International Marketing of Walmart - Case Study Example

Industry Analysis of Wal-Mart Australia Executive Summary The following paper analyses the position of Wal-Mart in Australia’s retail industry. The report finds that Australia has developed one of the most profitable retail markets in the world. Currently, a large number of innovative global retailers have established their presence in the Australia market and are competing effectively with domestic retailers. A notable foreign retailer is Wal-Mart which is well positioned to dominate the Australian retail market. The company has a mature branch network and has established strategic partnerships with distributors and suppliers. In addition, Wal-Mart has developed the capacity to sell its products via online. Nevertheless, because of the intense competition in the market, it is imperative that the company develops new strategies for overcoming the competitors. Some of these strategies include acquiring small retailers. Industry Analysis of Wal-Mart Australia Introduction and Overview of Australia’s Retail Industry For a long time, the retail industry has been the primary linkage between wholesalers (manufacturers) and consumers in Australia. The industry provides functions such as market discovery for products and convenient point for consumers. Some of these services have moved to the online platform with the introduction of online shopping and other technologies for online purchasing of products and services. Generally, the development of Australia’s retail industry has been driven by several factors including changing customer preferences, technological changes, globalization and competitive pressures. These factors have made the industry to be more proactive unlike in the past when it was isolated due to market protection and unfavorable geographical position (ACSI, 2003). Porter’s Five Forces Analysis of Wal-Mart’s Position in the Australian Retail Industry i. Rivalry Among Different Brands Currently, there are three large companies that compete for the same market resources as Wal-Mart. These are Kmart, Sears and Target. In relation to retail establishment, target is the strongest of the three rivals. All the three companies have attained considerable growth in the Australian retail market and have defined their respective market niches successfully. Although the market exhibits a mature industry life cycle, Kmart and Sears seem to be drifting and have not been able to challenge Wal-Mart for sometime. ii. The Bargaining Power of Buyers Australia’s retail market is a low-pressure zone as regards the bargaining power of buyers. Individual buyers have little or no pressure at all on Wal-Mart. In the recent years, consumer advocacy groups have complained about Wal-Mart’s pricing strategies which oscillate along the pricing continuum. For these reasons, consumers can easily switch to competitors who offer substitute products at cheaper prices (Nina, 2008). iii. The Bargaining Power of Suppliers Suppliers exert low to medium pressure on Australian retailers. Because Wal-Mart already holds a great share of the market, it offers significant business opportunities to manufacturers and wholesalers. This makes it easy for Wal-Mart to switch suppliers which is a good strategy for keeping supply costs low. Wal-Mart deals with large suppliers such as Coca Cola and Proctor & Gamble who have more bargaining powers than small suppliers. iv. Substitute Products In the Australian retail market, there are no many substitute brands that offer low pricing and convenience as Wal-Mart. Therefore, although customers may have the choice of going to other specialty stores to look for their desired products, they may not enjoy Wal-Mart’s low pricing, excellent after-sale services and the unique customer care service experience. Online shopping is another important factor that makes Wal-Mart ahead of its competitors. The company has developed an innovative, efficient and effective e-commerce system through which it interacts with suppliers and customers in real time. This capability is unmatched in Australia and hence no substitutes can compete effectively with Wal-Mart’s products (PC, 2004). v. Barriers to entry Generally, entry barriers are very high in the Australian retail market. This is because existing brands are fully established and have cultivated their own market niches. Brands such as Wal-Mart, Kmart ad Target have developed excellent distribution systems, stable financial bases and strategic locations to fend off new entrants. Because of its large size and nationwide coverage, Wal-Mart often has absolute cost advantages over its competitors (Bryan & Natalie, 2012). Wal-Mart SWOT Analysis i. Strengths Wal-Mart has the widest branch network in Australia and a very large customer base. As a result, it records high sales and profitability than most of its competitors. The company makes maximum use of technology and hence has a huge lead ahead of its rivals. Because of its huge scale of business operations, it enjoys huge discounts from suppliers. ii. Weaknesses The greatest weakness that Wal-Mart faces is the high rate of employee turnover. Because of this the company incurs huge expenses in sourcing and developing new employees. The company faces criticism from Austrian trade unions for reliance on part-time and temporary workers. The company has also been accused of violating child labor laws. Although it is the largest retailer in Australia, Wal-Mart is more concentrated in the eastern region hence potential customers in other part of the country cannot enjoy its services fully. The company offers low pay rates and hence it is not attractive to talented and well experienced employees (Weller, 2000). iii. Opportunities Constant adoption of state of the art technologies gives Wal-Mart competitive advantages over its rivals. There are large unexplored potential markets that the company can target. The company ahs opportunities to employ different strategies in different market segments such as creating super centers, normal stores and neighborhood markets. iv. Threats Wal-Mart is subject the threat of heavy competition in the Australian market. This competition is from both domestic and foreign establishments. The emergence of stores that focus on one area of specialty are a big threat to Wal-Mart. Political pressures and arbitrary laws can also affect Wal-Mart’s operations in Australia. PESTEL analysis of Wal-Mart’s Business in Australia and Recommendations i. Technological In the Australian retail industry, Wal-Mart was a leader in the use of technology to maximize operational efficiency. Beginning from the 1970s, the company realized the value of proactively investing in technology. Accordingly, the company deployed a private satellite network to enhance communication in its branch network and with suppliers. Wal-Mart manages much of its logistics through a centralized system of distribution centers and warehouses. The company has a core competency in its use of information technology to enhance international logistics systems. For instance, the company can keep track of stock movements in all stores cross the country. Information technology systems also support the company’s efficient procurement (ABS, 2007a). ii. Socio-Cultural Wal-Mart stores all over Australia are geared towards the low-to middle income consumer segment. Generally, Australia is a highly westernized society and hence most of its people exhibit shopping trends that are typical of western societies. Over the years, Australia has liberalized its migration policy and opened its borders to immigrants from South East Asia. This has caused real cultural shifts as Australians start to redefine themselves a multicultural society. Wal-Mart can easily take advantage of this heterogeneity to offer a wide variety of services that match the preferences and tastes of all these people. A major social factor that may hinder Wal-Mart’s further expansion in Australia is unfavorable demographic patterns. Currently, Australia has about 22 million people, which is quite small compared to its size. As such, its level of domestic consumption is very low (Nina, 2008). iii. Political Factors Australia is a liberal democracy with a constitutional monarchy and a federal system of government. The feral government shares powers with the state governments. Because of this, financial and political relationships between the federal government and states are an issue of ongoing concern for investors. Nevertheless, Australia has enjoyed political stability for a long time and has built a strong reputation as an investment destination of choice. The only political factors that may impact on Wal-Mart’s business in Australia are local legislations about tax, environment and labor relations. Because of its large size and scale of operations, Wal-Mart has the necessary capacity to circumvent adverse effects imposed by these factors (ABS, 2007b). iv. Economic factors Australia is economically stable and has developed one of the most advanced economies in the world. Except for the global economic crisis of late 2000s, Australia has over the years maintained inflation and employment rates low. In addition, interest and exchange rates are generally stable and hence do not present undesirable risks to business. Most Australians are medium to high income earners. They therefore have the necessary purchasing power to buy a variety of products including luxury commodities. Because there are many substitutes in the industry, pricing is an important strategy that Wal-Mart can use alongside economic considerations to attract many potential customers (Cocklin & Jacqui, 2005). v. Environmental Factors Environmental factors also have an important impact on Wal-Mart’s market position. The Australian government requires businesses to observe environmental laws and to develop appropriate practices for protecting the environment. Among other things, Wal-Mart is under the obligation to develop energy saving processes and to use environmental friendly equipment. This will ensure that the company develops a sustainable business capable of meeting the needs of Australian consumers (The Economist, 2012). vi. Legal factors Australia’s legal system is open, transparent and highly efficient. The judiciary advocates for zero tolerance to corruption. Generally, companies operating in Australia are expected to observe relevant laws and regulations (The Economist, 2012). Conclusion Wal-Mart is a household brand name in Australia. The company has build an excellent branch network throughout the country is one of the major players in the retail industry. Internal analysis of the company’s resource capabilities and strategic competencies reveals that Wal-Mart has a stable financial base, excellent distribution channels and pursues its promotional strategies successfully. It has established strategic partnerships with suppliers, distributors and other stakeholders to ensure convenient and timely delivery of products. The company, however, suffer from high competition and changing consumer preferences and demographics. References ABS. (2007a). “Labour Force, Australia,” ABS Cat. No. 6291.0.55.003, Detailed Quarterly Estimates, Australian Bureau of Statistics: Ausstats. ABS. (2007b). Consumer Price Index, June 2007,” ABS Cat. No. 6401.0. Australian Bureau of Statistics: Ausstats. ACSI. (2003). The Australian Retail Industry: Potential for Entering Overseas Markets. Canberra: Australian Coalition of Service Industries Bryan, R. and Natalie, B. (2012). Walmart: Key Insights and Practical Lessons from the World's Largest Retailer. Kogan Page Publishers. Cocklin, C. and Jacqui, D., (2005). Sustainability And Change In Rural Australia. New South Publishing. Nina, R. (2008). Groceries market Australia. GRIN Verlag. PC. (2004). Rules of Origin under the Australia–New Zealand Closer Economic Relations Trade Agreement. Research Report. Canberra: Productivity Commission. The Economist. (2012). Culture: The effort behind the effortlessness. Retrieved on 4th December 2012, available at: http://www.economist.com/culture Weller, S. A. (2000). “International Competitiveness and Export Performance: The Case of Clothing and Textiles,” Journal of Australian Political Economy, 46.December (2000): 71–102. Read More