Wal-Mart operates within 4 segments of the market and these are discount stores, superstores, SAM’S clubs and neighbourhood markets (turn to appendix, item 1). Wal-Mart trades a large quantity of goods and services in many different countries therefore it is a multinational. It has stores in these countries, Argentina, Brazil, Canada, China, Germany, Korea, Mexico, Puerto Rico, United Kingdom and the United States of America.
The highlighted areas in the picture indicate where Wal-Mart operates.
Walmart started making revenues of $12.6 million (1967) this has now reached $191 billion (see appendix item 6). From 1967 to present, the amount of stores under Walmart has increased from 24 up to more than 4,600.
Wal-Mart has taken over some businesses that are successful within their own markets e.g. Asda, therefore their philosophy is not just to be successful, but how to expand on that success. By increasing the size of its stores this has lead to the generation of more sales and higher profitability (please refer to item 4 in the appendix).
Walmart sell a variety of goods and services, both essential and luxury. This means that they are able to make profit from their basic goods as well as looking at selling different optional goods. With basic goods being milk and luxury goods being chocolate milk. Another reason for Walmart’s success is their ethos for continuous growth of productivity. As there goal is to succeed at everything, this comes from them aiming to offer all goods under one roof, and from this gaining a great competitive advantage.
A company’s size means that it can benefit from economies of scale. The average cost of any product will fall if a company is to sell more of it, therefore businesses such as Walmart have recognized this incentive and have been able to sell more with the opening of more and more stores. The process has also involved selling quality goods, thus meaning there is an increased likeliness of goods to sell.
One of the main reasons for Walmart’s success is due to the fact that they have accessed a large number of markets. This success has come from expansion as the potential market size was large enough along with the competitive advantage, which was strong and other companies weren’t able to copy this. Going into a variety of different countries that they have succeeded to grow in (see item 1).
We must now look to how affective the adopted strategies are:
Walmart’s growth has lead to an increased number of jobs amongst the worlds most biggest and powerful countries, offering these has favoured them also as they have more employees within their stores (meaning customers are seen to much quicker) they are also local (which means they are able to communicate with customers better) and not just this but their reputation for being a big company and solid provider of goods is improved.
Wal-Mart has experienced globalization in a number of ways. In 1991, Wal-Mart had opened their first international store, this has grown to more than 1,500 stores in nine countries. Additionally, the company also owns 37.8% interest in Seiyu Ltd (a leading Japanese retailer).
Wal-Marts acquisitions have been a key to their growth, such as taking over Asda in the United Kingdom in 1999, below shows the turnover and operating profit from 2000 to 2003 of Wal-Mart in the UK:
Operating profit is what is left over from the sales revenue after operating costs are deducted. There is an increase in both the turnover and operating profit, this indicates that growth is occurring in this Wal-Mart store.
‘Owned by Wal-Mart Stores, the biggest company in the world by value, ASDA is the second biggest supermarket chain in the UK with 17% of the market share.’
Wal Mart's core competency lies in the fact that it can recognize potential areas of cost cutting. In many ways, Wal Mart has been setting trends, due to it setting up stores in rural areas , the large scale use of IT, the kind of relationships it shares with its suppliers, etc.
As you can see Wal-mart net sales have been greatly increasing over the years, which indicates that the rate at which they are growing is going faster.
In item 2 (appendix) statistics are given for the turnover of 5 different companies one of which is currently an acquisition of Wal-Mart. As you can see Asda in the year 1998 had a turnover of 9,223.5 and the year after this had fallen to 6,834.8, this same year Wal-Mart had taken over Asda, the progression that this acquisition is successful is indicated by the fact that in the 2000 the turnover had increased greatly up to 10,144.5.
Wal-Mart is currently the world’s largest retailer, and is in a very good position as they gain massive economies of scale. With this, they still strive to grow and have said (as indicated in item 3 of the appendix) that they want to expand into Europe, due to this, shares in many European retailers had rose. It also mentions that international growth consists of strategic acquisitions, this is how they took over Asda, and it resulted in Asda becoming more successful with turnover increasing. Whilst their growth has been occurring, consumer awareness of Wal-Mart products and services has risen. Wal-Mart has been very successful in globalization, it has and is still rapidly growing, and this indicated that it is going from strength.
Inorganic growth has had many advantages for Walmart. Its allowed the company to expand thus lowering risks e.g. having stores in other countries means that if a country is in recession profit can still be gained from other countries. Inorganic growth can also allow diversification this can also reduce risks. Opening up franchises within Walmart stores attracts more customers. Furthermore, inorganic growth has increased Walmart’s market share, giving them their market share. Additionally by taking over British company ‘Asda’ they have gained the strengths and skills of this company to complement and add to their own. Walmart have been advantaged when they had acquired Asda, as the company already had knowledge on the local market, and Asda had already established its logistics, so Walmart had a company ready to buy with very little changes to make. Taking over Asda gave Walmart the chance to gain the skills and experience that Asda already had. This inorganic growth has increased Walmarts market share and increased profits.
The disadvantages to inorganic growth is, the problems Walmart has experienced, as the increase of some stores has been easier than others, not only this but the time it has taken has been costly. Control has become a problem for Walmart as more responsibility is placed on managers and supervisors whom they acquire through their businesses. As they delegate their new employees their new roles, it means more responsibility for the employee. Thus indicating as the company continues to grow their reputation could get damaged in the process. If Walmart grows too much it could cause diseconomies of scale. Additionally, when Walmart acquired Asda they had to adapt to their culture.
All in all the advantages out weigh the disadvantages.
For Wal-Mart to further their growth, they should implement the following:
- Wal-Mart competes with giant supermarkets, however consumers don’t always go to the supermarket, but instead their local convenience store. Therefore they should look to franchising their own convenience stores because they have a strong reputation of a market leader. Which in turn means franchisors will look to their name ahead of companies such as Londis, One-stop, or Jacksons.
- Wal-Mart has a real competitive advantage within their core business. This gives them the advantage of investing in places with rapid growth. E.g. LEDC’s that are experiencing vast economic growth.
- Uphold their strong reputation through their constant advertising and willingness to offer a quality of service.
Conclusion
In conclusion Wal-Mart’s successes have come with their ability to acquire businesses fast. They have been successful to the extent that there is nothing stopping them from going forward. The company is a prime example of inorganic growth due to the rapid competitive advantage they gained in the US. Which has been achieved by taking over businesses that require no start-up costs and are successful within their economy. In doing so, it’s meant that they’ve gained total control, giving them the power to make all decisions for what happens to those businesses.
