Isenberg School of Business

Wal-Mart global expansion : competitive advantages

Case Study: SCH MGT 670

Table of Contents

2Introduction

2US Competitive advantages

5Global expansion with US competitive advantages:

7Conclusion

8References

Introduction: Over the past three decades, Sam Waltons brainchild, Wal-Mart has become the most popular brand in the United States (US). In 1962, Wal-Mart was established as a small town grocery store in Bentonville, AR. Since inception, Wal-Mart witnesses a steady growth and overcome many obstacles to evolve as a market leader in the US. To keep up with the fast pace growth of the company, in 1970, the board of directors decided to make Wal-Mart a public company (NYSE - WMT) (Mishra, 2011). In early 21st century, another major recognition of its growth (in terms of earning) came from the world-renowned Forbes magazine. Forbes ranked Wal-Mart at the top of the Fortune-500 list (Yoffie, 2005). The 2014 reported revenue of the company was whopping $258 billion, which surpasses its nearest rivals - Kmart and Target by a huge margin. In the same year, Wal-Mart CEO declared in the yearly stakeholders meeting that the company has more than 4300 stores in the USA alone. Nearly, 3200 out of 4300 stores are supercenters (Annual shareholders meeting, 2014).

The driving force behind the Wal-Marts phenomenal growth is its competitive advantages. By definition, competitive advantage is an advantage gained over the competitors by offering customers greater value in various forms. Wal-Mart achieves its competitive advantages primarily out of its supply chain model, e.g. - fleet route optimization, smart logistics, supplier bargain power control, control entry of substitute product to the market, etc. (Brea-Sols, Casadesus-Masanell, & Grifell-Tatj, 2012). This article would utilize SWOT analysis to identify various competitive advantages of Wal-Mart (by virtue of its strengths and opportunities), and determine the compatibility of those criteria in the global market. As per the market gurus, global market has a different dynamics than the local counterpart (Mishra, 2011). All the competitive advantages of the local market may not be equally effective in the global parlance (Brea-Sols, Casadesus-Masanell, & Grifell-Tatj, 2012). US Competitive advantages: By definition, the competitive advantages make an organization superior to its competitors. Market researchers described that Wal-Marts main competitive advantages are spin-off from the everyday low price (EDLP) model (Yoffie, 2005). Analysis of the case study yields that following major competitive advantages of Wal-Mart that makes it market leader- Everyday low price model: A business can operate in one of the two models - cost leadership strategy and differentiation strategy. In a given industry vertical, there can be multiple businesses owing the differentiation strategy tag. However, only one business can claim the cost leadership brand. In retail arena, Wal-Mart owns the cost leadership strategy by providing its customers' everyday low price.

As per the market analysts, today Wal-Mart is well known as an everyday low price brand (Mishra, 2011). The discount retailer has multiple strategies to offer its customer low price tag - marking down its in-store product prices; as well as, over the Internet. It also uses year-round price rollback strategies to pass on the additional savings to its customer base. Wal-Mart encourages its customer to buy the Wal-Mart branded product, which provides the best bang for the bucks, e.g. Great Value for food items, Equate for OTC medication. In stores, the Great Value food products compete with the big name national brands in frozen food category, e.g. - Omaha Stake house, Purdue, etc. Similarly, Equate OTC medications are competing with brand name product like - Johnson & Johnson, Pfizer, etc. in the OTC medication section to provide every day better value to the customers (Graff, 1998). One stop shop: To meet the busy life style of the customer, Wal-Mart evolved itself to become a one-stop-shop for all its customers needs. This convenience factor entices customers - as most of the customers needs are catered under one roof. In addition to selling grocery alone, it also has a big automobile department to met customers vehicle need, pharmacy for medication, fast food chains (McDonald, Subway), branch of bank on-premise, vision-care center, tax filling (seasonal), dry cleaning, etc. within the same store (Mishra, 2011). Technology aided operation: Technology is ubiquitous in the Wal-Mart operational model. Wal-Mart uses technology ranging from the retail store to the distribution center to the corporate office to suppliers

Wal-Mart is the first retailer implemented multi-million dollar expensive RFID technology to reduce the customer check-out time, and shop lifting. Reduction of check-out time imparts higher business efficiency to drive-up the revenue. Similarly, prevention of the shop lifting combat financial loss of the company (Mishra, 2011). Wal-Mart uses Artificial Intelligence (AI) based sophisticated fleet route identification model to define the optimal truck route. Wal-Mart fleets are used between the stores and distribution centers to supply the inventories. The optimal route determination algorithm takes into consideration the following parameter - lowest fuel composition, lowest travel time, lowest fleet tear & wear, less stopovers. Presently, Wal-Mart has more than 2000 fleets in operation (Tidey, 2012).

Wal-Mart is pioneer in the discounted retail arena by implementing multi-million dollar satellite system to strengthen communication between stores and distribution centers. This satellite communication is used to determine the store inventory level from a central location in real-time without making multiple phone calls. Knowledge of the store inventory level enables Wal-Mart to plan better for its fleets route and the products to be shipped. This JIT model ascertains that no product stays in Wal-Mart warehouse any more than 24-hours. Satellite communication and smart logistics practice enables cross-docking of the shipment from source to destination. To make it more competitive, Wal-Mart uses technology to obtain the local competitors prices for each type of products, which is known as savings catcher to better align its local store price.

Wal-Mart uses online e-commerce and video commerce based virtual marketplace for selling the product. Online selling is one cost effective way of reducing the operational price. In this case, seller can order from online either to pick-up from the store (ship-to-store), or deliver to its home address (Brea-Sols, Casadesus-Masanell, & Grifell-Tatj, 2012). By using technology, Wal-Mart can update its store price of an item from a central location, and send it to each of the checkout computers. This centralize data update eliminates data entry error and manual update in every store of its pricing information for thousands of SKU weekly. Although, some local supervisors are authorized to override certain products category to match with local competition (Brea-Sols, Casadesus-Masanell, & Grifell-Tatj, 2012). Operating cost reduction using temporary workers: Ramping up a huge workforce with full-time employee to support the operation for Wal-Mart means a lot of direct & indirect costs, e.g. healthcare, retirement plan, salary; the employee lawsuit, etc. However, almost same amount of work can be accomplished by using the temporary worker at a substantially lower price than retaining full-time employees. Additional advantage of using the temporary worker is easy ramp-up and ramp-down of the workforce on as-need basis. To bring down the cost, Wal-Mart opted for building its workforce primarily out of temporary workers. Also, Wal-Mart pay structure for majority of its workforce doesnt belong to elite category. Plenty of its workforce work at a minimum wage, as defined by law. Wal-Mart domestically is also successful in preventing its employees to be the part of labor union (Landler & Barabaro, 2006). Global alliance: In the era of globalization, Wal-Mart leadership realized the potential to explore the global market in building competitive advantages. Wal-Mart's preferred model comprises of making an alliance with successful local brands to understand the countries labor market, the economic model, market risk, etc. Example includes Mark & Spencers in UK, Aldi in Germany, Bharti group in India, Seiyu in Japan, etc. The ultimate goal is come out from the alliance after learning the market dynamic of the foreign country and work independently (Yoffie, 2005). Exclusive with supplier: As mentioned earlier, Wal-Mart brings down the bargaining power of its small and medium size vendor by offering them a large order size persistently. Also, Wal-Mart deals directly with the producers, e.g. farmer, manufacturer, etc. without going through the middle layers. Elimination of the middle layer creates a symbiotic relationship, where producer and Wal-Mart both enjoy a win-win situation (Mishra, 2011). Store format: Wal-Mart has a unique competitive advantage - it has an enormous chain of retail stores; as well as the super-clubs (Sam's Club) for bulk selling. None of Wal-Mart's competitors does have this offering (Graff, 1998). Each of its supercenters has an average size of 185000 SQ ft and built in the rural and suburb location. Urban setting stores do have much smaller footprints of around 45000 SQ ft., as the space is expensive within the city limit (Yoffie, 2005). Corporate social responsibilities (CSR): Wal-Mart has various programs to boost its CSR image. During the season, Wal-Mart promotes buying from local farmers to sell it to local Wal-Mart store. Wal-Mart organizes local fund raising event for the local kids in need. In 2014, the company donates $2 billion to fight childhood hunger program for the kids living below poverty level in USA. In order to reduce the carbon footprint, in 2013, Wal-Mart embarks in green house gas reduction program across its stores in USA.Global expansion with US competitive advantages: In the era of globalization, Wal-Mart has decided to take its national brand to the global frontier. New venture to the global market brings new opportunities, as well as threats too. New opportunities include - market expansion, new customer set, diversification of the risk, etc. Threats are new consumer psychology, usage pattern, buying habit, political interference, etc. For Wal-Mart to become successful in the global market, it must understand the respective market dynamics. More often than not, markets in abroad are very different than the home countrys market. Thus, an exhaustive analysis is needed to determine how to gain competitive advantages in those markets.

Starting with the previously listed 'everyday low price' brand - it is a good model for the mass market (non-affluent) in the developing countries. In the developing nations, where more than 50% population has lower buying power, everyday low price would be pretty popular. Typically, in developing countries, e.g. India, China, etc. it could be a good model to get a market penetration. However, with the quality conscious customer base in Japan and South Korea, the effectiveness of discounted price brand may not equally successful. Case study also shows that Wal-Mart is also a successful brand in South America, e.g. Mexico, Brazil, Chile, Argentina, and Puerto Rico, where bulk of the population weigh cost over quality. On the other hand, the success rate of a lower price tag brand (without much quality) in the developed countries is not guaranteed. In Germany, initially Wal-Mart failed miserably. Per the market analysts, buyers in Germany prefer the quality over quantity. Also being a follower of the socialist culture, customers in Germany value its society over individual gain. German consumers prefer small neighborhood grocery stores; rather than impersonal foreign branded chain (even though Aldi, a discount supermarket chain is successful) with just lower price tag and compromised quality. However, in UK Wal-Mart has retained its success story. It secured the second position from the market share point of view after taking over ASDA. As mentioned earlier, in order to become successful in the global market, Wal-Mart needs to recognize and orient itself with the respective countries market dynamics, e.g. - customer spending habit; time of buying (seasonal vs. round the year), etc. In India, during Diwali season people buy more expensive gift than rest of the year. Thus, Wal-Mart logistics needs to be designed accordingly in India. Implementations of various advanced technologies, e.g. RFID-based product price scanning, private satellite-based on-time inventory replenishment, etc. makes the operation lean and more efficient. Just-in-time (JIT) store delivery would remain the essential ingredient to ensure that Wal-Mart can continue offering everyday lower price in foreign countries. In todays world, technology is ubiquitous, and the customers are more technology savvy. Internet-driven e-commerce is gaining momentum around the world. Mobile commerce is becoming the next market buzzword. Wal-Mart low cost and convenient model on ship-to-store can be equally fruitful in the foreign markets too, where customer would order online and pick-up in-store. Internet commerce would help Wal-Mart to manage its distribution centers load optimally. Moreover, e-commerce eliminates the overhead cost - retail space, utilities, worker wage, etc. Replacing the full-time employees with the temporary worker apparently seems to be a viable strategy to keep the operational cost down in US, but the global market may not be equally receptive to this idea. Asian and South American countries have an abundant supply of cheap labor; in those countries hiring temporary worker may not be wise for Wal-Mart. Also, as per the Hofstede model, in Asian countries workforce prefer the job security over money (low risk taker). Thus, should take advantage of this employee psychology. In those countries, consumers also prefer to shop from the brand, where their family or friends are working. For Wal-Mart to be successful in Asian or South American market, it needs to change its home countrys model of replacing the full-time employees with the temporary workers. Additionally, presence of strong worker union in the Asian continents and unionization of the temporary workers may pose a big threat to the Wal-Mart's operation. On the other hand, in the European socialist culture, people criticize about the corporations' contribution to the employees' livelihood (Landler & Barabaro, 2006). Use of temporary workers minimum wage model would be a concern in those countries. Presence of strong labor union would make the situation acerbic. Labor union has the power to call for strikes, which would interrupt the business operations and customer experience (Tidey, 2012).

Wal-Marts practice of building the alliance with the local brand in the foreign market is a good strategy. It helps Wal-Mart to understand the new countrys market dynamics, laws, labor condition, suppliers bargain power, economy, political power, etc. This is known as a shared risk model. In reality, the alliance option does not always work as envisioned; there are multiple instances, where catastrophic failure occurred. Example includes - in Germany, Aldi had refrain Wal-Mart from learning the local condition, such as - local labor market, consumer choices, etc. Similarly, in India, unsuccessful Wal-Marts alliance with Bharti group caused bottleneck to expand in Indian operation independently. One school of thought said, the mistake made by Wal-Mart management in this model is instead of learning about foreign market dynamics and tailoring operating model to suit foreign market need; Wal-Mart domestic management was in hurry to implement the home countrys model. As a result, those markets reacted adversely, and Wal-Mart expansion plan suffered (Mishra, 2011). Another school of thought suggests degree of transparency, and the amount of exposure to the local market during the alliance period is critical for Wal-Marts future success in the foreign market. Wal-Mart domestic model to reduce bargain power of the supplier is a good strategy in global parlance. Being a giant company, Wal-Mart offers substantial business value to its vendors; in turn, it gains the bargain power. Although, there is a caveat in this model - the bargain power model has varying degree of success based on the supplier category. With the small to medium size suppliers, it works very well, as compared to the larger one. Large supplier, such as LOreal Paris in UK does not give substantial discount to Wal-Mart as compared to Aldi. Like domestic market, elimination of middle layer is another win-win situation for both Wal-Marts and the supplier in the global market too. Wal-Marts strategy to designs the store format based on the locality is indeed a winning ticker. In urban areas, store are built on small footprint than suburbs or rural. Major populated foreign cities, such as - Tokyo, Beijing, etc. have majority of smaller stores within the city limit, and larger stores in the suburbs. In-city stores does offer a huge parking either. Rather, those in-city store locations are handpicked to ensure its close proximity to the public transportation. Wal-Mart in conjunction with Sams Club can cater more customer segments, e.g. Wal-Mart for individual need or small family need; Sams Club for big family or buying in bulk category. In addition to USA, Wal-Mart CSR is model is quite well known in foreign countries too. In Japan in 2009, Wal-Mart partnered with Second Harvest Japan, the oldest food bank NGO in the country, to donate food from our stores to local welfare facilities. In 2012, it donated 58000 food items to this food bank. Wal-Mart Japan continues to reduce potentially harmful greenhouse gases associated with environmental footprint. To date, Wal-Mart introduced LED lighting in 359 Japanese Wal-Mart stores, distribution centers and packaging centers. Following the Hummingbird Campaign, Wal-Mart Japan reduces 70% of its plastic bags use (Walmart corporate news, 2015).

In UK, under the Tickled Pink campaign, Wal-Mart raised 35 million for the breast cancer research and awareness. Another flagship program, community life, selected 9000 recipients for the financial aid. From the environment perspective, in store carbon foot print has been reduced by 230,989 metric tons, which is almost 17% reduction (Walmart corporate news, 2015).Conclusion:

Competitive advantages are the driving forces that allow a company to rule in the marketplace over its rivals by virtue of value-proposition. In other words, competitive advantages are considered to be the strengths that combat the competitive forces. There are five major competitive forces that can hinder the growth of a brand - threat of entry, buyer power, substitute product, supplier bargain power, and rivalry.

The Wal-Mart case study reveals that the company, in US, poses numerous competitive advantages, e.g. - everyday low price, extensive use of technology, cost leadership model, bargain power over suppliers, etc. However, not all the competitive advantages of the US are equally effective in the global market. Indeed, some of the domestic competitive advantages would create more problems for Wal-Mart in the foreign market, e.g. - use of temporary workers, paying the lower wage, etc. On the other hand, quite a few of the US level competitive advantages, e.g. lowering supplier's bargain power, store format, CSR, etc. would be equally powerful in the foreign markets too. It is omnipotent to remember that there is no generic business model that works universally to achieve same competitive advantages across the markets. Every market in the world is different from the others with respect to market dynamics, social value, and consumers psychology. Thus, to become successful in a foreign market, Wal-Mart leadership must analyze each of its target markets individually, and customize its business model accordingly.References:

Annual shareholders meeting and proxy statement (2014). University of Arkansas. Retrived from - http://cdn.corporate.walmart.com/74/a3/5609010a4c79b7a0adbc92d20f53/2014-proxy-statement.pdf

Walmart coporate news (2015). Retrieved from - http://corporate.walmart.com/our-story/

Brea-Sols, H., Casadesus-Masanell, R., & Grifell-Tatj, E. (2012). Business model evaluation: quantifying Wal-Marts sources of advantage. HBR. Retrived from - http://www.hbs.edu/facultyMishra., D. (2011).Walmart SWOT Analysis and Competitive Advantages. Purdue University.Graff, T. (1998). The location of Wal-Mart & Kmart supercenters : contrasting corporate strategies. University of Arkansas. Retrieved from - http://ludwig.missouri.edu/4990/walmart.pdfLandler, M. & Barabaro, M. (2006). Wal-Mart Finds That Its Formula Doesnt Fit Every Culture. New York Times. Retrieved from - http://www.nytimes.com/2006/08/02/business/worldbusiness/02walmart.htmlTidey, D. (2012). What Wal-Mart has taught us about expansion in Europe. Retrieved from - http://eura-relocation.comYoffie, D., (2005). Wal-Mart, 2005. Harvard Business School.