What competitive advantages would Amazon have over Wal-Mart Stores in doing business outside the United States - Assignment Example

? Topic- What competitive advantages would Amazon have over Wal-Mart Stores in doing business outside the United s? Increase in consumerism, thebuying capacity of the buyers and increase in brand consciousness led to the boom in the retail chain networks around the world. Wal-Mart and Amazon are two of the largest retail chains in USA. Wal Mart and Amazon have considerable influence over the global economy and so it becomes important for the two companies to remain updated and progressive in all its operations. Wal-Mart is the second largest employer in the world. It is one of the most important organizations in the world. Its annual sales stood at $419 billion in 2010 (Roberts & Berg, 2012, p. 2). Its goods and merchandise products are sold to both the upper income level and lower income group people in US. The chief motto behind Wal Mart’s success is that it offers goods at unbelievingly low prices to it customer. Efficient logistics and inventory and by using the concept of just – in- time Wal-Mart became a world leader in retail market (Roberts & Berg, 2012, p .144). Amazon that was founded in 1995 was honored by Business Week in 2009 with its customer service award. It created a new way of shopping by placing orders over the e internet. Amazon is listed in the fortune 500 companies with revenue more than $19 billion. Customers were highly satisfied with the service and the timely dispatch of its goods (Dunne, Lusch & Carver, 2010, p.529). Amazon began its business b y selling books online. Presently Amazon offers songs sample of songs for the convenience of the retailers to hear it from their computers. It also offers a unique facility known as mass customization where in a previous customer is shown a page of listed books and other goods catering to the customers’ choice and preference (Ander & Stern, 2004, p. 75). Literature review Amazon and Wal-Mart have expanded their network of retail chains outside US recently. Amazon has set up its retail stores in countries like China in 2004 and India lately. It latest venture outside US was in Brazil. It expects to set up a digital book store in the country (Israel, 2012). It wishes to cater to the kindle e- reader and publish books in Portuguese as per the demands of the publishers and industry of Brazil. Amazon’s strategy to launch a digital book store would be a good strategy as far as the infrastructure system in Brazil is concerned. In Brazil, the infrastructure system is poor and the taxes implied are high. The biggest advantage Amazon would have in setting up a digital store in Brazil is that it will help the people in saving money and cut the expenses made on paying high duty taxes. This move is directly with the mission and vision statement of the firm which is to become a leader in low cot strategy. The online retail market in Brazil is expected to grow at 25 percent from 2012 onwards so it provides the golden opportunity for Amazon to penetrate the market now. The strategy adopted by Amazon in Brazil is to sell its popular kindle model at a price lower than its competitors. It has also entered into contracts with publishers to set up a portfolio of 10,000 digital books. Now, this strategy adopted by Amazon can prompt other competitors to set up their base in Brazil too (Israel, 2012). The paper next discusses the case of Wal-Mart next when it tried to set up its stores there in 1995. In 1995, Wal-Mart entered Brazil and opened its chain of retail shops (Dolan, 2004). But it failed to be successful as was reported in the article Latin America: Bumps in Brazil by Kerry. A. Dolan. It had 25 shops and was the sixth largest retailer in Brazil but compared to it the rival firm then Companhia Brasileira de Distribuicao which had 499 shops , Wal mart failed to a large extent because of their failure to increase acquisitions. There were problems with the distribution system too as customers had to wait for long hours to get their products. In March 2004, Wal mart purchased 118 Bompreco stores but it was located in the poorer section of the country. This was not a strong move sufficient enough to strengthen Wal marts hold over the Brazilian market (Dolan, 2004). These two articles clearly demonstrate the competitive advantage that Amazon can have over Wal-Mart in selling outside US. Amazon has the advantage of direct delivery to its customers. Besides, its trademark feature of free shipping can be the major driving force behind its acceptance and success in the developing countries. It has already started this strategy by offering products at zero shipping charges to countries like India (Agarwal, 2011). Competitive advantage of Amazon over Wal-Mart in doing business outside US Factors like vision and mission statements, objectives, environment audit, evaluation and competitive strategies can help a company to attain its competitive advantage. Vision and mission statement Offering better quality products to the customers at a cheaper price or providing better benefits and services at a higher price creates advantage for the market competitors. This is known as competitive advantage. The mission and vision statements can help the company to achieve its competitive advantage. The mission and vision statement of Amazon is to become the customer centric company in the world and to create a place for the customers to come and buy anything online (Amazon.com Mission Statement - Centered Around the Amazon.com Internet Customer, 2012) whereas for Wal Mart the mission is to help people in saving money so as to improve their living conditions (Wal-Mart Stores, n.d) and the vision it is to focus on specific areas where they can be world leaders (Strategic Leadership and Decision Making, n.d). In this context, it can be said that where as Wal-Mart is attempting to emphasize on a few areas, Amazon.com has objectives of capturing almost all products online. This can create a huge advantage for it as with the inclusion of a wide range of products Amazon .com has the capacity to reach a large customer base outside US too. The competitive strategy for Wal-Mart can be that if it combines its mission and vision statements it can attract the retailers outside US of specific goods where it specializes by reducing its price. This can be a good strategy for penetrating the new areas in the foreign markets. Objectives –long term Long term objectives are those that are the desired or expected results and outcomes on an ongoing basis. These are the goals or expectations which are achieved over a longer period of time. These are often reflected in the mission statements of the company. Amazon.com aims to be the market leader in online retailing as it has been highlighted in its vision statement. Its objectives are to offer almost everything to its consumers online. So, for Amazon the long term objectives can be in the form of proving goods of similar quality but at a cheaper price to the consumers, offering innovative designs and quality to the customers. The objective of Wal-Mart is to specialize in that field where they can do business. It wishes to gain advantage by selling specific products and goods by reducing its prices. In this respect, Amzon.com maintains the lead as it has better chances of exploring the customer base outside US. Wal-Mart aims to concentrate on few specific products which may or may not be accepted by the market outside us in the long run. Analysis (Audit) – Internal and External Environment  The internal factor in an organization consists of factors that can affect its performance from within its organization. There are five internal factors- management and culture, systems process, mission, structure and resources. Similarly, external factors are those that can factors that can affect its performance outside the boundaries (Lussier, 2008, p.48, 56). Tools for analysis like the SWOT, PESTLE etc can be used to audit the environment of an organization. These play a vital role in gaining competitive advantage. For Amazon, the strengths lie in its vision statement to be an online market leader, its aim to sell products in large scale of varying types, its presence in the web world, offering innovative schemes and forming communities. These are not present in Wal-Mart as it does not focus on online marketing .In terms of external environment, popularity of social networking sites, growing markets outside US can help it to gain advantage over Wal-Mart. Measurement and evaluation of performance In a retail chain, the evaluation of performance will be mainly on the supplier side, internal and external factors. An effective supply management system can provide competitive advantage to a firm. It can reduce the cost and risk levels. For Amazon.com, procuring in bulk amounts is an effective way in this regard (Kotelnikov, 2001). At the same time, it needs to evaluate the performance and quality of the products supplied by the suppliers in order to maintain quality. Measurement and evaluation of internal and external factors depends on how the factors inside and outside the organization are affecting the firm. In case of Wal-Mart, procuring resources and evaluating them on a continuous basis becomes costly and time consuming. Apart from these, corporate performance in any company can be measures using some common measurement indices and ratios like return on investment (ROI), analyzing sales revenue, cost and profit. ROI is considered to be a better ratio to measure corporate performance as it considers the base used for investing that can generate profits. ROI can also help managers to take decisions on how to maximize (Friedlob, Schleifer, Plewa Jr., 2002, pp.6).Wal-Mart and Amazon can use ROI to measure their performance in stores outside us because ROI measures the ratio between profit and investment (Friedlob, Schleifer, Plewa Jr., 2002, pp.4). While doing business outside us, it can be riskier in the initial stages. This will require higher rates of return to lure the potential investors. ROI can help the two companies here by proving the relationship between profit levels and the amount of investment needed to achieve its goals (Friedlob, Schleifer, Plewa Jr., 2002, pp.5).Besides ROI is most important to evaluate if the company management is performing well (Friedlob, Schleifer, Plewa Jr., 2002, pp.5). This becomes essential if it starts its business in overseas locations. From the point of view of Amazon and Wal-mart’s strategies, Wal-Mart might have to invest in more to attract the investors as it deals with only niche products where as Amazon seems to be in a comfortable position because it will be easier to gain access in the markets outside us if it targets majority of the products. This would also reduce the investment cost considerably which in turn will increase the return on investment (ROI). Competitive Strategies From the Porters model of generic strategies it can adopt the strategies of competitive advantage to achieve its objectives (Porter, 1998). The strategies adopted to maintain an edge over the competitors depends on many factors like positioning of the brand, analysis and choice for gaining strategic success, planning, leadership, management etc (Martin, 2010, p.67). These will vary from one department to the other. For retail chains like Wal-Mart and Amazon there are mainly three fundamental units which are marketing, finance and technology. For marketing purpose the strategies will be based on factors like segmentation, demographics of the consumer etc. For cost, the strategies will be adopted depending on the price the competitor sets while technological strategies will depend on the latest mode of technological facilities available. Financial strategies will be based on the cost drivers and cost cutting methods. Porter’s three generic business strategies can be used here. These are ‘cost leadership strategy’, ‘differentiation strategy’ and ‘focus differentiation’ strategy (Martin, 2010, p.199). Cost leadership strategy Cost leadership strategy is one where the company aims to be a low-cost producer. But there is chance of the product to be perceived as low in quality. This is incorrect as it does not necessarily mean so. Maintaining low cost strategy means the company wishes to secure a cost advantage over its competitors, price competitively and secure a good margin (Martin, 2010, p. 201). Using the features of cost leadership strategy, Amazon can be a cost leader by pricing their products at a low price. This strategy can help them in future expansions by gaining high market share. Also, it will reduce the buying costs and increase the relation with the suppliers. As Amazon has the features of procuring its supplies in bulk from the suppliers, direct delivery to its customers, low packaging costs, it will be advantageous for it over Wal-Mart to adopt the cost leadership strategy for doing business outside US. Again while venturing in the overseas market; Amazon can increase its price on products that customers seek more. As Amazon aims to merchandise almost all available goods, this strategy can be successful for the company in the long run in the overseas markets. Wal-Mart also adopts the low cost strategy. But as it deals only in specialized products, selling at low prices in the new markets may not be easy. Here, it has to depend on its brand value and positioning strategies. Differentiation strategy Differentiation strategy is one where the company increases its cost of production to add value to its products and mark it at a price that consumers are willing to pay (Martin, 2010, p.201). It is the opposite of cost leadership strategy. It is important for the company to identify the areas that customers perceive as important and add value to it. The vision of Amazon.com is to make almost every possible product available to the customers. By doing this, it will be able to cater to a wide section of the customer base. Here, the company can attain competitive advantage by adding values and innovating those goods that customers prefer more or are potentially more income generating in nature. It can be said that using the above strategies, Amazon.com can do business in countries outside US in a better way than Wal-Mart. Countries outside US can open many opportunities as they are usually the untapped market. Wal-Mart can have its retail chains too but since it is narrow in its ambitions to focus only y on goods from where they can generate higher revenues, it curtails its chances to explore the other areas which can be profitable too. Focus differentiation strategy In this strategy, the company attempts to cater to a specialized market by offering prices at premium. The aim is to gain profit margin from these segments. Following Amazon’s vision statement, it can create niche markets for its specific goods in the overseas markets by using the focus differentiation strategy where the company can locate specific markets and introduce products there at a premium price (Porter, 2010). Conclusion Competitive advantage means how well a company maintains its hold over the competitors. Amazon and Wal-Mart are pioneers in the world retail markets. It helps companies to achieve high profit margins and increase its share in the markets. It also helps ion preventing new competitors from entering the market. Competitive strategies also help in fulfilling the long term objectives of a firm. To achieve competitive advantage, it is important to analyze the internal and external environment. Financial tools like return on investment (ROI) can help companies to measure its performance levels. At the same time, it is important that the company maintains a keen watch over the strategies of its competitors. Wal-Mart is focused towards developing its established areas that it has already explored; Amazon seeks to go beyond its familiar territories. Using its core competencies of low cost and exploring beyond the known groups of products, Amazon has the potential to overreach Wal-mart in the markets outside us. A few key points to highlight this statement are: 1. Growth in internet and web technology can help Amazon in a huge way as online marketing and buying is cheaper and faster. Expanding markets outside US offer lucrative opportunities to Amazon as internet facility has spread to almost every corner of the world. 2. Effective utilization of the strategies like cost leadership can help Amazon to maintain a competitive advantage over Wal-Mart in the long run. 3. Amazons mission statement to offer all products of utility online can be a major factor in its spread over Wal-Mart in the markets outside us. 4. The provision of free shipping and purchasing at discount from suppliers by Amazon can also contribute in this aspect. References 1. Ander, W.W. & Stern, N. Z. (2004), Winning At Retail: Developing a Sustained Model for Retail Success. Wiley & Sons 2. Amazon.com (n.d.), available at: http://www.company-statements-slogans.info/list-of-companies-a/Amazon-com.htm (accessed on June 29, 2012) 3. Agarwal, A. (2011), Amazon Offers Free Shipping to India, available at: http://www.labnol.org/india/amazon-free-shipping/19116/ (accessed on July 2, 2012) 4. Dolan, K., A. (2004), Latin America: Bumps in Brazil, available at: http://www.forbes.com/free_forbes/2004/0412/076d.html (accessed on July 2, 2012) 5. Dunne, P. M., Lusch, R. F., & Carver, J. R. (2010), Retailing, Cengage Learning 6. Dwivedi, Y. K., Wade, M. R. & Schneberger, S. (2011), Information Systems Theory: Explaining and Predicting Our Digital, London: Springer 7. Friedlob,http://www.amazon.com/s/ref=ntt_athr_dp_sr_1?_encoding=UTF8&sort=relevancerank&search-alias=books&ie=UTF8&field-author=George%20T.%20Friedlob G., T., Scleifer, L., L., F., & Plewa Jr., F.,J.(2002), Essentials of Corporate Performance Measurement, John Wiley & Sons 8. Hussian, F, & IIyas, S. (2010), Environment for Innovation: Gaining competitive advantage, available at: http://www.academicjournals.org/AJBM/PDF/pdf2011/18Feb/Hussain%20and%20Ilyas.pdf (accessed on July 2, 2012) 9. Israel, E. (2012), Amazon is getting bullish on e-com mart, available at: http://www.deccanherald.com/content/261038/amazon-getting-bullish-e-mart.html (accessed on July 2, 2012) 10. Kotler, P. (2011), Marketing Insights from A to Z: 80 Concepts Every Manager Needs to Know. John Wiley & Sons 11. Amazon.com Mission Statement - Centered Around the Amazon.com Internet Customer 2012, available at: http://retailindustry.about.com/od/retailbestpractices/ig/Company-Mission-Statements/Amazon-com-Mission-State (accessed on July 2, 2012) 12. Kotelnikov, V. (2001), Amazon.com- new business model, available at: http://www.1000ventures.com/business_guide/cs_biz_model_Amazon.html (accessed on June 29, 2012) 13. Li, S., Raghu-Nathan, B., Ragu-Nathan, T., S., & Subba Rao, S. (2006), The impact of supply chain management practices on competitive advantage and organizational performance, Omega, Vol. 2, No. 2, available at: http://www.sciencedirect.com/science/article/pii/S0305048304001343 (accessed on June 29, 2012) 14. Lussier, R, N. (2011), Management Fundamentals: Concepts, Applications, Skill Development. Cengage Learning 15. Martin, T. F. (2010), Strategic management, Cengage Learning EMEA 16. Porter, M. E. (2010), What is Michael Porter's Generic Strategy Model?, available at: http://www.businessmate.org/Article.php?ArtikelId=187 (accessed on June 29, 2012) 17. Roberts, B. & Berg, N. (2012), Walmart: Key Insights and Practical Lessons from the World's Largest Retailer, Kogan Page Strategic Leadership and Decision Making (n.d.), National Defense University, available at: http://www.au.af.mil/au/awc/awcgate/ndu/strat-ldr-dm/pt4ch18.html (accessed on June 29, 2012) 18. Wal-Mart stores (n.d), available at: http://www.company-statements-slogans.info/list-of-companies-w/wal-mart-stores.htm (accessed on July 2, 2012) Read More