ILP 216

Department of Business StudiesB.A.(Hons.) Business and Management

April Semester, 2015 Assignment 1

ILP 216 Strategic Management

Prepared By:Tuti Lelah1420010

Submitted on: 19 June 2015

Environmental Analysis on

AbstractThis report applies relevant strategic management tools which it conducts an environmental analysis using Wal-Mart Stores, Inc. to identify its opportunity and threat in the future by PESTEL analysis and to analyze the power of Five Forces in the current circumstances that affect a profitability.ContentsExecutive Summary51.0 Background of Wal-Mart62.0 Macro Environment62.1 Political/Legal Segment6 2.2 Socio/Cultural Segment72.3 Technological Segment83.0 Industry Environment83.1 Threat of New Entrants93.2 Bargaining Power of Suppliers93.3 Bargaining Power of Buyers93.4 Threat of Substitute Products93.5 Intensity of Rivalry among Competitors104.0 Competitors Analysis (Target)10Conclusion.11References.12Appendix .14

EXECUTIVE SUMMARY

This environmental analysis is focused on Wal-Mart Stores, Inc. in Mexico, United State and the product is focused on Household product category. As we known that Wal-Mart is the largest retail company in the U.S and worldwide. Nowadays, in order to save an environment, Wal-Mart made a major commitment to create zero waste whereby they used only renewable energy and sold products that sustain people and the environment (Wal-Mart, 2015). Wal-Mart has a formidable history of providing greater value to consumers than its competitors, in part due to its innovative supply chain management (Krafft, M and Mantrala, M.K., 2010). Therefore, Wal-Mart still remains the top 1 of retail companies in the U.S and worldwide (see Appendix Figure 1).This report is based on Industry Organization Model (O/I) which is analyzing the External Environment. It covers General Environment through PESTEL analysis which Wal-Mart has been driven by Political/Legal segment, Socio/Cultural segment and Technological segment (PSTL). Other than that, this report also covers Industry Environment through Five Forces analysis which is included Threat of New Entrants, Bargaining Power of Suppliers, Bargaining Power of Buyers, Threat of Substitute Product, and Intensity of Rivalry among Competitors. These both PESTEL analysis and Five Forces analysis will be evaluated to find out the outcomes of analyzing them to know Wal-Marts opportunity and threat in maintaining its position (survival) in the market, even also to know Wal-Mart profitability.

1.0 BACKGROUND OF WAL-MARTBased on Mal-Marts History Timeline on their website, Mal-Mart began by entering Retail Industry in 1960s. Sam Walton is the Founder behind of the success of Wal-Mart, with his unshakeable foundation strategy which is The Lowest Prices Anytime, Anywhere. Sam Walton had opened the first Wal-Mart Store in Rogers, Ark on July 2, 1962. In 1967, 5 years after opening their first Wal-Mart Store, the Walton family had successfully owned 24 stores by ringing up $12.7 million in their sales. In 1969, the company officially incorporated as Wal-Mart Stores, Inc. Wal-Mart was the top of Americas Retailer and in order to went globally, Wal-Mart had conducted Joint Venture (JV) with Cifra which was a Mexican Retailer Company in 1990 (Wal-Mart, 2015).The company employs 2.2 million associates worldwide and serves more than 200 million customers each week at more than 11,000 stores in 27 countries with Mike Duke as the current CEO (Wal-Mart, 2015). One of their visions of Wal-Mart is To be the best retailer in the hearts of customers and in the minds of consumers and also employees in Brazil other than that Save people money so they can live better this statement is Wal-Mart mission (Wal-Mart Brazil, 2015). Wal-Mart itself has big direct competitors such as Target, Kroger, Costco, CVS Caremark, The Home Depot, and also Walgreen which the products that are offered to their customers are very similar (Marcilla, 2014). 2.0 MACRO ENVIRONMENT In order to concern more about the future of Wal-Mart, this Macro Environment study is using PESTEL analysis framework. Meanwhile, the key driver of Wal-Mart Macro Environment has been driven by PSTL consist of Political/Legal segment, Socio/Cultural segment, and Technological segment and also these segments will be evaluated whether they bring an opportunity or threat to Wal-Mart Stores Inc.2.1 Political/Legal SegmentAs we known that Political/Legal segment are regulated/controlled by the government of a country around the world. For instance: Consumer Privacy Laws. In order to prevent businesses from using misleading its marketing campaign and to act responsibility in increasing sales revenue (Lister, 2015). Truth in Advertising. It emphasizes the business marketing departments in designing their advertising message to present the truthful features and benefits of company products (Lister, 2015). Taxation. There are several taxes which everyone has to be aware. The government of the United State implements taxes such as income tax, sales tax, property tax, estate tax/gift tax, hotel tax and sin tax for cigarette and alcohol (Immihelp.com, 2015).In conclusion, these regulations would have given a threat to Wal-Mart because when government enforces consumer privacy laws and truth in advertising, if Wal-Mart management made mistakes in marketing their products, everyone may sue them in the court at any time (Lister, 2015). In addition, taxation in U.S can reduce purchasing power of consumer so that it affect to Wal-Marts sales and its profit.

2.2 Socio/Cultural SegmentSocio/cultural is influenced by a societys attitudes and cultural values. (See Figure 2) Firstly, the Western cultural such as the U.S does believe that humanity is human-nature relationships, in their views all individual in a society is equal therefore the Power Distance of Americans is low it means the control is not really directed by a manager. Secondly, Americans have a strong future-time sense whereby they believe that planning and scheduling today make it possible to succeed tomorrow. Most of them have a higher Individualism which they believe that if they work hard, they will be rewarded. Thirdly, most of American employees focused on a success and a proper target strategy or plan which they would like to show how well a job they have done. Americans tend to be driven by a competition, an achievement, a success which they want to be the winner or the best in the field therefore the Masculinity is high for Americans behavior. Fourthly, Americans tend to concern about tolerance to accept new ideas and opinion, they are willing to be innovative in generating a product because they like to try something new and something different, they would like to be risk taker. Therefore, Americans Uncertainty Avoidance is low. Lastly, Americans tend to attempt for a quick result within their work place so that they will always measure their performance on a short-term. Thus, the Long-Term Orientation of American is also low (The Hofstede Centre, 2015).In conclusion, the behavior/ culture of Americans present a huge opportunity to Wal-Mart because their behavior can influence to Wal-Marts performance to be more innovative in creating something new, more competitive and be able to deliver more extra value to its customers therefore Wal-Mart will be able to stay in the market (survival).2.3 Technological Segment As a rapid technological development, the internet has turned into an extraordinary capability to present information easily, quickly, and effectively to an ever-increasing percentage of the worlds population. (See Figure 3) According to the Purcell, K. & Rainie, L. (2014), most of Americans have positive judgments, the survey reveals that 87% of 1,066 online users such as higher income households and higher educational considered that by using internet it helps them to learn something new and be able to access better information. 81% of American online users state that the internet and digital technologies have helped them to access better information about available products and services for sale nationally and internationally today compared with 5 years ago. In addition, (See Figure 4) 72% of American online users state that cell phones have improved their capacity to create and share ideas with others. The survey shows that the ability to share ideas has been risen over time even nowadays most of them are likely to use social network such as Facebook (Purcell, K. & Rainie, L., 2014). As a result, Wal-Mart is a company favored the most by Americans (See Figure 5).In conclusion, mostly when customers feel satisfied and delight of a product, they will share their experience to other, thus, this technological segment will be an opportunity to Wal-Mart when Americans is able to catch up the extra value that Wal-Mart give to them with their low cost and product differentiation. It can help Wal-Mart to get or expand its customers.

3.0 INDUSTRY ENVIRONMENTThis environment is concerned about the current Wal-Mart circumstances to indicate its attractiveness, this Industry Environment study is using Five Forces analysis framework in Wal-Marts Household product category. Those forces will be evaluated whether the power of each force is high or low.3.1 Threat of New EntrantsAccording to Globerg, K (2005) stated that the threat of new entrants for Wal-Mart is low, Wal-Mart has been the cost leader in retail industry in the U.S, as entry barrier is high. It is caused by a declining amount of independent retailers, strong brand perception, consumer loyalty, established distribution channels, and economies of scale. In addition, cost reductions also adopted include giving large volumes of standardized products, giving essential products and restricting customization of service, outsourcing, saving production costs, expanding asset capacity utilization, and reducing costs of distribution, Research and Development and advertising (Marcilla, 2014).3.2 Bargaining Power of SuppliersAccording to Marcilla, L (2014) and Globerg, K (2005) stated that the bargaining power of suppliers is very low. It caused by the companys size itself and in order to provide the lowest price and more beneficial for its customers, the company is able to make/break a small supplier and forced them to hold down the prices. Other that that, most of the suppliers accept contracts to lower their product prices because of the high influence Wal-Mart makes on their turnover. 3.3 Bargaining Power of BuyersThe bargaining power of Wal-Marts buyers is low. It is caused by the customers convenience and lower costs offered by Wal-Mart makes them would not easily switch to an alternate (Martin, 2014). In addition, Wal-Mart customers would no longer expect for low price, high quality or more services, it is because Wal-Mart has established all customers expectations which it is reflected by Wal-Marts business philosophy in its website (Wal-Mart, 2005) Every Day Low Price, Rollback, and Special Buy (Christian, 2005).3.4 Threat of Substitute Products Threat of substitute products is low. The reason is because household products have no perfect alternative products, customers brand loyalty, its lowest prices and Wal-Mart has been focused on product differentiation by expanding signature categories, customizing local assortments, focusing on personal attention, and raising loyalty benefits to customers (Parnell and Lester, 2008). Therefore, customers would not switch/alternate the products.

3.5 Intensity of Rivalry among CompetitorsThe competition among retail industry locally and internationally is high whereby Wal-Mart has two biggest direct competitors such as Target and Kroger which both companies are also located in the U.S and foreign country. Other than that, Wal-Mart also has to compete with indirect competitors when a new distribution company opens a store to serve customers such as Circle K, On the Run and Sunoco Aplus (Marcilla, 2014).

In conclusion, due to most of forces are low which high entry barriers; suppliers and buyers have weak positions; and few threats from substitute products, it reveals that Wal-Mart is still in an attractive industry whereby Wal-Mart is still able to gain Above Average Return (AAR).

4.0 COMPETITOR ANALYSIS

Target Stores is the third largest retail stores in the U.S. Targets strengths are included the ability to provide discount goods with a higher quality and a bigger product variety compared to Wal-Mart. Its strengths have attracted high-income customers therefore Target is able to gain higher revenue. Their main customer base has an average income of $50,000 per year compared to Wal-Marts $35,000 per years (Marcilla, 2014). In addition, Targets weaknesses are rare visibility in global market, low brand awareness compare to Wal-Mart, lack of labor unions, and lack of living wage certification (Kasi, 2009).

5.0 CONCLUSION

The key drivers of Wal-Mart PESTEL analysis which is Political/Legal segment is threatening Wal-Mart in retail industry because the regulation such as customer privacy laws, truth in advertising and taxation definitely will effect the operations and profitability of industry and individual firm locally and even across the globe. Otherwise, Socio/Cultural segment and Technological segment generates opportunities to Wal-Mart because of Americans independence behavior, creative and risk-taker behavior will be able to influence to Wal-Marts performance to be more innovative in creating something new, more competitive and be able to deliver more extra value to its customers to stay in the market. In 2000s, by following changes of technology, Wal-Mart dedicated to offering customers a seamless shopping experience, whether they are online, in a store or on a mobile device. Walmart.com was founded which was allowing U.S. customers to start shopping by online (Wal-Mart, 2015). Fortunately, most Americans have positive judgments that 87% of 1,066 online users such as higher income households and higher educational considered that by using internet it helps them to access better information about products/services to buy. Therefore, technological segment generates an opportunity to Wal-Mart in which most Americans. After analyzing PESTEL and evaluating the outcomes of each key driver segment, we can conclude/assume that Wal-Mart still has opportunities to stay in the market or gain its survival.Once the Five Forces and its effects have been analyzed and evaluated, we can conclude/assume that Wal-Mart is able to Wal-Mart is still in an attractive industry whereby Wal-Mart is still able to gain Above Average Return (AAR) than its competitors. Even though, the intensity of rivalry among competitors is high but due to four forces include threat of new entrants, bargaining power of suppliers, bargaining power of buyers and threat of substitute products are high.

6.0 REFERENCES

Christian, K. (2005) Strategic Management: Walmart Case Study. University of Hull, Scarborough Campus Business School. [Online] December 9th, 2005. Available at: Grin.com http://www.grin.com/en/e-book/134367/the-wal-mart-success-story [Accessed: 10 June 2015]Golberg, K., Mareck, N., Hardy, C., Hoeft, T. & Noerzel, J. (2005) Wal-Mart and Target. Strategic Industry Analysis.Immihelp (2015) United States Taxes. [Online]. Available at: Immihelp.com http://www.immihelp.com/newcomer/united-states-taxes.html [Accessed: 6 June 2015]Itim International (2015) Strategy-Culture-Change: United States. [Online]. Available at: The Hofstede Centre.com http://geert-hofstede.com/united-states.html [Accessed: 8 June 2015]Kasi (2009) Target Corporation SWOT Analysis. [Online]. Available at: MBA-Tutorials.com http://www.mba-tutorials.com/marketing/swot-analysis-marketing/280-target-corporation-swot-analysis.html [Accessed: 11 June 2015]Lister, J (2015) Government Regulations that Affects Marketing in Retail. [Online]. Available at: Chron.com http://smallbusiness.chron.com/government-regulations-affect-marketing-retail-35217.html [Accessed: 6 June 2015]Martin (2014) Strategy Frameworks: Bargaining Power of Buyers, Porters Five Forces Model. [Online]. Available at: Entrepreneurial Insight.com http://www.entrepreneurial-insights.com/bargaining-power-of-buyers-porters-five-forces-model/ [Accessed: 10 June]Marcilla, L.B. (2014) Business Analysis for Wal-Mart, a Grocery Retail Chain, and Improvement Proposals. Southeast Missouri State University.National Retail Federation (2015) Top 100 Retailers Chart 2014. [Online]. Available at: NRF.com https://nrf.com/2014/top100-table [Accessed: 8 June 2015]Parnell, J.A. & Lester, D.L. (2008) Competitive Strategy & the Wal-Mart threat: positioning for survival and success. [Online]. Available at: FPO.com http://www.freepatentsonline.com/article/SAM-Advanced-Management-Journal/180860941.html [Accessed: 11 June 2015]Purcell, K. and Rainie, L. (2014) Americans Feel Better Informed Thanks to the Internet. [Online]. Available at: PewResearchCentre.com http://www.pewinternet.org/2014/12/08/better-informed/ [Accessed: 8 June 2015]Richter, F. (2014) 31 Million Americans Like Walmart. [Online]. Statista.com http://www.statista.com/chart/1439/brands-with-most-us-fans-on-facebook/ [Accessed: 8 June 2015]Walmart Stores Inc. (2015) History Timeline: Experience Walmarts History. [Online]. Available at: Walmart.com http://corporate.walmart.com/our-story/history/history-timeline [Accessed: 6 June 2015]Walmart Brasil (2011) Mission, Vision and Values. [Online]. Available at: Walmart Brasil.com http://www.walmartbrasil.com.br/sustentabilidade/relatorio-online/eng/ra/04.htm [Accessed: 6 June 2015]

APPENDIX

Figure 1Top 100 Retailers Chart 2014

Source: National Retail Federation.com

Figure 2Americans Cultural Dimensions

Source: The Hofstede Centre.com

Figure 3Internet Users

Source: Pew Research Center.com

Figure 4Digital Technology Users

Source: Pew Research Center.com

Figure 5Wal-Mart is a company favored the most by Americans

Source: Statista.com

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