Strategic Management Report On Wal-mart 3a1e2e

NATIONAL INSTITUTE OF TECHNOLOGY DURGAPUR (DEEMED UNIVERSITY)

DEPARTMENT OF MANAGEMENT STUDIES WAL-MART GLOBAL STRATERGY (STRATEGIC MANAGEMENT) SUBMITTED TO

Prof. AVIJAN DUTTA BY

BANHI GUHA (07/MBA/47) SUKANTA MAJI (07MBA/40) INDRAJEET ROUT (07/MBA/06) SUBHANKAR ROY (07/MBA/48) ABHINANDAN DASGUPTA (07/MBA/15) PRAMITENDRA NATH DUTTA (07/MBA/52)

MARCH, 2009

WAL-MART GLOBAL STRATERGY.

INDEX 1. INTRODUCTION TO GLOBALIZATION STRATEGY IN RELATION TO RETAILING…..………..3 2. FACTORS DETERMINING THE EXTENT AND NATURE OF GLOBALISATION IN AN INDUSTRY:……………………………………………………………………………………………………………….…3 3. GLOBAL BUSINESS – COMPETITIVENESS………………………………………………………………..……3 4. DETERMINANTS OF INTERNATIONAL COMPETITIVENESS……………………………………………4 5. INCREASING COMPETITIVENESS……………………………………………………………….…………..……4 6. INTRODUCING WAL-MART………….…………………………………………………………………….….……4 7. FORTUNE MAGAZINE FRONT COVER FEATURING WAL-MART………….…………………………5 8. WAL-MART AND INTERNATIONAL EXPANSION………….………………………………..…….….……5 9. INTERNAL ANALYSIS – ANALYZING RESOURCES………………………………………………………….6 10. P.E.S.T. ANALYSIS ……………………………………………………………………………………………………..8 11. VALUE CHAIN ANALYSIS …………………………………………………………………………………….……10 12. FIVE FORCE’S ANALYSIS …………………………………………………………………………………….….…10 13. GENERIC STRATEGY……………………………………………………..…………………………………….….…12 14. YIP’S GLOBALIZATION DRIVERS …………………………………………………………………..…….….…13 15. WAL-MART’S COMPETITIVE ADVANTAGE: ……………………………………….………………………13 16. CORE COMPETENCES……………………………………….…………………………….…………………………14 17. KAY’S DISTINCTIVE CAPABILITIES ……………………………………….……………………………………14 18. WAL-MART’S TRANSNATIONAL STRATEGY……………………………………….………………………15 19. WAL-MART AND INDIA……………………………………….……………………………………………………15 20. THREATS……….…………………………………………………….……….………………………………..…………16 21. CONCLUSION……….………………………………………….………………………………………….……………16

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1. INTRODUCTION TO GLOBALIZATION STRATEGY IN RELATION TO RETAILING Globalization 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 The term globalization 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. The most strategic expansion routes for international retail expansion are global and multinational strategies). Global retailers replicate a standard format throughout their expansion worldwide while multinational strategies result in adaptation of their retail offering. 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 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. 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 homogenization. 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. 2. FACTORS DETERMINING THE EXTENT AND NATURE OF GLOBALISATION IN AN INDUSTRY: Market drivers Cost drivers Government drivers Competitive drivers 3. GLOBAL BUSINESS – COMPETITIVENESS This refers to the ability of a country (or firm) to provide goods and services which provide better value than their overseas rivals. Page 3 of 16

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This is competitive advantage but on a international scale. 4. DETERMINANTS OF INTERNATIONAL COMPETITIVENESS Price relative to competitors Productivity - output per worker Unit costs State of technology Investment in capital equipment Quality Reliability Lead time Exchange rate 5. INCREASING COMPETITIVENESS Rationalization output to get rid of high cost plants Relocating to places where labor costs are lower Process innovation Product innovation Incorporating the latest technology into investment Sourcing from abroad where appropriate Seeking out new market opportunities Improving relationships with suppliers and customer 6. INTRODUCING WAL-MART Wal-Mart is the world’s largest corporation (Fortune, 2003). Wal-Mart is also the largest private employer in the United States of America. 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 $10 Billion by shopping at Wal-Mart. Wal-Mart’s revenue ed for 15% of the entire U.S. retail market in 2002, excluding automobiles. Sales globally have been affected over the recent weeks. International sales increased 14.3% to $10.3 billion. WalPage 4 of 16

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Mart’s revenues are forecast to approach $700 billion in 2010. Wal-Mart has four large scale retail formats; Wal-Mart Stores, SAM’s Club, Wal-Mart Supercenters and Neighbourhood Markets. 7. FORTUNE MAGAZINE FRONT COVER FEATURING WAL-MART

Source: Wal-Mart Annual Report, 2003. 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. Wal-Mart’s strategy has been to acquire companies and convert them into the Wal-Mart way stores European retailers like Carrefour and Ahold, have more than 20 years of international experience than Wal-Mart.

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Multinational retailer’s entry is usually by mergers & acquisitions, which is what Wal-Mart did in its initial entry into Mexico, with a t venture with CIFRA, the most powerful retailer in Mexico. This results in a faster and more reliable learning knowledge base. CIFRA enables WalMart’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. Especially the management is 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 a remarkable editorial in The Economist (2000), Wal-Mart’s entry into Europe and global expansion plans have been heavily criticized 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 Metro, Carrefour, Aldi which all individually and collectively dominate the market and aren’t up for sale as Wal-Mart would try to. 9. INTERNAL ANALYSIS – ANALYZING RESOURCES 9.1. Financial Resources Wal-Mart is the world’s largest and most profitable retailer. 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. Wal-Mart commands market value 10 times more than its book value. Fiscal year 2008 ended as another record year for the Company. Total net sales increased 8.6 percent to $375 billion. They added about $30 billion in sales, which is equal to adding the annual sales of a Fortune 75 business.

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EXTRACTS FROM ANNUAL REPORT

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9.2. Human Resources Wal-Mart promotes internal staff development and over 60% of their stores managers are promoted internally then direct recruits. 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. One of the significant costs for retailers was shoplifting, or pilferage. Wal-Mart addressed this issue by instituting a policy that shared 50 percent of the savings from decreases in a store’s pilferage among that store’s employees through store incentive plans. 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. 9.4. Intellectual or Intangible Resources Wal-Mart’s core resources are its customers which total over 176 million consumers in 13 countries. Wal-Mart has over 1.3 million associates (employees) at its stores, worldwide. WalMart uses its technological capabilities to sustain its cost leadership in distribution and superior inventory systems. 10. P.E.S.T. ANALYSIS 10.1. 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. FDI in many countries are still heavily regulated and global companies are yet to set foot into emerging markets like India. 10.2.

Economic Influences

The recent financial crisis 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. 10.3.

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 globalization. Anti-Globalization movements in the recent past has affected growth of global companies, especially companies originated USA. 10.4.

Technological Influences Page 8 of 16

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Development in technology and satellite systems has given a boost to Wal-Mart. Basic infrastructure still lacks for effective warehousing and distribution, the lifeline of a retail chain. 10.5.

Key learning

There appears to be legal and social hurdles ahead for global companies. Expansion into growing and emerging markets throws in tremendous growth opportunity though localization would be a critical success factor. Infrastructure needs to be developed to activities of a global distribution channel to achieve global competitiveness. 10.6.

Table: P.E.S.T. Analysis

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11. FIVE FORCE’S ANALYSIS

12. VALUE CHAIN ANALYSIS 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. The core activity remains in its bulk buying and inventory management which s Wal-Mart’s competitive advantage of pricing and every element shows traces of cost leadership. Wal-Mart located its discount stores around regional warehouses allowing a streamlined and low cost physical distribution

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12.1.

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. Shipments are timed and slotted and planned in an orchestral way. 12.2.

Operations

Wal-Mart maintains a lean approach to inventory. 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. Most goods through the warehouses within a span of 48 hours, enabling minimum idle time and lowering excess inventory possibilities. Most of the goods never touch the floor of the warehouse, as goods are ed on 24 miles length of conveyor belts between incoming trucks to outgoing trucks. 12.3.

Outbound Logistics

Goods are transferred within 48 hours of receipt from suppliers. The replenishments are also done twice weekly, which is double the industry’s standard. 12.4.

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. This is one of the most interesting attributes of Wal-Mart. 12.5.

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. 12.6.

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. 12.7.

Human Resource Management

Wal-Mart is the only retailer to be in Fortune’s 100 Best Places to Work. 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. 12.8.

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. Wal-Mart’s early innovations and Page 11 of 16

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experimentation apart from investments light-years ahead of its time into VSAT capabilities have boosted its success. 12.9.

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. Wal-Mart 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. 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. Wal-Mart has outsourced a substantial activity to USSO enabling Wal-Mart to maintain its logistics costs. 13. GENERIC STRATEGY

13.1.

Cost leadership

Analysis of the value adding activities ing 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. 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. Wal-Mart 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. 13.2.

Differentiation

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. It can be design or brand image, technology, features, customer service, dealer network or other dimensions. High degree of customer service with store greeters and ’10 foot attitude’ policies reaffirms Wal-Mart’s differentiation from its competitors. Page 12 of 16

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13.3.

Focus

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. 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 ing organizational arrangements that are diluted if there is more than one primary target. 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. 14. YIP’S GLOBALIZATION DRIVERS 14.1. Market Drivers Existence of homogenous consumer needs can not be ignored but at the same time, it is highly localized 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. 14.2.

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. 14.3.

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. 14.4.

Competitive Drivers

Shift from localization to globalization. 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. 15. WAL-MART’S COMPETITIVE ADVANTAGE: Supply chain management Communication strategy with suppliers and associates Page 13 of 16

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Relationship strategy with suppliers and associates People strategy Cost strategy Location and market strategy Ability and inspiration from Sam Walton Customer service strategy Knowledge management Innovation in I.T. and warehousing and inventory management 16. CORE COMPETENCES 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. 17. KAY’S DISTINCTIVE CAPABILITIES 17.1. 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. 17.2.

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. 17.3.

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. 17.4.

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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18. WAL-MART’S TRANSNATIONAL STRATEGY

19. WAL-MART AND INDIA India is a ripe and appealing market for Wal-Mart with its growing middle class of 250 million and an economic growth rate of nearly 9% In November 2006, Wal-Mart beat out Tesco for a t venture opportunity with Indian mobile services leader, Bharti. The company’s priority seemed to be an early entry. Bharti would manage the front-end of the business, while Wal-Mart would take care of the supply chain, logistics and other back-end operations. The proposed Bharti venture seeks to serve the retail market by supplying it with goods directly from producers such as agriculturists, craftsmen and artisans.

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20. THREATS The leaders of the retail market are the 12-40 million tiny mom-and-pop retail shops which are predominantly run by small family businesses. The mom-and-pops have an advantage as they are conveniently located on street corners or in the heart of cities and usually have personal relationships with most consumers. 21. CONCLUSION Large economies (Countries) are clubbed together and treated 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.

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