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Critical Evaluation Of Global Strategy Wal Mart

3045 words (12 pages) Essay in Management

25/04/17 Management Reference this

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Businesses around the world go international for many reasons but the main reasons include making money and growth. The multinationals organizations which go global tend to attain economies of scale due to the large customer base (Clarke and Getler, 2003). Their brand name and value increases if they successfully operate its foreign venture. The other drivers for going global varies, which include larger customer access, improved communications, better information technology, cultural convergence, distribution and transportation, reduced barriers in trade, privatization programs, development of international standards (Hill, 2010). Often developed world’s companies set up their businesses in developing world because of easy access to cheap labour and increasing disposable income of the global middle class (Hill, 2010).

The main purpose of the essay is to evaluate Wal-Mart’s success and the reasons that caused further success of Wal-Mart in the Global Economy. The following essay reflects upon Wal-Mart’s global pursuit and venture into international market, its global strategy of market entry, dealing with environmental factors especially cultural factors, positioning and growth. This strategy is critically evaluated with the help of various strategic theories available and corresponding recommendations are made to Wal-Mart for its current and future foreign ventures. The following part of the article gives a literature review of some of the major theories that govern international business which include the integration/responsiveness (IR) framework of Bartlett and Ghoshal (Hill, 2010), Porter’s five forces (Bradley, 2005), Porter’s competitive strategy (Bradley, 2005), Positioning strategy (Bradley, 2005), Ansoff’s growth strategy (Bradley, 2005), Porter’s generic strategy (Bradley, 2005), target market, Yip’s global drivers and Hofstede’s cultural analysis (Kirkman et al. 2006). These act as the foundation for the analysis of the Wal-Mart and its strategies.

2. Literature Review:

The meaning and contents of globalization and internationalization of market is changing rapidly. Globalization is thought to be international trade but it is more than this, it’s an ongoing process by which regional economies, societies and cultures become integrated through a global network of trade, infrastructure, transportation and communication (Maed, 2005). It is a system by which countries interact in order to develop a global economy. It involves social, cultural, economic, technological exchanges. Domestic market’s saturation and extreme competition, the companies move towards internationalizing their business operations (Peng, 2008). The businesses are forced to seek opportunities in newer global markets and exploit these opportunities. The process of entering a global market and penetrating the existing set-up for market development is a lengthy and difficult task. This activity requires marketing infrastructure, proper extensive knowledge of the market before initiating the plan and a well-developed global strategy (Rugman and Verbeke, 2008). Options for entering an overseas market depend upon a number of factors like a trade-off between the amount of control and the level of commitment of resources. There are many ways a company can enter a global market: By ways of acquisition, merger, joint ventures, subsidiary, setting up a completely new company, export, licencing, franchising, royalties or just by going into a partnerships (Hill, 2010) (Peng, 2008). The reasons for companies entering international market vary but the fundamental reason is the potential demand of the new market. Globalization can help the company to achieve economies of scale. In certain cases, a company can enter a new market just as a reaction to competitor’s move to neutralize the competitor’s advantage (Bennette and Blythe, 2002). At times, companies undertake foreign market entry with the objective of learning to develop itself as a global player for the future. Government incentives also encourage organizations to enter market to exploit the offers.

After success in domestic markets, companies attempt to exploit competitive advantage internationally through series of stages (Rugman and Girod, 2003). The one way that many almost every company often follows is ‘increasing commitment’ pattern of market penetration, by starting exporting then contract with the local distributor and later switches to a directly controlled subsidiary (Rugman and Girod, 2003). There are many factors that determine the choice of modes of market entry such as political, legal, social, cultural, technological factors, risks, resources available, level of involvement, etc (Steger, 2010). The company should be able to some extent, make use of its current strengths, minimize weaknesses, exploit opportunities and counter threats before going global. Timely and accurate market information, consumer behaviour, industry demand and other related information is expected to be collected before opening a new project. The companies need to pay urgent attention to issues related to globalization. The head office or parent company must clearly define its roles and strategic priorities to optimize competitive advantage. It also helps in achieving additional value through parenting advantage. The companies must also determine the balance of local, regional and global operations and clearly evaluate its relationships (Steger, 2010).

The company operates in an environment of opportunities and threats in which it is necessary to develop appropriate marketing strategies configured to compete with other companies while providing value to customers. In such circumstances the company adapts different strategies to tackle different issues. Market strategy in one country that served the company well may not work in other markets as well (Steger, 2010). The fundamental tent of marketing should not be ignored and that is to offer product or service to meet the respective market conditions. In order to do this and compete within the global marketing environment the company can adapt some of the following important strategies (Hill, 2010) (Bradley, 2005): After selecting the mode of entry the company needs to decide at which stage of life cycle they are planning to enter the new market. Some companies are mature enough to enter. Some needs a little growth and some have to research and plan before entering. Other activities also need to be examined carefully for globalization potential (Peng, 2008). After selecting the targeted market, the company has to decide how it wants to position itself within the chosen country. Positioning refers to how companies want their potential global customers to perceive their product or service (Steger, 2010). Developing a positioning strategy depends upon what market company targets and how competitors position themselves. The company has to identify a niche using traditional marketing placement strategies. Companies can obtain competitive advantage either by differentiating their product or service, or by focusing on low costs (Bradley, 2005). Companies can target broad market or they can focus on a narrow target in the market. According to Porter, there are three generic strategies that a company can undertake to achieve and maintain competitive advantage in global market: global differentiation, global cost leadership and global focus or segmentation. Porter also presented fourth generic strategy of protected market which focuses on competing in countries where particular government protects or favours the business (Bradley, 2005). These generic strategies are defined along two dimensions: strategic strength and strategic scope. Porter also argued that global competitive advantage depends on configuring and coordinating activities in a unique way worldwide. The company seeking to develop an edge over its global competitors can apply Porter’s five forces model to better understand the local and global context in which the company operates (Peng, 2008). It deals with negotiating and bargaining powers of suppliers and buyers in respective countries, domestic and global rivalry, threats of new entrants and threats of substitutes. For companies who operate in international business, it is sometimes amazing how people in different countries and cultures behave. The companies have to make business decisions according to the individual cultural behaviours. Geert Hofstede’s dimensions analysis may help the company in better understanding the intercultural differences within regions and between countries (Peng, 2008). The analysis or framework focuses on five dimensions which are power distance that focuses on equality and inequality between people; individualism that is achievements and interpersonal relationships; masculinity concerns with degree of gender differentiation; uncertainty avoidance index and long term orientation of the society. Once established globally, the company has to define new markets. It is important for organizations to acknowledge different strategic options to operate in different types of markets. No one strategic option for growth is appropriate for all types of environments at all times (Steger, 2010). The Ansoff’s growth matrix or model provides the basis for an organisation’s objective setting process and sets the foundation of directional policy for its future (Peng, 2008). The Ansoff’s model allows marketers to consider ways to grow the business through existing and/or new products, in existing and/or new markets. The matrix consists of four strategies: Market penetration (existing markets, existing products), Product development (existing markets, new products), Market development (new markets, existing products), Diversification (new markets, new products). The company must also examine the global integration and local responsiveness paradigm and its impact on the adaption of global business strategy. A principal means for studying international strategy has been through the integration-responsiveness (I-R) framework (Downing, 2007). It can be employed to study the relationship among the alternate international marketing strategies (multidomestic, multifocal, global, transnational). Which international strategy is actually pursued will depend upon the characteristics of the external environment, the firm’s internal capabilities, and the trade-offs associated with responding to the pressures for external flexibility, via national responsiveness, and internal efficiency, via global integration (Peng, 2008). No matter what model or strategy a company applies, the basic aim remains the same: to survive, grow and earn revenue.

3. Analysis:

Wal-Mart Stores, Inc. runs a chain of large, discount department stores. It is the world’s largest public corporation by revenue. Wal-Mart is the largest private employer and the largest grocery retailer in the United States. It operates in Mexico as Walmex, in the United Kingdom as Asda, in Japan as Seiyu, and in India as Best Price (MINTEL, 2008). Wal-Mart is one of the best known industries all over the world. Due to company’s successes over the years, it is considered as a retail giant. Its history is one of innovation, leadership and success. Although it started trading with only one store in 1962 but has grown and became the world’s largest and the most emulated retailer. Some economists even refer Wal-Mart as trendsetter of the industry (Bushan, 2009). It is the most sophisticated retailer in terms of using information systems. Today, this retailing pioneer has annual revenues of over $100 billion, more than 3,200 stores in USA as well as over a thousand stores in approximately 14 other countries worldwide (Mintel, 2009). It employees around 2 million persons and through its international reach, an estimate of one hundred million customers are said to visit a Wal-Mart stores. According to Wal-Mart’s report, the foreign revenue counted for around 25% of the total sales worldwide (Mintel, 2009). Its concentration of a single business strategy is the basis of its success domestically as well as globally. Wal-Mart has achieved desirable success over the decades by this strategy without having to rely upon diversification to sustain its growth and competitive advantages. The leading marketing strategies of Wal-Mart are low prices, service, and smile. However by adapting this strategy, it has risked itself by putting all of a company’s eggs in one industry basket (Mintel, 2009). While its global strategy worked elsewhere, the results were bad in Germany and Korea that Wal-Mart withdrew from those countries.

There are many factors in Wal-Mart’s success. It’s shared passion, constant improvement, customer focus, speed improvement in operations and community services are values presented by Wal-Mart. One of the success factors is obviously growing in the era of globalization (Bellman, 2009). As different countries’ markets became open, Wal-Mart didn’t hesitate to enter them through many different modes depending upon the environmental requirements of the specific countries. The Wal-Mart had a potential to go globally in hope of earning more profits. Wal-Mart concluded many transactions with a lot of foreign companies that allowed it to buy goods at cheaper prices and offer them to the population (Bellman, 2009). Globalization created so-called global economy, entering more and more economic spheres Wal-Mart received more and more loyal customers worldwide thanks to the well-known brand of Wal-Mart. Wal-Mart launched its international operations in 1991 through a joint venture in Mexico. Apart from operations in USA, there are wholly owned subsidiaries Brazil, in Argentina, Puerto Rico, Canada and the UK. In addition to its wholly-owned international operations, Wal-Mart has joint ventures in China and India. It also owns subsidiary in Mexico, associations in Japan and stores in Guatemala, El Salvador, Honduras, Nicaragua, and Costa Rica (Fishman, 2006). These modes of entry depended upon the countries’ laws and regulations other than political pressure and social norms of the society e.g. Wal-Mart was not allowed to directly enter the retail sector or sell to public but to restricted population in order to protect small retailers (Bellman, 2009).

With the growing influence of globalization, competition within retail sector and markets was inevitable. However, with an established goal and appropriate techniques, Wal-Mart gradually lead its way towards success. It adapted the generic strategy of cost leadership in every culture and focused on providing lowest cost services and products to its global customers. Wal-Mart took an opportunistic, rather than programmed, attitude toward its global expansion (Bellman, 2009). While its global ventures were uniformly successful, the international division nonetheless demonstrated impressive growth and proven to be a source of both ideas and talent. Wal-Mart chose strategies of market and product development rather than diversification, which helped the company to achieve its goals in different global markets. In order for Wal-Mart to become a major global retailer, they have closely examined and utilized tactics to profit from their many stores. It can be said that on BCG Matrix of industry attractiveness and enterprise strength, Wal-Mart position itself as a leader. This may be true in USA but in many countries it still needs to grow as well as face tough competition but it provides high quality products for low costs in every country (KEYNOTE, 2009). Wal-Mart is a powerful retail brand. It strengths include its reputation for value of money, convenience and a wide range of products all in one store. By this it minimized its global risks and threats e.g. it competed with new entrants, bargained and negotiated with suppliers and buyers for low prices. It exploited opportunities to take over, merge with, or form strategic alliances with other global retailers. However it faced tough competition in global markets e.g. In UK, it has to compete with UK market leader Tesco and other retailers such as Sainsbury’s, Morrison etc (KEYNOTE, 2009). Large global giants also compete with Wal-Mart internationally such as Tesco formed a joint venture in India to compete with Wal-Mart (KEYNOTE, 2009). It’s not just Wal-Mart but almost all large retail chains that compete on the basis of positioning its product at high value and lo cost. Other strategies of Wal-Mart that it follows in global chains include taking into account the country’s political, social and specific cultural factors. Wal-Mart was also successful in facing cost pressure and local responsiveness. Economies of scale helped the company to provide the cost effective products and services. It also adapted locally and catered the social and cultural needs of the individual cultures often setting up a partnership with a local company that was successful in dealing with the local issues. The company effectively integrated its strategies according to the local demands and pressures (Bellman, 2009). Although Wal-Mart was successful globally it has also been subject to criticism by various groups and individuals. Labor unions, community groups and environmental groups protested against Wal-HYPERLINK “http://en.wikipedia.org/wiki/Wal-Mart”Mart, its policies and practices in some countries in recent years. Other areas of criticism include the corporation’s foreign product sourcing, treatment of product suppliers, environmental practices and some others.

4. Recommendations:

As Wal-Mart sees emerging markets as a significant source of growth, it can expand into Russia as Russia makes a perfect target for Wal-Mart because of its economic progress in recent years. Australia is another perfect market for Wal-Mart as Australia has had one of the most outstanding economies of the world in recent years. It is competitive, vibrant, enthusiastic and flexible than ever before. Wal-Mart can keep the international expansion strategy as it proved successful time after time. Cost leadership is not only the success factor as many retailing giants such as Tesco also focuses upon this, Wal-Mart has to consider more features to focus upon for competitive advantage. Cultural value is the main factor that can influence the market entry decision of any multinational, Wal-Mart has to realize this concept and adjust its strategy and business operations taking into account this feature. Wal-Mart should avoid large metropolitan locations and should mainly concentrate on rural location as other retail organizations try to capture market in urban areas. Wal-Mart should strengthen its cost effectiveness and economies of scale advantages by increasing their steak and continuous expansion process.

5. Conclusion:

Wal-Mart’s success in global economy depends upon the number of factors such as effectiveness in its policies and procedures worldwide, its global strategy, financial potential, its strengths, economies of scale, successful implementation of global marketing strategies according to the needs and requirements of the individual country or culture, successful partnerships with companies around the world and competitive advantage. The most effective success factor is the low cost that it provides in every store it has influence in. Aside from these marketing strategies, the Wal-Mart management has also been able to include the use of internet and other advance technology to market their products and services worldwide. The introduction of using the internet in retail industry for instance, has enabled Wal-Mart to open its services to online users. Wal-Mart was able to become the world’s largest retailer through visions and efficient strategies. The company strives to improve itself to achieve better performance. Its willingness to try new ideas and practices had made Wal-Mart an initiator to most well-known standards in retailing. Making change constant within the store has indeed made wonders for Wal-Mart. In addition, the participation of the associates, particularly in the generation of ideas had made Wal-Mart a stronger business. With good management practices and unique marketing strategies, Wal-Mart was able to operate successfully not only in the United States but also in international market. International expansion has been robust and will continue to be an important part of Wal-Mart’s future growth opportunities.

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