Wal-Mart in Nigeria - Report Example

Wal-Mart in Nigeria Wal-Mart is the one of the success stories in the history of business. Sam Walton started the business of Wal-Mart in 1962 that has grown to the largest corporation throughout the world. Wal-Mart is a profitable company mainly works in USA. Many countries that earlier committed to keep a government control over the economies have taken drastic steps for trade facilitation. Entities face the challenges of developing a global expansion strategy to participate in the activities of the global economy in the 21st century. Objective of this paper will be the examining of Wal-Mart in reference to its global expansion as the company took a few steps already for entering the African countries’ markets. Groceries product of Wal-Mart are of great values. Aim behind this paper is to enter the Nigerian market with groceries products for a great saving as compared to other companies. Country Nigeria is largest populated country of the Africa and also a second-largest behind the South Africa in terms of economy. Lagos is the largest city of Nigeria and also the most populous city in the Africa. Increase in the annual GDP rate of Nigeria is 6 percent US dollars while retail and wholesale contribution remains 29 % out of the total. Increase in the urbanization, youthful population, middle-class families and increase in consumer spending lead many international and modern supermarkets to grow in the developing countries of Africa and particularly in Nigeria. Nigerian market has proved to be toughest for many foreign companies to master in global retail development index (GRDI). Nigerian market has many hurdles to overcome for foreign companies. Some of the important roadblocks for foreign companies include the land availability, regulations, supplier capabilities, distributors and ease for imports, which all require the serious efforts and time across the country. Based on the experience, middle class families in Nigeria have trends of purchase decision about convenient retail stores (A.T. Kearney Inc. 2014). Wal-Mart has not properly managed to get its formula right in abroad as it cannot fully cater to habits of customers in foreign markets. Nicolaides and Bank (2013) pointed out that Wal-Mart had invested in South Africa in year 2011 and generated good revenue of total $ 418,952 from net sales. Therefore, Wal-Mart management wants setting up its business in Nigeria as it hold good statements in last few years. Industry Retailing industry is the one of best industry where US companies perform very well throughout the world. In the retailing industry, consumers’ goods are sold by the global and leading companies around the world. Most retailers face the challenges of lack of modern places as goods in the retail market are sold through the informal markets. However, a few modern shopping centers The Palms in Lagos and Ceddi Plaza in the Abuja are places where well known brands Apple and Swatch have their openings. Shoprite is the one of the foreign retailer that opened its first outlet in The Palm center in Nigeria (Maritz, 2010). Growth of retailing industry is much faster than GDP in Nigeria. This growth in retailing industry is due to increasing size of the population in Nigeria. There has been atrend of changing the traditional retailing to modern retailing as supermarket and hypermarkets are developing rapidly in Nigeria. According to a report of Euro-monitor International (2013) the concept of supermarket in Nigeria is rather interesting where every small store recognizes itself as a superstore. The Euro-monitor International reported that only 84 such superstores exist in the country (Euro-monitor International, 2013). Shoprite as a biggest retailer of continent opened the first shop in June 2012 in Nigeria and more two shops in the next year 2013. SWOT analysis Strengths: Due to incredible success, Wal-Mart possess the strengths in abundant. Wal-Mart has been a large employer and people find places for employment of a high level as well as others without higher education. Therefore, target market will be appropriate for Wal-Mart to hire the people from Nigeria. In reference to net sales, Wal-Mart is the largest company throughout the world.Aggressive growth strategy of Wal-Mart has made it significant for a number of incredible sales. Only 425 new stores of thecompany were added all over the world. Addition of these stores encourages the company to expand its business in Africa by opening the new stores. Logistic system of the company is a unique feature that makes it more advantageous. They can ship merchandise from any distribution location to target center throughout the world. New inventory system of thecompany is also helping to share sale and stock data with their suppliers. Online order of Wal-Mart product through the Website is an advantageous as it sells its products at low prices. Middle class families can find it more appropriate for purchasing products through the online system. A great success of Wal-Mart lies in identifying the potential customers and their needs (Kotler et al., 2009). Wal-Mart has strong capability and reliability in warehouse strengths. It ensures the ability of keeping the maximum grocery and other products on the online e-commerce site without relying on the external warehouses. Wal-Mart has a strong infrastructure of transport, knowledge resources and warehouse management (Richard, 2014). Weaknesses: It is also reported that the Company achieved the declined profitability ratio in 2013 due to less pricing advantages. Company reported a decrease in net profit margins and operating profit. Higher operating cost induced the decline in the operating cost in 2012. Sometimes, space selection for the new stores is disadvantageous for Wal-Mart (Berman and Evans, 2013). Although, Company expands its business at a great deal for the international market but still lacks a big share from African countries’ market. Wal-Mart is showing its presence in UK, and competitors have setup their retail stores in surrounding countries. Lack of a complete knowledge about new market also will make it to share the profit with other competitors (Lichtenstein, 2013). Opportunities: Since the company is established in USA, and can expand its business in African countries to become the largest retailer throughout the world. There is no diverse selection of products, and they can establish their retail stores and merchandise for attracting more customers. Musical products are anew area where Company can focus especially to increase the profit. Growing economy of African countries, particularly Nigeria creates new opportunities of the employment that boosts their earnings. Buying behavior of customersis changed by the rise in the disposable income. Wal-Mart can increase the profitability and market share by making focus on these potential markets (Berman and Evans, 2013). Threats: Company’s ability is limited by changing the labor laws of USto fill the appropriate and qualified individuals on the vacant positions at the distribution centers, clubs, and stores. There is a high competition in theretail industry that impacts the company’s growth. Wal-Mart faces the competition challenges of many hypermarkets, supercenters, discount retailers, catalog businesses, internet-based retailers, and club stores. Tesco, Metro AG, Costco WholesalesCorporation, and Macy’s Inc. are main competitors in the US market (Wal-Mart Stores Inc. 2014). 4Ps Product, Price, Place, Promotion The 4Ps is a marketing mix model includes the fundamentals elements of products, place, price, and promotion. The marketing mix strategy is amixture of marketing activities used to fulfill the customers’ demands in the target markets (Lee et al., 2008). Product Products of Wal-Mart can be seen in everyday life. Brand range of Company’s products includes the Jewelry, home appliance, movies, gift, crafts, toys, video games, electronic items, photo center, funeral and college essentials, etc. In the new marketplace, Wal-Mart officials at its store have all products placed under one roof, so customers are convenient to purchase anything they want. Price: Wal-Mart sells the merchandise with low margins at lower prices and higher volumes (Kotler and Armstrong 2008). Discount packages of Wal-Mart are very popular and attract customers. At large retailer stores of Wal-Mart, pricing strategy is the economic force that gives the customers such low rates, which they cannot avail from any retail stores. Grocery products have 15% low rates than local competitors of thecompany. Technology and electric items also have lower possible rates. Manufacturers at Wal-Mart have aspecial focus on plus one policy either reduce the rate of products or raise the quality of products. Place Wal-Mart stores are always placed on the strategic positions, which are accessible by majority of people living in the surrounding communities. Wal-Mart is working across the 28 countries with more than 10020 stores and operates using the 60 banners. It uses the traditional selling strategy (brick and mortar) and e-commerce (brick and click) strategy. Stores of Wal-Mart are categorized into four types. 1. Supercenters 2. Discount stores 3. Neighborhood market 4. Express stores Promotion Wal-Mart introduces the sales promotions through the pricing strategies and product bundling. These promotions are covered in the in-store promotional activities of Wal-Mart. Customers place online gift orders that generate high revenue for the company. Pricing strategies of thecompany include the “value of the day” and “Every low price”, which increase the sales revenue of thecompany. Market Research Wal-Mart is working well in countries like China but not good in India. First store of Wal-Mart was opened in 1996 and had more than 180 stores in ninety cities of China. However, India is adifferent place for Wal-Mart where government does not allow the foreign companies like Wal-Mart to set their retail stores and communicate directly to customers. Therefore, Wal-Mart has chosen Joint-Venture strategy of 50/50 with the Indian local enterprises. Firms with the size of Wal-Mart have sufficient funds to conduct the research of themarket before entering into concerned market. After China and India, in South African with 54 countries, people have started to grow and want goods and services, which are available in the advanced nations of the world (Williams, 2011). In a report of McKinsey’s Africa Hattingh et al., (2012) pointed out that Nigeria was amongst the top ten countries of Africa where private consumption increased to 81 percents in 2011. This private consumption in African countries is more than Russia or India. Therefore, growth of foreign companies is expected in African countries. Urban Africans spend more than villagers on food items, and groceries from their budget. There is a trend of regular checking the prices of food items among the consumers living in Nigeria. Therefore, Wal-Mart is the best company that offers lower prices than competitors. Moderns retailing is not popular in Nigeria and consumers prefer the in-store environment and layouts, which are aconvenient way for them, so they buy products from stores. Wal-Mart uses both online and in-store selling of theproduct, so Nigeria is a good place for Company to start abusiness.Another advantage of Wal-Mart is to keep sufficient stock of goods in their stores and never face the shortage of goods. Consumers from Nigeria and Angola prefer those companies, which overcome the issue of shortage of real estate for keeping the products. In a recent study of Ezekielet., al (2014) described that theretail sector showed a boom in Nigeria. There has been an increase in the middle class families in the country, and various local stores of equal standards are operating. Contrary to these local stores, foreign companies are beginning to exist in some Nigerian cities.Velasquez (2014) reports that the expected annual growth in Nigeria is 10.9% by year 2106 that has become due to booming of the overall increase in disposable incomes of middle-class families. In the target market of Nigeria, Nigerians buy products from Kaycee, JT Chanrais, Kewalarams, Kingsway stores, and foreign departmental stores. Gloo.ng is the largest online store of Nigeria food market that offers its 100% free delivery services to its customers in surrounding of Lagos. This offer from online store is unique in terms of delivery and some extent of price as delivery is free of charges. In soft drinks, themain player of Nigerian market includes the Coca-Cola Nigeria Limited that has a long history in Nigeria. Wal-Mart will have a tough competition with Coca-Cola in quality of food drinks. However, in terms of price company will have advantages over the Coca-Cola and other local companies of Nigeria. Consumers in Nigeria are shifting their interests to sugar-free drinks, which contain more natural ingredients (KMPG Africa Limited, 2014). The central bank of Nigeria (CBN) shows the commitment in defending the currency value in Nigeria. Country competes with other oil-exporting countries by selling the crude oil to Europe and Asia. Many U.S states and European countries are consideringan increase in the interest rates, which remained low in a few last years. Currency In Nigeria, European imperial adventure regulated the economic policies in thefield of currency and banking. British Monetary system was introduced during this adventurous era. Nigerians attained the independence from British rule in 1960, and new authorities introduced a truly Nigerian currency called Naira and Kobo (Chukwu, 2010). Changing patterns of the internal trade and business have highly impacted the foreign exchange market of Nigeria. Establishment of Central Bank of Nigeria (CBN) eliminated the foreign exchange earnings from theprivate sector (Central Bank of Nigeria 2014). Competitors Wal-Mart Stores Inc. has devised a program to match rivals’ online prices like Amzon.com. This program has been introduced recently that can make thecompany a successful competitor with a cut into the earning. This test of the program has been started for caring the customers of thelocal market. Wal-Mart resisted for a long time to match the online prices, but competitors Target Corp and Best Guy adopted the same practices for making their customers buy products online.Online competitors of Wal-Mart are so aggressive against Wal-Mart because later company sells products at low prices. A basket of goods purchased from online store of Wal-Mart remained 1.2% cheaper from Target in 2012.Another competitor of Wal-Mart includestheAmazon.com and sells goods 10% lower than its rival Amazon.com (Banjo, 2014). In a study, Elickson and Grieco (2013) investigated the implications of Wal-Mart’s competitive framework on other two competing firms Namely Kroger and Saves-A-Lot. It was found that Wal-Mart and Kroger had similar impacts while Saves-A-Lot differed widely from Wal-Mart in terms of entering the new markets. K-Mart is another competitor of Wal-Mart that stands behind the Wal-Mart in retail Market. Management strategies of Wal-Mart keep it on top in theretail market. Corporate culture and workforce are highly emphasized in the management strategy of thecompany. All employees share their suggestions for improvement in company’s policies and practice. On arrival of Wal-Mart stores with low prices, K-Mart could not give discounts to customers for brand-names. CEO of the company Shoprite intends to extend the number of new openings to 700. Massmart is partly owned by the Wal-Mart and has a limited number of stores in Nigeria. Spar is the largest retailer of Europe and has a partnership with the Arts Group from Nigeria and wants to tape in the local Nigerian retailing market of Abuja and Lagos (Oxford Business Group, 2012). Macro-environment: Political Factor Nigeria is a federal republic with thirty-six states and capital territory. Presidential system operates in Nigeria with its three distinct arms such as Judiciary, Executive, and Legislative. Each arm keeps checking to other twos. President and Vice-President belong to Executive arm of the federal republic of Nigeria. English remains the official language of the Nigeria. LegalFactors Legal system of Nigeria consists of three schools; Islamic law, English common law and constitutional law. In Northern states of theMuslim population, Islamic law is enforced in those states. Islamic laws concern the basic rights of people i.e. peace and justice, and speech’s freedom. Property rights are enforced through the English common law. SocialFactors: Classes’ concept is common in Nigerian communities and people with degrees are considered rightful in exploitation of formal titles to gain respect from others. People insist on calling them with their designations and prefixes. Social class makes the difference among Nigerians. There is a cosmopolitan atmosphere in Nigeria. More than 250 ethnic group live throughout the country. Successful business conduct in Nigeria is dependent upon the social relationships between customers and retailers. Cultural Factors: Politics of Nigeria heavily impacts Nigeria’s culture. For a long period, Nigerians are experiencing the civilian rule and democracy in the history. Instead of diversity in Nigeria, a collective sense of identity has been given to people of Nigeria. Nigerians are interested and like their business partners. In Nigeria, people view age and class of individuals as a determinant of theirintelligence. Individuals with ahigher degree are given more privileges of leading the groups. Consumers in Nigeria regardless of age and class emphasize on price negotiation with sellers. Economical Factor: Increase in Gross Domestic Product (GDP) has been reported in thecountry that means more material is required for product activities. Nigerian economy influencing factors include government policy, natural phenomena, social and community factors (Oricha and Olarinoye, 2012). Technological Factors: Many existing companies are deploying a new technology in Nigeria to achieve the customers’ preferences and patterns. Global system for mobile communication has improved the functioning of thebanking sector in Nigeria (Oluwatolani et al., 2011). Target Market Wal-Mart office in South Africa has plans to expand its business across the other countries of Africa including the Angola and Nigeria. More than 120 million consumers have been reported in Nigeria and variety of formats for selling the electronic, grocery, household goods and building material exist in Nigerian market. Wal-Mart’s entry in South Africa has potential for entering the Nigeria market where masses of under reserved consumers seek to be served (Fletcher and Crawford, 2014). Wal-Mart management is more concerned about political, security and law situation in Nigeria rather than focus on their counterparts in USA. Political instability in Nigeria can drastically affect the business. In contrast to Nigeria, USA is politically stable but keeps the volatile technological and economical environment (McFarlin and Sweeney, 2011). Conclusion In this paper, Wal-Mart as a US based working in multiple parts of theworld has been focused. Nigeria as the largest country of world and main producer of Crude oil has thepotential for new business entrants in thecountry. In 2007, Wal-Mart set up its stores in South Africa, and its top management has theintention to expand business in other African countries. In retailing industry, Wal-Mart is the biggest player and can succeed in Nigeria based on experience and practices. SWOT analysis of thecompany reveals that Wal-Mart has attained various areas of strengths and opportunities as compared to weaknesses and threats. Products availability and selling at low prices are the main advantage for thecompany to operate in anew market where consumers negotiate for prices. 4Ps as a marketing mix strategy of Wal-Mart has been alignedwith customers’ demands. Currency of Nigeria is Naira and Kobo, which has replaced the UK’S Pound currency. Macro-environment factors in new business environment of Nigeria show that Wal-Mart business can grow in the new market. Main competitors of Wal-Mart in the existing and potential market are presented their strengths and powers to compete with their rivals. 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