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1- How would Wal-Mart continue its extraordinary growth?
Wal-Mart is an American company, it has been a dominant force in the United States Retail market and more specifically, it operates and sells itself as a discount chain. Sam Walton the founder of this corporation had a vision, or it would be more accurate to say he had a different approach towards achieving his goals. Sam Walton chose to sell products at a low price, thus reducing his profit margin, however, he decided to rely on a high volume of sales in order to attain profits. Wal-Mart began its operations almost sixty years ago, it started with a single store in Arkansas, USA. The Wal-Mart Corporation currently owns over 5000 store worldwide, with 3200 outlets in the United States alone. The corporation operates 900 stores in the Americas (not counting the USA), 350 in locations in Europe, and 440 locations in the Asian continent. (Examine exhibit 2, Wal-Mart case study, Yoffie 2005)
Wal-Mart has achieved 260 Billion Dollars in sales in 2005, making the company the largest corporation in the world considering sales, and not to mention being the largest retail corporation in the world. Wal-Mart faces stiff competition in both its domestic and international markets; however, Wal-Mart has a huge lead over its competitors. Wal-Marts sales were more than twice that of the combined sales of its two closest rivals (Home Depot 65 Billion & Target 50 Billion). Wal-Mart has used its rapid expansion and efficiency as a edge over the other retailers, but can this growth spurt that has lasted over half a century continue much further? Corporations and especially ones like Wal-Mart need to maintain a level of growth in order to stay profitable as well as functional, but can they keep matching the extraordinary levels they achieved in the past, and can the people in todays’ economy tolerate this growth? There are several elements, both external as well as internal, that would affect the answer of those questions. In order to fully comprehend these forces, we need to analyze the situation using certain tools. The most fitting tool to analyze the potential growth of Wal-Mart would be the SWOT Analysis tool, since it would give us both an external as well as an internal view of the companys’ status.
Wal-Mart SWOT Analysis
A SWOT Analysis is a tool utilized by corporations to analyze the companys status and elements both internal and external that could affect it. The SWOT analysis gives both an internal and external view of the company, it contains four areas of examination and they are the companys’ strengths, weaknesses, opportunities, and threats.
* Being the largest company in the world with 260 Billion in sales.
* The company has a good reputation in the United States.
* The company makes good use of technology, especially in inventory management.
* The company has a huge lead ahead of its competition.
* High turnover rate of employees.
* They face criticism for reliance on temporary and part-time workers as well as accusation in regards to violations of the child labor laws.
* Not attractive for employees due to low pay rates and lack of benefits.
* Despite being the worlds’ largest retail company, Wal-Mart operates in only a handful of countries outside of the United States.
* The constant incorporation of state of the art technology gives the company a competitive edge.
* There are several potential international markets that the company can target.
* Wal-Mart has the opportunity to use different strategies for different markets, such as creating normal stores, super centers, and neighborhood markets.
* Wal-Mart is under the threat of heavy competition in both local and international markets, due to the fact that they are the number one company.
* The trends of stores that focus on one special areas of expertise are now threatening Wal-Mart (such as Best Buy for example).
* Political pressure and foreign laws can affect Wal-Marts operations in other countries.
It is difficult for Wal-Mart to maintain the level of growth they had, but as the SWOT Analysis showed, the company has what it takes to do it. The companys’ strengths assists them in fully utilizing the opportunities that are available, while at the same time, the company has to be cautious in addressing all of its problems, weaknesses, and threats in order to maintain its astonishing growth.
2- What would be the limits to that growth?
It is essential that all companies have a form of strategy that would enable them to regulate, control, and plan their growth. That strategy would dramatically differ from one type of business to another in the sense that the requirements and elements needed to be considered for each type of business can vary. The importance of those strategies is that the stakeholders in the company would often view the growth of the company as a main indicator for its performance, so they judge the company by the level and consistency of its growth. In the Wal-Mart case, this has been true since the beginning; Wal-Mart has always been aggressive in its pursuit of growth as well as using the perception of amazing and fast growth to their advantage. But the question is, what are the limits to Wal-Marts growth?
The domestic retail market in the United States s overcrowded and extremely saturated, even Wal-Mart would have to seek new means of expansion, so the natural solution for them would be to seek new markets and opportunities outside the borders of the organizations’ home country. The issue faced by companies that want to expand internationally is that they expose themselves to external forces that they are not accustomed to, forces that might limit the companies’ choices as well as their growth. In order to avoid that negative aspect, Wal-Mart needs to investigate those factors by using the PESTLE analysis (also known as PESTEL).
Wal-Mart PESTLE Analysis
The PESTLE Analysis is a strategic planning tool used by corporations to analyze the various external forces that would affect corporations operations when entering new markets. The PESTLE categorizes those elements into six different forces, which are the political, economical, social, technological, legal, and environmental forces.
The political aspect of a PESTLE analysis would analyze the implications of the new political system and its effect on the corporate models of an international company. Multinational corporations are exposed to a tremendous amount of risk when entering a new country/market; the political forces could negatively affect its operations, in the case of the Wal-Mart Corporation, this is especially true. Wal-Mart has become a symbol of the American culture and it will become a target for any political faction that opposes the political views of the United States. This factor could severely limit the companys’ growth in certain region of the world.
When discussing economic forces in the PESTLE analysis, we refer to how different states of an economy such as an economic surge or a depression would influence multinational corporations and their business within that specific economy. Wal-Mart is always sensitive towards this aspect, their sales model which depends on low margins of profit and a high volume of sales, could alter relatively fast. In an economic surge their selling point of low prices would be of less importance to customers, on the contrary, during a time of recession/depression their goal of high volume of sales would be threatened. As a result of the previously mentioned points, Wal-Mart should conduct a thorough study before entering an unbalanced economy.
This aspect defines the characteristic of the social forces when analyzing a foreign market and the society in which it is present in. These social forces can cripple a corporations’ business if they were left unchecked. In regards to Wal-Mart, this element could prove to be crucial, due to the fact that Wal-Marts model was tailored to suit the American society and their attitudes towards retail shopping. That mentality would inevitably clash with the attitudes of clients in foreign countries fueled by social differences. As a result, Wal-Mart would have to make changes to its model in order to adapt to the requirements of other cultures, this would present a cost that would limit the companys’ growth.
The Technological forces refer to the changes and innovations in technologies and the extent to which it affects companies’ processes. It is well known that technology changes all the time and people are always creating better, faster, and more efficient ways of doing things. Companies that can integrate those changes the fastest would have an edge over those who cannot. Wal-Mart has always been a leader in implementing and integrating new technologies to improve its efficiency. However, when venturing to other countries, those systems are sometimes unusable. Change could take a different amount of time to reach different countries, and companies would have to take that into consideration before venturing into a new market. That means that Wal-Marts growth would be limited to the countries that can support those technologies.
The legal factor that could affect organizations willing to enter foreign markets is the different laws, and corporations are forced to abide by those laws should they enter a foreign market. This is a powerful force due to the various implications it creates, companies could venture into other countries for the sole purpose of taking advantage of certain laws in those countries, for example, companies would usually go to a developing country with a less developed legal systems, and set operations to avoid more strict laws in their home countries (Labor laws, environmental laws, safety laws). Wal-Mart has received criticism that it uses this loophole to keep its prices low.
The environment is a major concern for multinational corporations; this is because large corporations are accused of destroying the environment and the exhaustion of natural resources on a regular basis. Wal-Mart has had an environmental issue before; they sold furniture that was produced from using wood from a natural reserve. They were heavily criticized and were eventually pushed into dropping the product line completely. As a result of that issue, their growth in that field was halted.
From my point of view, I think that Wal-Mart are close to their limit of growth in their domestics market, thus, it is inevitable that they seek international expansion. That would mean that the limit of the companys’ growth would be determined by different factors in these new markets, so in my opinion, as long as Wal-Mart can handle these forces, their growth in those countries will not be limited.
3- Did Asia and Europe offer Wal-Mart real opportunities for international market dominance?
4- How could the company take advantage of its global reach to propel itself through the years to come?
Companies that operate internationally have an advantage when it comes to their risks and opportunities, international companies do not rely solely on their domestic markets for profit. As a result of that, an economic shift in that specific market would be less threatening to them than it would be to a purely domestic company. Moreover, an international company has more opportunities to take advantage of, for example, if the domestics market becomes overly competitive or saturated, or in the event that laws and regulations made it not economically feasible to continue to function in the domestic market, an international company could always shift its operations to the foreign markets and try expanding there. This global reach that some companies possess would also give them a footing to enter easily into other markets.
Companies faced with the option and opportunity to expand into international markets must take into consideration a set of essential elements, as well as to be clear of what those objectives are before attempting to enter those markets. What these companies need is a plan, or rather a strategic plan to guide them through the steps of entering a new market. This is done so that they could take full advantage of the potential of those new markets while also avoiding any confusion about the purpose of the companies’ operations in those countries.
A company needs to have a proper strategy from the very beginning, not only for international expansion, and the Wal-Mart corporation has had its strategy since the beginning. When examining the Wal-Mart case, we see that the company entered the market focusing primarily on lowering their costs; they keep the prices low to attract more customers and consider their prices to be their main selling point. They seek to be the cheapest in the market rather than being unique, when it comes to strategic planning their choice would be categorized under generic strategies of cost reduction.
When expanding internationally, other elements have to be added to the strategic plan of a company, in some cases, a system that was successful in one country will be unusable in another due to the different environmental and social differences between the two countries. At this point, an international company would have two options; they should either try and make their formula work in the new country, or make changes to their methods to better fit in the local scene. Wal-Mart has chosen the latter option; they often partner up with an existing company in foreign markets rather than try to enter on their own. This helps them adjust their operation so that it fits the new country.
Wal-Mart has tremendous opportunities ahead of it, they have established a reach into several global markets and from that point they could expand into several other areas. The company is facing competition in the over saturated market of the United States, this global reach would allow it to gain an advantage that others do not have. It has been said that Wal-Mart cannot sustain the level of growth it has seen anymore, however, all those new markets could present the factor that could save the company and help it keep growing.
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