Global and Transnational Strategy Walmart Full Report (1)

Analysis and Evaluation of Wal-Mart’s Global / Transnational Strategy

Name Student I.D.Number Course Unit Title Unit Code Unit Tutor

Vijay Kodandaraman Bysani 02913971 Master of Business Administration Global and Transnational Strategy SM 448 Ron Phillips

Assignment Topic

Analysis and Evaluation of Wal-Mart's Global / Transnational Strategy

Newcastle Business School University of Northumbria Newcastle

Global And Transnational Strategy – SM 448 – Assignment Vijay Kodandaraman Bysani

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Table of Contents

1 2 3 4 5 6 7 8 9 9.1 9.2 9.3 9.4 10 11 12 13 13.1 13.2 13.3 13.4 13.5 14 15 15.1 15.2 15.3 15.4 16 16.1 16.2 16.3 16.4 16.5 16.6 16.7

Particulars

Page

List of Figures List of Tables List of Images List of Appendices Executive Summary Introduction to Globalisation & Transnational Strategy in relation to Retailing Introducing Wal-Mart Wal-Mart and International Expansion Internal Analysis - Analyzing Resources Financial Resources Human Resources Physical Resources Intellectual Intellectua l or Intangible Resources Culture Analysis The Pyramid of Organizational Development BCG Matrix P.E.S.T. Analysis Political Influences Economic Influences Social Influences Influe nces Technological Influences Key Summary Five Force's Analysis S.W.O.T. Analysis Strengths Weaknesses Opportunities Threats Value Chain Analysis Inbound Logistics Operations Outbound Logistics Marketing and Sales Service Infrastructure Infrastructu re Human Resource Management

4 5 6 7 8 12 14 16 18 18 18 18 19 20 21 24 26 26 26 26 27 27 29 32 32 32 32 33 34 34 34 35 35 35 35 36


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16.8 16.9 16.1 17 18 18.1 18.2 18.3 18.4 18.5 19 20 21 22 22.1 22.2 22.3 22.4 23 23.1 23.2 24 25 26 27 28 29 30 31

Technology Development Procurement Key Summary Generic Strategy Yip's Globalisation Globalisat ion Drivers Market Drivers Cost Drivers Country Drivers Competitive Drivers Key Summary Competitive Advantage Core Competences Sustainable Competitive Advantage Kay's Distinctive Capabilities Architecture Reputation Innovation Strategic Asset Configuration and Co-ordination Co-ordinat ion Configuration Co-ordination Pressures for Co-ordination and Integration Integrat ion Dicken's Framework Transnational Model Conclusion Limitations of Report References Bibliography Declaration


36 36 37 38 42 42 42 42 43 43 46 48 49 50 50 50 50 51 52 52 53 54 55 56 58 60 67 72 78

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1. List of Figures

1 2 3 4 5 6

Particulars

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Figure 11.1.: The Pyramid of Organizational Organizat ional Development Figure 11.2.: Comparative Analysis of K-Mart and Wal-Mart Figure 12.1.: BCG Growth Share Matrix for Wal-Mart Figure 17.1.: Porter's Generic Strategies Figure 18.1.: Visual Representation of Yip's Drivers Figure 26.1.: Wal-Mart's Transnational Strategy

22 23 25 41 45 57


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2. List of Tables

1 2 3 4

Particulars

Page

Table 6.1.: The Blind Men and The Elephant Table 13.1.: P.E.S.T. Analysis Table 14.1.: Five Force's Analysis Table 18.1.: Yip's Drivers

10 28 31 44


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3. List of Images

Particulars 1 Image 7.1.:Fortune Magazine Front Cover Featuring Wal-Mart


Page 15

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4. List of Appendices

1 2 3 4 5 6

Particulars

Page

Appendix 1: Wal-Mart Income Statement Appendix 2: Wal-Mart Balance Sheet Appendix 3: Growth Rate Analysis (%) Appendix 4: Wal-Mart Store Details Appendix 5: Wal-Mart International Store Details Appendix 6: Photographs of Wal-Mart Stores

61 62 63 64 65 66


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5. EXECUTIVE SUMMARY

Globalisation in retailing is being driven by several factors, including low growth in domestic markets, information technology, global consumer and shopping patterns, and the opening up of new markets. However it is not easy for retailers to become global. Performance in foreign markets depends on careful adaptation of the home formula, since there are still regional differences and mostly local sourcing

RESEARCH AIMS AND OBJECTIVES

The author attempts to apply theory to practise by applying relevant theories and frameworks in analyzing the short-listed organization and evaluate the firm’s global / transnational strategy in accordance of its global drivers. This report has three main aims. First, it attempts to identify and discuss the relevant frameworks. Second, it aims at applying these frameworks in analysis to the short listed organisation. And finally, it concludes the direction and nature of the firm’s global / transnational strategy directions. .

STRUCTURE OF THE REPORT

This report consists of parts, each of which is further divided into sub-sections covering relevant areas to the topic under discussion.


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The first part introduces the reader to the report and also outlines the structure and topics of discussion.

The second part defines and set the context to global / transnational strategy in relation to the retail industry before setting the context to the short listed organization and giving the reader a good background of current status of the organization with market forces.

The third part identifies key strategic issues with detailed analysis involving the external environment and internal environment covering the near and far environment extending itself into the culture and resources of the organization before exploring in greater analysis the value chain.

The fourth part extends into the generic strategies adopted the organization and then explains in detail the Yip’s globalisation drivers before concluding the competitive advantages and core competencies and the sustainable competitive advantages.

The fifth part introduces Kay’s distinctive capabilities with greater analysis and extending itself with the configuration and co-ordination of activities concluding with the pressures for co-ordination and integration.

The sixth part introduces in analysis the transnational model. The final part sets the final context linking all the key frameworks and analysis with the author’s own conclusions and future directions and expresses the author’s limitation to this report.


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Table 6.1.: The Blind Men and The Elephant

THE BLIND MEN AND THE ELEPHANT by John Godfrey Saxe (1816 -1887) It was six men of Indostan To learning much inclined, Who went to see the Elephant (Though all of them were blind) That each by observation Might satisfy his mind. The First approached the Elephant, And happening to fall Against his broad and sturdy side, At once began to brawl: “God bless me but the Elephant Is very like a wall.” The second, feeling of the tusk, Cried, “Ho! What have we here So very round and smooth and sharp? To me ‘tis mighty clear This wonder of an Elephant Is very like a spear!” The Third approached the animal, And happening to take The squirming trunk within his hands, Thus boldly up and spake: “I see,” quoth he, “The Elephant Is very like a snake!” The fourth reached out an eager hand, And felt around the knee, “What most this wondrous beast is like Is mighty pain,” quoth he; “ ’Tis clear enough the Elephant Is very like a tree!” The Fifth, who chanced to touch the ear, Said: ”E’en the blindest man Can tell what this resembles most; Deny the fact who can, This marvel of an Elephant Is very like a fan!”


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The sixth no sooner had begun About the beast to grope, Than, seizing on the swinging tail That fell within his scope, “I see,” quoth he, “the Elephant Is very like a rope!” And so these men of Indostan Disputed loud and long, Each of his own opinion Exceeding stiff and strong, Though each was partly in the right, And all were in the wrong! Moral So oft in theologic wars, The disputants, I ween, Rail on in utter ignorance Of what each other mean, And prate about an Elephant Not one of them has seen!

Source: Extracted from Mintzberg, Ahlstrand and Lampel, 1998.


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6. Introduction to Globalisation and Transnational Strategy in relation to Retailing

Globalisation refers to growing economic interdependence among countries as reflected in increasing cross-border flows of three types of entities: goods and services, capital and knowhow (Govindrajan and Gupta, 2001). The term globalisation can relate to any of several levels of aggregation: the entire world, a specific country, a specific industry, a specific company, or even a specific line of business or functional activity within the company (Govindrajan and Gupta, 2001).

Transnational strategies although global in nature incorporate a global configuration and a high degree of co-ordination allowing the business to retain local responsiveness (Stonehouse, et. al., 2000)

The two most strategic expansion routes for international retail expansion are global and multinational strategies (Sternquist, 1997). Global retailers replicate a standard format throughout their expansion worldwide while multinational strategies result in adaptation of their retail offering (Sternquist, 1997). Multinational retailer’s expansion is generally slower than global retailers and the management is decentralized. Multinational target markets in closer proximity. International expansions of retailers are challenging and unpredictable, and a slow approach is healthy (Voyle, 2003).


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As markets evolve, differentiation becomes more important. It’s interesting to note, most of the industries, practically all the industries are attempting to globalize today like the automobile industry has done over the last few decades. Automobile industry peaked during the 1950s and since then there has been a decline and ever since it’s been growth of the major players and consolidation of the smaller ones. Success in the motor industry comes not from size and scale but from developing competitive advantages in operations and marketing these advantages internationally (Kay, 2003).

Global brands are a recent phenomenon. Until 10 to 15 years there weren’t any global brands, many companies were multinationals tending to function as a collection of individual enterprises with separate factories and different products in each country. The manifesto of global brands emerged in 1983 when Theodore Levitt published “The Globalization of Markets”. It was the emergence of homogenisation. Enabling this was technology with mass transport and communication and the disappearance of national tastes and preferences. The multinational corporation operates in a number of countries and adjusts its products and practices in each at high relative costs. The global corporation operates with resolute constancy at low cost, as if the entire world were a single entity; it sells the same things in the same way everywhere (Tomkins, 2003)


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7. Introducing Wal-Mart

Wal-Mart is the world’s largest corporation (Fortune, 2003; Yoffie and Wang, 2002; Image 7.1.). Wal-Mart is also the largest private employer in the United States of America (Yoffie and Wang, 2002).

Wal-Mart is U.S.A.’s biggest seller of DVDs, diamonds, groceries, toys, guns, CDs, apparel, dog food, detergent, jewellery, sporting goods, videogames, socks, bedding, and largest film developer, optician, private truck fleet operator, energy consumer, and real estate developer (Fortune, 2003).

Americans save about US$10 Billion by shopping at Wal-Mart (Buffet, 2003). Wal-Mart’s revenue accounted for 15% of the entire U.S. retail market in 2002, excluding automobiles (Yoffie and Wang, 2002; Appendix 1). Sales globally have been affected over the recent weeks. International sales increased 14.3% to $10.3 billion (Buckley, 2003; Appendix 1; Appendix 3).

Wal-Mart’s revenues are forecast to approach $700 billion in 2010 (Fernie and Arnold, 2002). Wal-Mart has four large scale retail formats; Wal-Mart Stores, SAM’s Club, WalMart Supercenters and Neighbourhood Markets


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Image 7.1.: Fortune Magazine Front Cover Featuring Wal-Mart

Source: Wal-Mart Annual Report, 2003.


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8. Wal-Mart and International Expansion

Wal-Mart was enticed into international markets by a conviction that it could achieve competitive advantage abroad by applying its combination of technology, logistics and human resources with its tremendous buying power with multinational consumer goods suppliers (O’Higgins and Weigel, 2002).

Wal-Mart’s strategy has been to acquire companies and convert them into the Wal-Mart way stores (Appendix 4; Appendix 5). European retailers like Carrefour and Ahold, have more than 20 years of international experience than Wal-Mart.

Multinational retailer’s entry is usually by mergers & acquisitions, which is what Wal-Mart did in its initial entry into Mexico, with a joint venture with CIFRA, the most powerful retailer in Mexico (Sternquist, 1997). This results in a faster and more reliable learning knowledge base. CIFRA enables Wal-Mart’s entry with stronger networks in the trade especially with vendors and understanding the local needs and culture while Wal-Mart brings in its competency like logistics and service (Sternquist, 1997).

The author feels Wal-Mart’s employees; especially the management are a key resource and enable its contribution to its success. Casse (1994) argues people are not resources and ethically should not be classified such. In an remarkable editorial in The Economist (2000), Wal-Mart’s entry into Europe and global expansion plans have been heavily criticised and undermined due to the inability of global sourcing capabilities of supermarket products and apart from the already well established retail networks of chain stores and discounters like Global And Transnational Strategy – SM 448 – Assignment Vijay Kodandaraman Bysani

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Metro, Carrefour, Aldi which all individually and collectively dominate the market and aren’t up for sale as Wal-Mart would try to.


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9. Internal Analysis – Analyzing Resources

9.1. Financial Resources Wal-Mart is the world’s largest and most profitable retailer (Goddard, 1997; Appendix 1). Wal-Mart’s pre tax return on sales was 8% during 1989 which was double the industry standard and it continues to be the front runner till today (Goddard, 1997). Wal-Mart commands market value 10 times more than its book value.

9.2. Human Resources Wal-Mart promotes internal staff development and over 60% of its store managers are promoted internally then direct recruits (Rugman and Girod, 2003). Wal-Mart believes in recruiting people with a flair for customer service and trains them accordingly to its strong company values. Employees are treated as owners as more than 70% of employees have shares of the company and incentives are paid in stock options too (Goddard, 1997).

9.3. Physical Resources Wal-Mart developed its computerized inventory system way back in 1970 that decreased check-out and reordering times and built highly automated distribution centres, reducing shipping cost and time. Wal-Mart has continued to be an innovator and has this has led it to create and sustain its competitive advantage by being the first and to be continuous to replace systems and processes replicated by competitors.


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9.4. Intellectual or Intangible Resources Wal-Mart’s core resources are its customers which total over 40 million per year (Goddard, 1997). Wal-Mart has over 1.3 million associates (employees) at its stores, worldwide. The author feels this itself is unique which helps Wal-Mart get 1.3 million unique, hardcore loyal customers. Wal-Mart uses its technological capabilities to sustain its cost leadership in distribution and superior inventory systems.


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10. Culture Analysis

Wal-Mart’s culture is as unique and distinctive as possible considering the mammoth that it has grown into today. Usually firms even of a small and medium company find it hard to maintain and build good customer service but Wal-Mart has always had it as its foundation and till today preaches and practices exemplary customer service.

Wal-Mart’s Corporate Citizenship actively helps development of the community with programs spread across education, health, and environment. Wal-Mart’s Code Adam, a tribute to a lost child in a retail store helps prevent children getting lost in stores today which make it a safer place for families to shop.

Wal-Mart’s Ten Foot Rule and Sundown Rule all promote the employees to treat the customer right, first time, always (Rugman and Girod, 2003). Employees are treated as Associates inspiring their status (Goddard, 1997; O’Higgins and Weigel, 2002).

The everyday morning cheers act as a ritual and cheer and energize the associates making them part of the organization (Arnold, 2002). Associates acting as ‘greeters’ at the entrance of every store worldwide is unique and makes the customer more welcome and special (Goddard, 1997).


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11. The Pyramid of Organizational Development

The pyramid of organizational development (Figure 11.1.) illustrates the six building blocks of successful organizations (Flamholtz and Hua, 2003). In an interesting breakthrough Flamholtz and Hua (2003) discuss how strategic building blocks of organizational development develop into potential sources of competitive advantage. History has witnessed the loss of sustainable competitive advantage gained by markets and products. Its open for imitation and even first mover advantage is lost in time.

Analyzing it relation with Wal-Mart reveals an interesting picture of how true this model is. In the empirical study conducted by Flamholtz and Hua (2003) with the framework in comparison to K-Mart and Wal-Mart, the two leading discount retailers, the authors conclude Wal-Mart has significant sustainable competitive advantages over K-Mart and all are attributable to the firm’s infrastructure. Wal-Mart’s products and market definition are prone to imitation unlike its infrastructure which can be attempted to be replicated but been unsuccessful so far by competitors (Figure 11.2.).


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Figure 11.1.: The Pyramid of Organizational Development: The Six Key Building Blocks of Successful Organizations.

Source: Adapted from Flamholtz and Hua (2003).


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Figure 11.2.: Comparative Analysis of K-Mart and Wal-Mart.

Source: Adapted from Flamholtz and Hua (2003).


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12. BCG Matrix:

Although the BCG Matrix is used traditionally for particular product types within an organization’s product portfolio, the author tries to represent the different formats of retail stores adopted by Wal-Mart using the BCG Matrix. This analysis helps analyze the growth potential of different formats of stores adopted by Wal-Mart and helps allocate necessary resources.

It briefly appears the new store format ‘Neighborhood Markets’, is exceeding expectations and this format is being rolled out successfully in new markets, thus placing itself under the ‘star’ (Figure 12.1.). The traditional ‘Discount Store’ continues to be Wal-Mart’s core concept although it’s being slowly converted into other formats with the changing shopping patterns but is still highly profitable and makes most of the revenue (Figure 12.1.). The ‘Supercenter’ and ‘SAM’S CLUB’ have established themselves as successful formats with growth opportunities (Figure 12.1.).

Internationally the focus has been on the ‘Discount Store’ and ‘Supercenter’ format with modest trials in the SAM’S CLUB format (Appendix 4; Appendix 5).


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Figure 12.1.: BCG Growth Share Matrix for Wal-Mart

Source: BCG Matrix adapted from Mintzberg, Ahlstrand and Lampel, 1998.


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13. P.E.S.T. Analysis

13.1. Political Influences The political influences in this industry is probably the most burning concern with organizations going global and many countries restricting the growth of companies by many countries. European Customs and Regulations heavily hamper expansion plans (O’Higgins and Weigel, 2002). FDI in many countries are still heavily regulated and global companies are yet to set foot into emerging markets like India (Table 13.1.).

13.2. Economic Influences War on Iraq has had a negative impact on consumer spending and outlook. Disproportionate levels of income and consumer spending in developing countries like India and China will impact growth of global companies. Exchange rates affect global sourcing and pricing policies on a day to day basis. Recent developments with Wall Street have helped foster a better relation and helped in Wal-Mart’s listing and ratings (Table 13.1.).

13.3. Social Influences Developing countries are not used to push type marketing and aggressive selling. Bulk buying patterns predominantly present in USA, is non-existent in Asian countries. Language and cultural factors is a barrier to globalisation. Anti-Globalisation movements in the recent past has affected growth of global companies, especially companies originated USA (Table 13.1.).


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13.4. Technological Influences Development in technology and satellite systems has given a boost to Wal-Mart (O’Higgins and Weigel, 2002). Basic infrastructure still lacks for effective warehousing and distribution, the lifeline of a retail chain (Table 13.1.).

13.5. Key Summary There appears to be legal and social hurdles ahead for global companies (Table 13.1.). Expansion into growing and emerging markets throws in tremendous growth opportunity though localisation would be a critical success factor. Infrastructure needs to be developed to support activities of a global distribution channel to achieve global competitiveness.


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TABLE 13.1.: P.E.S.T. Analysis

Political Influences

•

• •

Economic Influences

• • • • •

Social Influences

• • • •

Technological Influences

•

•

European Customs and Regulations (O’Higgins and Weigel, 2002). FDI Restrictions UK’s Zoning Regulations (O’Higgins and Weigel, 2002).

War in Iraq Global Terrorism Exchange Rates Low levels of productivity in Asian Countries Wall Street Improvements (Fortune, 1998) Marketing strategies ineffective Absence of Bulk Buying Language and Cultural Barriers Anti-Globalisation Movements Advances in Technology and Satellite systems (O’Higgins and Weigel, 2002) Lack of basic infrastructure


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14. Five Force’s Analysis

The competitive environment for Wal-Mart definitely looks competitive (Table 14.1.). Although Wal-Mart uses its clout around and bargains at the best possible lowest prices stretching suppliers beyond the limit, it still has a lot of pressures from the market outside. The bargaining power of suppliers and buyers is low with Wal-Mart having established a near monopoly in its home market and increasing its market-share in its overseas operations. WalMart is already Canada’s and Mexico’s top retail chain and in UK is at the third position.

Threat of entry remains low in the home market and globally (Table 14.1.). The entry scene is limited to existing retail chains as the cost of setup is substantial. Regulatory restrictions are also a concern here. Threat of substitute products is low to medium with consumers having a choice from different stores to buy the same product at highly competitive prices (Table 14.1.).

A sixth force, called the complementors enable the firm whose products or services work in conjunction with enabling a synergistic effect (Grove, 1997; Table 14.1.). Wal-Mart sees more customers than the banks do these days. Recent antitrust lawsuits over Visa and MasterCard by retailers, headed by Wal-Mart, alleging the use of expensive debit cards and the costs borne by the retailers may upset the market (Kelleher, 2003).

The intensity of competitive rivalry can be classified low to medium (Table 14.1.). The power obtained by the low bargaining power of suppliers and buyers is offset by the threat of


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substitutes and threat of entry. Overall a substantial amount of power still lies with Wal-Mart considering the scale of operations and maturity in its industry.


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Table 14.1.: Five Forces Analysis

Bargaining Power of Suppliers

•

•

•

Bargaining Power of Buyers

•

• • •

Threat of Entry

• • • • •

Threat of Substitutes

• •

•

•

•

•

•

Intensity of Competitive Rivalry

•

• • • •

Complementors

•

Suppliers have lost power over pricing and other terms due to Wal-Mart’s size Wal-Mart is a key customer to most of its suppliers and they are totally dependent on Wal-Mart for business Wal-Mart engages in aggressive selling tactics

Low

Wal-Mart is the only store in many locations Low isolating competition and limiting consumers choice Community Building Proactive customer service Attractive and probably the best pricing Low to High Investment Costs Extensive investment in Information Technology Medium Extensive distribution network Scale and scope of operations is high Regulatory concerns Low to Department stores charge higher Wal-Mart has all types of formats serving all Medium types of customers Category killers likes Barnes & Noble and Home Depot can be a constant threat Strong presence of national and international retail chains and maturity in markets like Europe - (O’Higgins and Weigel, 2002) Loyalty schemes run companies like Tesco in UK have 10 million members - (O’Higgins and Weigel, 2002) Weakness in home market with Kmart’s closure of additional 326 stores Market weakness with closure of Kmart will help Wal-Mart maintain better pricing power improving profitability. Price wars have reduced margins from 6% to 1% Medium in the USA - (O’Higgins and Weigel, 2002) Bargaining power of Suppliers is Low Bargaining power of Buyers is Low Threat of Entry is Low to Medium Threat of Substitutes is Low to Medium U.S.Mint chose Wal-Mart to introduce its Low Sacagawea Gold Dollar in 2000 and not any bank (Fortune, 2003)


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15. S.W.O.T. Analysis

15.1. Strengths Wal-Mart is the largest corporation in the world (measured by turnover; Appendix 1) giving it enormous status and recognition in the industry and new markets. Wal-Mart is great at building and maintaining relationships with suppliers. Wal-Mart is a continuous learning organization with integrated systems and frequent meetings with store and aisle managers and systems that receive 8.4 million updates every minute on transactions from its stores (Goddard, 1997; O’Higgins and Weigel, 2002). More than 70 million customers roam WalMart aisles each week (Fortune, 2003). Wal-Mart’s distribution centre and logistics capabilities are a key strength adding value to its entire system. Wal-Mart’s cross-docking and effective inventory managements gives it’s a 3% cost advantage which helps sustain its Every Day Low Price strategy (Goddard, 1997).

15.2. Weaknesses Wal-Mart shows little adaptability to its formats in overseas expansions (Colla and Dupuis, 2002). Wal-Mart is still to develop its expertise in international marketing. Shows weakness in its expansion by not fulfilling expansion plan of opening 50 new stores in Germany during 2001 (O’Higgins and Weigel, 2002).

15.3. Opportunities Growing middle class of consumers in emerging markets like China and India, gives WalMart a tremendous opportunity for global expansion. There is growing consolidation in the


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market with the weak economy which is also leaving many competitors up for sale at below book value. Growth of e-commerce enables a new business channel and Wal-Mart has aggressively trying to capture and create its presence in this medium too.

15.4. Threats Recent years have witnessed anti-globalisation movements affecting global companies and American companies in general and Wal-Mart can face stiff resistance from consumers in new markets. Recent wars and outbreaks have affected sales globally. Increased competition in mature markets like Germany and U.K. with established retail chains dominating despite Wal-Mart’s entry. Growing trade blocks and zoning regulations hamper Wal-Mart’s expansion plans.


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16. Value Chain Analysis

16.1. Inbound Logistics Wal-Mart’s primary activity of receiving inventory is planned right from the point of production, which Wal-Mart is not involved with. Wal-Mart has integrated systems with key suppliers which communicate in real time data with sales information and stock status so it can replenished in time (Fortune, 2003). Shipments are timed and slotted and planned in an orchestral way.

16.2. Operations Wal-Mart maintains a lean approach to inventory (Rugman and Girod, 2003). Wal-Mart innovated a technique of replenishment called the Cross-Docking where incoming goods are offloaded into outgoing trucks directly without stocking them even for a few hours (Goddard, 1997). Most goods pass through the warehouses within a span of 48 hours, enabling minimum idle time and lowering excess inventory possibilities (Goddard, 1997). Most of the goods never touch the floor of the warehouse, as goods are passed on 24 miles length of conveyor belts between incoming trucks to outgoing trucks (Fortune, 2003).

According to Ananth Raman of Harvard Business School, “Wal-Mart will rather extract fat from the process than extract from the supplier’s profit” (Fortune, 2003). This statement reaffirms the working style of Wal-Mart of working together with vendors enabling a winwin situation for all concerned, the vendors; the organization (Wal-Mart); and the customers eventually.


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16.3. Outbound Logistics Goods are transferred within 48 hours of receipt from suppliers (O’Higgins and Weigel, 2002). The replenishments are also done twice weekly, which is double the industry’s standard (Goddard, 1997).

16.4. Marketing and Sales Wal-Mart maintains a simple and effective marketing strategy which it has managed to replicate globally apart it being the focus of its strategy. The Every Day Low Price (EDLP) is simple and eliminates unnecessary advertising trying to push sales, as Wal-Mart has successfully sold the concept to the customers, that it sells its products at the lowest prices, everyday (O’Higgins and Weigel, 2002; Goddard, 1997). This is one of the most interesting attributes of Wal-Mart.

16.5. Service Wal-Mart’s aggressive yet subtle ‘People Greeters’ and in its own fashionable and proud way ‘Aggressive Hospitality’ are the foundations for Wal-Mart’s success in the highly competitive market (O’Higgins and Weigel, 2002).

16.6. Infrastructure Wal-Mart maintains its own fleet of 2000 plus trucks which have scheduled deliveries between warehouses to stores minimizing delays and over reliance from suppliers (Goddard, 1997).


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16.7. Human Resource Management Wal-Mart is the only retailer to be in Fortune’s 100 Best Places To Work (Rugman and Girod, 2003). Wal-Mart’s empowerment of Associates is laudable with instances such as allowing its Associates to get on the network and lower its prices, nationwide if its found to be higher than its competitors, all this done without any consultation or permission requests from superiors (Goddard, 1997; Arnold, 2002).

16.8. Technology Development Wal-Mart’s technology and inventory management systems and software are better than the best in the world and also the lifeline of the organization (Rugman and Girod, 2003). WalMart’s early innovations and experimentation apart from investments light-years ahead of its time into VSAT capabilities have boosted its success.

16.9. Procurement Wal-Mart’s satellite communication and electronic data interchange links all its stores to over 4000 suppliers creating the finest procurement co-ordinated scenario (Goddard, 1997). WalMart integrates its supply chain management activities with key suppliers like P&G with direct shipments from P&G’s warehouses to Wal-Mart’s stores and warehouses (Goddard, 1997). Wal-Mart inventory management is so effective that over 70% of its merchandise is purchased and paid for by customers, even before Wal-Mart has actually paid for the same to its suppliers (Fortune, 2003). Wal-Mart has outsourced a substantial activity to USSO enabling Wal-Mart to maintain its logistics costs.


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16.10. Key Summary The beauty of Wal-Mart’s Value Chain is the scale of operations and the control it exercises over each activity. Wal-Mart takes care of all the activities internally except partially outsourcing its logistics requirements. Its systems integration from inventory, to stores, to headquarters to suppliers is the lifeline of its success. Transportation undertaken by its own fleet of trucks is an added advantage. The core activity remains in its bulk buying and inventory management which supports Wal-Mart’s competitive advantage of pricing and every element shows traces of cost leadership. Total integration is key here. Wal-Mart located its discount stores around regional warehouses allowing a streamlined and low cost physical distribution (Porter, 1990).


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17. Generic Strategy

Analysis of Wal-Mart’s global generic strategy is complex and mystifying (Figure 17.1.). To redefine that, does Wal-Mart have a global strategy is the argument.

Analysis of the value adding activities supporting the generic strategy shows clear elements of cost focus. Low cost leadership helps the firm above average returns in the industry despite strong competitive forces (Porter, 1980). Traces of cost leadership are noticeable in the value chain. Wal-Mart saves costs by holding stocks for less than 48 hours in its inventory. WalMart is known to negotiate with suppliers for the lowest cost of the product without any frills and marketing expenses which adds to the cost later. Wal-Mart’s purchase by the truckload saves costs again by bulk purchasing. Wal-Mart’s inventory handling and logistics distribution with its own fleet of 2000 plus trucks help attain a cost effective distribution channel than relying on unreliable suppliers networks which costs in delays.

But is Wal-Mart’s strategy based solely on cost or does it have any other attributes based on its characteristics. Wal-Mart appears to have a differentiation strategy. The differentiation strategy is one of differentiating the product or service offering of the firm, creating something that is perceived industry-wide as being unique (Porter, 1980). It can be design or brand image, technology, features, customer service, dealer network or other dimensions (Porter, 1980).


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High degree of customer service with store greeters and ‘no questions asked’ policies reaffirms Wal-Mart’s differentiation from its competitors. ‘Every Day Low Price’ strategy helped reinforce Wal-Mart was the lowest price.

The third generic strategy advocated by Porter is the focus strategy. The focus strategy is focusing on a particular buyer group, segment of the product line or geographic market as with differentiation, focus may take many forms (Porter, 1980). Wal-Mart right from its foundation located its stores to out of town areas with small populations. This was a segment ignore by its competitors giving Wal-Mart an edge over competition by locating itself in a low competitive environment before it creates competition. Wal-Mart’s focus on the segment of people targeted as well as its location of stores, does give it an attribute of the focus strategy.

Effective implementation of any of these generic strategies usually requires total commitment and supporting organizational arrangements that are diluted if there is more than one primary target (Porter, 1980). Arguably Porter termed organizations attempting cost leadership and differentiation together as ‘stuck-in-the-middle’ and it does not lead to competitive advantage and its sustainability.

Academic criticism is not new and Porter has received his share of it. Most strategists feel low cost leadership alone, does not lead to competitive advantage unless there is an element of differentiation (Stonehouse et. al., 2000). A strategy combining elements of low cost, price and leadership is known as hybrid strategy (Johnson and Scholes, 1999).


Mintzberg

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advocated the hybrid strategy for it combines both elements of low cost leadership with differentiation.

However, the fact can not be denied that Wal-Mart has a focus strategy as well as a differentiation strategy. Overall the company thrives on cost leadership.

The global validity of these are tested with Wal-Mart’s core strategy in every market it operates, it maintains cost leadership in all activities as well as it maintains its differentiation by having exemplary service. The adoption of the focus strategy globally can be critiqued as Wal-Mart is unable to expand into most markets like UK and Europe with tight zoning regulations and its entry into these markets have been through mergers and acquisitions. But the focus of the segment of customers targeted remains undiluted though the focus of location geographically is understood to be compromised considering the market conditions.

The author feels if the above analysis holds true, Wal-Mart is a unique company which is highly successful despite having different combinations with varying magnitudes of the generic strategies.


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Figure 17.1.: Porter’s Generic Strategies

Strategic Advantage Uniqueness Perceived by the Customer

t e g r a T c i g e t a r t

S

Industry-wide

OVERALL COST

DIFFERENTIATION

Particular Segment Only

Low Cost Position

LEADERSHIP

FOCUS

Source: Adapted from Porter, 1980.


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18. Yip’s Globalisation Drivers

The analysis of the retail industry globalisation / localisation drivers reveals the following (Table 18.1.; Figure 18.1.):

18.1. Market Drivers Existence of homogenous consumer needs can not be ignored but at the same time, it is highly localised due to the nature of products. Global brands are preferred but with local tastes. Distribution channels hang-in-between global and local as global sourcing can’t be ignored but lot of sourcing is done regionally. Marketing follows the same principle. Global marketing with local themes and needs. Lead countries are Germany, France, U.S.A. and U.K.

18.2. Cost Drivers Cost drivers are in favour of globalisation except for research and development costs which are marginal but needs to be catered to each market. Economies of scale are highly important with margins wafer thin. Transport costs do not discourage centralized sourcing and warehousing.

18.3. Country Drivers Country drivers show a shift to localisation in this framework. There is still a marginal amount of trade barriers though its being loosened up by the W.T.O. and pressure from industry and markets are being built up.


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18.4. Competitive Drivers Shift from localisation to globalisation. There is high volume of imports and exports but for the global markets, there is more of internal sourcing compared with the volume of exports and imports. Competitive interdependence of major markets is increasing with pressure from global competitors entering the local markets.

18.5. Key Summary Yip’s model shows the retail industry maturing in-between globalisation and localisation (Table 18.1.; Figure 18.1.). Although many elements are in favour of globalisation, quite a significant amount will continue to favour localisation like marketing and distribution and customer choices. Maturity of the market can be expected but it will not favour a total globalized market nor will be become highly localized. It can be classified as a regional market or matured international market.


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Table 18.1.: Yip’s Drivers – Analysis with Wal-Mart / Discount Merchandisers

Globalisation Localisation Market Drivers Global homogenous customer needs are present but localisation of the products can not be ignored today as consumers are shifting from globalisation to glocalisation. Global distribution channels exists on the whole but its still more on the local and national sourcing due to the nature of products dealt with. Again marketing as a principle and a guiding policy of the company exists. But marketing is tailored to local tastes and preferences. Lead countries exists like Germany, France, U.S.A., and U.K. Cost Drivers Research and development costs are significantly lower in this industry Economies of scale are highly significant Transport costs do not discourage centralized production (sourcing/warehousing). Wide choice of countries to place production Country Drivers Low trade barriers but being built-up rapidly legally and by the industry and markets. Divergence of national standards Retention of national cultural and institutional norms Competitive Drivers High volume of imports and exports in the home-country can’t be ignored but the rest of the operational countries have a limited volume of imports and exports. Competitive interdependence of major markets between countries New global competitors have entered the local market •

•

•

•

• • • •

• • •

•

• •


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Figure 18.1.: Visual Illustration of Yip’s Drivers

Note: The red line denotes the extent of the force driving from globalisation to localisation. The blue line denotes the extremes of the forces. The brown line denotes the mid-range giving a clear view to the extent the industry is.


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19. Competitive Advantage

Analysis of the generic strategy and the supporting value chain, gives us a good insight into sources of Wal-Mart’s competitive advantage. When two or more firms compete within the same market, one firm possesses competitive advantage over its rivals when it earns a persistently higher rate of profit (Grant, 2002).

Wal-Mart’s capability to outperform its rivals is achieved with its ability to outperform its competitors quickly and effectively. Supporting this is its, highly integrated systems, technological advances, highly efficient inventory management skills, few markdowns and few stock-outs. This is supported also by its corporate culture encouraging and rewarding initiative and innovation.

Wal-Mart’s achieves competencies from: •

Cross docking

•

Supply chain management

•

Communication strategy with suppliers and associates

•

Relationship strategy with suppliers and associates

•

People strategy

•

Cost strategy

•

Location and market strategy

•

Ability and inspiration from Sam Walton

•

Customer service strategy


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•

Knowledge management

•

Innovation in I.T. and warehousing and inventory management

Although an exhaustive list, Wal-Mart does achieve and maintain the above in proportions unseen in its industry. Although they are imitateable, competitors have been unable to replicate the entire series and sustain it.


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20. Core Competences

Prahalad and Hamel (1990) define core competences as the collective learning of the organization, especially how to co-ordinate diverse production skills and integrate multiple streams of technologies. The cumulative learning acquired with experience in an industry enhances a firm’s competence (Hamilton, Eskin and Michaels, 1998).

Wal-Mart’s core competence can be said to be its knowledge achieved by its inventory management skills with its supply chain management facilitated by its innovations like the cross-docking techniques and its innovation in information technology and in relationship strategy maintained with its customers, suppliers, and associates and its cost strategy achieved with its scale of operations.

This passes the three tests whereby it’s providing added value to customers and is difficult for competitors to imitate considering the scale of operations to achieve such economies and provides access to wider markets.


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21. Sustainable Competitive Advantage

Wal-Mart’s sustainable competitive advantage can be attributed to its cost advantage supported by its ‘inventory management skills and processes’ and expertise in ‘supply chain management’ (which can not be replicated considering the scale of operations) and its culture which promotes aggressive customer service and satisfaction through satisfied and happy associates.

The ability to build and maintain relationships with its customers, suppliers, and its associates and its speed in innovation and initiative ness is also a source of sustainable competitive advantage.


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22. Kay’s Distinctive Capabilities

Kay (1993) explains distinctive competitive advantage in terms of distinctive capability. Analysis of Wal-Mart’s distinctive capabilities includes the following:

22.1. Architecture Wal-Mart’s internal architecture with its associates are phenomenal and the way it manages its one million plus associates. Wal-Mart’s collegiate culture encourages innovation and learning. Externally Wal-Mart enjoys a unique relationship with its suppliers who go to the extent of locating their offices near Wal-Mart’s headquarters.

22.2. Reputation Wal-Mart enjoys tremendous reputation in the industry for its standards and living up to them. Wal-Mart’s ranking’s in the industry with its phenomenal growth and value for money. It has also established itself as the lowest price retailer with the highly effective marketing of the EDLP (Every Day Low Price) concept.

22.3. Innovation Wal-Mart has a reputation for innovation with the formats of stores introduced and its ability to replicate with adaptations to suit local markets. Innovations in technology by using VSAT light years ahead of its times and its warehousing and cross-docking techniques are laudable.


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22.4. Strategic Asset Although Sam Walton exists no more, he was a strategic asset and still is with his values deeply imbibed within the company’s culture. Wal-Mart’s benefits from the brand it has it has created and its market position strategy.


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23. Configuration and Co-ordination

23.1. Configuration Wal-Mart’s configuration can said to be of ‘concentrated’, understanding its distribution and warehousing facilities within the USA. The goods are sourced from within as well as globally; with over $240 billion worth of goods to sell, the sourcing is not limited to one country or a few countries alone. The main reason for sourcing externally is for cost advantage. Although Wal-Mart doesn’t manufacture the products it retails, it retails its store branded products which are sourced from private label manufactures. Most dry groceries and clothing apart from hand made products are sourced from Asian countries.

As a case in point, Wal-Mart sources goods from China for more than 20 years with growth every year. During the last fiscal year, Wal-Mart sourced about $10 billion in Chinese made merchandise, directly from manufacturers in China and from other suppliers that source their goods from China (World Bank, 2002).

Although the transport costs are usually marginally high, Wal-Mart undertakes its own distribution and warehousing activities with its strong fleet of 2000 plus high end trucks which have a turnaround in cycle time better than within the industry.

The complexities of the global value change differ from the traditional value chain.


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23.2. Co-ordination

Co-ordination involves sharing information, allocating responsibility and aligning efforts (Porter, 1990). Wal-Mart couldn’t have been more successful if it didn’t fulfil this. Wal-Mart realized in its early years, the ultimate source of its competitive advantage of cost can only be supplemented and supported by the effective co-ordination of its value chain activities. Technological advances were done light years ahead of its time. Unattributable sources, part of the industries talk is, Wal-Mart has more technology capabilities in its head-office than NASA. Wal-Mart has linked all its stores globally with VSAT technology which relays sales and product and any other information tracked by its systems to its head-office. This helps it source the right product at the right tim t imee to the right place helping minimize minimize excess inventory apart from having the most ideal scenario of real time information. Sounds more like Sci-fi but Wal-Mart has state of the art technologies in place supporting the co-ordination of its activities.


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24. Pressures for Co-ordination and Integration

Pressures for co-ordination and integration are need for cost reduction and real time information apart from the need for optimum responsiveness to changes in the market, globally. Presence of multinational competitors is also key.

Pressure for local responsiveness is the differences in customer’s needs and preferences apart from the cultural diversity to be taken into account. The shopping habits and lifestyles of the customers make a total difference. In USA, customers buy in bulk to save costs apart from time, although this sound ideal to any value conscious customer, in Asian countries, consumers have limited credit means and purchases are made on a need basis and more frequently with financial constraints to be accounted for. Even small factors like storage facilities in Asian countries are a limiting factor. Host government like in China place a lot of restrictions and demands like timing and employee benefits and in Germany, price has to be maintained for 2 months to be declared lowest price. Distribution channels are not very reliable in many countries and need for local responsiveness arises with such instances.

Analyzing the co-ordination and configuration activities of Wal-Mart using Porters (1990) framework, shows us Wal-Mart has a global strategy with the high co-ordination of activities with its configuration geographically concentrated.


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25. Dicken’s Framework

The Dicken’s (1998) four production strategies is not illustrated as it’s a framework highly suited for manufacturing based organizations eliminating its application for a nonmanufacturing company like Wal-Mart.


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26. Transnational Model

A transnational strategy combines global and local strategy features in order to gain competitive advantage according to the indications of globalisation driver analysis (Stonehouse, et. al., 2000). Analysis of Wal-Mart applied with the transnational model framework reveals us the true picture of Wal-Mart (Figure 26.1.).

Considering the changes in the macro-environment and the globalisation drivers, we can understand the following pressures for globalisation and localisation. There are strong globalisation forces with the concentration key value adding activities and the emergence and presence of global brands and advertising. Centralised decision making and global sourcing also add to the pressures of globalisation.

Acting on the localisation force which is significantly weaker compared to the globalisation forces are the local variations to the marketing strategy and local product variations. Both signify the importance of localisation despite the globalization of markets.

The global core competence / distinctive capability, global generic strategy, integration and co-ordination of global activities, differentiated architecture and participation in key markets are all elements of Wal-Mart’s global strategy.

On the basis of the Transnational Model, Wal-Mart appears to be a transnational company.


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Figure 26.1.: Wal-Mart’s Transnational Strategy

Global Strategy Options

Local Strategy Options

Transnational Strategy

Source: Transnational model adapted from Stonehouse, et. al., 2002.


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27. CONCLUSION

Wal-Mart considering its scale and scope of operations has given a dynamic perspective in analysis of the many frameworks analyzed with. Strategists like Govindrajan and Gupta, who specialize in globalisation, endorse and acknowledge Wal-Mart as a global organization and highly lauding Ironically, Rugman, argues, Wal-Mart as a regional player with regional strategy considering that Wal-Mart has only 9.6% of its stores outside its home region and only 16.3% of revenue is generated from stores outside its home country.

Again considering classification such as the NAFTA and the TRIAD, large economies (Countries) are clubbed together and treated as one which the author disagrees to justify as one. Arguments such as only a certain percentage of business is generated outside the TRIAD making a business less global are arguments the author disagrees with. With the EU becoming as one then soon, the world will become large chunks of amalgamations. The simple definition or presence in different markets should be taken into consideration of being global. Many strategists do not give concessions for the time the business has started to expand globally. Wal-Mart for instance has grown to such a strong position over 40 years, this would take considerable time to replicate and adapt in international markets.

Analysis using Yip’s Globalisation / Localisation Drivers shows the industry and Wal-Mart in general moving towards globalisation but yet maintaining key aspects to localisation. This could be the way ahead. The Transnational Model illustrates the same key aspect. Marketing strategy and product variation though it can be global, it needs to be tuned to the local market


May 2003 - 58 -


catered considering the emergence of localisation preference in consumers. The market has gone too global, that consumers place an emphasis of localisation.

The author concludes this paper, with scepticism if Wal-Mart is truly a transnational organization as yet even though most of the analysis favour in that direction. Acknowledgements

are

made

that

the

industry

is

maturing

far

greater

than

Internationalisation but it’s yet to be seen as a global player. But it’s a matter of time before it expands it to new markets and creates a foothold.

The correlation of the fable used in the beginning of the report, ‘The blind men and the elephant’, is to exemplify the understanding of globalisation and transnational as yet with strategists each looking at different paradigms, though this would settle in due course, before there emerges yet another classification and extension, which time has always witnessed and will witness.


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28. Limitations of Report

This report tries to emphasize the firm’s global / transnational strategy in accordance to the global drivers. It has to be taken into account that the subject of discussion is still evolving and emerging and can be highly disputed.

This report is limited to the fact with considerations to time and information available on the subject of discussion, apart from the limitation set by the word limit prescribed for this report and tries to briefly touch upon the most important analysis.

The author tries to emphasize on theoretical knowledge and empirical research and data already available on the subject of discussion.


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Appendix 1: Wal-Mart Income Statement Particulars

1998

Net Sales Net Sales Increase Other Income Cost of Sales

1341 93438

Operating, Selling, General & Administrative Expenses

19358

Net Income

1999

2000

2001

2002

117958 137634 165013 191329 217800 12% 17% 20% 16% 14% 1574 1796 1966 2013 108725 129664 150255 171562 22363 27040 31550 36173 3526 4430 5576 6295

Source: Adapted from Wal-Mart Annual Report 2002; Yoffie and Wang, 2002.


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6671


Appendix 2: Wal-Mart Balance Sheet Particulars

1998

1999

2000

2001

2002

Current Assets Total Assets Current Liabilities

19352 45384 14460

21132 49996 16762

24356 70349 25803

26555 78130 28949

28170 83375 27173

Shareholder's Equity

18503

21112

25834

31343

35102



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Appendix 3: Growth Rate Analysis (%) Particulars

Net Sales Growth Net Income Growth Total Assets Growth Equity Growth

1998

1999

2000

2001

2002

14.6

12.5 15.4 10.2

16.7 25.6 40.7

19.9 25.9 11.1

15.9 12.9 6.7

7.9

14.1

22.4

21.3

12.0



May 2003 - 63 -

13.8 6.0


Appendix 4: Wal-Mart Store Details Particulars

1998

1999

2000

2001

2002

Number of Domestic Discount Stores 1921 1869 1081 1736 1647 Number of Domestic Supercenters 441 564 721 888 1066 Number of Domestic Sam's Club Stores 443 451 462 475 500 Number of Neighborhood Markets 0 0 7 19 31 Number of Internat ional Stores 601 715 1004 1071 1170 Average Wal-Mart Store Size (sq.ft.) 93400 94300 108383 111543 116795 Net Domestic Square Footage (millions) 313.2 333.1 358 386.9 417.8 Net Sales Per Square Foot $348 $413 $373 $384 $403 Gross Margin 20.80% 21.00% 21.40% 21.50% 21.20% Associates (Employees) 825000 910000 1140000 1244000 1383000 Source: Adapted from Wal-Mart Annual Report 2002; Yoffie and Wang, 2002.


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Appendix 5: Wal-Mart International Store Details

Puerto Rico Mexico Canada Argentina Brazil China Germany South Korea United Kingdom

Total No. of SAMS Stores Supercenters CLUBS 17 0 551 63 196 0 11 11 22 12 19 16 95 0 9 0 250

0

7 46 0 0 8 2 0 0

Date of Market Entry Aug-92 Sep-93 Mar-94 Nov-95 Nov-95 Aug-96 Aug-97 Jul-98

0

Jul-99



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Appendix 6: Photographs of Wal-Mart Stores

Source: Wal-Mart Annual Report 2002.


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31. Declaration

Wal-Mart in this report represents Wal-Mart Stores, Inc.

The word count does not include Tables, Figures, Graphs, Appendices, Headers, Images, and anything discussed in brackets. The Executive Summary, Limitations of Report, References, Bibliography and the Declaration do not constitute part of the word limit.

The word count in the main text excluding the aforementioned points is 5117 words.

Report style has been adopted for presentation as per guideline and attempt has been made to maintain the different parts and tasks as distinctive as possible but yet linking key elements together to avoid repetition and to communicate the significance.


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May 2003 - 79 -

Global and Transnational Strategy Walmart Full Report (1)

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