Executive Summary

At the beginning of 2009, Wal-Mart top management faces the question of whether the same strategy that it has been adopting in the past can be used to maintain the companys remar able performance and growth in the ne!t decade" #n the last $0 years, Wal-Mart has achie%ed strong and constant growth in sales and net income" #t has maintained the leading position in the &"'" discount retail industry and has become the largest retailer in the world" With the maturity of the industry, coupled with the intense competition from ri%alry companies, maintaining the current le%el of high performance becomes %ery challenging" (he )orters *i%e *orces analysis re%eals that the competition among ri%als is the dri%ing force of the industry, in which price is the most critical factor" (he %alue chain analysis and resource based %iew analysis show that Wal-Mart has been %ery successful in implementing the strategy as the low-cost leader by inculcating cost efficiency in its corporate culture, management style, and operations" #t has been the pioneer in adopting cutting edge technology to streamline its supply chain, and to understand and respond timely to customer demand" WalMart has de%eloped many strengths that help guard its leading position and open door to many opportunities for e!panding the business" +owe%er, it also faces threats from growing too big and in many areas, which ma es it %ulnerable to losing control, wea ened cooperation among stores and regions, and competition in multiple fronts" Wal-Mart should be caution in its growth strategy, especially in the e!pansion of its international presence" Although its financial strength, management s ills, and operation efficiency allow it to enter many o%erseas mar ets, it should be selecti%e in choosing the

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destinations" Wal-Mart can focus on emerging mar ets where customers are price sensiti%e such as ,hina and #ndia in Asia" #n -atin America, it should focus on Me!ico and a few ey mar ets that it pre%iously achie%es success" #n .urope, it can target regions that lac the presence of large retailers such as (esco and ,arrefoure" Although Wal-Marts common practice of acquiring e!isting small local chains to enter a mar et has helped Wal-Mart lower its mar et penetration costs and quic ly adapt to local mar et demands and culture, this practice also raises the issues of diluting corporate culture and wea ening the companys ability to reinforce coherent management practices and strategy" (herefore, international e!pansion should be implemented patiently and carefully"

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/%er the last four decades, Wal-Mart has achie%ed significant successes to become the worlds largest retailer" (he company has maintained sustainable growth in a fiercely competiti%e &"'" retail mar et en%ironment" #t has been continuously e!panding both in the range of goods and ser%ices, and in the number of stores in the &"'" and worldwide" While this e!pansion has generated handsome profits for its sta eholders and put the company in a strong financial position, it has also presented significant challenges for sustaining growth and performance, and managing a company that is incessantly becoming larger" (op management now is trying to address whether the same strategy that the company has been pursuing is suitable for maintaining and strengthening its current growth rate and mar et position, as well as for leading the company into the ne!t decade" (his report will present0 $1 an analysis of the e!ternal en%ironment of the company2 21 a discussion of the companys internal resources and capabilities2 31 a diagnosis of the e!ternal and internal factors2 and 41 recommendations of how the company should mo%e forward" 1. External Environment #n this section, an analysis of the )orters fi%e forces of the discount retail industry and Wal-Mart is presented" *or each force, the discussion first pro%ides a general o%er%iew of the industry in the &"'", and then focuses on Wal-Mart" )otential entrants0 the threat of potential entrants is considered low due to the following reasons0 5iscount retail industry is a highly competiti%e en%ironment with mostly big players competing for mar et shares" )rice is mainly the ey factor for competition"

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.!isting companies ha%e established strong and stable supplier networ s" Wal-Mart has a superior logistics and distribution system, cutting edge technology to support all phases of its operation, a well-established brand name, a large number of stores nationwide, and a deep financial resource"

Wal-Mart also has cost ad%antage o%er its competitors due to its large purchase %olume"

Wal-Mart can deter potential entrants" 'ubstitutes0 the threat of substitute is low" ,onsumers can buy from small mom-and-pop stores or specialty stores, but these stores do not offer a wide range of products, nor do they offer competiti%e prices" /n-line purchase can be a substitute means for shopping2 howe%er, it may not be a good choice for goods that are consumed daily because shipping costs may lead to higher final prices, and shipping time can delay the needs fulfillment" #ndustry competition0 the competition among e!isting firms is high because0 (his is a mature industry" (here are few but large competitors, who dominate the ma6ority of the mar et" )rice is the focus of competition, and firms are forced to cut cost to stay competiti%e"

7argaining power of suppliers0 the power of suppliers is low" #n general, most suppliers rely on retailers to distribute their products to the end consumers2 therefore, the role of retailers in the distribution channels is critical" Wal-Mart not only carries a wide range of products, but also possesses thousands of stores in the &"'" and worldwide" (his combination places Wal-Mart in a %ery strong negotiation position with suppliers and gi%es it great fle!ibility in choosing and

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wor ing with a wide range of suppliers and %endors" As stated in the case, Wal-Mart is 8both desired and feared by manufacturers9" With a fleet of 4,000 truc s, Wal-Mart also has capability to independently operate part of its transportation logistics without relying solely on outside %endors" Wal-Mart also carries some of its own Great Value pri%ate-label products tailored to local demand" 7argaining power of buyers0 the power of buyers is considered moderate" 'witching costs of buyers is low" 7uyers are price-sensiti%e" (hey can be easily lured to competitors to buy products that are offered at a lower price" (he differentiation in the products and brands among different discount retail stores in this industry is low" 'ince most of the products offered are commodity, buyers usually choose the store that is closest to their home or their wor place for con%enient shopping" Wal-Mart pro%ides a wide range of products and ser%ices, and offers %ery low prices" #n addition, it has many stores ser%ing different geographical areas" +ence, it has a large and loyal customer base" #nterest groups such as organi:ed labor unions, en%ironmentalists, and human rights acti%ists can interrupt the business" When a retailer e!pands internationally, it can face political challenges, as well as differences in culture and practices which may support or deter both the establishment and growth of a company in a country" #n the discount retail industry customers focus on a few elements, including price, con%enient location, range of products, and good ser%ice" (herefore, the ey success factors of
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the industry require that the firms need to0 ;$1 Maintain low cost by ha%ing efficient and effecti%e operations, ma ing bul purchases from %endors to en6oy %olume discounts, and paying low wages2 ;21 ,reate differentiation by ha%ing large stores carry a wide range of products, easy and accessible locations for con%enient shopping, and products that meet local customer preferences and needs2 and ;31 *ast response to mar et demand" (he nature of the e!ternal en%ironment of the discount retail industry dictates that potential entrant firms can only achie%e moderate profit" (he dri%ing force of the whole industry is the high competition among ri%al companies, in which price is the most critical factor" #n order to sur%i%e and be profitable, firms ha%e to offer competiti%e prices" (his translates into high efficiency in operation, low costs of goods sold, and low operating e!penses" (he industry may discourage small in%estors, but because the &"'" is one of the worlds largest retail mar ets, it can attract potential in%estors with strong financial strength, especially international retail chains, to enter the &"'" 2. Internal resources and capabilities Wal-Marts purpose is re%ealed in its founder 'am Waltons statement, 8#f we wor together, well lower the cost of li%ing for e%eryone<well gi%e the world an opportunity to see what its li e to sa%e and ha%e a better life"9 #ts mission statement is, 8'a%ing people money so they can li%e better9" #ts mission statement is %ery brief and broad, but it reflects the purpose of the company and its founder" With the way that mission statement is written, it can be considered as the companys %ision statement because of its broad sense" Wal-Marts corporate strategy is to be a low cost leader, which reflects precisely the purpose of the companys e!istence" #n the past decade, its strategy has been %ery effecti%e and successful" #t has been continuously growing in sales re%enues and net profits from $99= to

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2009" 'pecifically, net sales increased from &'>$$= billion in $99= to &'>40$"2 billion in 2009, and net profit increased from &'>3"? billion in $99= to &'>$3"4 billion in 2009" (he company also has a strong balance sheet with ample cash balance" @elati%e to its ri%als ;e"g" (arget, 5ollar Aeneral, and ,ostco1, it has higher percentages on return on assets and return on equity" Wal-Marts growth strategy is e!panding in products and ser%ices, as well as in geographical areas" #t has been successful in ,anada and Me!ico, and established presence in other countries" 7elow is a %alue chain model analysis that e!amines the companys current ey acti%ities and e%aluates the effecti%eness of these acti%ities" #n addition, where%er possible, the discussion also points out the differences from the ri%al companies and how these acti%ities add %alue" 'upport Acti%ities0 General administration" Wal-Mart has %ery unique practices" (he communication flows are direct between each indi%idual store and headquarter in 7enton%ille" )eople from headquarter are sent to local stores to obtain information about competitors and learn about what is happening in the local stores" (his practice is different from its competitors who require their people from local stores go to regional offices to report acti%ities and discuss issues" (his unusual practice creates a close connection between headquarter and local stores" (herefore, Wal-Mart can timely respond to customer demand, ma e correcti%e actions, and react to ri%als mo%es to stay ahead of the competition" ,ollecti%ely, these capabilities help add %alues to the end users by pro%iding the products at low prices, meeting customers demand, and resol%ing any big issues that affect their buying decision" (he 'aturday morning meetings are the trademar of the company managements style" (his acti%ity forms a %ery unique culture and is considered Wal-Marts 8spirit9" 7y ha%ing a

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common ritual, Wal-Mart has created a wor place that bonds people together and creates a sense of belonging for its associates" Human resource management. +uman resource and interaction practices between the company and its associates are based on respect, high e!pectations, close communication, and clear incenti%es" .mployees recei%e low pay but en6oy other benefits such as health care plans, retirement schemes, profit incenti%es, and stoc purchase plans" (he facts that employees ha%e high degree of autonomy and the company offers 8open door9 policy and great promotion opportunities create a %ery unique culture of Wal-Mart" While this culture is unusual in large retail organi:ations, it adds %alues to the %alue chain by creating a good wor ing en%ironment for employees to de%ote to their 6obs and best ser%e their customers" (he low wage, on one hand, allows the company to eep price low2 on the other hand, it e!poses the company to employee abuse issues and criticisms from interest groups" Technology integration. (echnology integration is one of the primary focuses of the company because of its %ital role in the companys success" (echnology has helped integrate Wal-Marts entire supply chain so that each stage of the %alue chain is %ery effecti%e and efficient, which allows it to promptly offer the right products at low prices to its customers" Procurement" Wal-Mart deals directly with manufacturers, and purchasing is centrali:ed at headquarter" #t requires manufacturers to cut their margin and meet its employment policies" #t also has close collaboration with its big suppliers such as )BA to facilitate in%entory control" All of these practices ha%e enabled Wal-Mart to buy its inputs at the lowest cost and to sa%e in%entory holding costs, which allow it to offer low price products" )rimary acti%ities0

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Inbound logistics and outbound logistics" Wal-Mart has superior logistics system" #t adopts the concepts of distribution centers and 8hub and spo e9 arrangement" (his is %ery effecti%e for eeping the in%entory le%el at each local store low and reducing transportation cost" While other retailers rely on either suppliers or 3rd party logistics companies, Wal-Mart is quite independent from outside logistics companies" #t also ta es control of import logistics from o%erseas suppliers" #n addition, it always stri%es for cheaper, faster, and more reliable logistics systems by implementing methods such as cross doc ing systems and remi! systems" (hese practices not only help Wal-Mart reduce e!penses but also gi%e it more control and fle!ibility in handling purchases" Operations" Wal-Marts goal is to offer a wide range of quality products at low prices in a pleasant shopping ambience" #t carries both nationally branded products and its own Great Value pri%ate label products tailored to local demand" #t also continuously e!pands its product brands to meet different customer needs such as the inclusion of upscale brands such as Apple, 'ony, and Citchen Aid" A %ery distincti%e feature of Wal-Marts operation structure is the decentrali:ation of store management" 'tore managers are empowered to ma e decisions related to product range, product display location, and pricing" 5epartment managers within the store can implement their own ideas in order to increase sales and reduce e!penses" (his is %ery different from other retailers where these decisions are made at the regional or headquarter offices" (his empowerment allows it to best ser%e its customers, because only local managers are able to best understand local competitors, and demand and shopping beha%iors of their local customers" Marketing and sales" Wal-Mart creates low price appeal to its customers" #ts mar eting strategy relies on word-of-mouth communication and focuses on e%eryday low prices, which

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means that customers can buy the products at the lowest price all the time" (his strategy aligns well with its ob6ecti%e of minimi:ing cost and adds %alue for the customer because the sa%ings from ad%ertising and promotion allow it to offer products at low prices" (he facts that Wal-Mart issues its annual report on ethical sourcing and commits to en%ironmental sustainability programs by shifting product mi! towards en%ironmentally friendly products are good mo%es" (hey not only generate a good image for the company, but also create %alues for its customers by offering en%ironmental friendly products to those who concern about the en%ironment" #n a broader sense, it has promptly responded to the trend of conser%ing the en%ironment, which has become a %ery hot topic in the current business community" Service" Wal-Marts goal is to create a pleasant shopping e!perience for its customers" #t has achie%ed this by ha%ing greeters at the entrance door and implementing $0-foot attitude that requires employees to greet a customer within $0 feet" #t also guarantees customers satisfaction by accepting returned goods on a no-questions-as ed basis"

(he %alue chain analysis re%eals that Wal-Marts core competencies include a supply chain with integrated technology, an ability to generate large sales %olume, superior logistics systems, operations that are decentrali:ed, a strong and unique culture, a close nit management style between the headquarter and indi%idual stores, a management team that ma es things happen with great autonomy, and effecti%e management routines and practices" An analysis based on the @esource 7ased Diew model is conducted to identify whether these core competencies are sustainable" )lease refer to the D@#E table in Appendi! $ for conclusions" 7ased on the D@#E table, it can be concluded that0 a1 a supply chain with integrated technologies is a competiti%e parity2 b1 an ability to generate large sales %olume to

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en6oy low price from suppliers, superior logistics system, operation decentrali:ation, human resources are temporary competiti%e ad%antage2 and c1 strong culture and management routine and practices are sustainable competiti%e ad%antages" Wal-Marts strong culture and management routines and practices are %ery unique" Although at the indi%idual le%el, many of Wal-Marts core competencies are temporary competiti%e ad%antages, but in combination, these competencies form a sustainable core competency for Wal-Marts superior profitability" #n order for a competing firm or a potential entrant to compete, it requires a %ery strong financial capability to in%est in integrated technology of supply chain and superior logistics system" #t is also %ery difficult for any company in the industry to achie%e the large sales %olume li e Wal-Mart does to ha%e such a bargaining power o%er suppliers" (he structure of the companys management and communication styles, operation autonomy inside Wal-Mart, and management team though imitable and substitutable but can hardly be the same" (hese core competencies ma e it difficult for ri%als to identify which core competency is critical for Wal-Marts success" (herefore, the combining of these core competencies forms a sustainable core competency for Wal-Mart for many years to come" 3. Diagnosis (he e!ternal en%ironment re%eals that competition among e!isting firms in the industry, specifically price competition, is the most critical dri%ing force of the industry" (he ey success factors include low price, wide product range and con%enient location, and fast response to mar et demand" Wal-Marts strategy of being a leader in reducing cost is aligned with the condition of the e!ternal en%ironment that it is in, and cost efficiency is embedded in its management systems and its corporate culture" #t has been continuously stri%ing to achie%e the

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lowest cost in e%ery aspects of its business" *or e!ample, Wal-Marts constant efforts can be found in the in%estment and successful adoption of cutting edge technology in supply chain and logistics systems, ma ing them one of the best systems in the world" ,ompared to its competitors, Wal-Mart has many strengths" #t has a %ery strong brand name with reputation for low prices and wide range of products" #ts enormous sales %olume allows it to ha%e %ery strong bargaining power o%er its suppliers" #ntegrated technology in supply chain enables Wal-Mart to achie%e high operation efficiency" 5ue to its superior logistic systems, Wal-Mart sa%es transportation costs and is independent from outside logistics" WalMart has capable managers who contribute to the success of the company" +owe%er, capable people may not be enough without a %ery strong culture and %alues that are shared among associates at all le%els" And Wal-Mart does ha%e both" #t not only leads the &"'" mar et, but also is %ery successful in ,anada and Me!ico" Along with the strengths, Wal-Mart also has wea nesses" #t can only attract price sensiti%e customers2 those who demand higher quality will stay away from shopping at WalMart" *or e!ample, Wal-Marts 'ieyu chain failed in Fapan due to its inability to attract qualityobsessed shoppers" (he e!pansion plan in both product and ser%ice range and geographic areas also comes with the cost of losing control in some areas and can negati%ely affect its ability to compete" #n terms of future opportunities, Wal-Mart has big potential mar ets in .urope and Asia" With its financial strength, it can either ma e direct in%estments through building its own stores or acquire small local chains, or form strategic alliances with leading chains in specific mar ets" Wal-Mart also faces se%eral threats" #t is always under pressure to sustain its mar et leader position" ,arrying a wide range of products ma es it e!posed to competition from

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different fronts, especially from those ri%als who are more focused on their merchandise offerings" 7eing an international retailer, Wal-Mart also faces political problems as well as differences in cultures and practices o%erseas" (he intense price competition put all the players in the industry in a mode of continuously stri%ing to cut costs and achie%ing high operation efficiency" *oreign giant retail chains such as (esco or ,arrefour can compete with Wal-Mart in both the &"'" and international mar ets" A summary of Wal-Marts strengths, wea nesses, opportunities, and threats can be found in the 'W/( table of Appendi! 2" 4. Recommendation Wal-Marts strategy of being a low cost leader is %ery successful" (his same strategy should be maintained and focused in the future" (o sustain its success, Wal-Mart should capitali:e on its current strengths, minimi:e wea nesses, capture opportunities, and limit threats" (he companys adoption of cutting edge technology to learn about customer demand and needs as well as to achie%e high operation efficiency must be done on a regular and ongoing basis" Maintaining Wal-Marts culture and practices is %ery important to maintain success" (he trademar 'aturday morning meetings should be resumed to wee ly, because it is %ery 8WalMart9 and it helps strengthen Wal-Marts associates spirit" (he company can get larger and larger, but the companys uniqueness should not be fading or being replaced" ,urrently, Wal-Mart only attracts price sensiti%e customers, those who are more quality obsessed or brand conscious are not shopping at Wal-Mart" Wal-Mart should not change or do anything to minimi:e this wea ness because the companys strategy is being a low cost leader, and it is impossible to satisfy all the mar et segments" #t is belie%ed that companies that stretch thin in different mar et segments can easily be stuc in a position without a target mar et"

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Wal-Mart has strong opportunities to enter more mar ets in .urope and Asia" +owe%er, its current growth strategy of both widening product ranges and e!panding geographically put the company at ris of stretching its resources, losing operation control, and wea ening strategy coherence" #t is recommended that Wal-Mart focuses its growth strategy on e!panding product ranges to meet %arious demands" As for international e!pansion, it should only focus on the mar ets that it can do well, such as ,anada and Me!ico" #t should consider dropping any international mar ets that are not performing well ;i"e" any unsuccessful mar ets in -atin America1" 7efore entering Asia and .urope mar ets, mar et research should be done thoroughly and Wal-Mart should only focus on a few mar ets that ha%e the best potential and less competition" (he companys past international e!pansion faced strategic and organi:ation issues, and therefore, its success has been inconsistent in foreign mar ets" (his is a sound e%idence of losing focus and losing control" 7y maintaining its strengths, Wal-Mart can continue to beat the competition and minimi:e its threats" Wal-Mart has responded well to the pressure from en%ironmentalists, womens and childrens rights ad%ocates, and anti-globali:ation acti%ists" Although these pressures do not currently affect Wal-Marts bottom line but successes in responding to them ha%e helped form and maintain a positi%e image for the company" #t should continue its programs of ethical sourcing and en%ironmental sustainability" @egarding low wage issue, it should maintain its current pay schemes" *irst, the rates are slightly abo%e the general retail trade" 'econd, Wal-Mart offers other benefits in addition to basic salary, including profit incenti%es, stoc purchase plan, and promotion opportunities"

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7y continuously focusing on its strengths and finding ways to increase operation efficiency, Wal-Mart will stay ahead of the price competition from ri%als, and deter potential competitors from entering the mar ets"

Appendi! $0 D@#E (A7-.

Competency #ntegrated technology of supply chain Ability to generate large sales %olume 'uperior logistics system /peration decentrali:ation 'trong culture +uman resources ;management team and employee autonomy1 Management routines and practices

aluable Ges Ges Ges Ges Ges Ges Ges

Rare Eo Ges Ges Ges Ges Ges Ges

!on" Inimitable Substitutable Eo Eo Eo Ges Ges Ges Ges Ges Ges Ges Eo Ges Eo Ges

Conclusion ,ompetiti%e parity (emp" comp" ad% (emp" comp" ad% (emp" comp" ad% 'ustainable comp" ad% (emp" comp" ad% 'ustainable comp" ad%

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Appendi! 20 'W/( (A7-.

Strengt#s 'trong brand name 'trong bargaining power o%er suppliers #ntegrated technology of supply chain 'uperior logistics system 'trong culture ,apable associates 'trong presence in ,anada and -atin America &pportunities 7ig potential mar et in .urope and Asia

$ea%nesses /nly attract price sensiti%e shoppers May lose control and lac of coherent strategy due to huge e!pansion plan nationally and internationally

'#reats 'ustain mar et leader position .!posed to competitions from %arious fronts *ace potential political problems, cultural and practice differences #ntense price competition -arge foreign competitors entering &"'" and international mar ets where WalMart is present

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