Walmart International has had net sales of $125.9 billion in 2012, making it the world’s third-largest retailer (behind Walmart U.S. and the French retailer Carrefour). According to the case it had sales that increased 15% over 2011, and operating income grew 10% to reach 6.2 billion dollars. Walmart is a huge international company and has entered more than 30 countries. In order to globally expand it has taken part in joint ventures, acquisitions, and natural/organic growth.
There are political factors associated with Walmart. If Walmart wants to expand globally, political stability in foreign countries is vital. According to the case, NAFTA, North American Free Trade Agreement created a trade bloc with US, Canada and Mexico and opened up the Mexican economy which created price wars to occur between Walmart and smaller retail companies in Mexico. Walmarts ventures in China were mostly partnerships since regulations permitted foreign retailers to have joint ventures with local partners in order to conduct business. There are economic factors as well. Walmart has the EDLP strategy- where it offers lower prices as a competitive advantage. Walmart uses a cost leadership strategy in the US and in other countries- it has everyday low prices which offers convenience and operational efficiency. Unfortunately, since Walmart is so global, if there is a recession in any country, it can affect the demand for Walmart’s products. Walmart also has sociocultural factors. These social factors are company culture, product mix based on customer preferences and lifestyle, and proper etiquette and behavior in stores. Since Walmart is so global, it has faced many cultural differences with its products and its values/manners in other countries such as Germany. For example it was not right in Germany when employees smiled at customers or helped them bag their groceries like they do in the US. All these factors contributed to Walmart leaving the German market. Also, more consumers are shopping online now so societal trends such as online shopping and health conscious customers represent changes to Walmarts socio-cultural sector. On a legal aspect, Walmart is subject to regulations and laws in different countries it has entered. Walmart is technologically succeeding with robotic equipment and automation processes, which they expand globally as well.
Strengths: It has globally expanded to more than 30 countries. Also, Walmart has an efficient supply chain. This supply chain is efficient because of robust distribution methods and advanced automated technology. Walmart offers a diversified line of products from furniture, consumer electronics, clothes, groceries, pet supplies and much more.
Weakness: Since it uses a low cost strategy, it has low profit margins which might lead to losses so it has to depend on larger volumes of sales. It also faces huge competition with other companies who value product differentiation and upscale products instead of low cost products.
Walmart also uses its US style methods globally, which might not work for all countries. Walmart in Mexico had US style large parking lots where low income customers would afford to only take buses. In Brazil, Walmart was slow to adapt to the local tastes and culture of Brazil. For example, the product mix Walmart offered was not tailored to what consumers wanted in Brazil because of cultural differences. Products included golf clubs and baseball gloves which is an American sport so the company was not profitable in Brazil. In the Chinese market the retail market was very fragmented and there were many more small mom and pop stores to compete against Walmart compared to the US. Chinese consumers also made more trips to the grocery store, but bought less on each trip, so less sales per trip.
Walmart’s US strategy of low cost leadership did not work in China. Instead, in China, Walmart heavily focused on high class differentiated goods that appealed to the middle class, but due to low sales went back to low cost leadership. Another weakness was that store managers were given more freedom, but this was counterintuitive as they used their freedom to attack the company employees forcing Walmart to centralize its operations.
Walmart expanded in African countries as well, mostly in South Africa. However, in Africa Walmart’s sales have been low due to issues like lack of proper infrastructure and corruption.
Opportunities: Walmart has had huge opportunities to expand globally in other countries by acquiring companies, forming joint ventures or through a natural/organic growth. Walmart also has an opportunity to improve the quality of its products.
Threats: According to the case, the NY Times said that in Mexico Walmart’s executives in charge of real estate for the stores bribed government officials in Mexico which is a huge violation of the US Foreign Corrupt Practices Act. Walmart had many competitors such as Zellers in Canada, Target, Amazon, Costco, Best Buy etc. Other Competitors of Walmart in Chile included Home Depot and JC Penney. Competitors in China are Metro, Tesco, Taiwanese retailers and family stores.In German, Walmart faced competition from local retailers such as Aldhi and Likdl. Walmart also faces threats such as competitors and online retail companies. Small and large online sellers sell products to customers which is a threat to Walmarts brick and mortar stores.
Walmart in South Korea was doing worse than ever because Korean customers wanted luxurious, high scale service shopping- or more differentiation instead of low prices. Walmart suffered huge losses in South Korea, for example of 9.9 billion dollars loss in 2005. At first, Walmart was not doing well in Japan since Japaneses customers associated low quality goods and low cost, so Walmart’s value proposition would not have fit. However, over time Japanese consumers were able to be more price conscious due to a worsening economy. Regulations such as ban on plastic shopping bags in China also made consumers want to buy less per trip to Walmart which decreased the sales amount.
In Mexico, Walmart also partnered with other companies to have a smooth running and efficient supply chain. Globally, Walmart forms many strategic partnerships with vendors. Also, according to John Dudovskiy Walmart uses cross docking as an inventory tactic. Dudovskiy mentions that “cross docking is the direct transfer of products from inbound or outbound truck trailers by unloading items from a semi truck and loading these items directly into outbound trucks, trailers or rail cars with no storage in between”( 1). Walmart also has efficient operations. Its operations are divided into Walmart US, Walmart International and Sam’s club.
Walmarts VRIN: Walmart has diverse product mix and offerings which is valuable. It also has access to human resources and efficient distribution which is valuable. Both of these are not sustainable competitive advantages since they are not rare and can be easily copied( imitable). Walmart also has a strong brand value in all the countries it has entered which is valuable, rare, inimitable and has no substitutes. Walmarts international supply chain is also a competitive advantage as well as it data capabilities and automation.
One of Walmarts main problems was that domestic growth was slowing( growth in the United States). Also, Walmart has many competitors, one of them being smaller retail companies which cause price wars between them. Also Walmart uses its US strategies internationally, which might be problematic since there are cultural barriers and different manners of right and wrong as well as different consumer preferences for products based on diverse cultures. Another issue of Walmart is that it offers low cost prices, so low cost products which might mean lower quality. Its products are not as differentiated and upscale as other companies might offer globally. Also, with low costs, Walmart has low profit margins, so it has to depend on large volumes of sales to avoid losses.
To boost sales, improve the quality of products so low cost strategy does not mean low quality products as well. To boost sales at home and abroad, Walmart should offer more upscale products to appeal to different consumer segment. The company needs to have more differentiation and enhancements. Company should make its human resource department more efficient and automate its processes and technologies. Before entering a new market in a new country, Walmart should study the consumer’s preferences, the countries culture, and values in order to reduce barriers and problematic situations.