Walmart Stores, Inc., branded as Walmart, is an American multinational retail corporation that runs chains of large discount department stores and warehouse stores. Walmart was founded by Sam Walton in 1962, incorporated on October 31, 1969, ‘Save money. Live better’ is the slogan of Walmart. The company has over 11,000 stores in 27 countries, under 55 different names. According to the Fortune Global 500 list in 2014, Walmart is the world’s largest public corporation, the biggest private employer in the world with over 2 million employees, and is the largest retailer in the world. The company remains a family-owned business, as it being controlled by the Walton family, who own over 50% of Walmart, it is also one of the world’s most valuable companies (Wikipedia.org, 2014).
Walmart de M??xico y Centroam??rica, is a Mexican-based public corporation. It has been traded in the Mexican Stock Exchange since 1977 (as Cifra). The company was founded in 1958 as Cifra by Jer??nimo Arango. The company grew and in 1991 Cifra and Walmart Stores, Inc.; signed a joint venture agreement. This agreement allowed cooperation between the two companies and the opening of Walmart stores and Sam’s Clubs in Mexico. Then in 1997 Walmart increased its stake by acquiring 51% of Cifra stock. Once the acquisition was completed Cifra was renamed, the new company became Walmart de Mexico, S.A. de C.V. Walmart again increased its stake in Walmart de Mexico to 60% in April 2000. After completing the acquisition of Walmart’s operations in Central America, in January 2010, Walmart Mexico absorbed Walmart Centroam??rica and changed their name to Walmart de Mexico y Centroam??rica. At the end of December 2011 Walmart operates 2037 retail outlets in Mexico including restaurants and supermarkets, under the names Walmart, Superama, Suburbia, VIPS, Sam’s Club and Bodega Aurrer??. As of 2012 the company was Mexico’s largest private sector employer with 209,000 employees. One fifth of the Walmart stores in the world are in Mexico. It competes with Soriana, Comercial Mexicana, Chedraui, H-E-B, Casa Ley, and S-Mart. Walmart de M??xico y Centroam??rica is the biggest retail company in Latin America (wikipedia.org, 2014).
On January 1, 1994, the North American Free Trade Agreement between the United States, Canada, and Mexico (NAFTA) entered into force. NAFTA created the world’s largest free trade area, which now links 450 million people producing $17 trillion worth of goods and services (NAFTA, 2014). NAFTA launched to eliminate of tariff and nontariff barriers, harmonize trade rules, liberalize restrictions on services and foreign investment, enforce intellectual property rights, dispute settlement process, enforce labor laws and standards in the region, durability the environmental standards, in addition, with this agreement North America became more competitive in the global marketplace.
Prior to NAFTA, Walmart faced many challenges when expanding into Mexico and the largest challenge it faced was incorporating the import charges on the goods it sold in its stores which prevented Walmart to maintain its competitive advantage and its cost value offer of ‘Every Day Low Prices’. The implementation of (NAFTA) in 1994; affected Walmart’s success in Mexico and opened many doors for Walmart as NAFTA allows Mexico to reduce tariffs cost from 10% down to 3% on American goods, this has allowed the Walmart in Mexico to offer the same ‘Every Day Low Prices’ to its consumers without having to raise prices due to tariff fees. Furthermore, NAFTA created new interest in foreign direct investment (FDI) in Mexico and encouraged the Mexican government to improve its infrastructure, transportation system, and build efficient and beneficial logistic system and distribution networks. This relaxation of restrictions on FDI was also advantage for Walmart as some international suppliers locate their operation and built new manufacturing plants in Mexico, such as Sony. This allowed the supplier to offer lower their prices to Walmart (for example; prices of Sony TVs dropped from $1600 to $600; customers in Mexico, of course, could not resist such low prices, in turn, this helped Walmart to develop a huge customer base).
NAFTA grant benefits to all companies that are interested to operate abroad. This agreement which solved some difficulties that faced Walmart in Mexico has integrated with Walmart`s inherent competitive strategy and allowed the company to succeed. Walmart is considered a threat to companies like Comerci, Gigante, and Soriana when trade barriers fell and import fees from Europe and Asia to Mexico was reduced significantly due to the implementation of NAFTA. Walmart has strategy to win against its competitors which is its offered prices. Walmart’s size and volume purchasing power enabled the company to have large negotiating power with suppliers to drop prices and consequently lower the prices; this made Walmart to be the leader in the market. Walmart worked closely with suppliers on inventory levels. The company created an advanced real time inventory system which allows its suppliers tracking the merchandise needs in real time. This system benefited both parties as it helped in reducing the production cost and enabled Walmart to negotiate with suppliers to reduce prices to reasonable price.
Such purchasing power was not available in other companies; therefore, if competitors wanted to survive, they would compete against the company’s prices or change the type of business.
Comparing Walmart with its competitors, Walmart was able to find a value chain that made them successful and that was through the competitive advantage of ‘Every Day Low Prices’ offer. Walmart didn’t try to pocket profits that they make from lower tariffs or new deals, they actually lower their overall prices so that customers don’t have to pay as much and profit as well. However, Walmart was not free of making mistakes. The company, during their first three years in Mexico, actually continuously stocked their stores with ice skates, fishing tackle, and riding lawnmowers which obviously didn’t sell well in that region. Local mangers instead of notifying headquarters of these unnecessary items they were heavily discounted in the end and restocked again. In the end, however, Walmart learned from these mistakes and became very successful in many other countries around the world. In my opinion, NAFTA played an important role in Walmart’s successes and any company as big as Walmart, can be just successful as Walmart, if smart competitive strategies are applied.
Comerci has struggled to stay competitive with Walmart by offering lower prices to its customers. However, because they lacked the purchasing power and negotiating power that Walmart has, Comerci merged with two other Mexican chains (Soriana and Gigant) to form Sinergia. Sinergia was another large store similar in size to Walmart but their purchasing power was still low compared to Walmart. The increased purchasing power enabled, but restricted, Sinergia to negotiate better bulk prices with local suppliers due to the lack of credit, while Walmart had reached to multitudes of international suppliers. Sinergia faced some challenges; the first challenge was the rejection by the Mexico’s regulators and Consumer Product Council which feared that Sinergia would use its purchasing power to force unreasonably low prices on suppliers. The second challenge was that Collaborations’ purchases are limited to local suppliers. Mexico’s regulators and Consumer Product Council in order to prevent price fixing and other monopolistic behaviors obliged Sinergia to re regular report on a regular basis the nature of its purchasing agreements and the confidential agreements that signed with retail chains.
In my opinion, Comerci and Soriana must carefully study the market and determine techniques and methods in which it can be different from Walmart. They should also measure and evaluate what they can offer and what they would desire from a local or foreign partner. All the information that will be collected will contribute to make wiser operative decisions that would allow them to compete against the market leader. Comerci and Soriana can merge with a local retail chain that already have loyal customers; thus, higher volume would enable them to offer similar prices to customers as Walmart. By this merge, customers would feel like they still are supporting the national store chain. Comerci and Soriana should also benefit from NAFTA and the market opportunities provided.
Comerci and Soriana also can try to merge with a foreign retail chain. The advantage of this merge is that the foreign companies might have good reputation that helps Comerci and Soriana to succeed good deals with them and accordingly might be recognized globally, as Walmart.
Moreover, Comerci and Soriana can deal with more than supplier in order to have variety of products and better prices can be negotiated. Comerci and Soriana could also try to be different from Walmart by creating family oriented atmospheres that can attract the Mexican middle class families, higher end products, better customer service, etc.
NAFTA played an important role in Walmart’s success. NAFTA implementation had influenced Walmart positively. NAFTA allowed approximating the geographic area; lowering the import charges, free trade between Mexico and Central American countries; and easy access to European and Asian goods. Without denying Walmart effective and successful strategy; Walmart was able to offer lower prices; create a unique distribution system; develop a strong Logistic system; establish strong relationships with suppliers; and set up different operations approach to target different consumer segments. Walmart’s strategy was a great to make the expansion; the company operates more than 11,000 retail units under 69 banners in 27 countries and e-commerce websites in 10 countries. They employ 2.2 million associates around the world, 1.3 million in the U.S. alone. They operate in 26 countries outside the United States, with more than 796,000 associates and over 6,400 stores internationally (Walmart.com, 2014). In my opinion, the combination of these two factors, NAFTA and Walmart Strategy; supported the successful of Walmart.
Walmart may face the followings challenges; to continue expansion in Mexico and Central America:
Rising Protectionism: The resource rich countries have local manufacturing that cannot compete when their currencies escalate; as far as this occur; they pressure their government for security and guard, and they start receiving it in form of extraordinary import tariffs, complicated non-tariff regulations, etc. Thus; exportation to Mexico and Central America will be more complicated and that will affect Walmart (Agren & Ogier, 2011).
Regional Latin American competitors: Walmart depends on business development in Mexico and Central America markets, yet the retailer will need to continue acquisitions in South America, where more significant local competitors are exist. What threaten Walmart most are not the global retailers, but the regional Latin American competitors whom are still suffering from losses in Latin America and others who are charmed with China (Agren & Ogier, 2011).
Economic Slowdown in Mexico:
In 2013; due to the weakness in Mexico, low consumer confidence, and an overall slowdown in the economy; Mexico’s economy expanded by just (1.1%) as a result of lower government spending, weak demand for exports and idle consumption. Consumer confidence index reached its lowest level (89.7%); in December 2013; and fell further to (84.5%) in January 2014; due to the increase in taxes that restricted the consumers from the free spending. Walmart international business revenues grew only by (1%) and the revenue per square feet has declined by 4.2%. Since this market, with approximate 2,300 stores, considered from long term perspective a vital importance to the company; this miserable results was unease for the retailer (forbes.com, 2014)
Additional to the above, there are clear differences such as culture, language (the main business language used is Spanish) and currency. Mexican people and their cultural preferred to communicate to a human being; rather than impersonal communication. Moreover, Mexicans love to negotiate and they take their time when making a decision. Labor law can costly if ignored as it considered being the biggest challenges (startupoverseas.co.uk
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