Multi-national Organization Analysis: Wal-Mart - Case Study Example

Multi-national Organization Analysis: Wal-Mart Multinational Organization Analysis: Wal-Mart Executive Summary This paper will present a detailed assessment of Wal-Mart’s internal and external environment, as well as an evaluation of performance and strategy used by the company’s leaders in marketing, finance, and operations. Internal and external reviews will include SWOT and PEST analyzes respectively, as well as other relevant assessments associated with both business environments. Different theories will be used to buttress the arguments used to analyze the company’s environment and explain the approaches used by the company’s leaders to manage its core functions. Introduction As the largest retailer in the world, Wal-Mart has a global footprint that is created by its large network of international suppliers and outlets. The company also has a complex organizational structure that is necessitated by its large pool of employees (it is the largest private employer in the world) and extensive global networks. Since its establishment, it has expanded to become the most recognizable retail chain in the world. Consequently, the company is an ideal case study for internal and external environment analysis, strategic assessment, and sustainability evaluation. In the past decade, Wal-Mart has developed new strategies for supply chain management, technological applications, and human resource development. Its evolution and adaptation to different market conditions is a template that other retailers can use to find and sustain success in global retailing. Internal Analysis SWOT SWOT analysis will be used to assess Wal-Mart’s market position vis-à-vis its positive operating results. It will also reveal the firm’s strengths and opportunities that have been vital in boosting shareholders’ confidence. Strengths Large-scale Operations Wal-Mart’s scale of operations is its biggest strength. With revenues of more than $400 billion annually and almost 12,000 outlets worldwide, the company easily outperforms its closest rivals in terms of capability and global reach. In addition, Wal-Mart has worked to secure the trust of consumers by presenting itself as the best option in all product categories. With consumers confident in the brand, growth has been easier to achieve compared to other competitors (Centeno & Cohen, 2013). In North America alone, which is the company’s biggest market and largest source of revenue, Wal-Mart enjoys a significant share of the retail segment. It has outlets in regions where even its domestic rivals are hesitant to venture into. Outside the United States, the firm has an extensive and highly efficient supply chain that stretches from Latin America to the United Kingdom. This gives it an edge in terms of revenue generation and market domination. The company’s sheer size ensures that it records huge profits, enjoys an advantage over its suppliers. It can source products from any supplier across the world, something that few of its rivals are capable of. Large-scale operations also imply huge economies of scale and, consequently, higher profit margins in comparison to rivals. In 2013 alone, the firm posted over $135 billion in foreign outlets and franchises, more than any other retailer (Stead, 2014). It is worth noting that industry experts forecast an increase in foreign revenues, implying that the business is set to experience more growth with respect to global expansion. Use of Technology Wal-Mart believes in applying technology to increase the efficiency and effectiveness of retail processes. The company uses various types of information systems to execute tasks and encourages its employees to perform tasks in the least time possible. For example, the firm’s successful management of its supply chain and logistics is directly associated with technological applications (Rothaermel, 2013). By using sophisticated information systems to manage inventories, sales, orders, and other important data, Wal-Mart has optimized its operations to deliver quality services and products using the least possible costs. Vital information is not only readily available but also accessible in all outlets. Product Range Although it began operations as a supermarket, Wal-Mart is now better described as a giant retailer. The firm sells all types of products targeting consumers in different categories. For example, it offers a wide variety of locally produced, self-branded, and foreign products to meet the demands of customers from all social classes (Roberts & Berg, 2012). Wal-Mart is an embodiment of the “all under one roof” retail mantra that has been embraced by majority of multinational retailers. A visit to one of its stores could result in the purchasing of entertainment, health and fitness, home improvement, and food products at one go and in large quantities. Cost Leadership Because of huge economies of scale, Wal-Mart can afford to sell products at more affordable prices than its rivals. In fact, the company uses a cost leadership strategy to ensure that its products are always cheaper than its competitors. This has attracted price-conscious customers who want to save as much as they can without necessarily compromising quality (Dawson & Mukoyama, 2013). Since embarking on an aggressive expansion program that led to the acquisition of foreign subsidiaries like Asda, the firm has opened numerous discount stores and sold products at prices that its rivals cannot match. This has allowed the retailer to become a market leader in profitability and penetration. Weaknesses Labor-related Suits and Negative Publicity For a company of its size and reputation, Wal-Mart has a dismal record when it comes to compliance with labor laws. Over the years, the company has been sued by numerous current and former employees because of maltreatment. Poor working conditions, rigid and longer working hours, and gender discrimination are frequently cited in lawsuits as examples of the firm’s complacency in protecting its employees and upholding labor laws (Pennemann, 2013). This is worrying, especially considering that Wal-Mart’s success has been built on public confidence in its ability to create employment for millions of Americans. Although it can afford to settle lawsuits in and out of court, the company is losing vital funds that can be used to finance more important causes. It is also developing a reputation as a “bad” employer that should be avoided unless no other options are available. Poor working conditions, coercion, and low wages have generated negative publicity at national and international levels. High Employee Turnover Due to the poor working conditions it provides, Wal-Mart has a high employee turnover that is unusual for a company of its stature. This has resulted in high turnover costs, particularly because it conducts extensive in-house training and invests heavily in recruitment (Musso, 2014). For example, it is common for workers who have been recruited and trained by the firm to resign and pursue opportunities in other businesses after experiencing the poor working conditions inherent in the organization. Uncompetitive remuneration is also a major factor behind high employee turnover. Opportunities Growth of Retail in Emerging Markets Wal-Mart’s sales have been growing annually for the last five years, and emerging markets have been at the core of this growth. The company can achieve balance in current markets and venture into larger and high growth markets through acquisitions (Linstead & Linstead, 2013). Emerging markets provide large customer bases that are yet to be exploited by the company’s direct rivals. In Latin America, for example, the retail market has grown exponentially in the last decade and created numerous growth opportunities for Wal-Mart. Increasing Popularity of Self-Branded Products Wal-Mart has an opportunity to generate more revenues through sales of self-branded products at its numerous outlets across the world. In 2010, the retailer announced that it would launch a self-branded wireless service and line of mobile phones to capitalize on its brand visibility. In the last decade, sales of self-branded products have grown by over 40%, meaning Wal-Mart has a great opportunity to grow its revenues and profit margins (Lustig, 2013). E-commerce Growth There has been a boom in online shopping and other activities associated with e-commerce. Although most of Wal-Mart’s sales are achieved through direct purchases, the company can increase its sales by targeting the growing number of online shoppers who prefer to purchase products and have them delivered to their premises (Roberts & Berg, 2012). With its sound information technology setup, Wal-Mart is well-placed to generate considerable amounts of revenue from online shopping. In the first quarter of 2013, the firm’s online sales grew by almost 30 percent, reaching a high of almost $9 billion by March, and most of this was generated locally. By expanding its e-commerce infrastructure to foreign markets, the company can make online sales a key part of its revenue stream. Threats Stiffer Competition from Smaller Retailers Wal-Mart’s indirect rivals are launching forays into its key revenue streams by targeting its areas of strength. This has put the company on notice with regards to sustainability and future dominance. For example, Best Buy has also introduced a “same day home delivery” system identical to the one implemented by Wal-Mart and other major retailers like Amazon, Tesco, and Target (Roberts & Berg, 2012). As a consequence, Wal-Mart will have to adopt more sustainable and effective strategies that will protect its market share and maintain its profit margins, or it will be forced to relinquish dominance in some areas. The company’s biggest threat comes from smaller retailers because its business model resembles the low-cost version preferred by small scale retailers. This leaves it open to stiff direct and indirect competition from such establishments. Growing Opposition from Local Communities Due to its comparably poor environmental and labor relations record, Wal-Mart is facing growing resistance in areas where it intends to expand. Although its stores create employment opportunities and facilitate economic growth in different areas, the retailer’s bad reputation in terms of employee relations tends to precede it in some markets, leading to hostilities and poor relations between the company and surrounding communities (Certo & Certo, 2013). According to an industry analysis study conducted in 2012, Wal-Mart’s entry into some markets and communities forces local retailers out of business or compels them to agree to unfavorable acquisitions by Wal-Mart. This has attracted the ire of local communities, especially in foreign markets like Mexico. The company is, therefore, finding it more difficult to open new stores as rapidly as it wants to. Rising Commodity Prices The prices of oil and electricity have been increasing in the United States. In other countries, the situation is worse, with manufacturing costs being unfavorably high. This has forced Wal-Mart to increase its prices so as to maintain desired profit margins, but the move has not gone down well with consumers (Roberts & Berg, 2012). As a result, in a bid to remain attractive to consumers and simultaneously adapt to difficult market conditions, Wal-Mart has seen its profit margins reduce in the past year and a half. External Analysis Political Wal-Mart is a known contributor to political campaigns, which it funds directly and indirectly. The extent of the company’s political involvement is unknown, but it shows that it has been and is affected by political factors. For example, it is alleged that to expand its presence in the state of California, the retailer has been sponsoring various political causes to further its cause. It is also alleged that in the past two years, Wal-Mart has significantly increased its political donations to different political entities across the United States (Certo & Certo, 2013). Various sources have reported that Wal-Mart spends millions of dollars annually on county and state projects and almost $20 million each time there is a national election. Of this amount, almost 70% can be directly attributed to the Walton family, who own the retailer. More importantly, a large percentage of the contributions have been made to the Republican Party, Republican candidates, or groups with which they are affiliated. The Walton family’s preference for Republican ideals and right-wing politics is the inspiration behind its association with politicians with such inclinations. Although it is difficult to quantify the direct or indirect benefits created by Wal-Mart’s political orientation, it is worth noting that this aspect can negatively impact the company’s sales and profits, especially if consumers start viewing it as a politically motivated organization (Lichtenstein, 2013). In addition, political dynamics can always change spontaneously, creating potentially hostile conditions for the business. New administrations can change rules and regulations to suit their agendas, which may be incongruent to Wal-Mart’s. An example of this can be seen in the lower sales recorded in the first quarter of 2013 that were caused by deferred income tax refunds. Other politically-oriented issues that affect or could affect Wal-Mart include geopolitical risks (especially in foreign markets), health concerns, conflicts (US campaigns in Iraq and Afghanistan) and market regulations. The firm’s national and international sales are both influenced by such issues. Economic Economic factors affect every aspect of Wal-Mart’s operations. These include purchasing power and economic status of consumers. Wal-Mart’s management has always maintained that national and international domestic factors can impact its financial results favorably or unfavorably. In the United States and other countries economic issues like interest rates, oil prices, inflation, property markets, changes in fiscal regulations, national debt, unemployment rates, energy costs and generally poor economic conditions have a huge bearing on Wal-Mart’s domestic and foreign sales (Macdonald & Marshall, 2013). They affect consumer demand and ability to pay for the products and services offered by the company, resulting in unpredictability in sales and profit margins. Other economically-oriented factors like healthcare and insurance, fluctuations in foreign exchange rates, and increased logistical costs can increase the cost of routine processes and adversely affect the company’s operations. As such, the company has been exploring ways of increasing the number of its US megastores in order to grow national sales. It is also planning to adopt the same strategy in favorable foreign markets to counter the negative effects of unpredictable economic conditions and optimize its capital assets. Social Social factors have a huge influence on consumer’s spending habits. Wal-Mart has always been associated with quality yet affordable products, making it suitable for a majority of consumers. Changing social conditions mean that Wal-Mart cannot rely on the traditional business strategy of direct sales (Certo & Certo, 2013). Social evolutions have enabled consumers to buy products and have them delivered to their locations. This explains why the company has prioritized online sales and used it to attract more consumers. As social dynamics change, the Wal-Mart brand is becoming accepted by customers from all social classes. Technological Wal-Mart has a sound technological core that has been influential in its rapid growth and expansion. Since its establishment, the company has embraced technology and used it to its commercial advantage. In 1987, for example, it introduced its first satellite network that linked homes and offices to all its stores and affiliated outlets through voice, video, and data communication. Wal-Mart is a very innovative and progressive company that believes in extracting maximum profits using novel ideas (Macdonald & Marshall, 2013). Its supply chain is very successful, an example to other established firms on how supply chains and logistics can be modernized and restructured to support business growth. The company towers above its competitors in regards to the technological factor, and it has also embraced technology as a marketing tool. Despite its technological edge, Wal-Mart still faces the challenges of cost and adaptability. Technology is expensive to acquire, but keeping up with developments is even more costly (Certo & Certo, 2013). Over the years, the company has spent hundreds of millions of dollars in ensuring that it has the latest technology in the market and that whatever innovation it adopts increases its sales and profitability. Legal Wal-Mart has faced numerous legal and regulatory challenges as a result of the scale of its operations and the strategies used to manage its employees. Issues pertaining to labor relations and compliance have resulted in unprecedented regulatory challenges and consequences for the retailer. In recent years, the US government has implemented new legislations aimed at protecting consumers and encouraging fair competition (Lichtenstein, 2013). In this regard, it has been supported by consumer organizations and lobby groups that campaign for greater consumer protection and federal regulation of the retail industry. The regulatory environment in the United States has been volatile at best, resulting in ambiguity in the retail industry and unexpected legal obstacles and implications for multinational retailers like Wal-Mart. The biggest legal challenges faced by Wal-Mart occur abroad. Despite having thousands of stores in foreign markets, the company has been involved in numerous cases of misunderstandings in regard to local and national laws in foreign markets. Consequently, the company has incurred prohibitive penalties that have pushed it out of some countries and resulted in massive financial losses (Macdonald & Marshall, 2013). Economic regulations in foreign markets have been one of Wal-Mart’s biggest challenges since it embarked on global expansion. In some countries, the ambivalence of regulations, particularly with respect to local and national laws, has had an adverse effect on the profitability and efficiency of the company. Some countries have deliberately introduced laws aimed at stifling Wal-Mart’s operations and creating more favorable conditions for its rivals. This is inspired by the misconception that since the retailer is foreign, its benefits are limited to its owners. Environmental Despite the numerous efforts it has made to become as “green” as possible, Wal-Mart still has a negative impact on the environment in many ways. In fact, some scholars argue that the company’s size means that its environmental conservation practices will always be unsustainable because its negative effects far outweigh all the positive measures it adopts. In 2012, research conducted by the Sierra Club revealed that one Wal-Mart megastore consumes the same amount of power as 1,095 American households do in a single day (Massengill, 2013). Worse still, despite claiming that it is committed to protecting the environment, research shows that only 28 percent of the retailer’s electricity consumption is attributed to green power. Although Wal-Mart has a decent corporate social responsibility structure, its commitment to environmental conservation and sustainability, especially in local communities, is questionable. In the United States, the company has been portrayed by some communities as a negative influence on the environment and the sustainability of local enterprises. In foreign markets, its environmental record has been poor at best, and this has put its success in some lucrative markets in jeopardy. Ultimately, it is becoming clear that for Wal-Mart to gain more global recognition and respect it must improve its environmental record. One way it can achieve this is to reduce the amount of waste it releases into the environment and to participate in proactive environmental measures that can improve its standing in the communities in which it is based (Lichtenstein, 2013). In spite of the company’s obvious weaknesses on the environmental front, it is also worth noting that some countries have unsustainable environmental regulatory frameworks that make it easy for foreign companies to neglect their responsibility to protect the environment. There is a need for governments to redefine their environmental laws so that there is less ambiguity and more definitiveness in their environmental conservation blueprints. By doing this, the onus will now be on businesses to adhere to the new requirements or accept resultant implications. Performance and Strategies used by Wal-Mart in Marketing, Finance, and Operations Marketing Wal-Mart has one of the most aggressive marketing campaigns in the world. The company creates innovative and effective advertisements to cater to its millions of customers around the world and employs some of the biggest advertising agencies in the world to create its marketing slogans. The company’s marketing strategy is based on two factors: the brand and value. Wal-Mart’s growth strategy heavily relies on the reputation and visibility of the Wal-Mart brand, which is globally recognized (Hendry, 2013). The power of the brand has enabled the company to generate a large percentage of its revenue from franchises and licensing, which are usually lucrative enough to be sought out by investors in different countries around the world. In terms of value, Wal-Mart markets itself as the world’s retailer, meaning its products can be afforded by all categories of consumers. The company also uses a “something for everyone” marketing approach that is common among multinational firms. Wal-Mart conducts extensive market research to support its marketing initiatives. The company spends millions of dollars annually on understanding the needs and spending habits of consumers so that it can adapt its marketing strategies to address customers’ concerns. This dedication to market research sets the firm apart from its competitors and gives it an invaluable competitive advantage when competing in foreign markets that are dominated by local retailers (Harrison & St. John, 2013). In the United States and emerging markets, Wal-Mart has successfully used market research to capture and dominate markets. Customers are at the center of Wal-Mart’s marketing strategy; they are its most important asset. As a result, the company’s management invests in emerging markets where there are millions of consumers because its objective is to provide quality products at affordable prices, hence saving working class consumers money that they can spend on other more important concerns. Wal-Mart conducts extensive research before it ventures into any market. For example, it dispatches its research team to prospective markets to conduct surveys and compile reports on the status of those markets before it can launch operations. The team typically conducts competitor assessment and quantitative analysis using research techniques. Once the baseline research is complete, the company can then choose the best strategy to use in launching operations in a new market. This can be seen in the company’s different approaches to entering foreign markets (Varley, 2014). For example, when launching operations in the UK, it decided to acquire Asda and use it to establish its presence in a market that is often difficult to penetrate. However, when venturing into the Chinese market, the retailer opted for an organic growth strategy which involved opening outlets in poor regions to serve consumers on a large scale, and then using the platform created by this strategy to expand to other regions. China’s population is close to 1.5 billion, and a majority of people belong to the middle and working classes. As a result, Wal-Mart has a growth rate of between 8 and 9% in the Chinese market, which is impressive considering the challenges the Chinese market poses for foreign companies. In the next three years, the retailer expects to open 100 new outlets that will create 18,000 employment opportunities. Finance and Operations Wal-Mart fixes its currency exchange rate when dealing with foreign suppliers. This is done to reduce the losses caused by fluctuations in foreign exchange rates. In China, for example, the company requires that all its transactions involving Chinese suppliers are based on a set exchange rate. This has the benefit of fixing the firm’s product costs and maintaining profitability by cushioning the company against fluctuations in the dollar and Chinese currency (Daft & Marcic, 2013). Wal-Mart also manages foreign exchange risk by conducting currency exchanges and participating in net investment hedges so that it can protect itself against the adverse effects of foreign exchange rates fluctuations and the risks associated with the servicing of foreign debt that is calculated in foreign currency. In 2011, the fair value of Wal-Mart’s currency swaps was $471 million while in 2012 it was $313 million. In 2011, the company incurred a loss of $74 million due to exchange rate fluctuations while in 2012 the figure stood at $67 million. Wal-Mart employs different market entry strategies to avoid suffering shocks created by launching operations in foreign, unknown markets. By varying its market entry strategies, which are informed by the specific market conditions in individual countries and the results of market research, Wal-Mart significantly increases the probability of succeeding abroad, which is always higher than those of its competitors (Copeland & Labuski, 2013). For example, while it entered the Chinese market and UK markets using organic and acquisition growth strategies respectively, it adopted a joint venture strategy for the Mexican market. Due to its size and scale of operations, Wal-Mart uses a vertical communication strategy that allows information to flow from senior to junior employees, as well as from its US headquarters to its numerous divisions across the world. Conclusion Wal-Mart’s success is built on a strong brand, aggressive marketing, and considerable resources that support expansion. This paper has presented and analyzed the internal and external environment inherent at the company and how it contributes to its success. The internal environment has revealed the firm’s strengths, weaknesses, opportunities, and threats and provided an insight into its key growth areas. The external environment has explained the challenges faced by the company in its external relations and how these challenges are impacting its successes and growth. Finally, the marketing and operational dimension of the company has shown how its leaders influence its approaches to domestic and foreign markets and how they contribute towards its success. References Centeno, M., & Cohen, J. (2013). Global capitalism: A sociological perspective. Cambridge: John Wiley & Sons. Certo, S., & Certo, T. (2013). Modern management: Quality, ethics, and the global environment (13th ed.). Boston: Pearson Education. Copeland, N., & Labuski, C. (2013). The world of Wal-Mart: Discounting the American dream (Illustrated ed.). New York: Routledge. Daft, R., & Marcic, D. (2013). Management: The new workplace (8th, Illustrated ed.). Mason, OH: South-Western Cengage Learning. Dawson, J., & Mukoyama, M. (2013). Global strategies in retailing: Asian and European experiences. London: Routledge. 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