Introducing Walmart into Saudi Arabia - Essay Example

Introducing WalMart into Saudi Arabia Section Strategy Development 0 Market entry 1) Saudi Arabia is regarded as one of the largest food exporter in the Gulf countries. The market of Saudi Arabia has many barriers for entry since it requires huge investment in establishing infrastructure, forming efficient distribution system, building brand name and also considerable capital base for supporting the new entry. However, it can be portrayed that WalMart enjoys these advantages globally owing to its ability to invest the required amount for successful entry. So, in order to enter the market of Saudi Arabia, WalMart has to outline the estimate of investments to be made. The estimation is totally based on local requirement and competition. For understanding requirements of local Arabs and examine competitors in the market, WalMart should undertake an efficient market survey. The market survey will highlight demand of the local Arabs and kind of products that they prefer most, besides indicating to the purchasing power of customers. The competitor analysis is the most important part of a market survey. The competitors and their business aspects will be critically analysed by WalMart so as to identify strategies that they follow. The strategies followed by competitors allow WalMart to comprehend the exact likings and lifestyle of Arabs. Interviews with local Arabs will reflect their tastes and preferences as well as help in building trust and confidence (Wal-Mart Stores, Inc., 2014b). (1.2) WalMart aims at selling most essential goods, which fulfils the basic need of any individual. The company does not highlight any particular product group and sells a wide-ranging set of products, thereby serving a diversified customer base. It can be noticed that many companies based in United States (US) have ignored cultural beliefs of the targeted foreign markets and as a result, had encountered huge challenges that in turn led to collapse of these companies. Nonetheless, it is extremely necessary for WalMart to consider all prevailing religious beliefs and traditions while preparing for entry into the Saudi Arabian market (Statistic Brain, 2014). It is observed that Saudi Arabia imports the largest amount of goods from US, which highlights the fact that American products do not contradict social beliefs and traditions of the Arabs. WalMart should take the favourite past time of Arabs into consideration, which is to go out shopping and spending quality time with family or spouses. In Saudi Arabia, women are not allowed to travel alone and thus, they have to be accompanied by a man. In addition, it is also observed that no man is allowed to visit shopping malls alone during weekend since those two days are strictly meant for family visits. After understanding the exact culture and shopping pattern of male and female Arabs, WalMart should plan the market entry. If WalMart considers these factors, then it will not affect sentiment of the Arabs or harm their cultural and social beliefs (Garofalo, 2012). 2.0 Strategic considerations The strategic consideration of WalMart in Saudi Arabia should include distinctive factors that are not present in other countries. Every market worldwide has its own distinctive features owing to existence of different cultures. Each culture has its own belief and follows a definite tradition. The strategies are formulated by considering several factors that are mentioned below. (2.1) In Saudi Arabia, population is the most important factor to consider by Walmart. The population of Saudi Arabia has recorded to increase over three years by 1.9% (2012-2014). This rise in population will allow WalMart to build wider customer base for the company. WalMart can penetrate the Saudi Arabian market by offering different products, which cater to demands of customers belonging to various age brackets. The average life expectancy of Saudi Arabia is noticed to be 73 years and WalMart will strategise their products in a way that will take care of the customer lifetime value. (2.2) The Gross Domestic Product (GDP) of Saudi Arabia has increased over years and expected to increase to 4.4% in 2014 from 1.8% in 2009. This will enable WalMart to run a prosperous business in Saudi Arabia. For underpinning the advantage of growing GDP, WalMart can introduce new set of products in market, apart from those provided by its competitors. (2.3) The unemployment level of Saudi Arabia is observed to be stable for past five years (2009-2014) and this is a good opportunity for WalMart to tap the market with high quality products at reasonable price. The customers of Saudi Arabia do not restrict themselves from purchasing good quality products at a high price since these items matter to them and price is not an issue. WalMart should strategise their products in such a way that this customer base is not affect due to fall in product quality. They should augment the brand value, which will influence customers to buy more goods. (2.4) WalMart should concentrate on improving its supply chain management. The strategies undertaken to do as aim at reducing cost of production of the products as well as inventory cost (Ferrell and Hartline, 2010). Lowering the cost of production will enable WalMart to bring large variety of products to the shelf. (2.5) Since its inception, WalMart has concentrated upon entering global market successfully by employing multinational business strategies. The strategy outlines the fact that customers of different countries are treated in a dissimilar manner by way of focusing on profitability and productivity of the company. WalMart aims at catering to the differences in taste and preferences of various regions and consequently, adopts the "Different Stores for Different Folks" philosophy (Wal-Mart Stores Inc., 2014a). WalMart in Saudi Arabia will also undertake the same strategy of targeting different communities with different products (Kollewe, 2012). 3.0 Entry mode for Saudi Arabia Multinational companies adopt market entry methods, which entail the lowest level of risk and consequently create lesser market control in indirect export. When multinationals are satisfied with the domestic sales, they desire to expand business overseas. Hence, they seek different market entry strategies, which will support their entry into overseas market and contribute positively towards organizational success. WalMart has employed different market entry modes that have brought about success in China (Joint venture), Brazil (Joint venture), Chile (Acquisition), Costa Rica (Acquisition), Argentina (Organic), Germany (Acquisition) and Canada (Acquisition). WalMart has different options for entering Saudi Arabia, which are as follows: (3.1) Walmart can enter Saudi Arabia by acquiring one of its biggest competitors, Al Othaim. Al Othiam is a supermarket in Saudi Arabia, which sells all kinds of products ranging from foods items, groceries to furniture. This company holds 2% of the market share in Saudi Arabian market, along with considerably high average annual sales. So, Al Othaim can pose threat to the entry of WalMart in Saudi Arabia. It is will be a good decision to acquire Al Othaim, so that WalMart can get the opportunity to share the market and bring the customer base of Al Othaim under its umbrella (Wal-Mart Stores, Inc., 2014c). (3.2) WalMart can also involve in a joint venture with Al Othaim so as to form a new enterprise in Saudi Arabia, which will be known as Walmart-Othaim JV Limited. Through this joint venture, the two companies can share their strategies and reign over the Saudi Arabian market, thereby capturing the largest portion of market share (Doug Alexander, n.d.). 4.0 Strategy development conclusion Based on the market entry and strategy consideration, it can be concluded that WalMart needs to frame new strategies for entering the market and invest a huge amount for foundation of the business in Saudi Arabia. The company can rely upon either acquisition or joint venture in order to enter the market of Saudi Arabia. Section 3: Implementation  1.0 The marketing mix Marketing mix is a tool used by companies for marketing products in a particular market (Adler, 2010). It is crucial for determining quality of a brand or product offered and is associated with 7P’s for identifying nature of products and services. The 7P’s of forming the marketing mix are as follows: (1.1) Product: Product is an essential requirement for every company that wants to start business in a market. A product that is unacceptable for a market is not needed in the first place. So, a company needs to identify product that will be suitable for a particular market place (Cherunilam, 2010). It is evident that rightly choosing the product will contribute to success of company. For choosing a particular product, a company should firstly understand the taste and preferences of target customers and subsequently develop the appropriate product. The quality and quantity are important elements of products, which determine customer satisfaction. A right product must provide value to its customers (Cherunilam, 2010). (1.2) Price: “A product is only worth what customers are prepared to pay for it” (Ahlstrom and Bruton, 2009). The price of any product needs to be set according to purchasing power and production of the market. The price should be competitive but not the cheapest; this will enable a company to challenge its rivals in the same industry. Smaller companies have the ability to compete with larger ones by way of adding few extra services, which will ensure enhanced value for customers. The price should also bring profit to the company and is the only element of marketing mix that helps in generating revenue (Ahlstrom and Bruton, 2009). (1.3) Place: The customers expect to avail products from the right place at a right price. Hence, distribution of products to convenient places for customers is one of the main responsibilities of a company. Delivery performance is dependent upon choosing the right supplier since delay in delivery of supplies can create problem in the entire production process. So, customers will not find their required products in the right place. This will in turn cause the demand to rise above supply (Clifton, 2012; Henry, 2008). (1.4) Promotion: Promotion is the main communication process for a company whereby it conveys information to customers. Information is given regarding the company, products and offers provided. It also includes certain activities pertaining to advertising, corporate social responsibility, sales management and special offers. The promotion consists of a message that is conveyed to the public continuously, so that the product does not fade away from mind of customers. Promotion is a way of communicating important aspects of the products and associated benefits to target market. Promotion is not only directed at customers, but also to ensure that stakeholders are aware of product values and attributes (Cohen, 2004). (1.5) People: Reputation of a brand rests upon the behaviour and work of people under it. They must be properly trained and skilled in order to fit into their job responsibility. This will enable them to work efficiently and contribute positively towards organisational success. The after sales services add to the value of products offered to customers. As the after sales services are provided by employees of an organisation, they are motivated to perform tasks properly and efficiently so as to satisfy customers (Holmquist, 2012). (1.6) Process: The process of delivering a service or product is essential for customer satisfaction. The issues regarding waiting time and insufficient information are vital factors, which affect customer satisfaction. The customers are not inclined towards gathering information regarding business operations; instead, they are more interested in products offered. The processes are structured for benefitting the organisation, which often affect customers such as, delay in delivery time. A company cannot operate smoothly if the processes involved are faulty. Hence, process is the most vital element of marketing mix, which is associated with customer satisfaction (Hitt, Ireland and Hoskisson, 2010). (1.7) Physical evidence: When a customer decides to avail a new service, he inevitably runs the risk of being dissatisfied. So, an organisation can reduce this uncertainty by providing customers with reassuring facilities. For instance, when a customer visits a particular office, he firstly experiences its well-decorated reception; this builds a good perception about the organisation, which helps in assuring that services provided are worthy (Flamholtz and Randle, 2012; Johnson, Whittington and Scholes, 2011). 2.0 Applying the marketing mix to the Saudi Market 2.1 Product WalMart sells a wide range of products. In Saudi Arabia, the company must develop and promote private brands in order to achieve success. This will increase satisfaction within the Arabian communities since they are fond of private brands and are willing to purchase luxury goods. Localization of international brands will allow WalMart to familiarize their customers with product offerings. This creates an additional value for the products. WalMart should not include products in their offerings, which are banned in Saudi Arabia. 2.2 Price WalMart aims at providing customers with lowest possible price for the products. Such a strategy positively contributes towards success of WalMart. The company should not only target affluent individuals with premium and private brands, but should also fulfil needs of customers who belong to lower income groups. WalMart is well-known for maintaining low cost of products; this is reflected in the tagline and mission statement of the company. The company buys supplies at a cheap rate and thus, can offer products to customers at low prices (Staff, 2014). 2.3 Promotion The company does not promote its products over media or advertisements. WalMart is not interested to make any investment towards such activities. Instead, they are inclined towards investing in charitable funds, which helps in increasing goodwill of the brand. The company offers discounts to customers on purchasing a particular product. This builds a good relationship between the company and its customers (Zufari, 2009). 2.4 Place The location of stores should be near to the production area so that products are easily accessible. The delivery truck should be equipped with GPS so that they can be tracked easily. 2.5 People WalMart should recruit employees, who are motivated in their job and are adequately able to handle customer queries. Training should be given to new employees in order to render them fit for their job roles. 2.6 Process  The process undertaken by WalMart should be customer-centric. Customer satisfaction draws attention of customers to a great extent, thereby increasing brand loyalty. WalMart should focus on meeting demands of local customers as well as expatriates in the country. 2.7 Physical evidence WalMart stores should be decorative and easy-to-access so as to attract attention of customers. The products should be displayed appropriately so as to avoid inconvenience of visitors while making purchases. The male and female sections should be segregated. 3.0 Implementation conclusion The marketing mix of WalMart includes all important aspects, which are to be considered while entering Saudi Arabia. The products need to be critically examined in order to meet exact demand of the market. The products should not comprise elements that are banded in Saudi Arabia. The stores locations should be convenient for customers to visit. Section 4: Critical reflection  Saudi Arabia has encountered huge influx of pilgrims for Hajj every year and WalMart considers this group to be the perfect prospects (The World Factobook, 2013). The supermarkets of Saudi Arabia are unorganized and thus entry of a brand such as, WalMart will provide individuals with the perfect ambience for shopping. 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