The Effects of Globalization on WalMart
The chosen topic for the research project is "Effects of globalization on Wal-Mart ". In the 20th century, advances in industrial development, means of transportation, and communication combined with the will of people to work together and progress in life has turned the world into a global village. Making perfect use of these factors of globalization some companies have shown immense growth in recent times. Wal-mart's name tops all of them.
This project seeks to find out how Wal-Mart Being a retail giant and a U.S. based company, has achieved and is sustaining global presence through commitment, hard work and a set of wise strategies. This report is designed to look into the essential business procedures that Wal-Mart has employed and the benefits it has gained out through them. This has definitely ensured successful boost in sales because of the whole globalization occurrence. The report will also rely on ratio analysis for getting to know the ways in which Wal-Mart's global operations have had an impact on its financial liquidity and profitability. Yet again the negative aspect of globalization will be discussed to fully understand its impact across the diverse regions Wal-Mart has been operating in.
Table of Contents
Introduction of Wal-Mart
Wal-Mart is the largest retail store in the United States, and it is way larger than any other retail store around the world. Given below is the timeline introduction of the corporate giant, marking the trail of its success.
1962 Wal-Mart opened the first store In Rogers, Ark.
1970 Wal-Mart opens first distribution center and home office in Bentonville, Ark.
1970 Wal-Mart traded stocks as a publicly held company
1971 Wal-Mart in five states: Arkansas, Kansas, Louisiana, Missouri and Oklahoma.
1972 Wal-Mart approved and listed on the New York Stock Exchange.
1973 Wal-Mart in Tennessee.
1974 Wal-Mart stores now in Kentucky and Mississippi, Texas becomes 9th
1977 Wal-Mart entered Illinois. 11th state: Alabama.
1981 Wal-Mart opened at Georgia and South Carolina.
1982 Wal-Mart opened at Florida and Nebraska.
1983 First SAM'S CLUB opened in Midwest City, OK People Greeter implemented at all stores. Wal-Mart enters Indiana, Iowa, New Mexico and North Carolina.
1984 David Glass named company president. Wal-Mart enters Virginia.
1985 Wal-Mart has 882 stores with sales of $8.4 billion and 104,000 Associates.
1986 Wal-Mart enters Minnesota. 1988 David Glass named chief executive officer of Wal-Mart Stores, Inc. First Super center opened in Washington, Mo. 16 Wal-Mart distribution centers in operation.
1989 Wal-Mart is now in 26 states with the addition of Michigan, West Virginia and Wyoming.
1990 Wal-Mart becomes nation's No. 1 retailer. McLane Company of Temple, Texas acquired Wal-Mart enters California, Nevada, North Dakota, Pennsylvania, South Dakota and Utah.
1991 Wal-Mart enters Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey and New York. "Sam's American Choice" brand products introduced. International market entered for first time with the opening of a unit Mexico City.
1992 Sam Walton passes away April 5.
S. Robson Walton named chairman of the board April 7.
Wal-Mart has entered 45 states with the addition of Idaho, Montana and Oregon.
Wal-Mart enters Puerto Rico.
1993 Wal-Mart enters Alaska, Hawaii, Rhode Island and Washington.
1994 Wal-Mart enters Canada by the acquisition of Woolco, and takes over 123 former Woolco stores across Canada. It opens 96 stores in Mexico. Three value clubs open in Hong Kong.
1995 Wal-Mart enters its 50th state - Vermont - and builds three units in Argentina and five in Brazil.
1996 Wal-Mart enters China.
1997 Wal-Mart replaces Woolworth on the Dow Jones Industrial Average 2000s
2000 Wal-Mart ranked 5th by FORTUNE magazine in its Global Most Admired All-stars list (Wal-Mart Corporate, 2009).
Project Objective and Research Approach
Reasons for choosing this topic and organization
There are several reasons why I was a little too enthusiastic about choosing Wal-Mart as my focus of study. These reasons are well listed below:
Wal-Mart is undoubtedly the largest retailer of today's world. In 2010 the corporate giant reported net sales of $405 billion.
The global workforce of Wal-Mart totals up to over 2.1 million approximately.
The world's greatest retailer has 8970 retail outlets in the world.
Being a huge multinational retail chain, Wal-Mart's knowledge is widely available in books, magazines, internet and journals. The information is also relevant, sensible, updated and comprehensible for the readers.
'The Wal-Mart Effect', a book by Charles Fisherman smoothly narrates that Wal-Mart is much beyond being just a retail store. Indeed, it is a corporate giant that has turned into a worldwide phenomenon and has affected lifestyles of millions of people throughout the world.
Since Wal-Mart has been connected with the lives of so many people globally, whether in terms of wages or rate of inflation, it is the company that can get easily affected by globalization. Wal-Mart aims to expand its reach and globally spread their business (Hill and Jain, 2009).
"Wal-Mart reaches around the globe, shaping the work and the lives of people who make toys in China, or raise salmon in Chile, or sew shirts in Bangladesh, even though they may have never visited a Wal-Mart store in their live"(Fishman, 2006). This defines the global positioning of Wal-Mart clear enough. "In business, there is big and there is Wal-Mart" (Sullivan, 2002).
Now popularly known to be the cathedral of consumption, Wal-Mart is viewed to be as successful as other corporate giants like Coca Cola, Walt Disney, Apple and even Mc Donald's.
The prime motive of preparing this research report is to determine the reasons that lead Wal-Mart into establishing itself as an extremely successful and popular global corporate giant. The research seeks to conclude the grounds on which Wal-Mart has been gaining ethical, social and professional success and why are the business practices of Wal-Mart bench-marked for other companies?
Since our report is relevant to the topic of globalization, another research objective is to look into the benefits that Wal-Mart has gained from the different factors globalization and also their negative implications. The strategies that the company employed along with its financial performance will also be discussed in this report.
No research can take place without a streamlined set of questions. The questions for this research are designed to investigate the Wal-Mart keeping in view the impact of globalization. The questions are listed below:
Identify strategies that Wal-Mart utilized to get along with the varied business environments while globalizing to keep operating as a low-cost retailer?
How did Wal-Mart manage to maintain the pricing strategy and keep functioning on the competitive edge of Low pricing?
Shed light on the harmful implication of globalization process that Wal-Mart went through?
While Wal-Mart carried on with the globalization process, how did its financial performance varied during past few years?
Research Approach and Framework
For fulfilling the aims of this research, secondary research methods were adopted. This involved researching through published writings whether available in print or on the internet. Wal-Mart's corporate website was substantially used to extract a handsome amount of information. The data consists of Wal-Mart's strategy, organizational behavior and business development during the period of globalization.
The research has been approached keeping in light the effect and its results of globalization on Wal-Mart. The focus was kept on the strategies that Wal-Mart applied in order to remain successful in the market and gain benefits out of globalization.
In order to judge the financial performance of Wal-Mart during the year 2007-2011, financial analysis was undertaken. Wal-Mart's liquidity and profitability was determined with the help of ratios to discover the financial trends of this organization.
Taking the assistance from information and all the available and gathered data, some conclusions were determined and recommendations were offered for possible improvements.
The Research required plenty of time and concentration along with thorough study of available and collected data. The data has been collected through various resources such as Newspapers, internet articles, reference books, annual reports and business magazines. The demanding part in the completion of this project was basically selecting the right resources at the right time and using them effectively.
The project also demanded assistance from mentor and text books. The proper guidance earned from mentor and course books were fundamentally responsible for getting the best out of me researcher.
Information Gathering and Business Methods
Sources of Information
Generally there are two types of sources of data collection that can be used for the purpose of the construction of a research report.
Primary source: This involves 1st hand information that is usually acquired from people by either interviewing them or asking them to fill out questionnaires.
Secondary source: This involves utilizing information that has already been collected before, perhaps for some other purpose. This is usually termed as the 2nd hand data that can be retrieved from multiple resources like newspapers, books, magazines, annual reports and internet
Secondary research approach was adopted to gather all the major and relevant information. The type of research methodology is determines from the type of data required. In case of Wal-Mart and the effects of globalization, secondary research will prove to be good enough for accumulation of relevant data.
The sources used in this research are as follows:
Wal-Mart Annual Financial Reports that can be accessed from its website. The reports assisted in carrying out ratio analysis and financial standing of the company from 2007-2011
Monitoring of Newspapers helped as a secondary source of data. Past and current newspapers were studied to discover the happenings that are related to this company.
Internet articles, E-books and E journals were reviewed to retrieve relevant information about Wal-Mart.
Printed articles, books and journals were also reviewed to retrieve the relevant information regarding the topic.
Limitations In Information Gathering
During the course of this project, most of the information was retrieved from the internet. Therefore, the limitation of this research can be the level of authenticity of data. Since there is no one-on-one communication in secondary source, gathering unbiased and specific data can sometimes become a major problem.
Another limitation of collecting secondary data is that all the information is historical and cannot be fully relied on to access or deduce anything about the future progress and results of Wal-Mart's strategies.
Wal-Mart's financial position cannot be rightly postulated through the use of secondary data. It is majorly confined to the process of globalization and its impact on Wal-Mart.
There are no possible ethical issues involved in extracting data out of secondary sources. However, as a researcher it is my duty to maintain authenticity of information and not manipulate it as per my preference or convenience. As a researcher I must not mention anything negative about the company in the research. I must not exploit my sources to cause any harm to the company's goodwill.
Accounting Techniques and their Limitations
As per the Financial Modeling Guide WebPages, the restriction of accounting methods that are utilized to deduce Wal-Mart's financial statistics as a gauge for evaluation of its success was the fact that all the presented ratios are estimated and there is absolutely way in which they will remain the same for next couple of years.
In the same way, the averages of the industry are also estimated and they will not prove to be a good benchmark for performance.
Financial ratios are not based on any form of economic data; rather they stand on the pillars of accounting, which is why they do not take notice of major or minor balance-sheet differences and alterations. Figures in accounting can be easily changed using several different techniques of valuation like FIFO or LIFO for the purpose of inventory management and valuation. The most significant of all is the fact that these ratios are based on the historical cost calculations and so it cannot truly represent the present economic worth of assets. Additionally, cash flows are ascribed to fluctuations in stock price instead of income based measure that can be used in analyzing company's finances.
The profitability ratios can sometimes capitulate confusing result for a couple of reasons of which the major one can be the fact that profitability ratios ignore opportunity cost and risk and often decision makers end up cutting down on their assets, instead of investing more. Measurements of ROE and Profit margin do not incorporate the cost of capital investments that triggered earnings to generate profits. ROE along with ROI measures are also affected by financial decisions that are not obvious (FMG, 2007).
It is true that such accounting limitations cannot be avoided in research papers.
SWOT Analysis is a method for unfolding and dissecting a business in view of those factors that have the highest influence on the business. Basically through SWOT analysis you decipher the Strengths and Weaknesses of the business and anticipate its possible threats and opportunities (Madura, 2006).
Wal-Mart's Route to Global Success
Wal-Mart inaugurated its first international store in Mexico City in 1991. This business has wholeheartedly carried on it globalizing strategy since the time when it stepped into the international markets in 1991. And since that day the retailer giant never turned back. Today Wal-Mart takes pride in operating through 4557 international retail outlets. Almost 2.1 million employees are associated with Wal-Mart (Wal-Mart Annual Report, 2011)
Wal-Mart business operations are well divided as follow:
Wal-Mart US segment
Wal-Mart International segment
The Sam's club segment (Warehouse members only clubs in US and Puerto Rico)
Wal-Mart's international segment primarily comprise of "Argentina, Brazil, Canada, Chile, China, Costa Rica, El Salvador, Guatemala, Honduras, India, Japan, Mexico, Nicaragua, Puerto Rico and United Kingdom"(Wal-Mart Annual Report, 2010).
Wal-Mart operates in a highly competitive environment in all countries. Strong competition is posed by departmental, drug, specialty stores as well as supermarkets and warehouse clubs which are either part of the national or regional sector or an extension of competing international business chains.
Major competitors being Target, and Kmart which are discount retailers having the advantage of catering to middle income customer base with the motto of offering "quality at value prices" as compared to the lower income customers of Wal-Mart. Other competitors include Safeway (in grocery sector), Macys (in apparel) and Best Buy (in department stores and electronics). Globally Carrefour of France, Tesco of United Kingdom and Metro of Germany are strong rivals while online presence is challenged by Amazon.com. Wal-Mart U.S and other international stores do not include distribution facilities in their cost of sales therefore it is not possible to compare their gross profit margin with other retailers (Wikinvest, 2011).
Need for going global:
Wal-Mart was already successful in USA, then why did it feel the need to go global? Was it important for this giant to go global? Yes it was indeed. It needed to grow to keep up with the competition and to survive in the long run. US markets were already captured and so it was fruitful to get globally recognized.
Wal-Mart gives the following reasons for its globalization:
For boosting up the profits by increasing the sales.
For growing and having an impressive effect on price of stock.
Creating more wealth for its shareholders
In case Wal-Mart wouldn't have opted for globalization, the situation would have been as follows:
There would have been no growth opportunities since the US market already showed saturation
USA comprises of mere 4.5% of the entire world's population, which means Wal-Mart could have left so many potential market undiscovered and unattended.
People had limited disposable income, this could have given rise to further lowering of prices and in fact quality in order to maintain profitability.
Initially Wal-Mart entered the nearby international markets. This included venturing in Canada, Brazil, Argentina and Mexico. There was a particular reason for not entering distant international markets at first. Wal-Mart lacked the essential structure for establishing in Asia and Europe. Also entering Asia demanded a lot of financing and research, as it was quite varied in cultural terms. So The company took time and then expanded itself globally.
Comparing Wal-Mart with J.C Penney or other big retail chains, it can be safely assumed that Wal-Mart expended a lot more quickly than all its competitors.
Globalization Starts from Wal-Mart
Wal-Mart has largely affected the American Culture. It has acted as an initiator of globalization (PBS Frontline, 2004). The organization did not confine its corporate magic to America; in fact it embraced 15 countries in an attempt to spread itself worldwide (Daniel, 2010).
Wal-Mart is quite influential in three major aspects which are
Social: It defines the structuring of labor and buying behavior
Political: It impacts local and public level procedures
Economical: It marks an impression on worldwide economies
Due to globalization the entire world experienced social and financial turn points. Wal-Mart displays a whole new vigor by operating globally; it casts its shadows on all variety of products, preferences, suppliers, and workforce along with business procedures (Sullivan, 2002).
How Has Globalization Helped Wal-Mart?
Globalization has affected Wal-Mart in being what it has become now, i.e. a global corporate giant. Wal-Mart is considered to be the largest retailer of the world. The company has been linked with various other stores worldwide. They also indulge in joint/combined ventures overseas.
Globalization factors have been profitable in the present year generating revenue of more than 12% (109 billion dollars increase), causing the company to excel its business proceedings up till 8% by having more selling space and 458 new sales retail units (Wal-Mart Annual Report, 2011).
As the above diagram shows the revenues from overseas, add up to a total of 26.08%.
Following are a few significant features that have helped Wal-Mart in process of globalization
Walmart has a well organized and efficient logistics and supply chain system. This is the reason why Wal-Mart gets negotiated prices from suppliers and manufacturers. Wal-Mart believes in low pricing strategy that involves importing goods from cheap labour countries. The philosophy of the company is to demonstrate efficiency in logistics and transportation of goods and their distribution with the help of technology. This sound employment of technology has served as a prime pillar for globalization.
Globalization has given room to companies to purchase the goods directly from those places that offer best quality of goods at lowest rates .Wal-Mart believes in getting its goods from everywhere in the world, which is commonly understood as global procurement. Thus it fulfills its promise of saving us money.
Outsourcing to international companies is possible today. This implies to the suppliers. 80% of Wal-Mart's global suppliers originate from China. The management believes in procurement of everything at cheapest rates. China is known to be a hub of cheapest raw material as well as labor. Therefore most of the Wal-Mart's goods are products from China (Swoboda et al, 2009).
The corporate giant keeps looking for better and brighter opportunities. India can become another prospective supplier for Wal-Mart. Wal-Mart's vice president discusses that since India has access to cheaper raw material and labor, the production lead time and cost can easily get reduced. This is the reason why Wal-Mart has planned to shift the manufacturing to India in coming years. Without globalization outsourcing would not have been possible.
Advancements in Technology adapted by Walmart in every aspect of their operations. Technology does almost everything for Wal-Mart. From bar-coding, automated self check-out machines, automatic doors to information sharing. From managing inventory to placing orders. Technology has enabled Wal-Mart to keep up with the modern standards while expanding globally.
Globalization for Wal-Mart has occurred due to the fact that it has emphasized over lowering the trade barriers. This has opened the doors for easy import of merchandise. And china is a major contributor in Wal-Mart's total merchandise
Impact of Globalization on Wal-Mart's Financial Standing
Walmart has shown exceptional growth since going global. With now operating through 8970 retail outlets the revenues have now reached 419 billion dollars. Below we analyze the financial statements of Walmart through ratio analysis
Following is a look at some of the prime financial ratios of the company for evaluating its financial condition:
Net income as a % of sales
Source- Wal-Mart Financial Reports 2007, 2008, 2009, 2010, 2011
Source- Wal-Mart Financial Reports 2007, 2008, 2009, 2010, 2011
Net Sales particularly for the international segment of Wal-Mart experienced an increase of 12.1% in fiscal year 2011. The major cause of such improvement in revenue figures was the favorable impact of foreign exchange fluctuations that helped in retaining 4.5 billion dollars. Other reasons could be constant sales in the previous year as well as 7.8% increase in the square ft. space of retail stores across various countries. Among contributors, Brazil, Mexico and China markets flourished the most in terms of net sales growth.
Gross profit margin was negligible in 2011 while in 2010, almost 0.2% improvement was observed because of exchange rate fluctuations in the year 2009 respectively (Wal-Mart Annual Report, 2011).
Extracted from Wal-Mart's Website, the figures above display sound growth in Wal-Mart's Income during the years 2009-2011. It is quite evident that an increase in net income because of overseas operations (Wal-Mart Annual Report, 2011).
The measurement of a company's capability of fulfilling short term debt from the assets which are liquidated is termed as Liquidity Ratios. For this purpose, Current ratio and quick ratio are measured. These ratios infer that how often the short term liabilities can be supported by cash. If value calculates to be more than 1.00, than the company may know that it's safe.
The formula for this purpose is:
Current Ratio= Current Assets/ Current Liabilities
Selected Financial Data (USDÂ $Â inÂ millions)
Current Ratio, Comparison to Industry
Wal-Mart Stores Inc.
Industry, Consumer Services
Figure 3: Current Ratio and its comparison with industry (Stock Analysis-on net, 2011).
Current ratio Comparison to industry
Current ratio of Wal-Mart suffered a decline from the year 2009-2010 but slight improvement is seen in the year 2011(Stock analysis-on net, 2011).
The fact is that the liquidity of a company is judged by the current ratio. Higher current ratio means more liquidity. As per industry average, Wal-Mart's current ratio is not very sound. This proves that current assets are not rising as quickly as current liabilities. If it wishes to raise its current ratio, this company must pump in the current assets.
Quick ratio is also termed as Acid-test ratio. It is a measure of short term liquidity of any firm. So what makes Current ratio and Quick ratio different from each other? Well, the Quick ratio only keep's in view the most liquid of all current liabilities and assets. It simply means that Quick ratio can be more realistic and presents much accurate results.
The formula for this purpose is: Quick Ratio = Quick Assets/Current Liabilities
Selected Financial Data (USDÂ $Â inÂ millions)
Cash and cash equivalents
Total quick assets
Quick Ratio, Comparison to Industry
Wal-Mart Stores Inc.
Industry, Consumer Services
Wal-Mart's quick ratio progressed within 2009-2010 but decreased in the year 2011 (Stock analysis-on net, 2011).
Wal-Mart's Quick Ratio and comparison to industry (Stock analysis-on net, 2011).
Through these findings it can be safely postulated that Wal-Mart has not much favorable standing when it comes to quick ratio. We can say that the firm has large inventory and not many liquid assets. So precisely, the quick ratio of Wal-Mart is calculated to be 0.21 which is satisfactory but not quite good.
For measuring the success of the firm, a company makes use of profitability ratios. These ratios are helpful in determining whether firm has been successful in earning a net return on sales and investment or not. Two indicators of profitability are return on assets and return on equity. If a company wishes to explore whether the investment was well utilized to generate income, it must check ROE. On the other hand, if firm seeks to find a way of measuring profitability then ROA is the best indicator.
The formulas are: ROA = operating income/ Average total assets
ROE= Net income/ Average stockholder's equity
Average shareholders' equity
Source- Wal-Mart Financial Reports 2007, 2008, 2009, 2010, 2011
Figure 7: Source- Wal-Mart Financial Reports 2007, 2008, 2009, 2010, 2011
Average total Assets
Source- Wal-Mart Financial Reports 2007, 2008, 2009, 2010, 2011
Figure8: Source- Wal-Mart Financial Reports 2007, 2008, 2009, 2010, 2011
Operating income in the international sector improved to be more than 5.6 billion dollars as there are 4,500 locations worldwide. The expected industry average demands 15% ROE. Therefore in case of Wal-Mart it can be said that return on equity s quite satisfactory. The data displays that in 2011 the company has experienced increment in rate of return on equity earned on the total stockholders 'equity. Operating income in 2011 decreased 0.3% because of management efficiencies in United Kingdom and Japan.
Other than this, expected industry average demands 9% ROA. So we can safely figure out that the performance of Wal-Mart is quite satisfactory. When any company has high basic earning power its net income shoots higher.
Analysis of Operating Activity
Figure9: Source- Wal-Mart Financial Reports 2007, 2008, 2009, 2010, 2011
The table above represents the fact that a steep decline in inventory turnover has been witnessed by Wal-Mart in 2011. This is an indication of company's declining sales. Plus studying the inventory turnover trend, it can be assumed that the company has been handling inventory inefficiently. Wal-Mart has altered the level of applying retail accounting method for inventory mostly at the departmental level. This is done to achieve better merchandise segregation with accurate costs of goods and for gaining low inventory value the end of every fiscal year.
It is also to be noticed that when the receivables turnover ratio is low, it becomes mandatory for the firm to revise the credit policies for stabilizing this ratio. Wal-Mart shows a decline in receivables turnover ratio during 2011.
Decrease in Payable turnover ratio in the case of Wal-Mart depicts that the management is not availing credit facilities properly. For an increment in this ratio, Wal-Mart must increase supplier purchases.
Working capital turnover ratio in case of Wal-Mart has declined in 2011. This signifies that the firm has not been making use of its working capital to the best of its capability. Wal-Mart needs to increase sales further to increase the ratio of working capital.
Following is a look at some of the prime financial ratios of the company for evaluating its financial condition:
Financial performance of Wal-Mart is commendable for the year 2011 as net sales are increased up to 3.4% (419 billion dollars).
Operating income improved 6.4 % (approximately 25 billion increase).
Return on investment was figured out to be more than 19%
11 billion dollars were available for free cash flows.
(Wal-Mart Financial Reports 2007, 2008, 2009, 2010, 2011)
What Can Be Inferred From Wal-Mart's Globalization?
Wal-Mart has driven the forces of Globalization and has used it to achieve innumerable benefits. And even though this move was appreciated by the members of local communities due to the social and financial paybacks associated with it for them, there are always going to be some locals to oppose globalization for the sake of cultural preservation.
We can say that globalization has formed an enclosure around the globe and has left an impression in all fields of our lives. The once unexplored world has now turned into a global village supported by strong communication. And while it is positive in so many ways, many communities believe that globalization imposes a threat on their culture (Sullivan, 2002).
Still globalization is an ever growing giant which is out to consume the whole wide world. This giant brings prosperity to which ever country it enters therefore no country should resist globalization. Wal-Mart too faced resistance from different communities while expanding it operations. Several businesses and communities carried on their protests against Wal-Mart when it was planning to locate itself in different towns.
Globalization of Wal-Mart gave the host towns a flavor of economic liberalization. Wal-Mart tried its best to follow the culture of host countries and town to lower trade barriers.
Controversies surrounding Walmart :
Wal-Mart is becoming a threat for many businesses that do not hold the power to enjoy the same amount of growth and popularity. Wal-Mart has often been a target for critics and attracts controversies. Overall, Wal-Mart operates almost 8970 stores worldwide. However the growth and financial stability has not worked wonders for the company in avoiding oppositions and critical views. The business is accused of the following:
Not paying better wages to its employees, and not treating them properly. In many cases even abusing them.
Scaring shoppers by having them watched all the time. Constantly giving shopper's a feel of surveillance. Many times shoppers are greeted by elderly people on the entrance, perhaps to give them a feel of being watched,
Snatching away the business from small stores and forcing them to wind up, as shoppers have quitted visiting the boutiques for the big box, thus ruining the appeal of Main Street in small towns and cities.
Purchasing low-priced merchandise from overseas, which harms the local suppliers and eventually, putting American workers out of employment.
Contributing to that supposedly destructive syndrome of consumerism in which Americans are persistently buying goods that the Wal-Mart critics claim that they really do not require.
Wal-Mart is a dominant retail giant. The company has a status for offering with ease and a wide variety of products under one roof.
Wal-Mart has matured considerably over past few years, and has qualified for global development (for instance it has acquired retailer ASDA, based in UK).
The business has a core competency concerning its effective utilization of information technology to sustain its international supply chain system. For instance, it can easily monitor the global performance of every single of its products. It can monitor the merchandise store-by-store at a glimpse. IT also supports Wal-Mart's competent procurement.
A focused strategy is in place for human resource management and development. Customers are means to Wal-Mart's business success. Wal-Mart invests time and resources in training its workforce, and retaining them for life.
Another added advantage is the Global E-Commerce division introduced by Wal-Mart in the year 2010 having primary aim to develop a strong e-Commerce strategy applicable worldwide, improve the growth of global online channel and formulate platforms that provide technically sound applications for all Wal-Mart stores. Seven online platforms in various countries include "Wal-Mart.com" for the US customers while United Kingdom customers are benefitted online via home shopping network for grocery i.e. "Asda.com" catering to almost 97% customer needs. Revenue generated through online sales help to improve international markets of China and Brazil (Wal-Mart Annual Report, 2011).
Multi channel shopping needs of the customers are met with provision of quality merchandise and goods offered at "everyday low prices EDLP". This strategy of Wal-Mart has helped the company to retain trust of its clients as prices do not change on regular basis..
Differentiation factors for the company are construction of new stores and comparable prices being offered on goods.
The company is able to merge with the local community by diversity of entry formats in urban and rural areas.
Price of commodities are kept low by application of advanced technologies and operational cost efficiencies thus offering customers freedom to choose among global and local source.
Due to globalization, employees working abroad are granted special post employment benefits depending upon the tax and legislative requirements of the host countries. For the year 2011, retirement and profit sharing plans for international employees were 22 million dollars (Wal-Mart Annual Report, 2011).
Wal-Mart is the World's leading retailer and this enormous scale of business makes its management difficult, despite its IT competencies therefore is vulnerable in some areas.
Gross profit margin of Wal-Mart cannot be compared with competitors because of absence of distribution facilities sales in the cost balance sheet.
Wal-Mart sell goods across many sectors (such as attire, food, or household stuff), it may not be able to enjoy the quality of some of its more alert competitors who focus on fewer things and a better quality of products.
The company is said to be global, but technically it only has a existence in fairly a small number of countries universally.
Being in the retail business on such a large scale there are always opportunities of Taking over, having a merger with, or forming strategic alliances with other global and local retailers, specially focusing on attractive markets such as Europe or the Greater China Region.
The stores currently trade only in a relatively small number of countries. Therefore there are tremendous opportunities for future business in expanding consumer markets, such as China and India.
Opening stores at new places and offering Wal-Mart opportunities to make use of market growth. They can diversify from larger centers, to local and small shopping mall-based sites (Bahaudin and Simone, 2007).
For Wal-Mart to persist with its present strategy of operating mainly through gigantic stores, many opportunities still exist to open up smaller retail outlets.
Wal-Mart being in retail business in under a constant threat of cut throat competition. When you are number one, there is always someone trying to beat you.
Going global means being vulnerable to all the political and social threats connected with the different countries in which it operates.
Manufacturing through low-cost states of the world, has given way to price wars, resulting in price reduction in some ranges. Therefore powerful price struggle is a constant threat.
Fluctuation in exchange rates could be a major threat for global business operations.
Golden Strategies for Wal-Mart
Wal-Mart's Sam Walton is one successful strategist. He is the man behind Wal-Mart's unmatchable success. Following are the strategies he introduced:
When choosing to locate themselves, Wal-Mart gave preference to those towns that are smaller and accommodates less than 30000 people, where retail competition was almost nonexistent.
When locating its stores, Wal-Mart chose locations that were nearer to its distribution centers.
Wal-Mart used IT intensely to form links among manufacturers and cut down on their distribution costs.
Transition to EDLP has helped Wal-Mart to improve its operational efficiencies as compared to its competitors.
Wal-Mart keeps its focus on middle class consumers. This helped the store to ditch competition with those retailers who offer various services along with products.
Wal-Mart choose low income areas for locating the stores to get land at minimal cost
Employing these strategies has benefited this chain of retail stores immensely. So much, that these strategies are now benchmarked for others to follow.
Conclusions and Recommendations
Globalization engulfed the world like a storm. Numerous businesses as well as communities adapted their lives according to new norm that were introduced by globalization. The best and most vibrant of all examples of globalized businesses is undoubtedly of Wal-Mart. It became a company that took full advantage of globalization and constructed a giant corporate empire after globalization. Wal-Mart believes in combining the culture of itself and the places where its stores are located. Wal-Mart pronounces globalization as Glocalization, which means the business adapts itself in colors of local cultures and business practices. "In fact, a firm understanding of local situation may promise victory in any overseas markets, it is a success based on the kind of flexibility that Wal-Mart has already exemplified the requirement of going native" (Matusitz and Leanze, 2009).
Many host countries blamed the company for 'Wal-Martizing' the world in the name of globalization. But on and off, the company has proved that it respects the local values as well as all the needs for businesses to go global and keep up with trends. Every single year, Wal-Mart tries to discover better conducts to develop and present better and many different products to their consumers (Lavalle and Boyer, 2006). Every year, the number of stakeholders of Wal-Mart also increases. Year after year unions make more and more claims against Wal-Mart. These are the businesses and people who suffered the loss because of the arrival of Wal-Mart to their localities. Wal-Mart is repeatedly able to under-cut many other local industries and more and more local businesses are closing down when Wal-Mart arrives into towns. The unions file many claims against Wal-Mart because Wal-Mart does not wish that its customers join these unions. Wal-Mart Always believes in satisfying the needs of its work force so they don't require taking complains to unions.
Because of Wal-Mart's emerging size and variety of merchandise they present to their clients, their Public Affairs department needs to be really strong.
Wal-Mart will need to safeguard its goodwill in the long run to avoid becoming a prey to the hands of competition and jealousy and to keep up with fast paced business world.
As established from the research findings, Wal-Mart requires getting more proficient in its inventory management. The graphs and tables displayed the facts that during past year, Wal-Mart experienced a fall in sales and because of this the inventory turnover ratio showed a downfall. Even the quick ratio proved to be quite worrisome, since it was only 0.2. The company is now required to develop more liquid assets and become more efficient in inventory handling.
If this company wants to grow further and locate itself to more countries, it must conduct comprehensive research first. Wal-Mart would certainly not like to get it goodwill destroyed. Therefore it is important to understand the tastes and cultures of the locals prior to gaining access to the foreign markets. It is much important to choose those potential markets which are not totally opposite to Wal-Mart's culture. This will minimize the chances attracting protests from locals and it will pave way for profitability.
Credit policies of Wal-Mart should be reviewed and revised. Lack of well defined credit policies results in a decline in receivables turnover ratio. For this purpose the company can launch early payment discounts or it can even complicate terms of credit.
Like any other business, Wal-Mart too needs a pump up in its sales volume; this can easily be achieved by conducting localized promotions where working capital can get successfully consumed.
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