External and Internal Environments and Its Effects on Wal Mart - Report Example

EXTERNAL AND INTERNAL ENVIRONMENTS AND ITS EFFECTS ON WAL MART Introduction Wal-mart Stores, Inc. which is branded as Wal-Mart is an American Multinational Retail corporation which runs chain of warehouse stores and large discount department. It is the world’s biggest public corporation. It was founded in the year 1962 by Sam Walton in Rogers. It’s headquarter is at Bentonville, Arkansas .It has over 11000 stores in 27 countries worldwide with 55 different names. It reflects “Low price, always” strategy. It has started its international operations from Mexico in the year 1991. It has very aggressive expansion strategy in foreign countries all over the world right from Canada, Latin America, European countries, and Asian countries. Its foreign investments acknowledged as highly successful in South America, United Kingdom and china where German and south Korean markets were acknowledged as unsuccessful due to sustaining loses over time and incompatible culture in highly competitive market. According to the Fortune Global 500 ranking 2013 Wal-Mart is second largest public corporation in world (Walmart.com, n.d.). General Environment: To sustain in the competitive market it is essential to analyze external environment of the organization in order taken preventive action against any kind of threats and explore new opportunities. To facilitate this process it is necessary to run a continuous process of environmental scanning, monitoring changes, and obtaining competitive superiority on potential competitors. We mainly divided environment into two categories that is general environment and competitive environment. According to our assignment we need to analyze Wal-mart on the basis of general environment. General environment can be divided into six segments that are Economic, Demographic, Socio cultural, Political/Legal, Technological, and Global (Highered.mheducation.com, n.d.). Economic: Economic environment mainly includes exchange rates of currency, inflation, and interest rates, effect of GDP budget deficit and surplus, trade deficit and surpluses. Demographic: Demographic environment involves geographic distribution of subsidiaries and stake holders, population structure and income distribution, age structure, ethnic mix and immigration related issues. Socio cultural issues: It is basically related to social issues like gender or workforce diversity, work –life quality views etc. Political/Legal: It refers to government policies, taxation laws, labor law and industrial relation related issues, education policy, company law etc. Technological: It focuses on research and development, product as well as process innovation, knowledge about upcoming technologies etc. Global: It refers to big political events, difference in cultural and institutional attributes of different part of this globe, changes regarding different market scenario etc. For the purpose of fulfillment of my assignment I have opt for Economic and Global segments of general environment as according to my opinion these are the segments rank highest on their influence on Wal-mart. Economic: Presently Wal-mart serves for around 176 million customers worldwide in a year and employs about 2.1 million associate. This company’s sales structure depends on low margin of profit and high volume of sales so they are very sensitive about economic growth. It was seen that when economy is doing well customers hardly care about low price strategy of the company on the other hand during the time of recession high volume sales strategy of the company also not works well. It was also seen that smaller retail establishments could not able to cope up the competition with Wal mart as most of them are forced out from the business due to unjustified cost declination. The rising trade deficit in United States and Asian countries like China, India has been a major factor in economy which needs to be tackling carefully. So wal-mart needs a thorough study of economy before going into a new venture. Global: Wal mart’s one of the significant strategies is to focus on the world market. The company expands its business into different countries in the world. Political influences as well as cultural differences played a major role in selecting foreign countries for expand its operation. There can be many causes for a company to expand its market in overseas such as saturated home market, initiating to promote global brand image, having low wage work force and low cost raw materials, to grab more market share. But it is recommended that before going to overseas market a firm should analyze and continuously monitor market size, existing rivals and entry barriers, purchasing power of consumers, cultural differences etc. Wal mart’s foreign investment till now includes Latin America, Canada, Europe, and some of Asian country. It has been seen that its venture in South America, Europe and China were highly successful where German and South Korea were so unsuccessful that Wal mart was forced to pull out themselves from the market. Wal mart used much different kind of strategies to enter in new countries. They make their separate policies according to the global needs. They also try to get involved in the local community by participating in CSR projects. It will be relevant to say here that this organization poses a great influence on the US government which also aided to facilitate foreign investments. The Five Competitive Forces of Competition According to Economist Michael E. Porter to cope with the competition firms need to understand some competitive forces such as Potential competitors, bargaining power of suppliers, bargaining power of buyers, substitute products, and rivalry among existing companies. This configuration of five forces which helps in formulation of strategies differs from industry to industry. Industry structure also associated with technical and economic characteristics which also determine the strength of the competitive force. According to the instruction I need to choose two forces from the Porter’s five forces. So I opted for rivalry among existing companies and Bargaining Power of Suppliers. Rivalry among existing companies: Wal mart is facing a medium level pressure from this force as right now there are mainly three companies exists in the same industry which are Target, Sears, and K-mart. After Wal mart, Target is the most strongest in this industry. The attributes which make Target strong and on which Wal mart needs to focus are, their experience and growth in domestic market and market positioning to acquire niche market properly. Other two companies though not have that much of potential to threat Wal-mart. Wal-mart’s mature industry life cycle also facilitate its strong hold in the industry. As Wal mart has a worldwide presence that is why it has a competition from local retailers to international retailers. From foreign markets Commercial Mexican, Local small retailers who pose a great threat to Wal-mart (Bloom & Perry, 2001). Costco is another organization from same industry which also outperform Sam’s club of Wal mart. Metro is another legal and biggest competitor of Wal-mart which has its presence worldwide. Biggest advantage of Wal mart is that its cost advantage regarding other companies. As Wal mart has influence on US govt. it can take ethical advantage by using this relation. Need to improve its relation with host country’s govt. Acquiring small retailers in competitive market can be a very influencing strategy towards organizational growth. They should give importance in online shopping also and need to promote it in emerging market. Bargaining power of suppliers: Wal mart acts as primary customer for its suppliers. This indicates suppliers have a very small share of their respective markets. As where Wal mart has a presence there it holds most of the market share and also offers lot of business possibilities to the manufacturer and the wholesalers. This strategy gives Wal mart a monopsonistic power of buyer as they can switch anytime from one supplier to another. It is recommended to Wal mart that to vertically integrate their supplier and try deal with small and local suppliers so that bargaining power will be less from their part. External Threats and Opportunity Threats: One of the biggest threats for Wal-mart is to in order to keep the prices low of the product this organization violently emphasizes on cost cut which finally leads to squeezing of the suppliers. Another threat from competitors’ side is rapid growth of Dollar General Stores. According to my understanding most adverse threat towards their image is the blame of being ‘bad for the country’ in the emerging markets where they want to spread their business. This threat can only mitigated by extensive promotional policy in new acquiring market as well as in government level and also with ethical business practices. The relationship with suppliers needs to be improved in term of gain their faith in emerging markets. Rising of prices of commodity also possesses a great threat to Wal mart as its decrease their profit margin and wear away its competitive advantage. It has many hidden legal barriers which controls its growth in new markets. Opportunity: As Wal mart is the largest retailer in United States so it has a good opportunity to become largest retailer in the world. They have an overall 5% growth in emerging markets which influence their revenue earning positively. Trend towards healthy eating also gives Wal mart an opportunity focus on grocery product and fresh vegetables, fruit and non vegetable products. Consumer interests towards online shopping trend also a great opportunity which accelerates its growth. According to me this is the biggest opportunity the company has if properly utilized. As it is the largest offline retailer in US then it has a huge opportunity to expand its business online also. It can provide lower price for the products than that of in their stores by which they can attract mass of people. They have also great opportunity in the areas where they are criticized by showing their attention towards environment and industries. Strengths: It has abundance strength in its scale of operation as it is the largest retailed in not only in USA but also in the world with around 10,130 stores worldwide. Due to such large scale of operations it enjoys strong monopsonistic buyer power on its retailer to reduce the primary price so that they can sell their product to the final customer with competitive price. Again it has the possibility to enjoy higher economies of scale than other rival companies due to its size which results in again lower prices and can pass on to the consumer. It also ensures image of brand goodwill on the customers and eliminate competitors due to its cost leadership strategy. Weakness: In my view labor related lawsuits and high employee turnover costs million of dollars to the organization. It is being criticize for low wages, discrimination among disabled and female workers, poor working condition, unpaid overtime work etc. This issue also has an influence on employee turnover. So it is recommended that the company should improve its HR related strategies also and make it in the alignment of business strategies. Sometimes it is also seen that reason of turnover is skill deficiency in employees which need to be addressed. Proper training should be given to the employees and the issues related to employee welfare should also need to be addressed. Resources, Capabilities and Core Competencies in the light of Value Chain Analysis: Wal mart always emphasizes on cost reduction in purchasing and providing best price possible to its consumer. It gains an advantageous position in procuring goods directly from the manufacturer. Another core competency is being a leader and draw strategic advantages in distribution as well as retail division. It has built enough power which influences its suppliers. It has very efficient management structure which also facilitates the business excellence. It has distribution centers located in convenient places which supports their organization. It also uses up to date barcode technology and modern computer system which make the operation easier to run and it is economical also. There transport system also gives effective support towards the business as they have their own trucks to shipping goods and skilled drivers who ensure proper safety. To make it more efficient Wal mart also initiates ‘cross docking’ system. They have more recent and modern technological devices to facilitate IT and communication system which can track sales and other related information across the globe. Wal mart’s Value Chain: Vendors are mainly Wal mart suppliers and they deliver the products to distribution centre or if required then directly to one of the stores. Next after products are delivered to distribution centre they are loaded to truck and transported to the stores. In stores the products are gathered in appropriate shelves. Customers purchases product with the facility of low price and can return back any time. Conclusion: So from the above research it can be seen that Wal mart is extremely successful in all respect and has very promising future worldwide. Some areas which need special attention are the issues which create barriers to enter into the new market like India, employee benefits, suppliers related issues. They should consider growth potential in other foreign emerging markets also. It enjoys good bargain power as well as influential brand image which make them successful in uninterrupted and efficient services to its customers. References: Bloom, P., & Perry, V. (2001). Retailer power and supplier welfare: the case of Wal-Mart. Journal Of Retailing, 77(3), 379--396. Highered.mheducation.com,. (n.d.). Strategic Management | Chapter Overview. Retrieved 3 July 2014, from http://highered.mheducation.com/sites/00728890/student_view0/chapter2/chapter_overview.html Walmart.com,. (n.d.). Walmart. Retrieved 3 July 2014, from http://walmart.com Read More