Background
Wal-Mart is an American international retail company that operates chains high-discount warehouse stores and departmental stores. The corporation has been ranked first among public corporations in the whole world. The Walton family owns over 48% of its stake, making them the major shareholders of the company. Wal-Mart owns 8,500 stores in fifteen different countries; the company uses different names on different countries. For example, it operates as Wal-Mart in the United States, Asda in the United Kingdom, Seiyu in Japan, Best Price in India, and Walmex in Mexico (Brotspies & Sellani 2011).
Wal-Mart’s Industry
Wal-Mart operates in the retail industry, and offers variety of services and goods to their customers. This includes hardware, electronics, small home appliances, housewares, and apparel. According to Soderquist (2012), Wal-Mart offers both limited assortment and full-line supermarket products and services to its customers. Its operations are both national and international.
Industry Structure
The company operates in an oligopolistic competition industry. Oligopolistic industries are industries that have more than one company in operation. This is unlike monopolistic industries in which only one of the few companies is operational. The retail industry has many companies competing with one another. Wal-Mart has been ranked as a leader in this industry. However, it is not the only company in the market hence it cannot be presumed that the industry is monopolistic. There is no single company in the industry that has been able to beat Wal-Mart when it comes to offering the lowest prices for its products and services (Cocheo 2010).
Factor Markets, Global Pressures, and Foreign Competition
Factor markets in the retail industry are exceptionally competitive. This is because many buyers and sellers are available in the market. Wal-Mart competes for resources with many other companies in the industry. However, the fact that the company is large and well established gives it an added advantage over its competitors. The supply for human labor is high; employees needed to work in retail companies may not require numerous skills or education to be hired in the supermarkets. This means that the company has more bargaining power as compared to potential employers (Striffler 2011).
The capital markets are performing well. This might not be the case to some companies, especially small companies because such companies are normally denied funds by financial institutions. Nonetheless, Wal-Mart is able to access financial aid because of its large size (Khade & Lovaas 2012). For example, the company faces issues relating to free markets and controlled markets; it has to deal with monetary and fiscal policies in different countries. For instance, it has to deal with changing interest rates that affect economic growth in countries it is currently located. Poor economic growth also has a great effect on the competitiveness of the company, especially in maintaining its high discount strategy.
Governments also control the flow of international businesses in their respective countries. Governments often apply this strategy to protect local businesses from exploitation or unfair competition. Most governments believe that the company creates monopoly in the market through its low prices hence might be reluctant to allow to establish itself on their local markets (Soderquist 2012). As such, this affects the company’s ability to penetrate other markets.
The company also has to deal with the issue of different cultures exhibited by different countries. This is one of the reasons as to why the company has found it problematic to enter some countries around the world. This has forced the management of the company to be extra vigilant when dealing with the same to ensure it success in entering other markets. Other factors affecting the company can be analyzed using porter five forces (Brotspies & Sellani 2011).
Porter Forces Analysis
Supplier Power
Supplier power is generally low. This is because there are many suppliers in the market competing to supply retail companies. This implies that Wal-Mart is able to negotiate good deals with its suppliers to ensure its success. The fact that the company is large and well established means that most suppliers will be willing to do business with it (Brotspies & Sellani 2011). Generally, Wal-Mart has more bargaining power as compared to its suppliers.
Threat of New Entrants
The threat of new entrants in the market is relatively low. Therefore, the company will need a substantial amount of capital to establish itself in the industry. Consequently, companies that are already operational in the market have large market shares and loyal customers. It might take a couple years for a new entrant to reach where Wal-Mart is at present. Large and well-established companies in the industry also enjoy large economies of scale. With this being the case, they are able to maintain their low price strategies (Soderquist 2012). A new entrant might find it problematic to maintain discounted prices. In essence, Wal-Mart has no reason to worry about new entrants.
Buyer Power
Customer power is relatively low. This is despite the fact that, there are other retail companies offering substitute products to those of Wal-Mart. The company offers the best-discounted prices for its products and services. There is a significant reason for low price products; it gives the company more power over its customers. The size of its stores also gives it an added advantage over other companies in the industry, as it is able to offer a wide-range of products under one roof. Generally, the company’s customers are very satisfied with the products it offers and its convenient locations as compared to most retailers or supermarkets (Striffler 2011).
Threat of Substitute Products
The threat of substitute products is relatively low. This can be attributed to the fact that the company offers products and services that satisfy customers in a differentiated way. The company has invested a lot in innovation to ensure it is able to meet the demands of its customers. Many supermarkets in the market serve products similar to those of Wal-Mart. However, none of them has been able to match fully the satisfaction customers derive from those offered by Wal-Mart. This is the main reason as to why the company has been able to compete effectively in the industry. It has also enabled the company to remain a leader in the industry (Parnell & Lester 2012).
Rivalry
The company faces competition both in its local market and in international markets. However, the competition is moderate. The company’s major competitors include Tesco, Morrisons, K-mart, Shopko, Target, sellers, Giant Tiger, Soriana, and Commercial Mexicana among others. Nonetheless, none of the companies has been able to match the company’s low prices and cost. The company enjoys large economies of scale; hence, it is able to maintain its prices as low as possible. Nevertheless, the company needs to track all the activities of its competitors, as they will stop at nothing to take its market share (Parnell & Lester 2012).
The company’s Cost Structure
The success of the company can be attributed to effective cost management; the company has been able to maintain its variable and fixed costs in an effective way. Fixed costs in the company include, administrative costs, inventory, payroll, property tax, and rent among others. Such cost does not change with changes in the sales of the company. The company also ensures effective management of variable costs to be able to compete effectively in the market. Variable costs incurred by the company include, the cost of producing its products and services, transportation costs, commissions, fees paid retailers, and franchise fees among others (Khade & Lovaas 2012).
Wal-Mart’s management is ever committed to looking for alternatives, chances, or approaches that can enable the company to cut such costs. The company has been able to manage such costs through budgeting payroll, eliminating unnecessary costs, savings on its cost relating to traveling, and enhancing investments in research and technology. Budgeting payroll, for instance, enables the management of the company to track the expenses of all departments; it is able compare actual costs with its original plan. Cutting unnecessary costs enable the company to eliminate costs that are not beneficial to customers or do not contribute to customer satisfaction (Brotspies & Sellani 2011).
Wal-Mart Financial Performance
Wal-Mart is a leader in the retail industry in terms of financial performance; the company has been able to realize profitability for the last five years. This can be attributed to the ever-increasing sales. For instance, the company realized 8.4% increase in its profitability in the 2008. In addition, it was able to realize a 3.4 percent and 5.9 percent increase in its profitability in 2011 and 2012 respectively. This has contributed a lot to its great performances over the last five years (Financial Report 2013).
The company’s profitability rate has been increasing steadily since 2008. For instance, the company was able to realize 3.27% increase in its profitability in 2008. This increased to 3.91 percent in 2011. However, the rate dropped in 2012 as the company reported a 3.54 percent increase in its profitability. The increasing profitability of the company has enabled it to be the liquid company in the industry (Financial Report 2013). Essentially, Wal-Mart has been performing in an exemplary manner as compared to all retailers in the market. The trend is expected to improve as the management of the company is ever committed to ensuring its success in the future (Brotspies & Sellani 2011).
Ethical Issues
Wal-Mart also has to deal with a number of ethical issues when providing its products and services to customers. For example, the company has been accused of engaging in racial discrimination when offering employment opportunities. It is believed that the company favors people from a particular race, and, hence, may not be willing to employ individuals from other races, especially Asian, African, and Mexican (Soderquist 2012). Wal-Mart has also been accused of paying low wages to its employees despite many governments coming up with a minimum wage to ensure companies and organizations are remunerating their employees in the desired way (Roberts & Berg 2012).
Employee and labor relations have also shown great concerns on health insurances and working conditions offered to individuals working with the company. They claim that the company has failed to provide safe working conditions and does not provide health insurance cover to its employees. This issue has caused public outcry in many countries in which the company is currently operating. Wal-Mart has also been associated with bribery to gain favors. For example, the company was accused of engaging in the same, in Mexico. Apparently, the company bribed officials in the country to be allowed to construct its stores (Basker 2011).
Similarly, the company has also been accused of compromising on the quality of products and services to be able to maintain its low prices. For instance, the company has been accused of failing to pay taxes with the aim of cutting its costs. It has also been criticized of failing to accept corporate responsibility to be able to reduce its expenses with the aim of lowering its prices even further to attract more customers (Roberts & Berg 2012). Some scholars believe that its prices are predatory; they argue that the company uses the discounted prices to eliminate competition as they make it impossible for small retailers to survive in the market, as they cannot maintain them. This has been one of the reasons as to why the company has been failed to enter some countries when it has the ability to do so with ease.
Economies of Scale
Wal-Mart enjoys large economies of scale. As mentioned earlier, the company is ranked as the largest retailer worldwide. As such, the company is able to purchase products in bulk; this enables it to negotiate low prices for the commodities. Its suppliers are willing to accept negotiation to lower the prices of the supplies to be able to maintain a good relationship with the company (Carden & Courtemanche 2010).
This is unlike small companies that lack economies, hence purchase supplier in low numbers. As such, they pay more for the supplies as compared to Wal-Mart. This is one of the major reasons as to why Wal-Mart had been able to maintain its low prices even when other companies in the industry find it problematic to achieve the same. The company’s economies of scale continue to increase as years go by. This is a clear indication that the company is better placed in the future to compete more effectively. It might take some time before any other company can be able to take up its market share (Cocheo 2010).
Conclusion and Recommendations
Wal-Mart has been exceedingly successful for the last ten years. Its success can be attributed to its ability to offer products at a discounted price. The company offers products and services that serve customers in a differentiated way. However, factor markets, global pressures, and competition affect its business activities. The company has to deal with different countries and business environments.
It also has to deal with moderate competition from foreign companies such as Morrison and Tesco. Moreover, Wal-Mart has to adhere to laws enacted by EPA to avoid lawsuits. Wal-Mart has been increasing its profitability for the last five years. This can be attributed to the ever-increasing sales. The company has also been dealing with ethical issues relating to the strategies it uses to hire employees to ensure it is able to maintain its low prices. Generally, despite the issues the company has to deal with, the company has shown great performances in the past. The company has great chances of maintaining the same in the future.
References
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