Micro Economic Theory
The micro economic theory is a function of many micro economical factors that relate to internal affairs of a given company. The micro economic theory is based on the fact that a company’s operations and success is primarily based on the company’s position in terms of its micro economic factors. In essence, the micro economic theory seeks to predict a company’s performance in terms of its internal dynamics (micro economic factors) (McEachern, 2008).
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For purposes of the micro analysis, we will undertake an analysis of Wal-Mart Stores Inc. Wal-Mart Stores Inc. is a public limited Corporation in the US. It has a long chain of discount retail stores and warehouses located in various countries around the world. In terms of revenue, the company is deemed the largest in the world by Forbes magazine (2010 rankings). In the year 2009, the company recorded net sales of $258 billion from groceries alone and 51% of this revenue was realized from its US stores alone (Boone, 2009, p. 127).
The company had been trading in the New York Stock exchange since 1972 with various trade mark names like Asda in UK, Wal-Mart in North America, Walmex in Mexico, Wal-Mart in Puerto Rico, Seiyu in Japan and Best Price in India. The company’s operations outside the US have not been consistent because some markets have proved to be successful investment destinations while others have been unsuccessful. For example, its operations in UK, South America and China have been successful. However, its operations in South Korea and Germany have been largely unsuccessful. This has even forced the company to pull out. In this respect, the company’s successes and failures have been caused by its internal strengths and weaknesses with regard to its micro economic analysis. These factors are discussed below:
The company currently operates over 4,000 stores worldwide in 14 countries globally (out of the US) (Gupta, 2008, p. 14). Its worker base is over 664,000. Some countries like the UK, Argentina, Brazil and Canada are home to its wholly owned operations. The country has a strong presence in Canada after it acquired 122 stores in 2004 but as at 2010, the company operates more than 300 stores with more than 100 supercentres which were part of its global strategic plan of having additional supercentres in Hamilton UK, and Aurora in Ontario.
In addition to these markets, Wal-Mart is currently involved in a retail chain partnership with some Chinese retail stores (Hitt, 2007). In Japan, the company owns 53% of Seiyu and 51% of the Central American retail holding company in Guatemala, El Salvador and other South American countries. Other chains are located in Brazil and India while prospects are also rife to venture into the Russian market (Hill, 2009, p. 439).
Wal-Mart has a strong brand, internationally. In North America, it is the biggest retail business in the grocery market. The brand “Wal-Mart” has taken many forms; close to 40% of the store’s products go by local label store brands produced by the company, through contracts made with local contractors. Sam’s Choice was the first private label brand. This brand was produced by the company in 1991. This was a local drinks brand that was produced by Cott’s beverages. In addition, it was exclusively to be sold by Wal-Mart’s retail stores. This was one of Wal-Mart’s biggest business successes because the brand slowly grew in popularity by the end of 1993 to be the third most popular beverage brand in the US.
The company still has popular business brands like the Smart price in UK. The company also produces Great Value and Equate in the US and Canada respectively. These brands increase the company’s operational revenues. Due to the success of the company’s brands, Wal-Mart is set to increase its marginal profits as a result of customer loyalty and increased sales, expected to sustain in the long run.
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Wal-Mart currently has a business model, based on availing an array of brands in different product categories, at affordable prices (Antoni, 2007, p. 81). The company also enjoys a good relationship with its employees; with management often referring to them as “associates’ instead of employees (Jain, 2010, p. 49). Most or all of its retail stores in US and Canada also have ‘greeters’ at the reception who do a good job at welcoming customers (Bergdahl, 2004, p. 163).
Wal-Mart is unique in its supplier relations. This is occasioned by its unique element of not charging a slotting fee like most retailers do for shelf space. This has improved the relationship with one of its key stakeholder; the suppliers (Feigenbaum, 2003, p. 81). In turn, the company’s credit profile is improved and the unique relationship guarantees the company’s continuity even in times of financial difficulties because suppliers will always be willing to supply the company with goods even on credit. However, even though the company doesn’t charge slotting fees to its suppliers, it prefers stocking popular products in its shelves as opposed to selling unpopular goods. Sometimes, unpopular goods could be dropped from the shelves in preference of popular brands.
In 2006, the company also dropped its Layaway program, citing increased costs and decreased usage associated with its adoption (Plunkett, 2006). However, the Layaway program is still used for clients who purchase goods online and have them shipped by the company to the nearest collection centre. Currently, the company has adopted increased use of other options of payment like the 6 and 12 month zero interest financing. This restructuring has improved efficiency in the organization’s operations.
Wal-Mart’s micro economic factors are further summarized in the SWOT analysis below:
|Strengths ||Weaknesses |
|Opportunities ||Threats |
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Bergdahl, M., 2004. What I Learned From Sam Walton: How to Compete and Thrive In A Wal-Mart World. London: John Wiley and Sons.
Boone, L., 2009. Contemporary Business 2010 Update. London: John Wiley and Sons.
Feigenbaum, A., 2003. The Power of Management Capital: Utilizing the New Drivers of Innovation, Profitability, and Growth in a Demanding Global Economy. London: McGraw-Hill Professional.
Gupta, A., 2008. The Quest for Global Dominance: Transforming Global Presence into Global Competitive Advantage. London: John Wiley and Sons.
Hill, C., 2009. Strategic Management Theory: An Integrated Approach. London: Cengage Learning.
Hitt, M., 2007. Strategic Management: Competitiveness and Globalization. London: Cengage Learning.
Jain, P., 2010. Buffett Beyond Value: Why Warren Buffett Looks To Growth And Management When Investing. London: John Wiley and Sons.
McEachern, W., 2008. Microeconomics: A Contemporary Introduction. London: Cengage Learning.
Plunkett, J., 2006. The Almanac of American Employers 2007 (E-Book): Market Research, Statistics and Trends Pertaining To the Leading Corporate Employers in America. New York: Plunkett Research, Ltd.