Executive Summary
At the beginning of 2009, Wal-Mart top management faces the question of whether the
same strategy that it has been adopting in the past can be used to maintain the company’s
remarkable performance and growth in the next decade.
In the last 10 years, Wal-Mart has achieved strong and constant growth in sales and net
income. It has maintained the leading position in the U.S. discount retail industry and has
become the largest retailer in the world. With the maturity of the industry, coupled with the
intense competition from rivalry companies, maintaining the current level of high performance
becomes very challenging.
The Porter’s Five Forces analysis reveals that the competition among rivals is the driving
force of the industry, in which price is the most critical factor. The value chain analysis and
resource based view analysis show that Wal-Mart has been very successful in implementing the
strategy as the low-cost leader by inculcating cost efficiency in its corporate culture,
management style, and operations. It has been the pioneer in adopting cutting edge technology
to streamline its supply chain, and to understand and respond timely to customer demand. WalMart has developed many strengths that help guard its leading position and open door to many
opportunities for expanding the business. However, it also faces threats from growing too big
and in many areas, which makes it vulnerable to losing control, weakened cooperation among
stores and regions, and competition in multiple fronts.
Wal-Mart should be caution in its growth strategy, especially in the expansion of its
international presence. Although its financial strength, management skills, and operation
efficiency allow it to enter many overseas markets, it should be selective in choosing the
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destinations. Wal-Mart can focus on emerging markets where customers are price sensitive such
as China and India in Asia. In Latin America, it should focus on Mexico and a few key markets
that it previously achieves success. In Europe, it can target regions that lack the presence of
large retailers such as Tesco and Carrefoure. Although Wal-Mart’s common practice of
acquiring existing small local chains to enter a market has helped Wal-Mart lower its market
penetration costs and quickly adapt to local market demands and culture, this practice also raises
the issues of diluting corporate culture and weakening the company’s ability to reinforce
coherent management practices and strategy. Therefore, international expansion should be
implemented patiently and carefully.
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Over the last four decades, Wal-Mart has achieved significant successes to become the
world’s largest retailer. The company has maintained sustainable growth in a fiercely
competitive U.S. retail market environment. It has been continuously expanding both in the
range of goods and services, and in the number of stores in the U.S. and worldwide. While this
expansion has generated handsome profits for its stakeholders and put the company in a strong
financial position, it has also presented significant challenges for sustaining growth and
performance, and managing a company that is incessantly becoming larger. Top management
now is trying to address whether the same strategy that the company has been pursuing is
suitable for maintaining and strengthening its current growth rate and market position, as well as
for leading the company into the next decade.
This report will present: 1) an analysis of the external environment of the company; 2) a
discussion of the company’s internal resources and capabilities; 3) a diagnosis of the external and
internal factors; and 4) recommendations of how the company should move forward.
1. External Environment
In this section, an analysis of the Porter’s five forces of the discount retail industry and
Wal-Mart is presented. For each force, the discussion first provides a general overview of the
industry in the U.S., and then focuses on Wal-Mart.
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Potential entrants: the threat of potential entrants is considered low due to the following
reasons:

Discount retail industry is a highly competitive environment with mostly big players
competing for market shares.

Price is mainly the key factor for competition.

Existing companies have established strong and stable supplier networks.
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
Wal-Mart has a superior logistics and distribution system, cutting edge technology to
support all phases of its operation, a well-established brand name, a large number of
stores nationwide, and a deep financial resource.

Wal-Mart also has cost advantage over its competitors due to its large purchase volume.
Wal-Mart can deter potential entrants.
-
Substitutes: the threat of substitute is low.

Consumers can buy from small mom-and-pop stores or specialty stores, but these stores
do not offer a wide range of products, nor do they offer competitive prices.

On-line purchase can be a substitute means for shopping; however, it may not be a
good choice for goods that are consumed daily because shipping costs may lead to
higher final prices, and shipping time can delay the need’s fulfillment.
-
-
Industry competition: the competition among existing firms is high because:

This is a mature industry.

There are few but large competitors, who dominate the majority of the market.

Price is the focus of competition, and firms are forced to cut cost to stay competitive.
Bargaining power of suppliers: the power of suppliers is low.

In general, most suppliers rely on retailers to distribute their products to the end
consumers; therefore, the role of retailers in the distribution channels is critical.

Wal-Mart not only carries a wide range of products, but also possesses thousands of
stores in the U.S. and worldwide. This combination places Wal-Mart in a very strong
negotiation position with suppliers and gives it great flexibility in choosing and
working with a wide range of suppliers and vendors. As stated in the case, Wal-Mart is
“both desired and feared by manufacturers”.
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
With a fleet of 4,000 trucks, Wal-Mart also has capability to independently operate part
of its transportation logistics without relying solely on outside vendors.

Wal-Mart also carries some of its own Great Value private-label products tailored to
local demand.
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Bargaining power of buyers: the power of buyers is considered moderate.

Switching costs of buyers is low.

Buyers are price-sensitive. They can be easily lured to competitors to buy products that
are offered at a lower price.

The differentiation in the products and brands among different discount retail stores in
this industry is low.

Since most of the products offered are commodity, buyers usually choose the store that
is closest to their home or their workplace for convenient shopping.

Wal-Mart provides a wide range of products and services, and offers very low prices.
In addition, it has many stores serving different geographical areas. Hence, it has a
large and loyal customer base.
Interest groups such as organized labor unions, environmentalists, and human rights
activists can interrupt the business. When a retailer expands internationally, it can face political
challenges, as well as differences in culture and practices which may support or deter both the
establishment and growth of a company in a country.
In the discount retail industry customers focus on a few elements, including price,
convenient location, range of products, and good service. Therefore, the key success factors of
the industry require that the firms need to: (1) Maintain low cost by having efficient and
effective operations, making bulk purchases from vendors to enjoy volume discounts, and paying
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low wages; (2) Create differentiation by having large stores carry a wide range of products, easy
and accessible locations for convenient shopping, and products that meet local customer
preferences and needs; and (3) Fast response to market demand.
The nature of the external environment of the discount retail industry dictates that
potential entrant firms can only achieve moderate profit. The driving force of the whole industry
is the high competition among rival companies, in which price is the most critical factor. In
order to survive and be profitable, firms have to offer competitive prices. This translates into
high efficiency in operation, low costs of goods sold, and low operating expenses. The industry
may discourage small investors, but because the U.S. is one of the world’s largest retail markets,
it can attract potential investors with strong financial strength, especially international retail
chains, to enter the U.S.
2. Internal resources and capabilities
Wal-Mart’s purpose is revealed in its founder Sam Walton’s statement, “If we work
together, we’ll lower the cost of living for everyone…we’ll give the world an opportunity to see
what it’s like to save and have a better life.” Its mission statement is, “Saving people money so
they can live better”. Its mission statement is very brief and broad, but it reflects the purpose of
the company and its founder. With the way that mission statement is written, it can be
considered as the company’s vision statement because of its broad sense.
Wal-Mart’s corporate strategy is to be a low cost leader, which reflects precisely the
purpose of the company’s existence. In the past decade, its strategy has been very effective and
successful. It has been continuously growing in sales revenues and net profits from 1998 to
2009. Specifically, net sales increased from US$118 billion in 1998 to US$401.2 billion in
2009, and net profit increased from US$3.5 billion in 1998 to US$13.4 billion in 2009. The
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company also has a strong balance sheet with ample cash balance. Relative to its rivals (e.g.
Target, Dollar General, and Costco), it has higher percentages on return on assets and return on
equity. Wal-Mart’s growth strategy is expanding in products and services, as well as in
geographical areas. It has been successful in Canada and Mexico, and established presence in
other countries.
Below is a value chain model analysis that examines the company’s current key activities
and evaluates the effectiveness of these activities. In addition, wherever possible, the discussion
also points out the differences from the rival companies and how these activities add value.
Support Activities:
General administration. Wal-Mart has very unique practices. The communication flows
are direct between each individual store and headquarter in Bentonville. People from
headquarter are sent to local stores to obtain information about competitors and learn about what
is happening in the local stores. This practice is different from its competitors who require their
people from local stores go to regional offices to report activities and discuss issues. This
unusual practice creates a close connection between headquarter and local stores. Therefore,
Wal-Mart can timely respond to customer demand, make corrective actions, and react to rivals’
moves to stay ahead of the competition. Collectively, these capabilities help add values to the
end users by providing the products at low prices, meeting customers’ demand, and resolving
any big issues that affect their buying decision.
The Saturday morning meetings are the trademark of the company management’s style.
This activity forms a very unique culture and is considered Wal-Mart’s “spirit”. By having a
common ritual, Wal-Mart has created a workplace that bonds people together and creates a sense
of belonging for its associates.
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Human resource management. Human resource and interaction practices between the
company and its associates are based on respect, high expectations, close communication, and
clear incentives. Employees receive low pay but enjoy other benefits such as health care plans,
retirement schemes, profit incentives, and stock purchase plans. The facts that employees have
high degree of autonomy and the company offers “open door” policy and great promotion
opportunities create a very unique culture of Wal-Mart. While this culture is unusual in large
retail organizations, it adds values to the value chain by creating a good working environment for
employees to devote to their jobs and best serve their customers. The low wage, on one hand,
allows the company to keep price low; on the other hand, it exposes the company to employee
abuse issues and criticisms from interest groups.
Technology integration. Technology integration is one of the primary focuses of the
company because of its vital role in the company’s success. Technology has helped integrate
Wal-Mart’s entire supply chain so that each stage of the value chain is very effective and
efficient, which allows it to promptly offer the right products at low prices to its customers.
Procurement. Wal-Mart deals directly with manufacturers, and purchasing is centralized
at headquarter. It requires manufacturers to cut their margin and meet its employment policies.
It also has close collaboration with its big suppliers such as P&G to facilitate inventory control.
All of these practices have enabled Wal-Mart to buy its inputs at the lowest cost and to save
inventory holding costs, which allow it to offer low price products.
Primary activities:
Inbound logistics and outbound logistics. Wal-Mart has superior logistics system. It
adopts the concepts of distribution centers and “hub and spoke” arrangement. This is very
effective for keeping the inventory level at each local store low and reducing transportation cost.
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While other retailers rely on either suppliers or 3rd party logistics companies, Wal-Mart is quite
independent from outside logistics companies. It also takes control of import logistics from
overseas suppliers. In addition, it always strives for cheaper, faster, and more reliable logistics
systems by implementing methods such as cross docking systems and remix systems. These
practices not only help Wal-Mart reduce expenses but also give it more control and flexibility in
handling purchases.
Operations. Wal-Mart’s goal is to offer a wide range of quality products at low prices in
a pleasant shopping ambience. It carries both nationally branded products and its own Great
Value private label products tailored to local demand. It also continuously expands its product
brands to meet different customer needs such as the inclusion of upscale brands such as Apple,
Sony, and Kitchen Aid.
A very distinctive feature of Wal-Mart’s operation structure is the decentralization of
store management. Store managers are empowered to make decisions related to product range,
product display location, and pricing. Department managers within the store can implement
their own ideas in order to increase sales and reduce expenses. This is very different from other
retailers where these decisions are made at the regional or headquarter offices. This
empowerment allows it to best serve its customers, because only local managers are able to best
understand local competitors, and demand and shopping behaviors of their local customers.
Marketing and sales. Wal-Mart creates low price appeal to its customers. Its marketing
strategy relies on word-of-mouth communication and focuses on everyday low prices, which
means that customers can buy the products at the lowest price all the time. This strategy aligns
well with its objective of minimizing cost and adds value for the customer because the savings
from advertising and promotion allow it to offer products at low prices.
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The facts that Wal-Mart issues its annual report on ethical sourcing and commits to
environmental sustainability programs by shifting product mix towards environmentally friendly
products are good moves. They not only generate a good image for the company, but also create
values for its customers by offering environmental friendly products to those who concern about
the environment. In a broader sense, it has promptly responded to the trend of conserving the
environment, which has become a very hot topic in the current business community.
Service. Wal-Mart’s goal is to create a pleasant shopping experience for its customers. It
has achieved this by having greeters at the entrance door and implementing 10-foot attitude that
requires employees to greet a customer within 10 feet. It also guarantees customers’ satisfaction
by accepting returned goods on a no-questions-asked basis.
The value chain analysis reveals that Wal-Mart’s core competencies include a supply
chain with integrated technology, an ability to generate large sales volume, superior logistics
systems, operations that are decentralized, a strong and unique culture, a close knit management
style between the headquarter and individual stores, a management team that makes things
happen with great autonomy, and effective management routines and practices.
An analysis based on the Resource Based View model is conducted to identify whether
these core competencies are sustainable. Please refer to the VRIN table in Appendix 1 for
conclusions. Based on the VRIN table, it can be concluded that: a) a supply chain with
integrated technologies is a competitive parity; b) an ability to generate large sales volume to
enjoy low price from suppliers, superior logistics system, operation decentralization, human
resources are temporary competitive advantage; and c) strong culture and management routine
and practices are sustainable competitive advantages.
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Wal-Mart’s strong culture and management routines and practices are very unique.
Although at the individual level, many of Wal-Mart’s core competencies are temporary
competitive advantages, but in combination, these competencies form a sustainable core
competency for Wal-Mart’s superior profitability. In order for a competing firm or a potential
entrant to compete, it requires a very strong financial capability to invest in integrated
technology of supply chain and superior logistics system. It is also very difficult for any
company in the industry to achieve the large sales volume like Wal-Mart does to have such a
bargaining power over suppliers. The structure of the company’s management and
communication styles, operation autonomy inside Wal-Mart, and management team though
imitable and substitutable but can hardly be the same. These core competencies make it difficult
for rivals to identify which core competency is critical for Wal-Mart’s success. Therefore, the
combining of these core competencies forms a sustainable core competency for Wal-Mart for
many years to come.
3. Diagnosis
The external environment reveals that competition among existing firms in the industry,
specifically price competition, is the most critical driving force of the industry. The key success
factors include low price, wide product range and convenient location, and fast response to
market demand. Wal-Mart’s strategy of being a leader in reducing cost is aligned with the
condition of the external environment that it is in, and cost efficiency is embedded in its
management systems and its corporate culture. It has been continuously striving to achieve the
lowest cost in every aspects of its business. For example, Wal-Mart’s constant efforts can be
found in the investment and successful adoption of cutting edge technology in supply chain and
logistics systems, making them one of the best systems in the world.
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Compared to its competitors, Wal-Mart has many strengths. It has a very strong brand
name with reputation for low prices and wide range of products. Its enormous sales volume
allows it to have very strong bargaining power over its suppliers. Integrated technology in
supply chain enables Wal-Mart to achieve high operation efficiency. Due to its superior logistic
systems, Wal-Mart saves transportation costs and is independent from outside logistics. WalMart has capable managers who contribute to the success of the company. However, capable
people may not be enough without a very strong culture and values that are shared among
associates at all levels. And Wal-Mart does have both. It not only leads the U.S. market, but
also is very successful in Canada and Mexico.
Along with the strengths, Wal-Mart also has weaknesses. It can only attract price
sensitive customers; those who demand higher quality will stay away from shopping at WalMart. For example, Wal-Mart’s Sieyu chain failed in Japan due to its inability to attract qualityobsessed shoppers. The expansion plan in both product and service range and geographic areas
also comes with the cost of losing control in some areas and can negatively affect its ability to
compete.
In terms of future opportunities, Wal-Mart has big potential markets in Europe and Asia.
With its financial strength, it can either make direct investments through building its own stores
or acquire small local chains, or form strategic alliances with leading chains in specific markets.
Wal-Mart also faces several threats. It is always under pressure to sustain its market
leader position. Carrying a wide range of products makes it exposed to competition from
different fronts, especially from those rivals who are more focused on their merchandise
offerings. Being an international retailer, Wal-Mart also faces political problems as well as
differences in cultures and practices overseas. The intense price competition put all the players
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in the industry in a mode of continuously striving to cut costs and achieving high operation
efficiency. Foreign giant retail chains such as Tesco or Carrefour can compete with Wal-Mart in
both the U.S. and international markets. A summary of Wal-Mart’s strengths, weaknesses,
opportunities, and threats can be found in the SWOT table of Appendix 2.
4. Recommendation
Wal-Mart’s strategy of being a low cost leader is very successful. This same strategy
should be maintained and focused in the future. To sustain its success, Wal-Mart should
capitalize on its current strengths, minimize weaknesses, capture opportunities, and limit threats.
The company’s adoption of cutting edge technology to learn about customer demand and
needs as well as to achieve high operation efficiency must be done on a regular and ongoing
basis. Maintaining Wal-Mart’s culture and practices is very important to maintain success. The
trademark Saturday morning meetings should be resumed to weekly, because it is very “WalMart” and it helps strengthen Wal-Mart’s associates’ spirit. The company can get larger and
larger, but the company’s uniqueness should not be fading or being replaced.
Currently, Wal-Mart only attracts price sensitive customers, those who are more quality
obsessed or brand conscious are not shopping at Wal-Mart. Wal-Mart should not change or do
anything to minimize this weakness because the company’s strategy is being a low cost leader,
and it is impossible to satisfy all the market segments. It is believed that companies that stretch
thin in different market segments can easily be stuck in a position without a target market.
Wal-Mart has strong opportunities to enter more markets in Europe and Asia. However,
its current growth strategy of both widening product ranges and expanding geographically put
the company at risk of stretching its resources, losing operation control, and weakening strategy
coherence. It is recommended that Wal-Mart focuses its growth strategy on expanding product
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ranges to meet various demands. As for international expansion, it should only focus on the
markets that it can do well, such as Canada and Mexico. It should consider dropping any
international markets that are not performing well (i.e. any unsuccessful markets in Latin
America). Before entering Asia and Europe markets, market research should be done thoroughly
and Wal-Mart should only focus on a few markets that have the best potential and less
competition. The company’s past international expansion faced strategic and organization
issues, and therefore, its success has been inconsistent in foreign markets. This is a sound
evidence of losing focus and losing control.
By maintaining its strengths, Wal-Mart can continue to beat the competition and
minimize its threats. Wal-Mart has responded well to the pressure from environmentalists,
women’s and children’s rights advocates, and anti-globalization activists. Although these
pressures do not currently affect Wal-Mart’s bottom line but successes in responding to them
have helped form and maintain a positive image for the company. It should continue its
programs of ethical sourcing and environmental sustainability. Regarding low wage issue, it
should maintain its current pay schemes. First, the rates are slightly above the general retail
trade. Second, Wal-Mart offers other benefits in addition to basic salary, including profit
incentives, stock purchase plan, and promotion opportunities.
By continuously focusing on its strengths and finding ways to increase operation
efficiency, Wal-Mart will stay ahead of the price competition from rivals, and deter potential
competitors from entering the markets.
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Appendix 1: VRIN TABLE
NonInimitable Substitutable
Competency
Integrated technology of supply
chain
Ability to generate large sales
volume
Superior logistics system
Operation decentralization
Valuable
Rare
Yes
No
No
Yes
Competitive parity
Yes
Yes
Yes
Yes
Yes
Yes
No
No
Yes
Yes
Yes
No
Strong culture
Human resources (management
team and employee autonomy)
Management routines and
practices
Yes
Yes
Yes
Yes
Temp. comp. adv
Temp. comp. adv
Temp. comp. adv
Sustainable comp.
adv
Yes
Yes
Yes
No
Yes
Yes
Yes
Yes
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Conclusion
Temp. comp. adv
Sustainable comp.
adv
Appendix 2: SWOT TABLE
Strengths
 Strong brand name
 Strong bargaining power over suppliers
 Integrated technology of supply chain
 Superior logistics system
 Strong culture
 Capable associates
 Strong presence in Canada and Latin
America
Opportunities
 Big potential market in Europe and
Asia
Weaknesses
 Only attract price sensitive shoppers
 May lose control and lack of coherent
strategy due to huge expansion plan
nationally and internationally
Threats
 Sustain market leader position
 Exposed to competitions from various
fronts
 Face potential political problems,
cultural and practice differences
 Intense price competition
 Large foreign competitors entering U.S.
and international markets where WalMart is present
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