Wal Mart Case Study - the Challenges of Being Competitive Internationally

Wal-Mart Stores, Inc - The Challenges of being Competitive Internationally

Brief Overview of the Case

The goal of the following analysis is to examine Wal-Mart Stores, Inc. and its quest to dominate international markets. Domestically, Wal-Mart has proven success throughout the United States and Canada. Wal-Mart is the pinnacle retail store in America. As of March 2004 Wal-Mart. topped the list of "The 2004 Fortune 500" with revenues of $258,681 M, profits $9,054M (2004 Fortune 500). Internationally; however, they seem to have several challenges that need to be addressed if Wal-Mart wants to be competitive. Even though Wal-Mart has what seems to be a flawless business model, there is still a major problem with making profits in potential international markets.

In order to analyze the industry surrounding Wal-Mart, I will address Porter's 5 Forces Model. I will continue to analyze Wal-Mart's business by describing the core values, key resources and capabilities (value-chain, tangible and intangible resources) including outsourcing. I will also identify Wal-Mart's strengths and weaknesses and propose several solutions to the challenges that face Wal-Mart. After complete and thorough analysis, I will finally propose my own solution that will invite projected profits into the foreign markets.

Brief Overview of the Business

Wal-Mart Stores, Inc. is both a domestic enterprise, as well as a national discount retailer. They operate internationally in Canada, Mexico, Argentina, Brazil, Germany, South Korea, United Kingdom, and Puerto Rico including joint ventures in China. Wal-Mart operates on an "Every Day Low Price" philosophy because they are able to maintain their low price structure through complete expense control. With this philosophy they have proven to be extremely profitable domestically.

Industry Analysis

Being in the retail industry, Wal-Mart can choose from many suppliers that provide its various stores with inventory, general buyers, and competition; including Kmart, Sears, and Target. A good source of the industry analysis is Porter's Five Forces Model. It consists of threat of new entrants, bargaining power of buyers, bargaining power of suppliers, threat of substitute products & services, and intensity of rivalry among competitors in an industry.

Wal-Mart does not have to worry about threat to new entrants because it has economies of scale which it spreads the costs of production of the number of units produced. The cost of product per unit declines as the volume increases. It has that capacity to produce more in order to lower the cost. Wal-Mart has product differentiation with strong brand identification and customer loyalty. Wal-Mart also has access to distribution channels with secure distribution for their products. Technology plays an important role in helping Wal-Mart stay customer focused. There are high barriers of entry for companies aspiring to come into the retail industry because of the resources that Wal-Mart possesses.

The second force in Porter's 5 Forces Model is the bargaining power of buyers. Buyers do not have to bargain with Wal-Mart for low prices and higher quality or more services because Wal-Mart has already established the low prices, higher quality, and more services philosophy. Wal-Mart has many pricing philosophies including "Every Day Low Price" (EDLP), "Rollback", and "Special Buy" to ensure that their customers get the lowest price possible (Pricing Philosophy, par 8).

The third force in Porter's 5 Forces Model is the bargaining power of suppliers. Suppliers can exert power by threatening to raise prices or reduce the quality of purchased goods and services. That will not happen for Wal-Mart and their customers because Wal-Mart hand picks its suppliers and has a good and long standing relationship in order to maintain their pricing philosophies, every day low prices (EDLP), roll back, & special buy, "Wal-Mart buys from more than 68,000 U.S suppliers" (Facts Sheets, Sourcing). Wal-Mart's suppliers also know that the goods that they supply have to be good quality products. Wal-Mart will not sell something that is not to their satisfaction.

The fourth force in Porter's 5 Forces Model is the threat of substitute products and services. Many of Wal-Mart's competitors have tried to mimic Wal-Mart's unique and successful ways of doing business but failed. Wal-Mart has an excellent customer service that is unique to their chain. Everything possible is done to ensure that shopping at Wal-Mart will be a friendly experience. Sam Walton, founder of Wal-Mart, established 3 Basic Beliefs, "respect for the individual, service to the customer, and strive for excellence" (3 Basic Beliefs, par 1). Wal-Mart takes these 3 Basic Beliefs very seriously.

The fifth force in Porter's 5 Force Model is intensity of rivalry among competitors in an industry. There is no intensity of rivalry among Wal-Mart and its competitors (Sears, Kmart, and Kmart) in the retail industry because Wal-Mart excels in this sector. No competitor can beat Wal-Mart's "Low Prices Ever Day Philosophy." Wal-Mart deliberately puts fewer advertisements into circulation compared to their competitors in order to provide their low price guarantee. Other major competitors typically run 50 to 100 advertised circulars per year. Wal-Mart produces only 12-13 major annual circulars (Wal-Mart Stores, par 2).

Based on the Industry Analysis described above, Wal-Mart has proven to be the top retailer in the retailing industry domestically. Wal-Mart has tried to duplicate what they have done domestically to the international market. Challenges and problems arose when they attempted this transition. The industry domestically is quite different than internationally.

Business Analysis

Wal-Mart has several core values. These values are: the respect for the individual; service to our customers; and strive for excellence. It also has the "every day low prices" philosophy (see Exhibit #1). These core values help to add money to Wal-Mart by emphasizing that customers are essential to the company which provides profits and revenue to the company.

Wal-Mart also has key resources and capabilities to meet challenges presented by opportunities and threats. The value-chain analysis is used by companies to examine whether their company is profitable. A firm is profitable to the extent the value it receives exceeds the total costs involved in creating its product or service. Value is measured by total revenue. Wal-Mart