switching over to new suppliers. Wal-Mart also has an online shopping channel using a dedicated website that has helped transform the business model into a bricks and clicks format. The online shopping store has helped the company to take care of its substitutes like Amazon and others that are essentially relying on the large number on ‘’ to carry on the business. It has also extended the reach of the company and has helped in penetrating the market with minimum possible cost. Finally a pull strategy of Wal-Mart has also been largely responsible for the successful positioning of the company. The company instead of using sales and advertisements has used the guarantee of everyday low prices to pull customers to the store. This strategy many analysts believe is the key difference between Wal-Mart and some other competitors that also have a low cost strategy. Also an effective management of human resource and a sound financial management of the organization has also helped generate a unique positioning of the company in the eyes of its key stakeholders so as to help maintain sustainability and profitability into the company and remain ahead of its competitors in the market (Tuck School of Business, 2002, p.1-4). Internal Capabilities and Constraints The analysis of internal constraints and capabilities can be done by using the SWOT analysis. SWOT is a tool that is used by strategists and marketers to analyse the areas of strengths, weakness, opportunities and threats of an organization. The SWOT analysis of Wal-Mart is stated below: Strengths The main strngths of Wal-Mart lies in its effective management of supply chain and logitics due to which it has been able to sustain its EDLP strategy giving it an edge over its competitors. In addition to this a strong global reach of the company with presnce in numerous regiosn also adds to the strong points of the company. The large scale of operations have also generated economies of scale and scope that on one hand have reduced the variable costs of the company and on the other hand has created entry bariers that make it difficult for new players to enter the market. Certain other strngths of the company include a formidable brand image that has been acquired over its long association with the industry and a product mix that seeks to satisfy the complete needs and wants of the consumers. The in store management of the firm has also been excellent giving a good image into the minds of the prospective customers. Internal aspects like an efficient marketing team, excellent customer relationship and after sales service along with a talented and deicated well trained pool of employees make its one of the best and powerful organizations of the world. This is well illustrated in the fact that the company has been constantly named among the top btrands in the forebs and firtune list of best brands across the globe. The huge market penetrationa and reach have made it household names in many markets including the lucrative US markets. Weakness Some of the ponetial areas of weakneses of Wal-Mart include its failure in the German and South Korean markets where the company sustained huge losses and was forced to sell of its business in those regions. Certain cases of faults in product quality and recall of products has also tarnished the image of the company to some extent. Finally the company has been emboiled in various legal issues and litigations that have sverely tarnished the image of the brand in the minds of the customers. Opportunities Numerous opportunities exist for Wal-Mart in the devlloping markets like China and India. Both these nations are among the fastest growing ecxonomies of the world with a GDP growth rate of 10.3 percent and 10.4 percent resepectively (CIA, 2011). Wal-Mart has made a major foray into the Chinese market and has entered the Indian market through a joint venture with the local Bharti Group for setting up cash and carry operations. Similar opportunities also exists in other devlloping nations like Brazil and South Africa. In addition to this the online shopping model of the company can also help it to penetrate into the existing markets with minimal costs. The growing popularity of the internet has further added to the popularity of this channel. Further more opportunities also exist for the company in the growing helathcare retail market especially in the US market that has a lot of scope for retail organizations like Wal-Mart that can use its reach and penetration to generate considerble leverge out of the opportunity. Threats The most potent threats for the cmpany comes from economic aspects like recession that has a widespread effect on the business prospects of the company. In addition the groewing level of competition and saturation of traditional markets like US and Europe also remian a cuase of worry for the company. Presnce of competitors has led to considerble competition that can pose considerable threats to the company. Strategic Paradigms The analysis of Wal-Mart shows that it has considerable strengths and opportunities. The key lies in formulating an effective strategy mix that can help the company use its competitive edge to leverage upon the opportunities in the market. The Ansoff model can largely serve as roadmap for the company’s future strategies. According to the Ansoff model (refer annexure 3) a firm can either take up a mix of strategy to undertake business in new as well as exiting markets. Wal-Mart can use its existing store network and penetrate the market into regions that are presently not served by the company. This includes opening up more stores in its existing locations and also into new areas. Inclusion of new product segments like healthcare products as well as organic foods that have a good potential demand in the market can help it undertake a product development strategy. Expansion into new markets like the developing nations in Asia can serve as a market development strategy where the company can use its existing network of stores to reach out to the new markets by either entering into Greenfield projects or through partnerships like joint ventures and partnerships with local companies. Diversification strategy that involves entering new markets with new product range is not a viable strategy for Wal-Mart as it would be better to focus on its core business of retailing that is the core competence area of the company. The growth prospects of this industry also do not require the firm to take up alternate businesses to maintain sustainability in the business. Finally a control and evaluation strategy using a Balanced Scorecard Approach can also help the firm to not only evaluate and monitor its financial but the non financial strategies as well. This would help the company monitor and evaluate its accomplishment of objectives so that necessary measures can be taken in time so as to ensure minimal deviation from the objectives and also to help retain its competitive edge in the consumer market across the globe and maintain its formidable brand image (Balanced Scorecard Institute, 2011). Conclusion The analysis of business prospects of Wal-Mart shows an efficient all round management that has helped generate a retail giant. The main competitive edge of the firm lies in its efficient supply chain and logistics management that has been efficiently used to generate cost effectiveness that is ultimately passed on to the customers in the form of its Every Day Low Price Strategy that has helped in maintaining a competitive edge over its rivals. The company’s leadership and top management has also been a key driver for the competitive edge of the company. It strategy of all round development and focus on a key aspect of cost and customer satisfaction seems to have helped it make it the largest retailer of the globe. The key for the company lies in keeping its focus and leveraging upon the opportunities to reap the benefits of the market conditions. The company has already made a successful foray in China and India that are the two most lucrative markets of the world. In addition to this the opining up of the online channel has also helped it to expand its reach in the market. The key for success and sustainability of the business model lies in keeping a focus on the customers and ensuring greater innovation and its diffusion into the organization that can help the firm to not only increase its market share but to also generate long term sustainable competitive edge in the market. References Assen, M.V., Berg, G.V.D. & Pietersma, P. (2009). Key Management Models: The 60+ Models Every Manager Needs To Know, 2/E. Pearson Education India. Balanced Scorecard Institute. (2011). What is the Balanced Scorecard? [Online]. Available at: http://www.balancedscorecard.org/BSCResources/AbouttheBalancedScorecard/tabid/55/Default.aspx. [Accessed on November 03, 2011]. CIA. (2011). CIA - The World Factbook. [Online]. Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/in.html. [Accessed on November 03, 2011]. Deloitte. (2011). Leaving Home Global Powers of Retailing 2011. [Pdf]. Available at: https://www.deloitte.com/assets/Dcom-Global/Local%20Assets/Documents/Consumer%20Business/GlobPowDELOITTE_14%20Jan.pdf. [Accessed on November 03, 2011]. Moody’s Investor Service. (2006). Global Retail Industry. [Pdf]. Available at: http://www.moodys.com.br/brasil/pdf/Global_Retail_Industry.pdf. [Accessed on November 03, 2011]. Time Management. (2011). Strategic Management: A Case study of Walmart Inc. [Online]. Available at: http://jointhemoment.org/archives/2650. [Accessed on November 03, 2011]. Tuck School of Business. (2002). Wal-Mart Stores, Inc. [Pdf]. Available at: http://mba.tuck.dartmouth.edu/pdf/2002-2-0013.pdf. [Accessed on November 03, 2011]. Wal-Mart. (2011). Walmartstores.com: About Us. [Online]. Available at: http://walmartstores.com/AboutUs/. [Accessed on November 03, 2011]. Appendix Annexure 1: Geographic Distribution of Retail Industry (Source: Deloitte, 2011, p.18) Annexure 2: Top Global Retailers (Source: Moody’s Investor Service, 2006, p.3) Annexure 3: Ansoff’s Business Strategy Model (Source: Assen, Berg & Pietersma, 2009, p.4) Read More