Running Head: STRATEGIC MANAGEMENT
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Wal mart is a household name in the retailing industry. It is one of the few companies
that have managed to revolutionaries the retailing industry allowing it to set standards and
become a market leader in its own field. Wal mart spans over several decades where it began as a
single retail outlet in the 1940’s in Arkansas and has since then grown to become a Fortune 500
company that has stores in over twenty seven countries. Over time many competitors have joined
the market as well posing a possible threat to Wal mart’s operations. Despite the fact that this
retail industry household name has established an extremely firm foothold in the retailing
industry there is need to carry out occasional environmental analysis to assess how the retailer
outlet giant is performing in the changing dynamic business world in order to allow it to exploit
potential opportunities and address possible future threats that might affect the company’s
sustainability (Thompson et al, 2010).
An environmental analysis involves carrying out a PEST and SWOT analysis; PEST
analysis helps evaluate the external environment in which a business operates. This entails
analyzing the political, economic, social factors, technological factors and environmental factors
that have or a likely to have an impact on the business. SWOT analysis helps analyze the
business’ internal environment by identifying its strengths, weaknesses, opportunities that can be
exploited and potential threats that are likely to affect business operations in the future. An
external and an internal analysis of the business environment is important in formulating the
corporate and business level strategies that will lend an organization a competitive edge over its
competitors by allowing it to fully exploits its opportunities and find a way of turning its
weaknesses and threats to its own advantage (Hill, Charles, Jones &Gareth,2010).
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The external environment
Consumer’s Level of income is an important Demographics factor that affects most
business operations. Initially Wal Mart’s main target market was the low income households. Its
low prices were very attractive to people in the low income bracket; the organization thrived on
profits from large volumes and low prices with the over lying foundation being cost cutting
principles. Wal Mart still continues to position itself as a low priced retailer outlet both in
domestic and foreign markets. This is very favorable for the company’s operations in a time
where the economy is characterized by high unemployment levels and decreasing personal
disposable incomes. This is mainly because most consumers are looking into ways for buying
more for less and cutting costs. It is however important to consider the fact that most customers
are now technology savvy; most customers are now resulting to purchase practices that are
convenient less entailing, tiring or cumbersome. This is mainly attributable to the busy lifestyles
that most people are leading; online shopping is therefore offering better options with companies
such as Amazon taking up a sizeable market share as it also offers low prices and quality
products.
Age is also another important demographic factor affecting Wal mart’s operations. Wal
Mart’s market share consists of both foreign and domestic markets. Each market is characterized
by its own changing population with some markets having a high number of young population
and other markets being characterized by an aging population or a shrinking young population.
The purchasing patterns of the consumers will be greatly influenced by their age brackets which
creates the need to match the consumption patterns of the various consumers with the nature of
goods stocked in the retail outlets.
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Technology has significantly impacted the retailing industry. It has paved way for
ecommerce and completely changed the way people make purchases and gathers information.
Online shopping is allowing consumers to transcend across boundaries or even shop at the
comfort of their homes. Technology has also opened up global markets facilitating international
retailing. This has created the need for Wal mart to invest heavily on an online presence if it’s to
remain competitive and exploit opportunities to interact with its customers and enhance its brand
awareness and image. Technology has also allowed the entry of new competitors in the market as
the costs of doing business in an online platform is relatively cheaper than managing physical
stores and outlets. This is clearly envisaged by the success of the Amazon Company. Wal mart
has used technology as an effective tool in gaining competitive advantage through facilitating
efficiency. Technology has enable Wal mart to link up all its warehouses and stores. It has also
helped reduced the planning costs and helped it in carrying out a value chain analysis where non
value adding operations have been weeded out and efficiently replaced by technological methods
which are more cost effective such as checking the inventory and maintaining the stock levels at
the required levels.
Wal mart is facing intense competition from other retailing companies such as Target,
Costco, Best buy, Home Depot and the Amazon. The intensity of competition that the company
is facing can be evaluated using Michael Porter’s five forces; Relative power of customers,
relative power of suppliers, threat of new entrants and the threat of substitutes. Wal mart is the
leading retailing company in the world ; the extent of its size is reflected by the fact that it is
nearly four times the size of Home depot which is the second leading retailing industry in the US
and twice the size of Target, Costco and Best buy combined. Wal mart therefore enjoys huge
economies of scales and has a huge financial base that allows it to a wide diversification through
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joint ventures, takeovers and acquisition of other companies. This means that the threat of new
entrants and the threat of substitutes are of little relevance to the Wal mart operations. Low
average costs stemming from large economies of scale allow it to maintain low prices therefore
allowing Wal mart to use pricing as a competition strategy. Wal Mart has huge bargaining power
owing to its size and it also has the ability to vertically integrate its operations and the
therefore
the relative power of suppliers is highly diminished.
However Wal mart cannot fail to acknowledge the fact that other companies are also
slowly closing in on the existing gap and gradually taking up its market shares. An example is
the Costco; this is a member’s only warehouse that targets the affluent consumers. It however
offers low prices and its financial performance is better that Wal mart’s Sam’s Club which is also
a membership only warehouse.
Wal mart’s greatest strength lies in the fact that it has huge financial base. It is therefore
able to invest in the state of art technology such as a private satellite network that allows point of
sale transmissions in all networks. It is also able to venture out in new foreign markets that are
yet to be tapped into by other retailer companies. Wal mart is also a household name that has
been able to secure its position in the market as a company that offers high quality products at
low prices. The company is not weaknesses and threats. Consumers are become more and more
conscious of the company they get their products from. The law suits against Wal mart for its
unfair trade practices, low wages and sexual discrimination of its workers may finally catch up
with the company in form of dwindling sales.
Wal mart has a global strategic advantage in that it has dominated the domestic markets
and penetrated various foreign markets such as Germany and Mexico. This has greatly increased
its financial base therefore lending it the financial power it needs to penetrate and dominate
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other foreign markets through licensing, takeovers, strategic alliances, acquisitions or forming
new wholly owned subsidiaries that have not yet been tapped into (Brandley,2005& Hitt et
al2008).
Wal mart also has an advantage over its competitors in that it enjoys large economies of
scale and can use its volume buying resources to influence competition and position it as a low
priced, high quality product retailer outlet. In a time where sustainable development is deemed
vital for any business, Wal mart has the strategic advantage of being a renowned household name
and high brand equity and can therefore afford to invest in environmental friendly practices and
products with its financial base cushioning the company against risks that may arise from such
diversification. The company is also in a position to invest in technological advancements right
from the supplier base to the customer which helps in the reduction of costs. (Dess,et al2008&
Wheelen et al,2008).
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STRATEGIC MANAGEMENT
References
Brandley,D(2005).Wal-Mart’s learning curve in the German market. Journal of international
business.vol 1
Dess,Gregory;Lumpkin,G and Eisner,Alan(2008).Strategic Management;Creating competitive
advantage.New York:McGrwaw Hill.
Hill,Charles and Jones &Gareth(2010). Strategic management.An integrated approach.South
Western Cengage learning
Hitt,
Michael;Ireland,
Duane
and
Hoskisson,
Robert(2008).Strategic
management;
Competetiveness and Globalization-Concepts and cases. South Western Cengage learnin.
Thompson, Aurthu;Peteraf, Margaret and Strickland,A(2010). Crafting and executing
strategy;concepts and reading,New York:Mc Graw Hill.
Wheelen, Thomas and Hunger, David(2008).Strategic Management and Business policy.Upper
Saddle River, New Jersey; Pearson Prentice hall.