International Business Strategy of Wal-Mart - Case Study Example

Wal-Mart Strategy Name Professors Name Corse Name and Code Date Table of Contents Table of Contents 1 Introduction 2 PART 1: Foundation of Wal-Mart 2 Literature Review 3 PART 2 6 Discussion 6 Conclusion 7 Works Cited 8 Introduction This paper has been divided into two parts. The first part of the paper explains how Wal-Mart operates. It explains how Wal-Mart has used cost leadership strategy to become the leader in the retail industry. In 2007, Wal-Mart considerably reduced the prices of most of its goods and this worked in its favor since it experienced rapid growth while most of its competitors experience loses. This motivated Wal-Mart to be more effective by findings ways of how they can reduce operational cost and increase the output. This resulted in the corporation adopting Kronos system so that it can enhance its human resource and cut on costs. The second part of the paper analyses the effectiveness of the approaches used by Wal-Mart. This part has analyzed the future of Wal-Mart and it has analyzed the competition that the corporation has experienced since it became operational in various parts of the world. This part has also considered how Wal-Mart stocks its retail stores and analyzed how fast the goods move. PART 1: Foundation of Wal-Mart Sam Walton founded Wal-Mart in 1962 in Rogers, Ark. Wal-Mart is an American multinational retail firm that has chains of large discount department stores as well as warehouses in various parts of the world. Wal-Mart has always ensured that it makes a difference in its customers’ lives and helps its customers and the general community save money and live better and this is its motto. Wal-Mart has been able to have a large customer base as a result of its low cost-pricing strategy. Literature Review According to Fortune Global 500 list released last year, it showed that Wal-Mart is the second largest public corporation worldwide. By 2012, the firm had employed about 2.2 million associates globally and served more than 200 million customers on a weekly basis in more than 10,000 stores located in 27 countries. According to Wal-Mart’s CEO David Glass, the corporation focuses on: giving customers what they require, the moment they need it, and all a great value (Ma n.p). Treating others as they would wish to be treated, acknowledging total dependency on partners-associates to sustain its success process. As a result of its expansion in various parts of the world, it experiences great competition in various countries with various types of competition. Primary competition entails departments such as Target, Kmart, ShopKo among others. Additionally, some smaller retailers’ emphasis on small niche in the market that competes well against Wal-Mart. Wal-Mart operation scale is not rivaled by any competitor. Its market is observable with suppliers since they do what Wal-Mart requires because of the large quantities of goods it purchases. In 2007, Wal-Mart reaffirmed its intention of giving its customers the lowest price in the market (Hitt, Ireland &Hoskisson 169). The strategy was exemplified through its holiday actions that were planned one year earlier that it opened its stores an hour earlier than its rivals and offered special holiday discount during early morning hours so that it could attract customers. The strategy was fruitful since its December 2007 sales augmented by 2.7 percent in one year earlier and Target, Wal-Mart’s key competitor experienced considerable sales drop of 5 percent. Clearly, Wal-Mart had a cost leadership strategy (Stead & Stead 134; Hill & Jones 169). Still, with its market power as well as reaffirmation of cost leadership strategy, the firm has been instituting changes in product offering as well as approach to customers. For example, the firm developed and enforced a “Store of the Community” concept in that the store designs and merchandise were custom-made to each community. Therefore, they customize the stores according to the community affluence and the kind of merchandise desired. For effective customization of the merchandize and stores, staff conducted detailed market research. Wal-Mart has been successful in its cost leadership strategy since the firm has been able to reduce its operational cost. Wal-Mart’s operational costs have been reduced as a result of its adoption of technology in its operations. Wal-Mart has Kronos system that automates a process that was highly dependent on personal judgment. The new Kronos system develops work schedules favorable to the firm’s profits margin. Evidently, adopting this helps the firm reduce on its operational costs and at the same time increase its profit margins. This further implies that the firm can still lower its prices so that it can enhance more competition with its rivals. Interestingly, reducing prices is never the best strategy unless some pertinent factors are considered. A firm can reduce it prices and this may result in it getting losses instead of its getting profits. Wal-Mart has mastered the art of cost leadership and it has used it to its advantage. Adopting technology is very important for effective functioning of any business since it helps in reducing labor cost and at the same time increasing on its productivity. The firm is largely responsible for conflicts that the system has on employees. In Clayton Antitrust Act of 1914, man’s labor cannot be an article of commerce since this result in never-ending courtroom battles between employees and employer that results in time wastage yet time management is a key aspect that the Kronos system champions for (Kaps, Hamilton & Bliss 49). Wal-Mart employees experience an ethical dilemma when using the Kronos system.The Kronos system generates unpredictable and irregular schedules and this result in decreased employee’s job stability and develops financial hardships. This dilemma that associates experience is whether they can cheat on personal availability forms so that the system can generates schedules favorable to their needs. Computerized scheduling has considerable impacts on employee’s morale because they suffer. Most of the employees who were highly paid felt that Kronos prompts managers to put pressure so that they can quit job since they cannot work during weekends and at night. Thisresulted in replacement of highly paid managers with new employees who accept lower pay. The main is to reduce its operational costs for their customer to benefit from slashed prices. Employee’s lives have turned upside down since employs have to adapt to the rotational shifts which are very unpredictable instead of the long-term and steady shifts. Most associates have children who are very young and this results in disruption of their programs because the employee can hardly plan for his or her children. It is also very hard to enroll for further studies because the Kronos system is very unpredictable. The Kronos system has resulted in job losses among highly paid full-time employees and most of them have new status, part-time or ship out. This Wal-Mart’s key strategy since it helps it save large sums of money because of the reduced benefits and salaries that highly paid employees used to enjoy. Conversely, when sales volumes determines the number of employee along with hours assigned to the respective departments as well as the schedule that employees work this can only result in enhanced performance among Wal-Mart’s “stocking teams” and managers while most of the employees are greatly affected since stocking teams and managers is just a small fraction of the entire employees team. Consequently, the top management continues to gain from the system because it will reduce its operational cost and at the same time increases its output; this is Wal-Mart’s key strategy which is cost leadership. PART 2 The retail sector has sale products and merchandise from static locations, for instance, store, online it by mail. Retailers buy products from importers, wholesalers or manufactures, and then separate these products through their channels before selling the goods to their customers. Wal-Mart leads in the retail sector and its products are differentiated through various ranges. Other retailers have focused on particular market. For instance, Best-buy emphasizes on electronic device, Sears focuses on electronic gadgets. Recently, on-line retailing has been embraced by many players in the market. Amazon is the leading online retail industry. Discussion Wal-Mart experiences competition from various quarters such as local, regional, national and international retailers. Competitors stand to benefit from low offshore manufacturing costs which Wal-Mart offers. In North America some of Wal-Mart’s key competitors include Mexico’s Commercial Mexicana, Kmart, Targets and Canada’s The Real Canadian Superstore. Many small retailers mainly dollars have their niche in the market and have been successful in competing with the giant Wal-Mart. Wal-Mart have a cost leadership strategy that has enabled it to be the market leader despite the tough competition and most players would want to beat Wal-Mart. Target is direct competitor of Wal-Mart. Target is the directly behind Wal-Mart in the retailing sector. One of Target’s strategies is that they can give discounts and give product variety to their customers unlike Wal-Mart. This approach ensures that the enterprise attracts high-income customers and it generates a lot of revenue. Most of their customers have an income of about $50,000 annually and on the other hand Wal-Mart’s customers have an average income of about $35,000 annually. Target intends to expand globally through acquiring 200 Canadian Zellers stores (Roberts & Berg 230). Target is not only firm which eating away Wal-Mart’s retail lead. Costco also outperforms Wal-Mart’s by many measures. Costco increased by 26.1% between 2008 and 2012, this doubles the rates of Wal-Mart. Costco is larger than Wal-Mart, with $97.06 billion in last year’s revenue against $53.8 billion, therefore it is increasing faster from its large base. Wal-Mart also experiences fierce rivalry within foreign markets in South Korea and German. In 1997, Wal-Mart opened its doors in German and was the second player with 19% share and it was rightly behind Aldi (Verbeke 150). Wal-Mart withdrew from the German market in 2006 and Metro bought the stores. In 1998, upon entering South Korean market, Wal-Mart withdrew and sold its 16 retail stores to Shinsegae for $882 million (Hiscock 17). Wal-Mart was then rebranded to E-Mart stores. Conclusion Wal-Mart combines cost leadership and differentiation strategy. Wal-Mart has various services and products with better quality at prices which is cheaper compared to what competitors can offer. Wal-Mart concentrates on getting approaches to lower cost through incessantly rethinking on how to complete primary and support activities to lower costs and enhancing competitive differentiation levels. Wal-Mart fruitful chain management is a key way of aiding them to enforce cost leadership strategy. Wal-Mart has effective inbound logistics through use of just-in-time inventory. Consequently they have reduced cost of outbound logistic through increasing fuel efficiency in their trucks. Wal-Mart reduces its costs through purchasing in large blocks. Technology has an instrumental part in Wal-Mart’s supply chain, this allows it to accurately forecast on demand, track and forecast inventory levels, develop efficient transportation routes and forecast inventory levels and develop efficient routes of transportation and develop customer relationship as well as service response logistics. Wal-Mart’s successful cost leadership/ differentiation result in entry barriers for competitors. Wal-Mart stocks good that are mostly demanded by customers however it stocks some goods that move slowly. Most of the goods that move slowly include furniture and electronics since most customers do not buy them frequently because of the high costs. Customers demand keep shifting overtime and this affects Wal-Mart’s profitability. Works Cited Hill, Charles & Jones, Gareth. Strategic management: An integrated approach. Belmont. Cengage Learning. Print. 2012. Hiscock, Geoff. India’s store wars: Revolution and the battle for the next 500 million shoppers. New York. John Wiley & Sons. Print. 2012. Hitt, Michael, Ireland, Duane &Hoskisson, Robert. Strategic management: Concepts and cases: \ Competitiveness and globalization. Belmont. Cengage Learning. Print. 2014. Kaps, Robert. Hamilton, Scott & Bliss, Timm. Labor relations in the aviation and aerospace industries. New York. SIU Press. Print. 2012. Ma, Tony. Professional marketing and advertising essay and assignments. London. Tony Ma. Print. 2014. Roberts, Bryan & Berg, Natalie. Wal-Mart: Key insights and practical lessons from the world’s largest retailer. Philadelphia. Kogan Page Publishers. Print. 2012. Stead, Jean & Stead, Edward.Sustainable strategic management. London. M.E Sharpe. Print. 2013. Verbeke, Alain. International business strategy.Cambridge. Cambridge University Press.Print. 2013. 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