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Walt Mart Company Analysis

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Autor:  anton  03 March 2011
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International Business Strategy

Case: Wal-Mart

Members of the group:

Marie Wemaere

Liying Shi

Adolfo Mac

Consultant Group F

10, Champs Elysees

Paris, France

Rennes, 15th March 2006

Board of Directors of Wal-Mart

Dear Sir/Madam,

As a consultant group hired to analyse the current situation in your company, we have prepared a report on the problems it is facing, different viable alternatives and the description of the strategy that, we think, is going to help to overcome the difficulties.

Wal-Mart Stores Inc, has already been the miracle of the retailing markets. It is now the world largest discount retailer, with 5,000 stores and wholesale clubs in 10 countries. In 2003, your company ranked first in the top 500 enterprises. However, it is well-known that the competition is becoming more aggressive nowadays.

In order to give the most suitable recommendations, we have first analysed the current situation of the company and found some challenges to take up for the future. Then we have defined the main problem and set up an alternative to solve it. Finally, we have worked on the implementation of the strategy.

We enclose the mentioned report and look forward to pleasing your expectations.

Yours faithfully,

Consultant Group F

TABLE OF CONTENTS

TABLE OF CONTENTS 3

EXECUTIVE SUMMARY 4

I) WAL-MART’S CURRENT SITUATION 5

II) PROBLEMS 6

III) ALTERNATIVES 6

IV) ANALYSIS 6

V) IMPLEMENTATION 6

VI) COSTS 6

VII) CONTINGENCY PLAN: 6

BIBLIOGRAPHY 6

Executive Summary

Wal-Mart is the largest retailer and one of the largest companies in the world based on revenue. In 2005 it reported net income of more than USD 11 billion and sales revenues around of USD 310 billion so its financial power is huge. It is also the largest private employer in the United States, Mexico and Canada, and has almost 1.4 million employees all over the world. It is already implemented in 15 countries. Wal-Mart has great brand awareness; customers see it as the real low prices specialist.

A few years ago it started experiencing many problems. First of all, many lawsuits have been suited against the company claiming that there is a gap between men and women’s wages. Secondly, Unions have requested higher salaries for the workers inside Wal-Mart, and have explained that it was impossible to compete if they paid such low wages. As if this was not enough, people in small towns have claimed that the company destroyed all the local businesses. Finally, competition has been getting more aggressive in overseas markets.

After detailed analysis it was clear that the main and most urgent problem was the weak Human Resources Management that the company has. Indeed it ruins the public image and could seriously damage the long-term strategy.

To cope with this situation different alternatives have been found.

The best one is implementing an important Human Resources Plan in the next 2 years. This plan consists in increasing 10% the minimum wages, giving health care protection to every worker in the company, eliminating any possible gap between men and women’s wages, and train women in the company to occupy management positions.

The cost of the strategy is going to be around USD 1 billion. The company will get it after negotiating lower prices from suppliers, cutting slightly the expected profits figures and from savings because of the efficiency gained with the strategy.

I) Wal-Mart’s Current Situation

1) SWOT Analysis

Strengths

• Low-price specialist. Before any other store, Wal-Mart has understood the customer desire to pay less. As it has built an efficient business strategy and succeeded in cutting its prices at each step of the business process, Wal-Mart has a huge advantage compared to its competitors. This is efficient since customers recognize that they find the lowest prices at Wal-Mart stores, and no other company has managed to copy it.

• Large brand awareness among the customers. Everybody knows about Wal-Mart and its “low prices everyday” motto. It appeals a large number of customers, especially in the United States where 85% of the Americans buy something at Wal-Mart stores. We could add that when it opens a new store, many people visit it and are waiting for it.

• Opportunistic. Wal-Mart has an old reputation not to hesitate to implement new ideas. Wal-Mart encourages its staff members to implement any new idea which could boost the sales. That allows the company to save costs just with simple ideas.

• Worldwide leader as retailer ($314 billions sales). None of its main competitors have the same power and reputation. Wal-Mart keeps a large advance in its business. It is far the leader in it, three times bigger than its worldwide challenger, the French Carrefour.

Weaknesses:

• Poor reputation. Especially in the United States, Wal-Mart has a bad image. People from towns say it destroys all the businesses around its stores. Even though it creates new jobs when opening a new store, the damage caused to the local economy overpasses the benefits it does.

• Employees’ dissatisfaction. Wal-Mart is accused not to pay enough to its employees and so has to deal with a high turnover rate. Moreover it has bad relationships with the Unions.

• Delayed on the international growth. Whereas its main competitor Carrefour is already established in 29 countries, Wal-Mart is doing businesses in only 10 countries apart from the United States.

Opportunities:

• Huge geographical growth potential. Wal-Mart’s business is not well developed in Europe, neither in Asia or in Africa. Even in the United States the market is not fully exploited, and there are many small and medium-sized towns that still do not have a Wal-Mart. As regards overseas markets, the Asian one is becoming each time bigger and more attractive as time goes by.

Threats:

• Viability of its business model. Many different trends are threatening Wal-Mart’s model. First of all, there is a growing “fair trade” trend which fights against exploitation in developing countries paying very too low wages. Secondly, there is the problem of implementing new stores worldwide on the same model ignoring the cultures’ specificities. For example, in China, people are not use to going to big stores outside the cities because many of them lack of cars, so they prefer to buy at the local groceries.

• Increased entry barriers. More and more towns especially in the United States refuse to have a new Wal-Mart store in their environment. Some states have voted new laws to limit the size of the new stores, a measure which especially has targeted Wal-Mart.

• Late entrance on the Asian market. Carrefour, other European chains and many Chinese chains are taking the large market share in the biggest continent.

2) Porter’s five competitive forces framework

(Adapted from www.valuemanagementbased.net.)

• The entry of competitors. It seems to be really hard for a new company to enter this business, especially because it will need to have a big size and power to be able to negotiate with suppliers, apart from having very efficient business processes. At the global market in which Wal-Mart is playing, it is almost impossible to suffer the entrance of new competitors.

• The threat of substitutes. Considering the size and the power of Wal-Mart in the United States it is difficult to imagine that any other company is going to substitute its business. However, outside North America, the situation is different. Wal-Mart’s entrance in Germany was not a success and the same occurred in China.

The company has to be careful not to be beaten overseas by competitors who develop the same strategy and already got some advantages.

• The bargaining power of buyers. Wal-Mart pretends to offer “low prices everyday” and this is the main key of its success, in its stores, people find lower prices than anywhere else. In order to go on succeeding, Wal-Mart has to keep its prices down. Otherwise, customers will leave.

• The bargaining power of suppliers. They have a huge importance in the Wal-Mart business model. They are so much atomized that it would be difficult to see them working together to ask for something. However, as Wal-Mart is the main customer of almost all of its suppliers, it has far more power in negotiations.

• The rivalry among the existing players. On this market there is a lot of competition. The war of cost cutting is important. However, Wal-Mart is the real leader in North America; no other company could directly compete with it at the moment. In the international market, its challenger the French Carrefour has some advance especially in Asia, Europe and Latin America.

3) Value Chain framework of Michael Porter

• Inbound Logistics. “This includes receiving, storing, inventory control, transportation scheduling”. Wal-Mart is really efficient in that area since it has its own centralized distribution centres. It has also chosen to build its own truck fleet in order to have more control and to deliver its stores as often as it needs. So Wal-Mart is not dependent on some other companies for its inbound logistic.

• Operations. “Includes machining, packaging, assembly, equipment maintenance, testing and all other value-creating activities that transform the inputs into the final product.” Wal-Mart does not really transform the products it gets, but it is really efficient in merchandising them on the best way.

• Outbound Logistics. “The activities required to get the finished product to the customers: warehousing, order fulfilments, transportation, and distribution management.” Wal-Mart use three different styles of stores to attract as much customers as it could. As it is explained on its website, “Wal-Mart's retail divisions include Wal-Mart Supercenters, Discount Stores, Neighbourhood Markets and SAM'S CLUB warehouses.” Those stores differ within their size and the customer they target.

• Marketing and Sales: Wal-Mart is really efficient in that area.

 Wal-Mart save costs at each step of its business processes so especially in its stores. It has for a long time implemented a “wide range of cutting-edge merchandising approaches.”

 Its advertising expenditures “ran about 0,3% of sales revenues” which is pretty much less than its main competitors. First because it chose not to have an aggressive advertising policy. Then because its stores are often out of big cities, its advertising costs are lower. Wal-Mart can also rely on its reputation of “everyday low prices” to appeal new customers.

• Service. “The activities that maintain and enhance the product’s value, including customer support, repair services, installation, training, spare parts management, upgrading, etc.” Wal-Mart has implemented in all of its stores the “10-foot attitude” as a motto for its associates to create a pleasant shopping environment for its customers. As explained a reporter for Discount Store News, “virtually nothing is done without the guarantee that its benefits the customer in some way.”

• Procurement. “Procurement of raw materials, servicing, spare parts, buildings, machines, etc.” Wal-Mart has a long term approach strategy for its suppliers. It builds long term relationship with them. Because it is always looking for low price they already have many suppliers overseas, especially in developing countries such as China, which are “low cost countries”.

• Technology Development. “Includes technology development to support the value chain activities, such as Research and Development, Process automation, design, and redesign”. Wal-Mart is really efficient in using technology to support and improve its business processes. It was one a pioneer in building a system to share data with its suppliers in order to avoid any short out.

• Human Resource Management. “The activities associated with recruiting, development (education), retention and compensation of employees and managers.” This part is not well developed by Wal-Mart. This constitutes a handicap and could explain some difficulties to enter new markets such as in Argentina or in Germany. It is especially weak in compensation of employees.

• Firm Infrastructure. “Includes general management, planning management, legal, finance, accounting, public affairs, quality management, etc”. Wal-Mart has a great infrastructure, it is really powerful. For example their income for last year $11,2 billion so it does not have problems with it.

II) Problems

Nowadays, Wal-Mart is facing many difficulties.

On the one hand there are many problems that have to do with internal operations and organizational issues.

On the other hand, competition is getting more aggressive all over the world and there are problems to face in the macro environment.

We have identified these ones as the most important ones.

• Weak Human Resources Management.

Wal-Mart is accused of paying very low wages to achieve its objective of offering the lowest prices. In comparison with the industry average they are said to be 20% lower.

The remuneration structure of the company is compensating the men’s job with higher wages. Consequently, women in the same position and doing the same duties earn significantly less money than men. The gap becomes larger in management positions.

As a result, the company is facing many lawsuits alleging the discrimination against women within the company.

The Unions, and specially the United Food and Commercial Workers (UFCW) are complaining and trying to force Wal-Mart to raise their wages to reach levels comparable to unions’ wages and benefits at unionized supermarket chains.

What’s more, they do not offer health care insurance for more than half of their workers.

Symptoms that reflect this problem:

 Bad relationship with Unions. Especially the UFCW.

 Very low wages.

 Gap between men and women salaries.

 No healthcare protection.

 High rate of employee turnover.

 Many associations disseminated anti Wal-Mart information through the Internet.

• Aggressive competition all over the world.

Wal-Mart is the leader in the USA, Mexico and Canada, but it is losing market share in overseas markets like China, Europe and Japan. Its major competitor, Carrefour has placed supermarkets in more than 30 countries, and is becoming much stronger in the European markets.

• Important culture and legal barriers to entry new markets.

It is very difficult for Wal-Mart to enter some of the European markets. In France, for example, there are many regulations to protect their supermarket chains. People are loyal to national brands.

In China, people cannot find the lowest prices at Wal-Mart, and they are not pleased with the variety of merchandising offered at the discount stores. Carrefour is taking advantage of the situation.

• Very high rate of return expected by investors.

The record growth rates that Wal-Mart has been achieving started to slow down. However, investors and shareholders are expecting the same increasing results that will be, this time, really difficult to achieve.

• Violation of labour laws.

Authorities in the USA are investigating Wal-Mart for knowingly hiring janitorial contractors who have been using illegal immigrants to clean stores. This practice can lead to many more legal actions against the company.

• The Wal-Mart supermarkets destroy the local businesses.

Local supermarkets and stores of small towns cannot compete with the prices that Wal-Mart is offering. Many businesses in these towns had to close and many others barely survive.

The businesses and the people of the small cities in which Wal-Mart is planning to establish are really worried about the matter and have started to lobby in order to forbid the opening of a Wal-Mart discount store.

Symptoms that reflect this problem:

 Bad image and bad reputation, especially among people in small towns.

• Unawareness of specific regulations in particular products.

In some states of the USA, Wal-Mart has had to stop selling guns and some toy weapons because it was breaking the law, ignoring many regulations. Consequently it is facing many lawsuits nowadays.

Among all of the problems that Wal-Mart is dealing with, we believe that the most important one is linked to the weak Human Resources Management. We think it needs urgent treatment and consequently we have set up a strategy to solve the problem.

III) Alternatives

To cope with the problems inside the organization we have found these four alternatives.

1) To remain in the current situation.

Wal-Mart is the world’s biggest retailer. The bargain power of this company is strong. It means that they can ignore the complaints of the employees and the Unions. Because of their strong brand awareness, they will never be afraid of not having enough employees. Besides, Wal-Mart is so important, that it would not be easy for the Unions to succeed in any action against them. Consequently, Wal-Mart can just ignore all the complaints and keep on earning wonderful profits.

Advantages:

• There are not going to be any extra costs or extra workload to the company.

• Profits are going to be higher as in the previous years.

Disadvantages:

• This alternative does not change at all the current situation of Wal-Mart. It does not solve any problem and will not improve the company’s image.

• The company will incur in more lawsuits to deal with.

2) To improve the brand image focusing on the internal environment.

With this strategy Wal-Mart will take special attention to satisfy their employees’ requests, reduce the high annual turnover rates, and ease the conflict with the Unions. There are four main measures: reduce the pay gap between men and women, improve wages, give health care protection to everyone, and entering into an agreement with the Unions.

Advantages:

• It will decrease the turnover rates, thus ease the tight labour market.

• Besides, because of the improvement of the staff’s treatment, employees will be more pleased to work offering better service to customers and working more efficiently.

• Better relationships with the Unions, which will give Wal-Mart a better reputation.

Erreur ! Aucune entrйe de table des matiиres n'a йtй trouvйe.Disadvantages:

• In order to satisfy their employees, Wal-Mart needs to spend huge amount of extra money, which will increase their cost obviously. The worse result can be Wal-Mart loose their advantages in price compared to their rivals because of the increasing cost in the salaries. It is the last thing they want to see.

3) To invest in automatic cash-clerks. Restructurate the staff.

Nowadays, the supermarkets have a new technology called auto-cash-clerk. This kind of machine can be used in Wal-Mart’s outlets, so they do not need to hire as many cash clerks as they do now. Therefore, they can save the labour cost of this part and improve other employees’ salaries. However, it is still necessary to keep some cash clerks and it needs time to change because not all the people can accept the new way immediately.

Advantages:

• This alternative will not increase the costs of the Wal-Mart’s products (maybe it will help to cut the labour costs). And thanks to the machine, it can assure the everyday normal operation. Also, as they keep some of the clerk to do the job, each person can choose the way they prefer (usually it is not so easy for elderly people and those who are not well educated to accept the new technologies).

Disadvantages:

• It will not solve the employee’s dissatisfaction, and the legal actions that the company is facing.

• The relations with the Unions are going to be even worse, and there is a high risk of strikes and riots. Company’s image will be very poor.

• Finally, a very high initial investment will be required in order to buy the state-of-the-art machines.

4) To implement a Human Resources Plan.

This alternative involves a radical change in the Human Resources Management as the training of the managers to improve their management and motivation skills, the improvement of the treatment to the employees both on salaries and healthy concern. The aim of this plan is to make employees’ work more efficient in order to cover the cost of the plan with more profits and the dismissal of the unnecessary employees.

Advantages:

This alternative considers all the aspects, balances the effects and costs and solves all the problems. It is an ambitious project to improve the performance of the current Human Resources Management.

Disadvantages:

A slight reduction of the profits is going to be needed. Some stakeholders will not agree with the measure. It’s quite demanding for the Human Resources Department; and it needs a long time to be fully implemented.

IV) Analysis

Decision Grid

The four main factors which we need to take into account are cost, risk, time and market; the importance of these factors is not the same, so we gain different weights. The figures are shown as follows:

Weight in decision: 0.4 0.3 0.1 0.2 Total=1.0

Cost Risk Time Market Total Score

Alternative 1 8=3.2 2=0.6 6=0.6 2=0.4 4.8

Alternative 2 2=0.8 8=2.4 6=0.6 4=0.8 4.6

Alternative 3 4=1.6 6=1.8 4=0.4 6=1.2 5

Alternative 4 6=2.4 4=1.2 2=0.2 8=1.6 5.4

Scale: 1 = low, 10 = high

Thus, Alternative number 4 is the preferred one as it has the highest score (5.4). The second choice will be the third Alternative (with a score of 5).

Recommendation

A good reputation is extremely important for a company, especially for a big, international one as Wal-Mart. We want to find a solution that can solve the issue of helping the company going out of the employees’ demands and the lawsuits, and improve the company’s reputation. As a result, it will help a lot to the further development of the company.

A Human Resource Plan is necessary. First of all, It will improve the situation of the employees making them really “associates”, increasing their salaries and giving them health care protection. Secondly, it will train the employees to be qualified at their position and help more women to go to the higher level. All these will ameliorate the brand’s image and create a better working atmosphere. It’s the most urgent and important task for Wal-Mart before their further expansion.

V) Implementation

The strategy is going to be carried out by the Human Resources Department and it will be conducted under the responsibility of the Human Resources Manager. He is going to work with his current team. No changes in the staff are going to be made, but training courses could be considered if necessary.

The implementation of the chosen strategy will last 24 months. It will be divided into three separate phases.

First Phase

The first phase consists in announcing the strategy to the whole company through the Human Resources Department. The main measure would be the increase of 10% in the minimum salaries of the bottom-line employees of the company, and the health care protection given to all the workers that lack of it.

It will take between one and two months to fulfil all the formal procedures, so first phase should be completed during the first trimester.

Second Phase

In the second phase the training of women for operative positions will take place in order to get them ready to occupy management positions. Wal-Mart will meet its objective of having more than 30% of women working in the management level of the company.

The training courses will take place as of the third month to the end of planned timeline, around the 24th month, when the whole strategy must be implemented.

Third Phase

This final phase involves a revision of job positions all over the company looking forward to eliminating any possible gap between women and men’s wages that can exist in similar positions. It is a policy of the company to always eliminate any possibility of discrimination.

This third phase will be carried out during the last semester of the 24-month-plan.

It is advisable to set up a team of specialised professionals to work on the revision of the job’s positions of the company. Otherwise, the Human Resources Department can do the whole work.

VI) Costs

The whole plan will have a total cost of USD………. Million.

This cost involves:

• Increase of 10% in the minimum salaries

• Health Care Protection

• Training Courses

• Increase of women wages in management positions

Financial Resources

The cost of the strategy cannot be totally absorbed by the company, because the prices will have to increase a lot and the policy of “Low Prices everyday” will be very difficult to keep. The company is having large profits, so one possibility is to get the money from a big decrease in profits. However, this decision will damage the company’s financial situation and would be rejected by stakeholders.

Therefore, the company has to get extra resources.

First of all, a negotiation with suppliers asking them to lower the prices has to be carried out. Different services can be offered to them in order not to ruin the existing cooperative relationship. Wal-Mart has a lot of power to negotiate and suppliers must understand and cooperate.

Secondly, workers are going to be more motivated and so, they are going to be far more efficient. This will be translated into cost savings.

Finally, it might be necessary to reduce around 10% of the expected profit figures for the next two years.

VII) Contingency Plan:

We think the choice of alternative is also feasible, and can be the second alternative to the chosen strategy. This is not a bad strategy but doesn’t solve all the problems. It offers the advantage of being cheaper and so the profits will not be damage. The strategy will be fully implemented in 12 months time. The schedule will be:

Phase 1: (Month 1 – Month 3)

Introduce 10 automatic machines in each store and hire the assistant to help people use to them.

Phase 2: (Month 4 – Month 9)

Increase the number of the machines while on the same time reduce the number of the cash clerks; put advertisement on how efficient it works and how much time it could save for the customers.

Phase 3: (Month 5 – Month 12)

Receive feedback from the customers and adjust the plan if it doesn’t work well.

Bibliography

• Web sites

http://www.valuebasedmanagement.net/

http://walmartstores.com/

http://moneycentral.msn.com/home.asp

http://www.wikipedia.org Article about Wal-Mart. Date 13/03/06

• Information in the case study.

• Articles given by the teacher.



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