Swot And Pest Analysis Of Wal Mart Management Essay

INTRODUCTION

This assignment is basically based on SWOT analysis of Wal-Mart, a leading biggest global retail company. Wal-Mart’s Sam Walton opened the first discount store in Rogers Arkansas back in 1962, and 47 years later, Wal-Mart operates 8,159 units in 17 countries. Wal-Mart employs over 2.1 million people worldwide, making them one of the largest private employers in both the US and Canada, and the largest private employer in Mexico.² Even in the midst of a recession it’s estimated that Wal-Mart stores’ retail market share has raised markedly³ and they are seeing sales gains for 2009. Wal-Mart has a dramatic story of success from its humble beginnings to its transformation into an industry leader; one can only wonder what the future holds for this corporate giant.

One aspect of Wal-Mart’s structure that has given them a competitive edge is their efficiency in logistics. Beginning in the early 1970’s, Wal-Mart utilized a warehouse distribution strategy facilitating bulk purchasing and streamlined distribution processes enabling them to dramatically minimize distribution costs. Today Wal-Mart has more than 147 distribution centres with the average facility serving 75-100 stores. Their truck fleet travels about 800 million miles a year and they move over 5.5 billion cases of products. A Wal-Mart distribution centre can have up to twelve miles of conveyor belts and about 500 – 1,000 employees. [via : http://walmartstores.com/FactsNews/FactSheets/]

Wal-Mart has also been able to gain competitive advantage with their embracement of Technology advance. This network included voice and video communication which streamlined the company’s communication and facilitated the flow of sales and inventory information to the corporate headquarters in Bentonville, Arkansas.6 During a period of slower growth in the early 21st century, Wal-Mart made substantial technology investments that were successful in gaining more inventory control and improving company performance. In addition to their technological competitive edge, Wal-Mart continues to make smart strategic decisions to exploit potential new revenue sources as they continually to expand into new markets. Wal-Mart opened the first Wal-Mart Super centre in 1988. Wal-Mart include a complete super-market, garden centre, pet shop, pharmacy, tire and lube express, optical centre, photo processing centre, and some additional smaller shops ranging from hair, nail, video, and fast-food outlets. Today there are over 2,700 supercenters in the US. By 1998 they introduced the Neighbourhood market concept which catapulted them into becoming the largest US food retailer by 2001.

[via: http://walmartstores.com/FactsNews/FactSheets/]

By 1991, Wal-Mart began its international expansion with the introduction of its first store into Mexico. Two years later they formed Wal-Mart International – their rapidly growing third division. Today, Wal-Mart has a total of 3,859 international locations and operates in Argentina, Brazil, Canada, China, Chile, Costa Rica, El Salvador, Guatemala, Honduras, India, Japan, Mexico, Nicaragua, Puerto Rico, the United States and the United Kingdom. Wal-Mart is now planning on expanding their operations in India and China even further. [via : The Wall Street Journal]

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Some innovative products and programs Wal-Mart has created have contributed to their popularity and profitability. Wal-Mart began its site to store program in 2007 which offers free shipping or delivery to a local store for purchases on their website walmart.com. [via : CNET] Wal-Mart’s signage and logo have recently evolved; in 2007 they revised their long time slogan “Always Low Prices, Always” with the current “Save Money Live Better” motto.

Wal-Mart’s three Basic Beliefs and Values as follows are: “Respect for the individual, Service to our customers, and striving for Excellence.” [via : http://www.walmartmovie.com/facts.php] These long-standing beliefs haven’t stopped them from becoming the source of some controversy and damaging press over the past decade including involvement in multiple lawsuits involving questionable business practices. There have been multiple allegations of sexual discriminatory practices and cases involving unpaid wages.

To achieve a greater understanding of Wal-Mart Stores, Inc., it is important to analyze the strengths, weaknesses, opportunities and threats as to what one should expect in their future performance as a company.

PEST ANALYSIS

The way businesses operate is influenced by the wider political, economic, social and technological environment. These are usually referred to as PEST factors – PEST is an acronym for political, economic, social and technological By analysing trends and developments in their business environment, firms can spot new market opportunities and threats.

Political factor: Wal-Mart is currently operates its operation worldwide. In this operation Wal-Mart need to follow certain rules and regulation of host countries. Last year 2009, international operations generated 27.2% of Wal-Mart’s net sales. [via : wikiinvest] They are facing big challenge from Chinese government and forced to Wal-Mart to acquire its operation with local firm. Political condition includes political instability, economic condition, currency regulation, legal and regulation constrains, intellectual property rights, tax system etc. Wal-Mart’s international operations have greater impact of host countries law and regulation like Indian government open door for foreign investment to operate business acquire with local firm. For Eg, currently, Wal-Mart acquired with Bharati Airtel – leading Telecommunication Company and open new retail store in year 2009 and shut their operation in Germany and South Korea.

Economic factor : Economic condition of host countries has greater impact on any business firm. Recently, Wal-Mart facing high inflation rate and currency devaluations. In US, Wal-Mart facing challenge of high interest rate, higher fuel and energy cost, inflation, higher level of unemployment, higher consumer debt level, unavailability of consumer credit, higher tax rates, economic slow down and other economic factor could adversely affect consume demand of the product or service offering by Wal-Mart.

Social factor : Wal-Mart’s international operation should operates according to local culture of host countries. It includes population growth, age distribution, career attitude and emphasis on safety. Trend of host countries affect demand of Wal-Mart’s products and services. [via : wikipedia.org]

Technological factor : Nowadays, technology has a grater impact on any business. This factors includes ecological and environment aspects. Wal-Mart need to invest in Research & Development activities, automation, technology incentives and respond the rate of technological change for remain in competitive market and No. 1 retailer. Wal-Mart’s spend huge amount behind continuous new advanced technology upgrade program.

PEST analysis helps to examine influences macro environment and with the help of PEST analysis, firm can successful examine its strengths, opportunities, weaknesses and threats i.e. SWOT. Wal-Mart’s SWOT analysis as follows :

SWOT ANALYSIS

The internal and external environment scanning is an important part of the strategic planning process. SWOT is acronym, standing for strengths, weaknesses, opportunities and threats. A SWOT analysis enables an organisation to place itself and its products into perspective. The analysis helps to highlight the main strength and weaknesses of the organisation, together with any external opportunities and threats.

SWOT Analysis

Internal Analysis

External Analysis

Threats

Opportunities

Weaknesses

Strengths

Strengths:

Marketing Aspect :

Wal-Mart emphasis is on its brand image “everyday low prices and good quality of products” when marketing by using different channels. Wal-Mart is become superior to their competitors by using their expertise core competencies. Wal-Mart involving local communities and they are sponsoring local teams. This is a major competitive advantage Wal-Mart has over the competitors. Wal-Mart has roughly 4000 stores in US. In UK, Wal-Mart takeover Asda on 26 July 1999 for $10.8 billion, internationally it has more than 1300 stores and this number is set to grow dramatically. Wal-Mart has excellent logistic system. They create the ideal one – stop shopping experience. Because of conglomeration of its wide product range customers can do one stop shopping products, the typical customer can go into any Wal-Mart and walk out without having to stop at another store for anything that they could need.

Management Aspect :

Wal-Mart’s policies and practices are designed to ensure an environment that is inclusive and equitable. Wal-Mart has 2,100,000 employees including international operation. They provide training on working with people, equal employment opportunities, leading skills, diversity and help to achieve career objectives. Wal-Mart has strong community – based initiatives. Corporate structure of Wal-Mart is very well rounded and managed with core values like respect for the individual, striving for excellence and service to their customers. The management of Wal-Mart is the backbone to the entire firm and these core values have propelled them to the top of their industry. They have allowed Wal-Mart to be world’s largest company.

Finance and Accounting Aspect :

The company operates nearly 7,873 stores worldwide, with over 3,000 of them in international markets, where the company has grown its presence at an average annual rate of 30% between 2005 and 2009. The company focuses on offering the lowest prices across its business segments, which together earned $408 billion in revenue in 2010, a 1% increase from 2009 which is rapidly increases in revenue shows good financial position.

Key Figures: (via : wikiinvest.org)

Operation

Growth Rate

of Revenue

of Operating Income

Sam’s Club

63.7%

79.6%

Wal-Mart (International)

11.7%

7.4%

Wal – Mart (US)

24.6%

21.7%

Current share price

$ 53.90

Human Resource Aspect :

Wal-Mart has more than 2.1 million associates or employees worldwide. They provide continuous training to their workforce to run successful business.

Production and Operation Aspect :

Wal-Mart has strong distribution system and it’s known as cross – docking. They are continuous delivering goods to warehouses and to their stores within in one day. However it gives a faster response to market demands and low level of inventory. This system has allowed them to decrease its sales cost by 2 to 3 % over the industry.

Research and development :

Wal-Mart’s innovation keeps it a leading retailer in retail industry as it is regularly turning out new patents/proprietary technology. Development and innovation are high at Wal-Mart with regard to their products/services which give ultimate profit.

Computer Information System :

Wal-Mart uses satellite based communications for connecting all the network of stores. Wal-Mart is offering safe, secure and informative complete website where consumer can purchase products easily. Through web-site of Wal-Mart, one can find A to Z information of Wal-Mart.

Weaknesses:

Marketing Aspect :

One of the biggest marketing weaknesses seems from Wal-Mart lobbying to expand into new market nationally and internationally. There are many areas across the US tried to block the introduction of Wal-Mart because of the economic impact like local stores, traffic and environmental problem. Wal-Mart has a damaged reputation because when they move into a new location they end up “forcing” for opening new stores which is unethical at all. Wal-Mart also shut down its underperforming business in South-Korea and Germany in fiscal year 2007-08.

Management Aspect :

There are few females in top management role and few minorities employed. Wal-Mart is lacking equality demand which is not ethical decision for Wal-Mart to be making. They are really hurting their corporate image by maintaining this position in market. There is also lack of union. Because of perception of treating employees poorly, Wal-Mart does not have any union involvement. There is biggest problem is lack of job security for associates.

Finance and Accounting Aspect :

Ratio

Proposition

Fixed Asset Turnover

8.4 %

Earnings Per Share

3.35 %

Average collection period

8 %

As above ratio are presented weak finance condition. Fix assets turnover ratio present high investment but not being used. The EPS ratio is not good as compare to the industry. The collection ratio presents that Wal-Mart allowing their debtors to carry account with above average period of time. It increases the likelihood of non-payment.

Human Resource Aspect:

Wal-Mart is non-unionized firm. Wal-Mart employees commence at lower wages than unionized corporations. Wal-Mart pays low wages to their employees which affect their standard of living. Wal-Mart is presently involved in class action suit behalf of formal and current female employees across its US retails and warehouses. These employees totalling to 1.6 million alleged that the company showed gender discrimination at the time of pay, promotion, training and job assignment. This is one of the biggest gender discrimination cases in the US.

Production and operation Aspect :

Since Wal-Mart sell products across many sectors, it may not have the flexibility of some of its more focused competitors.

Research and Development Aspect :

Wal-Mart is not actively engaged in any R & D. Specifically, they do not do prior research before opening a new store in any new area.

Opportunities:

Economic Aspect :

When any country’s government invite foreign investment with new trade agreements, businesses like Wal-Mart have ability to offer products and services. This simply increases the markets available to retailers. Wal-Mart offers all products under private labels. Expanding brand portfolio, Wal-Mart incurs lower operational costs, high quality product and gaining higher margin. Wal-Mart has tremendous opportunities for future business in expanding consumer market by acquisition, merge with, or form strategic alliances with other global retailers.

Social, cultural, demographic and environmental Aspect :

To fulfil obligation or responsibilities towards social and culture, Wal-Mart announced plans to open in – store clinic ‘The Clinic at Wal-Mart’ to be connect with local hospitals in February 2008. The company could leverage rising health care spending in the US to boost revenues of its pharmacies and health clinics.

(c) Political, Legal and Government Aspect:

Asian market is virtually untapped by the retail world in many extent. It gives huge opportunities to expand business with unlimited and unexpected potential growth and profits.

Technological Aspect :

Nowadays, online shopping is growing stage. To take advantage and experience of internet shopping, customers can easily purchase products by receives friendly site designs, efficient order fulfilment, fast delivery and response. It can help Wal-Mart to make huge revenue.

Threats:

Economic, social, demographic and environmental Aspect :

Wal-Mart is facing stiff competition from a large number of companies in the retail market worldwide and local stores. Intense competition could adversely affect the revenues and profitability of Wal-Mart. They face opposition and resistance from communities by local and international market like small retailer in US and opposition of shopkeepers and retailers on introduction of Wal-Mart in India. Growing opposition to opening new stores from local communities and entry into international markets is likely to hold back expansion plans of Wal-Mart.

Political, Legal and Governmental Aspect :

Being a global retailer, each firm threaten by political problem in the countries where they operate in by nation’s industrial and general laws, rules and regulations. Like Chinese government does not take kindly open to their country to foreign establishments.

Technological :

As technological change and advances, products being sold today are gone tomorrow; this provides fewer products to sell and continuous change with technology update. Thus, Wal-Mart has to update technology as per current demand and upgrading requires high investment.

CONCLUSION

Wal-Mart is the largest retail firm in the world with strong market position in the US. The company’s strong market position in the US provides economies of scale and enhances the brand image to the company. It derived almost 75% of revenue from the US market. However, the company faces stiff competition with local players which can adversely affect the revenue and profitability of Wal-Mart.

In order for Wal-Mart to stay at the top of their game and follow the company strategy and achieve their key policy goals, they are going to have deal better with their stakeholders and make sure they guard their reputation well nevertheless they are criticized by some community groups, women’s rights groups, labour union, grassroots organisations, resistance to union representation and alleged sexism.

Key Strengths :

The key strengths are employees, financial position, customer oriented, one-stop shopping, satisfaction guaranteed programs, employee stock ownership and profit-sharing, well-rounded business, ease of website, good reputation, and favorable access to distribution networks.

Key Weaknesses :

The key weaknesses are some ratios are not sufficient, non-unionization, no formal mission statement, few women and minorities in top management, undifferentiated products and services, site research, slow speed of checkout service, and finally a damaged reputation.

Key Opportunities :

The key opportunities are expansion of business, better segmentation, leverage tech. and financial know-how.

Key Threats :

The key threats are competition, labour unrest, brand loyalty disappearance, supplier backlash affects performance of company.