Costco Wholesale Corporation is an American based company which operates membership warehouse.

It has being well known for offering selective branded products at a much lower price. It is one of the
largest company in the United States with its headquarter in Washington. In the year 2012 Costco was
ranked 24th in the world. (Fortune, 2012) Costco directly purchases its goods from merchandize who
manufacturer the product and which are then delivered to Costco warehouses. It has 655 warehouses in
the world as of 29/05/2014. (Costco, 2014)
A value chain is defined as a customer value which is accumulated throughout the process carried out to
manufacture the end product or service. (San, 1996) The primary activities are supported by the support
activities which strive to achieve effectiveness and efficiency of the company. (Porter & Miller, 1985)
Here we shall discuss two primary activities in context of Costco, marketing and sales and service. In
marketing and sales Costco has a just above average competitive advantage in the market. This is
primarily because they hardly invest in marketing of their warehouses or products so they dont have
any advertising campaign or policy. But on the other hand, they have achieved big numbers in sales as in
the year 2009 their net sales were 70 billion dollars as in the year 2013 it increased to 103 billion dollars.
(Costco, 2013) Moving further, the support service at Costco has been a competitive advantage over
others. Costco is well known for the exclusive services provided for their members such as full refund if
not satisfied, money saving services, online store and many other services. This strategy has enabled
Costco to have the highest retention rate for membership. These primary activities have been a
competitive advantage for Costco over its competitors.
The two support activities we shall discuss about are the Human Resource Management (HRM) and
Procurement in Costco. Jim Senegal, the CEO of Costco believes that, When employees are happy, they
are your very best ambassadors. (i-Sight, 2008) The Human resources at Costco is a much bigger
competitive advantage over their competitors from everything else. This is primarily because of the fact
that Costco has stood up for their employees on each and every aspect. Costco gives its employees the
highest wage of $17 per hour and covers about 90% of the health insurance. (i-Sight, 2008)
Furthermore, they have the lowest employee turnover rate in the market which is a positive sign for a
company as it shows how valuable and strong the organizational culture would be. Despite of all these
benefits provided to employees the sales have boosted up by more than 70% for Costco. Second, the
procurement at Costco has been a competitive advantage for them as well. Costco purchases its goods
from single vendors in very high volume. This requires efficient human, financial and technical skills as a
lot of inspection and work goes from choosing the product to getting it on the shelf. These support
activities such as Human resources where from hiring to compensation everything is followed in the best
practice and procurement which makes sure that the right specialized product is chosen and bought in
the right quantity to serve the customer.
PEST Analysis denotes Political Economic Social Technological analysis which is a tool used to assess the
environment in which the business is currently operating or is planning to setup in. (PESTEL, 2014) We
will use the PEST analysis to assess the external environment for Costco.

Starting with political, Costco and its business practices are influenced by the country in which the
warehouse is located to abide by their rules and regulations. At Costco the employees are given a very
high amount of wage which raises the standard of the company despite of the fact that it may affect the
countrys policy. (Herbst, 2005) Moreover, the company operates in several countries which has
established relations with political parties to help them stay in the market. This means Costco centrally
makes and follows its industrial policy according to the United States political policy.
Economic factors influence the way business creates its strategies and market themselves. (Chidrawar,
Hatch, & Kramer, 2009) The economic condition of Costco is well on track because of the ongoing and
consistent sales and growth of their warehouses and the number of members who join them. The
common factors influencing them are the monetary, fiscal, tax and exchange rate policies.
Social factor addresses the broad area of mix culture, education, government directives and
employment opportunities. (JISC, 2008) Costco promotes cultural diversity and looks forward in hiring
employees of different culture and gender which as a result increases efficiency. Woman employees are
given a lot more opportunities at Costco.
Technological factor is the key when the market has high competition. Costco has taken big steps to
increase their technological capability by recently installing a virtual technology system to handle IT
related services. Furthermore, they are investing in technology which can help reduce the carbon
footprint in the production stage.
Let us now analyze the external environment using the Porters five force analysis. First the rivalry
among established competitions is relatively low because there are only about three competitors Sams
club, BJ and Wall mart. The competition is mainly in their prices and quality. Second the bargaining
power of suppliers is medium because there are a good number of purchasers of the goods and with the
substitute raw materials in market it makes it easier for suppliers to keep their prices high. Third the
bargaining power of buyers is medium as well because the demands vary from time to time and so it is
reasonable for customers to change their spending accordingly. Forth the threat of substitute products
and services is low because of the fact that Costco and other clubs offer similar benefits of shopping for
customers which no other company can provide. Fifth barriers to entry is very low because of the fact
that the new entrant will have to comply to the rules and regulations of the country plus the players in
the market would be protected by barriers making it difficult for the entrant to compete.
To conclude, it is evident that how Costco has earned its market share by offering various benefits to all
the levels of business from low prices to high end products. It is evident by this internal and external
analysis that Costco has been increasing its value in every part of its value chain and is therefore quite
successful in establishing a strong place and value in the market.

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