E-Business Model of Wal-Mart - Case Study Example

Heading: E-Business Model-Wal-Mart Customer Inserts His/Her Name Customer Inserts Grade Course Customer Inserts Tutor’s Name 19, 08, 2011 Table of Contents Question 1 3 How Wal-Mart uses the internet to do business 3 Differences between B2B and B2C e-commerce 4 Question 2 5 Factors that make e-business model successful 5 Business Case Component (BCC) 6 Appropriate Technology Component (ATC) 6 Process Improvement Component (PIC) 6 Stakeholder Engagement Component (SEC) 7 Benefits Management Component (BMC) 7 Current status of Wal-Mart 8 Question 3 8 Challenges facing Wal-Mart in e-commerce 8 Question 4 10 Strategic options for Wal-Mart 10 Recommended course of action 12 References 14 Question 1 How Wal-Mart uses the internet to do business Wal-Mart founder Sam Walton has insisted in ensuring that customers should always be satisfied with the services of the company through provision of everyday low prices and friendly services. Using technology is therefore a critical tool for reducing the prices of the company’s products, David Flanagin, Director of Networking Engineering in Wal-Mart insist that technology used should pay back in terms of helping to reduce cost for the customer and not used for sake of using it (Wailgum 2009). There are many ways in which Wal-Mart has optimised the use of internet in reaching its clientele within and outside the United States. Wal-Mart has a website that has a number of features which enable dissemination of useful information to its clientele. Through its websites, its purpose and services area advertised, the website does not solely concentrates on the services of the company but on human welfare that the company has committed since inception. Since the internet is not bound by geographical location, millions of people can read about the company and also follow it through social network links such as facebook and twitter. Wal-Mart has also used the internet to enhance its Supply Chain Management, because of the fact that inventory management is an important part of ensuring low prices; Wal-Mart requires up-to-date details about the sales and also good communication platform with its suppliers. This is important especially for a company like Wal-Mart that has thousand of suppliers and well as stores (Wisner, Keong Leong & Keah-Choon 2005, p.124). Wal-Mart incorporated the use of technology in early 1980s and later adopted the use of electronic data interchange (EDI) before developing its own application known as Retail Linkà. The company however gained more by incorporating the internet and Cisco network into its platform; it has elevated its Retail Linkà to a higher level of usefulness and efficiency. This is because of the transformation from a mere dial-in network application to an internet based application (Cheng 2011, p.1). As emphasised by Flanagin, the network engineer, the technology allows easy platform for vendors to use because it is similar to a normal browser. More so, because the system runs on the internet, more suppliers can access it as well as providing an easier option in terms of management and maintenance. The rationale for using the internet in Wal-Mart is the benefit of a reliable network infrastructure. In essence, Cisco network incorporated which is also supported by web-based applications enhances smooth operation of Wal-Mart supply chain as well as effectiveness of the company’s associates. Because the network is designed to meet the needs of Wal-Mart business, their future functions, reliability and cost savings, the company has substantially gained a competitive edge globally. This is because of enhanced shopping experience and everyday low pricing which are the founding goals of the company (Cheng 2011, p.1). Wal-Mart therefore gains from saving millions of dollars on inventory and thus reducing its cost of accurately forecasting. The internet integrated mining software has enabled Wal-Mart increase accuracy of forecasting and hence increasing its competitiveness. Differences between B2B and B2C e-commerce B2B is used to refer to business-to-business transactions in which a business deals with another business in a business transactions. A B2C is a business-to-customer dealing where a business deals with a customer or end user in its transactions. The nature of B2B is complex and thus requiring more security as compared to a B2C e-commerce. A B2B has complex, expensive issues like system integration within a firm as well its trading partners. The cost of putting up the infrastructure is also enormous and integrating the same with other businesses. On the contrary a B2C platform is simpler, cheaper and easier to implement as there is no need for system integration. B2C offers a standard rate retail price for each product sold; a B2B is direct sourcing contract management which normally involved negotiations of prices, coverage of warranty and also logistic preferences. A B2B requires analysis of complex issues of order history data like locations, payment records and trading partners. B2C needs only regular update of sites in product prices, catalogue with product pictures and description (Wisner, Keong Leong & Keah-Choon 2005, p. 124). The client relationship in B2B is usually long-term while clients in a B2C are of short-term because they only buy the product they need at that time. In a B2B business, the transactions are usually of big value while the transactions in a B2C business are usually of small size. The transactions of a B2B are more complex as compared to the transactions of a B2C. An example of a B2B is tradekey.com while an example of B2C is Wal-Mart. Question 2 Factors that make e-business model successful In my opinion what constitutes to an effective e-Business model, can be determined by using E-Business Success Model (E-BSM) which defines the essential ingredients to realize an efficient E-Business service deliver. The E-BSM consists of Business Case Component, Appropriate Technology Component, Process Improvement Component, Stakeholder Engagement Component and Benefits Management Component (Manuela & Cruz-Cunha 2010). Business Case Component (BCC) It requires that all business projects be built on bedrock of a sound business case, this includes defining the reasons for the project, the cost outline, potential risks, and also benefits expected as a result of the investment decision. Appropriate Technology Component (ATC) With a strong business case which forms the foundation of introducing new and appropriate technology in order to meet the needs of its users. The ATP forms a stable foundation for other components of the e-business solution. Technology is therefore introduced into e-business on the customer’s side as a front-office; this is in terms of internet web application like an online submission. It is usually followed by a back-office technology which supports the office technology. Process Improvement Component (PIC) Since appropriate technology is not sufficient for optimum functions because of potential barriers, from experience if a thorough consideration is not given to ‘as is’ process, inefficiencies could occur and instantly undermine the performance. This is especially when the take-up of the electronic services reaches a critical mass (Raisinghani 2002). PIC therefore allows for end-to-end thorough analysis. Stakeholder Engagement Component (SEC) Because of the effects that new technology has on organizations, adaptation of technology requires ‘buy in’ from uses of the solution. The ATC starts the Stakeholders buy-in, the SEC hence deals with fostering the readiness of all the impacted Stakeholders in order for them to embrace the new technology solution (Raisinghani 2002). The success will depend on respective role which could include role which could also include workshops training and publicity. Benefits Management Component (BMC) The BMC is an activity which is intrinsic to the delivery of the key components in different stages. Both cashable and cashless advantages are determines in BCC and through the stages where later identification of quantifiable indicators of performance for the monitoring process is established (Raisinghani 2002). In essence this state concludes the realization of benefits initially stated which underpin a given business case for e-business transformation process. As analysed above, a successful e-business model will require a balanced integration of technology with the consideration of other factors such as the company’s infrastructure and strategy (Raisinghani 2002). Stakeholder’s collaboration will also determine the success of the implementation. Incorporating technology or e-business alone is thus useless without consideration of these key issues that determine the success of the implementation process. Current status of Wal-Mart Wal-Mart case in e-business is already a success but not optimum because of the potentials of the company. Wal-Mart has implemented a successful B2C platform and also incorporates the use of new internet based technologies which are used for collaborative planning, forecasting and also replenishment (CPFR). From the CPFR system, Wal-Mart has been able to make decisions just-in-time (JIT) and hence saving the company millions of dollars as well as also saving its suppliers. The data mining program implemented by Wal-Mart helps in storing of transactions, shipment data and sales data. Enhancing data storage and retrieval by relevant people such as employees, Wal-Mart has over 1 million employees and associates worldwide and suppliers, Wal-Mart has over 3000 approved suppliers. The robustness of Wal-Mart e-business model has been based on its benefits in terms of achieving its goals of providing low price products and better services to its clients all over the world. Wal-Mart also needs to increase its online retail business by diversifying into other developing markets like China in order to optimize its market capability (Tung 2001). Question 3 Challenges facing Wal-Mart in e-commerce Wal-Mart is famous for its offline retailing activities not only in the United States but in other countries in the world. Its low pricing strategy, always on stock and better customer services has made its business grow for the past four decades. More so, its IT infrastructure has been one of the leaders in the market and hence increasing its strategic position further. As a B2C company, it has strived to increase its presence online like other giant U.S. companies like Amazon, its presence online has also increased in several regions but there are challenges that the company is facing while implementing its online presence in different regions. Because of the ever changing nature of technology, one improvement that creates a leverage to the company cannot last for long because other companies soon join in and hence turning it into a necessary requirement for doing business. Optimizing e-commerce requires better situational analysis, predictive model and swift action when the timing is right. These are the challenges that continually bombard Wal-Mart in its quest to dominate its market niche globally (Manuela & Cruz-Cunha 2010, p.283). As pointed out by Marian (2011, p.1), Wal-Mart is taking a chance in the Chinese market expecting increased growth of online business in China. This is the current main challenge facing Wal-Mart; it has started its goals by purchasing one of the leading online grocers with major logistics network in major cities in China such as Beijing, Shanghai and Guangzhou. A local market research company in China DDMA describes the firm Yihaodian as the major national online grocer in the region and whose name has acquired no.1 status in china because of its strong lead in the market and the pioneer of online supermarket in the country since July 2008. Wal-Mart opted for this food online retailing company because of a number of reasons. The obvious reason is because of its leading position in the market, the other reason is because of the human resource that Yihaodian has especially in the company’s founders Gang Yu and Jungling Liu who will avail their far-reaching experience in many multinational companies which include Amazon and Dell. This will be a critical asset for Wal-Mart and especially in aiding the company comprehend idiosyncracies of the Chinese market. It is however hard to determine the success of a foreign company in China given their historical treatment of international companies through delayed court case and political interference in favour of local companies. This will be the initial challenge that Wal-Mart will have to meet while taking on the Chinese market (Wailgum 2009). The major challenges in Chinese market include the fact that online retailing is developing at a slower rate outside major cities like Shanghai. This is because of slow progress of growth in online supermarkets outside the major towns (Khosrowpour 2006, p. 123). There is a higher rate of internet growth in Shanghai and other major cities as compared to outside towns and also people outside the major cities are slowly embracing technology as compared people in major cities. More so, DDMA research reveals that consumers focus on online shopping on non-perishable products. Another major challenge is the unique behaviour of the Chinese people, they show high regard to freshness and thus tend to shop physically more frequently than most other European countries about four to five times per week according to the DDMA group. The other challenge for Wal-Mart is that its focus on value may not go well in the Chinse consumers who prefer well-known and expensive brands. They tend to show high trust on brands and thus reversing price wars in certain regions. The other main challenge in China market is the fragmented nature of its distribution network system in the country and hence implying that China has struggled with its supply chain management (Khosrowpour 2006, p. 123). Question 4 Strategic options for Wal-Mart As emphasised by the Wal-Mart CEO and chairman of e-commerce section Eduardo Castro-Wright, online sales in China is on the increase and it is expected to be equivalent to the US online sales in the near future. While there are challenges facing the e-commerce market section in China, according to McKinsey research there is going to be an increase in the number of online access in China in the years 2010 to 2015, in 2010 transactions done online amounted to 457M while it is expected to reach 750M by 2015(Marian 2011, p.1). It is also evident that Chinese population is much willing to conduct online shopping, in Shanghai about 10.1% of retail sales is from the internet,(it closely compares to the UK 10.5 %) about 3.3 % of retail sales in the entire country is from the internet. Based on this statistics, despite the challenge of slow rate of online retail purchase in places outside major cities like Shanghai, increased awareness will boost the rate of technology adaptation a factor that will contribute to increased online presence of purchasing products. An increase in purchase of products will therefore increase the presence and the business of Wal-Mart (Tung 2001, p.120). Because of the local nature and local attributes of Yihaodian, the workforce of the company are mainly Chinese citizens including its founders, this will be an important strategic aspect because Wal-Mart will be camouflaged by the local attributes of Yihaodian and hence decreasing potential problems facing international companies operating in China. There will be less political influence and thus no-judicial compromise of issues related to the company. With the disposal of critical human resource well acquainted with the nature of Chinese market in people like Gang Yu and Jungling Liu, Wal-Mart will be in a good position to understand and formulate better strategies of dealing with the unique nature of the Chinese consumers who prefer well known and expensive brands. In essence, Wal-Mart is known for its effective distribution and supply chain management infrastructure that is developed within the United States. This puts the company in a more strategic position as compared to its competitors in the region because of its know-how of establishing and managing an effective supply chain management (Raisinghani 2002, p.35). Recommended course of action The first recommended course of action for Wal-Mart upon entry into the Chinese market is to maintain the workforce of the newly purchased Yihaodian. The rationale for this statement is because of the performance of this workforce considering that Yihaodian was the pioneer of online retailing of food-stuff in China. The success of the company can be attributed to the commitment of the human resource of the company inspired by the co-founders Gang Yu and Jungling Liu. Wal-Mart management should therefore consider providing more resources, expertise in offline and online retailing to the existing personnel and not looking for other personnel which may taint the image of the company in a consumer sensitive country like China. More so, the company should take full advantage of the experience and expertise of Gang Yu and Jungling Liu in developing better strategies of handling e-commerce in China that Amazon and Dell implemented successfully, it should however pay attention of the consumer behaviour with respect to food-stuff in China (Epstein 2004, p.29). It is also recommended that Wal-Mart learn the nature of the distribution channels in China, its failures or loopholes and initiate and effective supply chain management through incorporation of the local suppliers in order to help in camouflaging the company from sensitive clientele base. An effective management of supply chain will also translate to better delivery of both perishable and non-perishable goods. This will be an essential aspect of winning more customers purchasing perishable goods in China (USA International Business Publications 2007 p. 181). Constant marketing and contributing to the people of China’s welfare will also be an important aspect of winning the loyalty of the Chinese local brand loyal customer base. It would thus be unwise for Wal-Mart to instantly introduce US based products that may receive a cold reception in the Chinese market. Working with the existing Chinese products and slowly introducing other products as customer trust develops is thus a recommended course of action for Wal-Mart in the region. References Cheng, A 2011, ‘Wal-Mart outlines new strategy’, The News Tribune, 12 April, p.1. Epstein, MJ 2004, Implementing ecommerce strategies, Greenwood Publishing Group, New York. Pp. 27-35. Manuela, M & Cruz-Cunha 2010, E-Business Issues, Challenges and Opportunities for SMEs: Driving Competitiveness, Idea Group Inc (IGI), Canberra. PP.283-296. Marian, P 2011, Talking shop: Wal-mart bets on China’s online growth with Yihaodian, Just-Food, viewed 22 August 2011, http://www.ddm-asia.com/share/download/releases/DDMA_Talking%20shop_%20Wal-Mart%20bets%20on%20China%27s%20online%20growth%20with%20Yihaodian_%20Food%20news%20&%20analysis.pdf Khosrowpour, M 2006, Cases on electronic commerce technologies and applications, Idea Group Inc (IGI), New York. Pp.123-134. Raisinghani, MS 2002, Cases on worldwide e-commerce: theory in action, Idea Group Inc (IGI), New York. pp. 34-45. Tung, RL 2001, Learning from world class companies, Cengage Learning EMEA, New York. Pp. 120-131. USA International Business Publications 2007, China E-commerce Business and Investment Opportunities Handbook, Int'l Business Publications, Michigan. Pp. 180-191. Wailgum, T 2009, ‘Wal-Mart's IT Group Has Come a Long Way: Is India Next?’The Economic Times, 18 Feb, p.3. Wisner, JD, Keong Leong, G & Keah-Choon T 2005, Principles of Supply Chain Management,(1st ed.) , Mc-Graw-Hill, New York. p.124 Read More