Introduction Despite being in a highly competitive mature industry, Walmart has evolved to become the worlds largest retailer.

It has accomplished this by being able to offer everyday low prices and unbeatable value-for-money, hence appealing to its customers. Despite these accomplishments, Walmart has met with some hits and misses in its quest for international expansion. This essay seeks to explore the causes and effects of its failure in international expansion and then offer possible solutions to the issue.

i) Industry Structure a) Industry competitors: Walmart is in a highly competitive mature industry (discount retail) with razor thin profit margins. As there is little product differentiation between retailers, retailers compete with mainly price. This competition is further intensified with the introduction of specialist stores, general retailers and online retailers. Walmart has been able to thrive in this industry and achieve higher total net income than all its competitors. b) Threat of New Entrants: There are substantial fixed costs and operating costs to overcome when deciding to set up a retail store. Profit margins are lowered further by big chain stores offering everyday low prices with their superior resources and capabilities established over the years. These resources and capabilities will be discussed later on. While the barriers to start up a store are not impossible to overcome, the ability to establish favourable supply contracts, leases and be competitive is becoming virtually impossible. Walmarts vertical structure and centralized buying gives them a competitive advantage over independent retailers trying to enter the retail market. c) Power of Suppliers. The power of suppliers is weak as Walmart limits the amount purchased from any one supplier. A contract with a large retailer such as Wal-Mart can

make or break a small supplier. Walmarts largest supplier is Procter&gamble, which accounts for 3% of Walmarts sales. However, Walmart represents 18% of P&Gs sales. This results in an asymmetry of bargaining power and gives Walmart its edge. In this case, suppliers tend to have very little power. d) Power of Buyers. Individually, customers have very little bargaining power with retail stores. It is not possible to bargain with a cashier at Walmart over the pricing of products. But customers demand high-quality products at bargain prices and are very price sensitive. If prices are high at Walmart, customers can easily purchase their products at a cheaper retailer offering the identical product at a cheaper price. e) Availability of Substitutes. The tendency in retail is not to specialize in one good or service, but to deal in a wide range of products and services. This means you are likely to find an identical product at another store. Therefore, there is a strong threat for substitutes in the retail industry.

ii) Generic strategy combination

Walmart has a competitive advantage in the discount retail industry within the U.S. This can be attributed to its causal ambiguity of its competitive advantage. Walmarts competitive advantage is multidimensional and is based on complex bundles of organizational capabilities, making it hard for competitors to correctly identify the determinants of success. The outcome of causal ambiguity is uncertain imitability, where there is ambiguity associated with the causes of a competitors success; any attempt to imitate that strategy is subject to uncertain success. (pg. 217 textbook) Walmart achieves a higher rate of profit than its competitors through supplying identical products at lower costs. In other words, Walmart pursues a cost leadership strategy.

iii) Resources and capabilities Purchasing and vendor relationships: Purchasing is centralized and takes place at Walmarts Bentonville headquarters. Suppliers are then subjected to pressure tactics and Walmart usually comes out on top with lower prices. This is achieved by limiting amount of purchases from any one supplier to a maximum of 3%. This results in an asymmetry of bargaining power and gives Walmart the edge and ability to dictate prices. (repeat) Walmart also Collaborates with suppliers, for example, electronic data interchange (EDI) to offer cost savings to suppliers which is ultimately passed onto Walmart, allowing Walmart to price items at low prices in line with their cost leadership strategy. Warehousing and Distribution: Walmart distributed a higher proportion of goods (82%) to its own stores compared to any other discount retailer. Walmart only requires limited outsourcing of distribution as it has its own trucks and trailers. This enabled Walmart to have flexibility in distribution times and save costs in terms of negotiating deals with distribution companies. Grouping of Walmart stores allowed trucks to deliver partial loads to several Walmart stores on a single trip as well.

In Store Operations:

Walmart practices decentralisation and gives individual store managers considerable decision-making authority. This reduces time for simple adjustments to be approved through complicated bureaucratic processes and offers flexibility. Walmart has an emphasis on customer service and hires greeters to engage with customers. Walmart also accepts returned merchandise on a no-questions-asked basis. Walmart has a wide range of products to cater to local market needs. Marketing: Walmarts advertising /sales ratio is only 0.55% and its main form of advertisement is through word-of-mouth and its everyday low prices slogan. Information Technology: Walmart was a pioneer in applying information and communications technology to support decision making and promote efficiency and customer responsiveness. Walmart operates the worlds biggest private satellite communications system, allowing it (among other things) to track sales, replenish inventories and process payments in real-time. Data-mining also allows Walmart to place products in convenient places for shoppers. Human Resource Management: The culture in Walmart is based on Sam Waltons beliefs of thrift and hard work. All employees were known as associates regardless of seniority or level. Profit incentives extended to even hourly employees which increased productivity of employees. Opinions of associates are given importance and executive-level personnel listen to their suggestions. Organization and Management:

Corporate executives keep closely in touch with customers and store operations. Walmarts regional vice presidents hold weekly Friday/Saturday meetings and on Monday the new decisions are implemented. International expansion Despite being a successful discount retailer in the U.S, Walmart has struggled and failed in international markets such as Germany, South Korea, Japan and U.K. This could be attributed to the inability to account for cultural differences in foreign countries, having to compete with existing established discount retailers in the country and the inability to transfer its competitive advantages in the U.S to its international branches. Firstly, the inability to account for cultural differences can be seen in Walmarts expansion to Japan, where they failed to identify Japans shoppers obsession with quality and how they used heuristics such as price=quality to make decisions. Hence, in Japan, Walmarts low pricing scheme worked against them as Japanese viewed their products as lower quality because of lower prices. Secondly, Walmart has to compete with existing discount retailers in the respective countries. This can be very difficult as the competition has first-mover advantage and was able to build superior resources and capabilities in their home-country. Examples of superior resources and capabilities can be things like better relationships with suppliers, established brand-name, superior locations and pre-established infrastructure and data-mining in U.K. Walmart has been unable to overtake Tesco in U.K probably because it has been unable to overcome these problems. Thirdly, Walmart is unable to transfer its resources and capabilities completely to its international branches. Most of Walmarts resources and capabilities are only applicable in

the United States and probably its neighbouring countries, they are not easily transferable to international locations. Examples are like Walmarts distribution system, purchasing power with local suppliers and information technology. Walmart has been data-mining for the U.S market, not Asian or European markets. Data for the U.S is not applicable to the international markets as shoppers may have different tastes and preferences overseas. Possible Solutions Walmart should look into researching about specific countries cultural differences and their unique taste, preferences and habits. As mentioned in the case study, Walmart failed in Japan because they forgot to account for Japanese peoples obsession for quality and how they use heuristics to make judgments on Seiyus cheap products. Seiyu could have marketed their products as high quality yet affordable and offer the identical high quality and expensive products as other stores but at a lower price. This would attract shoppers to Seiyu in Japan. For Walmart to recover lost ground against local competition that has gained first mover advantage would be to observe their successes and failures and emulate their successes and avoid the same pitfalls. Walmart should also engage in aggressive marketing and promotion of their brand name in the local country to try and establish brand recognition. Other methods would be to try and introduce membership cards to offer additional benefits to repeat customers especially in the first few years of introduction. Lastly, Walmart should also ensure that they are able to undercut local competitors by sealing deals with suppliers beforehand and then they would be able to advertise their everyday low prices slogan overseas as well. Some resources and capabilities are not easily transferable overseas. For example, vendor relationships are not transferable overseas and Walmart has to ensure their representative is able to get good deals with overseas suppliers as well. Data obtained from their years of data-

mining in U.S. is not completely applicable in international contexts as well. Walmart can choose to buy data regarding the local country from local data-mining firms or build their own database over the years which can be time-consuming. Organisational culture is a hard thing to transfer as well. Culture is something built over the years, and hence not easily transferable. Hence, Walmarts culture: values, beliefs, behavioural norms, may not be easily transferred overseas especially when the bulk of employees hired are from overseas. A possible solution to this problem would be to hire people whose values are consistent with those of the company, training programmes for employees to educate them in the core values of the organisation and incentivise/promote individuals whose behaviour is consistent with the core values of the organisation