1.

Analysis of the Industry’s environment:

Wal-Mart Stores, Inc. is an American public corporation that runs a chain

of large, discount department stores. It is the world's largest public
corporation by revenue, according to the 2008 Fortune Global 500. Founded
by Sam Walton in 1962, it was incorporated on October 31, 1969, and listed
on the New York Stock Exchange in 1972. It is the largest private employer
in the world and the fourth largest utility or commercial employer, trailing
the British National Health Service, and the Indian Railways. Wal-Mart is the
largest grocery retailer in the United States, with an estimated 20% of the
retail grocery and consumables business, as well as the largest toy seller in
the U.S. It also owns and operates the North American company, Sam's
Club.

As Wal-Mart grew rapidly into the world's largest corporation, many critics
worried about the effect of its stores on local communities, particularly
small towns with many "mom and pop" stores. There have been several
studies on the economic impact of Wal-Mart on small towns and local
businesses, jobs, and taxpayers. In one, Kenneth Stone, a Professor of
Economics at Iowa State University, found that some small towns can lose
almost half of their retail trade within ten years of a Wal-Mart store
opening. However, in another study, he compared the changes to what
small town shops had faced in the past — including the development of the
railroads, the advent of the Sears Roebuck catalog, as well as the arrival of
shopping malls — and concluded that shop owners who adapt to changes in
the retail market can thrive after Wal-Mart arrives. A later study in
collaboration with Mississippi State University showed that there are "both
positive and negative impacts on existing stores in the area where the new
supercenter locates .Wal-Mart Stores Division U.S. is Wal-Mart's largest
business subsidiary, accounting for 67.2% of net sales for financial year
2006. It consists of three retail formats that have become commonplace in
the United States: Discount Stores, Supercenters, and Neighborhood
Markets. The retail department stores sell a variety of mostly non-grocery
products, though emphasis has now shifted towards supercenters, which
include more grocery items. This division also includes Wal-Mart's online
retailer, walmart.com.

In North America, Wal-Mart's primary competition

includes department stores like Kmart, Target, ShopKo, Meijer, and
Canada's Zellers, Winners, and Giant Tiger. Competitors of Wal-Mart's Sam's
Club division are Costco, and the smaller BJ's Wholesale Club chain operating
mainly in the eastern US. Wal-Mart's move into the grocery business in the
late 1990s also set it against major supermarket chains in both the United
States and Canada. Several smaller retailers, primarily dollar stores, such
as Family Dollar and Dollar General, have been able to find a small niche
market and compete successfully against Wal-Mart for home consumer
sales. In 2004, Wal-Mart responded by testing its own dollar store concept, a
subsection of some stores called "Pennies-n-Cents.
Wal-Mart also had to face fierce competition in some foreign markets. For
example, in Germany it had captured just 2% of German food market
following its entry into the market in 1997 and remained "a secondary
player" behind Aldi with a 19% share. In July 2006, Wal-Mart announced its
withdrawal from Germany. Its stores were sold to German company Metro.
Wal-Mart continues to do well in the UK, and its ASDA subsidiary is the
second largest chain after Tesco.
In May 2006, after entering the South Korean market in 1998, Wal-Mart
withdrew and sold all 16 of its South Korean outlets to Shinsegae, a local
retailer, for $882 million. Shinsegae re-branded the Wal-Marts as E-
mart stores.
Wal-Mart struggled to export its brand elsewhere as it rigidly tried to
reproduce its model overseas. In China, Wal-Mart hopes to succeed by
adapting and doing things preferable to Chinese citizens. For example, it
found that Chinese consumers preferred to select their own live fish and
seafood; stores began displaying the meat uncovered and installed fish
tanks, leading to higher sales.
In addition, under heavy pressure from the Chinese government, Wal-Mart
accepted a form of organized labor in China. Chinese labor unions do not
negotiate contracts but simply pay dues to the government, "to secure the
social order." However, Chinese consumers may be more open
to Americana than shoppers in Europe.
Kinds of strategic moves that industry members are likely to employ:

 Design and open a new store prototype within four years that improves energy efficiency
and reduces greenhouse gas emissions by up to 30 percent in these stores.
 Reduce greenhouse gas emissions from existing stores, clubs and distribution centers by 20
 percent within seven years.
 Establish a US program within 18 months that gives preference to suppliers who
aggressively reduce emissions.
 Implement a China program that gives preference to environmentally-responsible suppliers.
 Aggressively pursue regulatory and policy changes that promote energy efficiency and
renewable energy.
 Reduce solid waste from US stores and clubs by 25 percent within three years.
 Work with suppliers to reduce packaging, increase recycled content, and expand recycling of
 Packaging.
 Eliminate PVC packaging from private label brands within two years.
 Sourcing: establish independent monitoring of Wal-Mart’s factory certification program;
separate the factory certification and buying functions; cease doing business with supplier
factories that fail to meet Wal-Mart’s ethical standards; collaborate with industry, government
and NGOs to improve sourcing in developing countries.
 Healthcare: make healthcare insurance available to all employees for $23 per month or less
and their children for $15 per month; put healthcare clinics in stores for employees and
customers; provide volume discounts on healthcare insurance to small businesses; collaborate
with business, government and others on US healthcare reform with the goal of lowering
costs by as much as 25 percent.
 Wages: support an increase in the US minimum wage; continue paying market wages.
 Communities: enhance existing community engagement processes with the goal of building
mutually beneficial partnerships and better meeting community needs.
 Diversity: increase the percentage of women and minorities in management; tie management
compensation to achieving diversity goals; use Wal-Mart scale to assist and grow minority-
owned businesses.

2. Analysis of the nature and strength of competitive forces

Michael Porter described a concept that has become known as the "five forces model". Using this
model, business leaders can develop a strategic edge over rival firms by better understanding, the
industry context in which the firm operates. Porter’s approach takes an industry vista helping you
to assess, at a corporate strategy level, the attractiveness of the industry to potential entrants at a
given time.

• Potential Competitors: Medium pressure

 o Grocers could potentially enter into the retail side.
o Entry barriers are relatively high, as Wal-Mart has an outstanding distribution
systems, locations, brand name, and financial capital to fend off competitors.
o Wal-mart often has an absolute cost advantage over other competitors.

• Rivalry Among Established Companies: Medium Pressure

o Currently, there are three main incumbent companies that exist in the same market
as Wal-Mart: Sears, K Mart, and Target. Target is the strongest of the three in
relation to retail.
o Target has experienced tremendous growth in their domestic markets and have
defined their niche quite effectively.
o Sears and K-Mart seem to be drifting and have not challenged K-Mart in
sometime.
o Mature industry life cycle.

• The Bargaining Power of Buyers: Low pressure

o The individual buyer has little to no pressure on Wal-Mart.
o Consumer advocate groups have complained about Wal-Mart’s pricing
techniques.
o Consumer could shop at a competitor who offers comparable products at
comparable prices, but the convenience is lost.

• Bargaining Power of Suppliers: Low to Medium pressure

o Since Wal-Mart holds so much of the market share, they offer a lot of business to
manufacturers and wholesalers. This gives Wal-Mart a lot of power because by
Wal-Mart threatening to switch to a different supplier would create a scare tactic
to the suppliers.
o Wal-Mart could vertically integrate.
o Wal-Mart does deal with some large suppliers like Proctor & Gamble, Coca-Cola
who have more bargaining power than small suppliers.

Substitute Products: Low pressure

o When it comes to this market, there are not many substitutes that offer
convenience and low pricing.
o The customer has the choice of going to many specialty stores to get their desired
products but are not going to find Wal-Mart’s low pricing.
 o Online shopping proves another alternative because it is so different and the
customer can gain price advantages because the company does not necessarily
have to have a brick and mortar store, passing the savings onto the consumer.

3 Identification Industry’s driving forces and pinpointing the key

factors for future competitive success in the industry:

These may be the key factors for future competitive success in the industry-

 To take over, merge with, or form strategic alliances with other global retailers, focusing on
specific markets such as Europe or the Greater China Region.

 The stores are currently only trade in a relatively small number of countries. Therefore there
are tremendous opportunities for future business in expanding consumer markets, such as
China and India.

 New locations and store types offer Wal-Mart opportunities to exploit market development.
They diversified from large super centers, to local and mall-based sites.

 Opportunities exist for Wal-Mart to continue with its current strategy of large, super centers.
 Since Wal-Mart is the largest retailer in the United States, it has a very good opportunity to
become the largest retailer in the world. They do not always carry a diverse selection of
products, so they could expand stores and merchandise to attract more customers

 Wal-Mart has already announced a new health care plan which would increase benefits to
employees.

 And there are also some strengths of the industry that help them for future competitive
success in the industry-

 Wal-Mart is a powerful retail brand. It has a reputation for value for money, convenience and
a wide range of products all in one store.

 Wal-Mart has grown substantially over recent years, and has experienced global expansion
(for example its purchase of the United Kingdom based retailer ASDA).

 The company has a core competence involving its use of information technology to support
its international logistics system. For example, it can see how individual products are
performing country-wide, store-by-store at a glance. IT also supports Wal-Mart's efficient
procurement.

 A focused strategy is in place for human resource management and development. People are
key to Wal-Mart's business and it invests time and money in training people, and retaining a
developing them.