Analysis of Wal-Mart’s strategy

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1. Why did Mexico make suck a good proving ground for Wal-Mart’s foreign expansion strategy?

Answer：

Considering the environment of politic and economic of Mexican in 10s, it provided Wal-Mart good opportunity to expand its business. There are main three factors as follows




l Firstly, when Wal-Mart considering expanding global market, U.S.A. at the same time was entering negotiations with Mexico and Canada about the North American Free Trade Agreement. This spurred the interests of Wal-Mart to develop its business in neighbor’s market.

l Secondly, the leader of Mexico, Carlos Salinas, who was a Harvard-trained economist, advocated free market reforms and privatized those State-owned enterprises in Mexican. This created nicer investment environment to Wal-Mart.

l The tight monetary policy lowered inflation rate into the single digits in Mexican.

All of these would be bring good opportunities to Wal-Mart for its strategy to enter Mexican’s market.

l Firstly, the barriers to trade and investment between U.S.A and Mexican, which had already lowered by Salinas, would fall much further under the NAFTA proposal.

l Second, tariffs on goods imported from the United States had come down from 100 percent in the mid-180s to a maximum of 0 percent by the early 10s, and under NAFTA many of these would fall to zero.

l The tight monetary policy drove Mexican’s economy growth rate at 4 to 5 percent per year by the early 10s; disposable income of Mexican people had increased by 70 percent since Salinas took office. And more than two third of people would be classified as middle class, which means people have enough purchasing power.

With an eye to big potential opportunities in Mexico market, Wal-Mart carried its points by taking many right steps. Such as

l Concentrated in three main urban areas Mexico City, Guadalajara, and Monterrey. The people there are richer and with much stronger purchasing power for consuming, easily accepted the consuming way in the supermarket.

l Deeply investigated in Mexican market, and quickly knew that the company’s competitive advantage is the combination of culture and supporting information and logistics systems, and the weakness is knew nothing about the culture and business system in this new market. Comparing all investing possibilities, then Wal-Mart decided the best way to do is taking the form of joint venture by 50 to 50.

l Chosen the good partner for the joint venture in Mexico. Cifra, the largest one in Mexico, has rich experience in retail market and has well done in dealing with supermarket business for several years. Concerning the business dimension and benefits, Cifra operated 10 discount and grocery stores and generated sales about $. billion. The good condition of Cifra can minimum the investment risk of Wal-Mart.

l The two founders of Wal-Mart and Cifra have a good relation and reached a common agreement with regard to the NAFTA which opened up opportunities for both sides in business cooperation in Mexico.

Good relation of two founders

．What is the source of Wal-Mart’s competitive advantage? What barriers did Wal-Mart have to overcome in transferring its competencies to Mexico?

Answer

l Advantage

1) First-class management team, that pursued a number of innovative operating strategies that backed up the company’s commitment to deliver a large selection of high-value merchandise at a low cost to consumers.

) Located in small Southern towns when it’s early period that had no other major retail presence. Wal-Mart did not have to face competition from other discounters.

) Advanced distribution system. Pioneered the development of a hub-and-spoke-based distribution system, where central distribution warehouses were strategically located to serve clusters of stores.

4) IT system. Wal-Mart has one of the first to utilize computer based information systems to track in-store sales and transmit this information to suppliers.

5) Dynamic and egalitarian culture. Wal-Mart grants major decision-making authority or store managers, department managers and individual employees(associates). Treating employees well, demanding commitment and excellent performance from them. profit-sharing plan and stock ownership plan

6) Has garnered significant leverage with its suppliers, and use this leverage to demand lower prices from its suppliers.(every day low prices)

l Barriers

1) Culture and system are difficult to transfer to franchisees

) Distribution and transportation cost too much

) Mexican retail market is very fragmented and dispersed

4) Government bureaucrats

5) NAFTA is not been implemented, high tariffs

6) Select a non-perfect merchandise

. How did Wal-Mart intend to create value in the Mexican market?

Answer

Wal-Mart believes that its unique culture, format, and operating systems are its advantage for international expansion. At that time, the United States, Mexico and Canada were talking about the foundation of North American Free Trade Agreement (NAFTA). This spurred Wal-Mart’s interests in Mexico. Historically, there are a lot of cross border trade and investment between U.S.A and Mexico. On the other hand, there are potential customers in Mexico, about 0 million middle class. The following is the steps of Wal-Mart entered into Mexico market

l Enter a 50/50 joint venture with Cifra. After a rapid grow in U.S.A., Wal-Mart has recognized that its U.S. growth prospects are ultimately limited by market saturation, its growth rate in U.S. would inevitably slow. This would slow stock price appreciation for Wal-Mart. Wal-Mart realized that it knew little about the culture and business systems of Mexico, so the company decided to form a joint venture with Cifra.

l 11 it opened the first Sam’s Club store in Mexico City.

l 1 Wal-Mart established six more Sam’s Clubs in Mexico

l 1 Wal-Mart began to open stores under the Wal-Mart name.

4. Despite some early setbacks, Wal-Mart has apparently been successful in Mexico. In contrast, some other U.S. retailers pulled out of the country in the aftermath of the December 14 peso crisis. What do you think distinguishes Wal-Mart from these companies?

Answer

l Wal-Mart has the integrated and effective foreign growth strategy

1) Entering a joint venture with a Mexincan company, Cooperate with Cifra in Mexico.

After debating a number of option for expansion, it chose to enter a 50/50 joint venture with Cifra, because it know little about the culture and business systems of Mexico.

During the December 14 peso crisis

) Making strong improvements in its operating efficiency.

Because of the low local labor costs, it can reduce its inventory and logistic costs

) Start to source far more goods from Mexico

Because many of its suppliers had located in Mexico to take advantage of lower production costs and NAFTA.

4) Improve the mix of product offerings at its Mexican stores.

Offer more products sold well in place of those sold bad

5) Use its purchase volume to gain leverage with suppliers, bargaining down prices in return for large purchase volumes

6) Decide to take advantage of the economic slump to build its market share.

l Wal-Mart uses its competitive advantage to develop successful.

1) Hub-and-spoke-based distribution system

This system allowed Wal-Mart to rapidly replenish stock in its stores, while keeping the amount of stores space needed for inventory to a minimum, can cut down inventory and logistics costs.

) Computer-based information systems

It can be used to determine pricing and stocking strategy and to better manage inventories.

) Dynamic and egalitarian culture and control system

By such means, Wal-Mart creates incentives for associates and managers to give their best for the company.

Wal-Mart always keep the point �every day low prices” and pass more prices on to consumers, enabling the company to gain market share and remain profitable. So compared with other companies, Wal-Mart use the long-time, flexible and successive foreign growth strategy to develop the market successfully.

5．If Wal-Mart can succeed in Mexico, it can probably succeed in most countries. Discuss this statement. Is it correct?

If Wal-Mart can succeed in Mexico, it can probably succeed in most countries. Discuss this statement. Is it correct?

Firstly before answering this question, we should consider what the main things are for one international company leading for success.

There are number reasons why the corporation succeeded in the expansion. The cores are the two main elements coming from the external and internal sides

l External side

The environment represents the set of uncontrollable forces to which the firm must adapt its marketing mix.

1) Economic environment

International expansion is affected by the economic environment in two respects by the global economy and secondly by the individual economies of the targeted countries

A. Government policy and regulation; the change of government

a. The balance of payments of one country measures the flow of the transaction between residents of that country and the residents of the rest of the world over a period of time

b. the tariff and quotas and protectionism are the restrictions to protect local market

c. Stable economic environment and continuous economic growth is the basic reason for some company looking for where is right place for the international expansion.

d. The government economy policy of trade and investment, monetary policy

e. living and consumption standard

B. International institutions and agreement

The trend to free market will help the company to fulfill the international strategy, otherwise it will become the big barrier. The segment market defined is very important for one company strategy expansion

) Political environment

Political conflict may be lead to instability, but it may or may not affect business operations.

) Social Cultural environment the language and habits are the typical things, which the international expansion is facing. This will contribute to the formats of distribution system and purchase chain.



4) The legal environment

Legal system does vary from country to country in terms of their complexity, interpretation and application and the global marketer must be aware of how the individual legal systems could affect the company’s business practice.

The international expansion has meant that firms need to plan on a global scale to remain competitive and successful

l Internal side

1) Mission for management

Firms internal environment and reflect the constraints which are imposed by the company on the marketing strategy decisions

) The structure of management

) Operation format

If the format can be connected well with the target market,

How to change your present format to complying with the requirement of potential markets

So we can not use yes or no to answer the question

External and internal environment will determine its potential opportunities and chances to be successful As for any strategy of one company should not be fixed to use for all different environments. If the international expansion strategy is established, how to take actions and how to establish the project, it should be precise even different, which should be flexibly used in real practice.

So when cannot say if you succeed in one country which will typical meant successful in other countries.



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