Gitam Institute Of International Business

GITAM INSTITUTE OF INTERNATIONAL BUSINESS

A CASE ANALYSIS on WAL-MART BUSINESS STRATEGY

Submitted to

Sri G V L Satyakumar

S ubmitted by Mr. Goutam Dash MBA (IB) (2008-10).

A-Section. Reg no: 1224108128 Q 1- Evaluate the various elements of strategy of Wal-Mart stores using the framework learnt in the course? Wal-Mart Stores Inc. is the largest retail company in the United States and has been ranked number one on the Fortune 500 Index by Fortune Magazine. Wal-Mart has four parts to their corporate strategy. 1. Dominance in the Retail Market 2. Expansion in the U.S. and International Markets 3. Creation of Positive Brand and Company Recognition 4. Branch Out into New Sectors of Retail Wal-mart is based on two main objectives that have guided the firm through their growth years. The customer is featured in the first objective; "Customers would be provided what they want, when they want it, all at a value". Team spirit was emphasized in the second objective, "Treating each other as we would hope to be treated acknowledging our total dependency on our associate - partners to sustain our success". Strategies Wal-mart contains two set of strategies; Business Strategies and Marketing Strategies. Business Strategies include: 1. Same good for less and still earns profit 2.

Very good operational efficiency

3.

Use of IT in all verticals of business

4.

Effective use of logistics management

5.

Global Expansion for new market opportunity

6.

Bargaining power over suppliers

7.

Data used to profile each market

8.

Predicts demand, optimizes stock, and

9.

Networked to HQ via private satellite

Marketing Strategies include:  Thinking globally, serving locally

 Saving people money so they can live better “Every Day Low Prices” is the epicenter of the Wal-mart marketing strategy. Wal-Mart's corporate management strategy involves selling high quality and brand name products at the lowest price. In order to keep low prices, the company reduces costs by the use of advanced electronic technology and warehousing.

It also

negotiates deals for merchandise directly from manufacturers, eliminating the middleman. Wal-Mart's community outreach focuses on the goals of providing customer satisfaction, involving itself with local community services, and providing scholarships. Its emphasis is on children and environmental issues. During the 1970s, the retail industry became highly competitive, but, at the same time the economy became weak due to inflation. Sears was the leading retailer in the nation, during the 1970s, however, the recession of 1974-1975 and inflation affected Sears adversely. Sears targeted middle class families and expanded its overhead. Wal-Mart's strategy was to compete with its rivals and lower overhead expenses. Compared with Sears, which consisted of more than 6,000 distribution centers, Wal-Mart had only 2,500 comparable units. Wal-Mart is also on top of their game because of the management strategies they employ.

The management strategies of Wal-Mart emphasize its workforce and its

corporate culture; that being a morally conservative, religious, and family-oriented business. Wal-Mart emphasizes how it listens to the needs of its workforce so that each employee is able to suggest improvements to company policy and practice. At Wal-Mart, store employees are called "associates." In addition, in order to promote esprit de corps, the company publishes "Wal-Mart World," an internal magazine for its associates. The company offers generous financial rewards for employees by means of profit-sharing plans such as stock-purchase options.

Furthermore, the company

provides comprehensive training programs for all employees. COMPLEMENTARY STRATEGIES To strengthen its competitiveness, Wal-Mart collaborates closely with suppliers with strong brand-name who are dominant in their category, who have full product lines, and who can bring in new and better products to retail shelves. procurement

personnel

spends

considerable

time

meeting

with

Wal-Mart’s vendors,

understanding their cost structure, and learning how a vendor could cut down its costs in order to capture win-win relationships for both parties. To expand its geographic coverage, Wal-Mart’s domestic strategy is “backward expansion.”

The company opens stores in small towns surrounding a targeted

metropolitan and saturates each area before moving into new territory. International expansion involves a combination of new store construction and acquisition. As WalMart enters foreign markets, it intends to “remain local” by customizing its offering to match the taste and preferences of local buyers and operating through the management of natives of the foreign countries. Wal-Mart also employs simultaneous offensive initiatives on many fronts. Experiments in store layout, merchandise displays, store color schemes, and promotions are always under way.

Wal-Mart also engages in preemptive strikes

especially when it enters a new market by securing a dominant position in the geographic area and forcing smaller retailers out of business. SUPPORTING STRATEGIES Marketing and Sales: Wal-Mart meets customers’ needs with four different retail concepts: Discount stores, Supercenters, Sam’s Clubs and Neighborhood markets. Technology: Wal-Mart is a first-mover in upgrading and improving its technological capabilities. It uses computers, satellite, and information systems in communicating with vendors, electronically purchasing orders, tracking sales and inventory, identifying slow-selling items and squeezing costs out of the supply chain. Distribution Center Operations: Several labor-intensive tasks had been automated and cost-efficient system of conveyors, bar-coding and handheld computers have been utilized to continuously streamline distribution operations. SWOT Analysis Strength 1. Cost advantage 2. Low price and customer oriented 3. Focused strategy 4. Strong supply chain management 5. People are key to success Weakness 1. Ignore store decoration

2. Wal-mart sell products across many sectors, it may not have the flexibility of some of its more focused competitors 3. Managing huge span of control Opportunity 1. Strong brand equity 2. Put efforts on social welfare – better image 3. New locations, and store types 4. Overseas markets Threats 1. Other competitors 2. Intense price competition The Company’s ‘Low Price’ image, backed by the strong integrated marketing strategy is the key success factor of Wal-mart. People at Wal-Mart believe that, ‘saving money is a good news in any language’. – This statement (believe) is certainly true as it helped them acquiring success in which this concept is not so popular – like Germany. Walton’s 10 commandments for business success were: 1. Commit to your business. 2. Share your profits with your associates (employees), and treat them like your partners. 3. Energies your colleagues. 4. Communicate everything you possibly can with your partners. 5. Appreciate everything your associates do for the business. 6. Celebrate your success. 7. Listen to everyone in your company. 8. Exceeds your customer’s expectations. 9. Control your expenses better than your competition. 10.Blaze your own path. Management at Wal-Mart strictly adheres to these commandments, and that’s the key to their success. Financial Analysis:

Last year, Wal-Mart earned $1.03 per share from continuing operations in the fourth quarter, which included a net charge of approximately $0.02 per share for real estate transactions and certain restructuring of its Japanese operations. Net sales for the fiscal year were $401.244 billion, an increase of 7.2 percent over fiscal year 2008. Income from continuing operations increased 3.0 percent to $13.254 billion, up from $12.863 billion in the prior year. Reported EPS for fiscal year 2009 was $3.35, up 6.0 percent from $3.16 in the prior year. Underlying EPS was $3.42, excluding the litigation charge. Net sales (billions of dollars). Fourth quarter performance 2009

2008

% change

71.464

67.428

6.0%

International

24.696

26.949

-8.4%

Sam’s Club

11.836

11.831

0.0%

107.996

106.208

1.7%

Wal-Mart US

Total Company

Twelve month performance in net sales (billions of dollars) 2009

2008

% change

Wal-Mart US

255.745

239.529

6.8%

International

98.645

90.421

9.1%

Sam’s Club

46.854

44.357

Total Company

401.244

374.307

5.6% 7.2%

Operating Income (billions of dollars) Fourth quarter performance 2009 Wal-Mart US

2008

% change

5.400

5.286

2.2%

International

1.490

1.739

-14.3%

Sam’s Club

0.427

0.444

-3.8%

Twelve month performance 2009 Wal-Mart US

18.763

2008 17.516

% change 7.1%

International

4.940

4 .725

4.6%

Sam’s Club

1.610

1 .618

-0.5%

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 supports 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. 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. 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 pass 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 passed on 24 miles length of conveyor belts between incoming trucks to outgoing trucks. 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.

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

P.E.S.T. ANALYSIS 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.

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. 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. Technological Influences 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. Cost leadership 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. 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. 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 WalMart’s differentiation from its competitors. 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. WalMart’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. 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. Summary: Wal-Mart needs to successfully compete globally to sustain its leadership in the retail industry. Its current international division is nowhere near as profitable as the domestic division. The domestic success is primarily due to Wal-Mart’s excellent customer service, supply chain management, and brand recognition. Wal-Mart has not successfully adapted to foreign markets and this is why their customer service and brand recognition is not very strong in foreign countries. Implementation:Wal-Mart needs to obtain a transnational strategy because it will help Wal-Mart to deal with the pressures to adapt locally and keep prices low. This international strategy will allow Wal-Mart to obtain economies of scale, adapt to local markets, locate activities in optimal locations, and increase knowledge flows and learning. Wal-Mart’s knowledge and learning of foreign markets is very important if it wants to have excellent customer and community service in foreign countries

Q2)

Try to symbolize Wal-Mart with a suitable analogy and justify your

symbolism in about 100 words? Thinking globally. Serving locally. Wal-mart international stores offer working families the things they need at prices they can afford, and offer the customer service and convenience they’re famous for.

In each of their international markets, they use their strength as a global company to meet the local needs of our customers, and provide help for their communities. Saving People Money so they can live better. Saving people money to help them live better was the goal that Sam Walton envisioned when he opened the doors to the first Wal-Mart. Today, more than 40 years later with operations in 16 markets worldwide, Wal-mart continue to deliver that promise to families around the globe. It’s the focus that underlies everything they do at Wal-Mart. And for the millions of customers who shop at Wal-mart stores and clubs around the world each week, it means a lot. ‘Saving money — good news in any language’ “Every Day Low Price” is a epicenter of the Wal-mart marketing strategy. From the various factors analysed such as good supply chain management,low procuring cost, well defined distribution channel, good customer understanding, Walmart has got the cost advantage over it’s other competitors by which it has achived to serve people at low price so I will symbolize Wallmart as a low priced shopping destination where every strata of people belonging to various economic classes are invited.