Strategic Analysis of Expansion of Wal-Mart in Africa

Strategic Analysis of Expansion of Wal-Mart in Africa

Course: Business Strategy

Course Code: W650

Prepared for

Mr. Sheikh Morshed Jahan

Associate Professor

Prepared by

Lamia Salim

Batch: 54D, Roll: 57

April 11, 2017

Institute of Business Administration

University of Dhaka

Wal-Mart

Wal-Mart Store, Inc., doing business as Walmart, is an American multinational retailing corporation that operates as a chain of hypermarkets, discount department stores, and grocery stores. Headquartered in Bentonville, Arkansas, the company was founded by Sam Walton in 1962 and incorporated on October 31, 1969. The company operates under the name Walmart in the United States and Canada. It operates as Walmart de México y Centroamérica in Mexico and Central America, as Asda in the United Kingdom, as the Seiyu Group in Japan, and as Best Price in India. It has wholly owned operations in Argentina, Brazil, and Canada. It also owns and operates the Sam's Club retail warehouses.

Walmart is the world's largest company by revenue, according to the Fortune Global 500 list in 2016, as well as the largest private employer in the world with 2.3 million employees. It is a family-owned business, as the company is controlled by the Walton family. Sam Walton's heirs own over 50 percent of Walmart through their holding company, Walton Enterprises, and through their individual holdings. Walmart is also one of the world's most valuable companies by market value, and is also the largest grocery retailer in the U.S. 

Part A- Strategic Context

Facts Identified:

• Presence of WM would lead to huge job losses and adversely affect the domestic manufacturing sector of Africa
• WM willing to create 15,000 new jobs in a matter of 3 years.
• Has a past record of giving low wages and low benefits; discourages employees from forming labor unions
• Will WMs low price prove successful in Africa’s low poverty low income country or not?
• Model of passing discounts retailers get from WS to customers, and selling in bulk
• Opened Sam’s Club- chain of membership only warehouse clubs
• JV with Caullum Company- Hypermarket USA. Entered international markets all through JVs (Cifra in Mexico, Woolco in Canada)
• Does not allow retailers control over merchandise
• Limited percentage of merchandise sourced from single supplier to not give them too much power and have greater bargaining power
• Savings on Tech+ Logistics+ Supply Chain+ Lower employee costs= Low price for consumers
• Failures due to fierce local competitions and cultural discrepancies
• In 2006, WM got fined in UK for offering the employees a pay rise if they gave up a collective union agreement. They did sort out the issues later on before it escalated out of control.
• WM employed the tactic of shutting down the store or department where workers had asserted their desire for collective bargaining, pretending that the step was being taken for economic reasons.
• One place where Wal-Mart chose not to resist unions was in China, where such organizations have little autonomy and align themselves with the ruling Communist Party.
• http://www.corp-research.org/wal-mart
• Failure in Germany due to poor reputation of the companies WM acquired, price sensitivity of German market meaning they were already accustomed to low pricing- WMs USP; vendors opposed the centralized distribution system; labor unrest; faced strikes. Accused of violating competition laws; could not blend cultures of companies;
• Failure in South Korea due to inability of blending with its culture. They preferred lavish stores. WM did not get better offerings from suppliers due to limited operations; hence less discounts.
• Struggle in Japan with consumers because they felt low prices meant low quality. WM tackled by renovating stores to look better and raise awareness regarding products.
• WMs entry boosted SAs FDI to $4.5 billion
• Cannot cut jobs for 2 years minimum
• Has to honor labor rights for 3 years minimum after the merger
• Improve competitiveness of local suppliers within 3 years of its merger

TTF analysis on Wal-Mart

CAPITAL

• Wal-Mart was founded in 1962 by Samuel Moore Walton in Rogers, USA.
• It has 10,130 stores and Sam’s clubs in 27 countries, under a total of 63 banners.
• It is the world's largest company by revenue, as well as the largest private employer in the world with 2.3 million employees.
• The company achieved significant growth after its foundation in 1970s
• It expanded and its annual sales crossed US$100 billion mark in 1997.
• In 2012, its revenues were US$443.85 billion.

CAPABILITIES

• Wal-Mart started doing business in international market in 1990s by entering in Mexico.
• In 2002 it overtook ExxonMobil which was the biggest company of the world in that particular year on Fortune 500th list.
• By 2005 it had expanded to 10 countries around the world.
• The net operating income from international operations was 23.4% of total operating income.
• In the global market, Wal-Mart started as a joint venture with the local largest companies and then acquired major stakes.
• This company became the largest employer in Mexico and Canada.

CULTURE

• Wal-Mart has a culture of low price, low cost, low wage.
• It follows a practice where it does not allow retailers control over any merchandise. It limited the merchandise to have a good bargaining power over suppliers.
• It tried to follow this strategy in international market.
• Though they succeeded in majority cases, it also became the main reason of their failure in some other countries like Germany, South Korea and Japan.
• Besides, they restricted their employees to form any union and encouraged to give up collective union agreement.
• All these resulted in some criticism like employee discrimination, anti-unionist and also caused pricing and supplier issues for squeezing the suppliers margin.

COMPETITORS

• Considering the global market, Wal-Mart faced fierce competition from the local hypermarket stores. In most of the cases, the company targeted the market leading retail store and then went for a joint venture with that store and eventually acquired that. But their strategy failed when could not match with the local culture.
• Target, which was a US based retailer shop, is trying to enter the global market. They constitute to being an international competitor for Walmart.
• Other competitors they have in South Africa itself include Shoprite, Pick n’ Pay, SPAR, Steinhoff International, Woolworths

CUSTOMERS

• Like any other retailing corporations, they have customers from all standards.
• Mainly price sensitive consumers wishing to save money from all aspects
• Discount stores differ from variety stores in that they sell many name-brand products, and because of the wide price range of the items offered.
• The company focuses on buyer behavior, how they are influenced by discount shops.

COLLABORATORS

• Wal-Mart operated in Mexico through its subsidiary called Wal-Marte de Mexico. Later it went for a joint venture with Cifra, a local retailer.
• After expansion it operated under different brands like Superama, Superbia, etc.
• In Canada it operated through its Canadian subsidiary, Wal-Mart Canada Corp. Similarly, in UK it provided service under Asda brand.
• Opened Sam’s Club- chain of membership only warehouse clubs

COUNTRY

• Deal with Massmart opposed by Trade Unions and Govt; but Deal accepted by SA Competition Tribunal
• Stable environment and govt. regulations in South Africa
• Rising Disposable Incomes of South African people
• Increase in FDI in SA by $4.5 billion due to entry of WM
• Much of population lives below poverty line i.e. less than US $1 per day which would hamper Wal-Mart’s operations in a lot of the countries.
• High levels of unemployment residing in that country already
• Manufacturing and Agriculture sector already declining in the country
• Countries like South Africa, Nigeria, Kenya had strong cultures of labor unions. Fear that Wal-Mart’s practice of destroying such unions will also be implemented here.
• Poor infrastructure

CROSS COUNTRY

• Can bring its technological methodologies into South Africa
• Faces problems similar to those it faced in UK and India previously so can adopt similar solving methodologies with government and labor unions’
• Claim that 4000 jobs would be lost if Wal-Mart imported even 1% of its products from markets like China; this would also hit the domestic manufacturers
• Ruling by tribunal ordered Wal-Mart to make a study on the way they could safeguard the interests of the small producers living in the country against the barrage of imports.

CREATIVE

• Barcode Technology adopted by WM to manage inventory; also created better communication with suppliers
• RFID technology to track merchandise better
• Hired best people in areas of logistics and SCM
• Largest Commercialized satellite in the world to collect and give information to vendors
• These helped stock and replenish items in warehouse and stores faster
• High tech= less training= less cost on employees

Industry Analysis (Macro)

PESTEL

A tool used by companies to track the external environment they’re operating in or are planning to launch a new project/product/service etc, or entering a new market, or even understanding the industry they are operating in or will operate in.

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Political: Wal-Mart started to run into trouble from various quarters in Africa and they were opposed to the deal of Wal-Mart buying out Massmart. Organized labor unions of South Africa like The Congress of South African Trade Unions, The South African Commercial, and Catering and Allied Workers Union; and three government departments – Economic Development, Trade and Industry, and Agriculture, Forestry and Fisheries were the people who were opposed to the deal.