PowerPoint on International business expansion due today @6p
Parisienne1
WalmartPowerpoint1.pptxWal-Mart
Christina, Melissa, Leroy, and Willie
Christina Pickering did introduction, Melissa Cortland did slides 3,4, and 5. Leroy John did slides 6, 7, 8 and 10. Willie Buckley did slide 9.
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INTRODUCTION
What is Wal-Mart’s Current Strategy
Why Wal-Mart Must Adjust
How Wal-Mart Can Be Helped
After being in business for 38 years, Wal-Mart is currently the largest retailer and employs the most people in its domestic and international operations. The company has earned these accolades by selling quality products at low prices, providing good customer service, and teaching its employees to share a smile with every customer with whom they come in contact. The company’s international expansion plan has achieved a degree of success. Its operations in China, Europe, and Latin America has positioned the company to compete for market share in their global outreach. However, there is an immediate opportunity to expand its global presence. Our team of management consultants have been assigned to formulate a strategy to help Wal-Mart in its market penetration and the creation of new markets domestically and internationally including China. In spite of its success globally, the company had to cease operation in Germany and in the U.S. its stock price continues to drop in spite of the re-energized equities market. Another adjustment Wal-Mart must make is improving its Corporate Social Responsibility (CSR) image which has been damaged by its continued labor relations and class action law suits. Our team of management consultants will conduct and explore the following topics to make the correct recommendations to help Wal-Mart. The topics to be covered are: 1. An Environmental Audit, 2. A Business Analysis, and 3. Recommendations.
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Environmental Audit
Threat of Substitute Products
Quality Level
EDLP
Electronic Segment
Food Segment
Threat of Entry
Regulatory & Compliance
Product Availability
High Investment Requirement
Expected Retaliation
Wal-Mart’s threat of substitutes in China is low because they can offer products that are high in quality and low in price all due to owning their own legal brand. Offering “every day low prices” to the Chinese consumers decreases the chance of them choosing a competitor’s product over Wal-Mart’s. Wal-Mart’s electronic and food segments are highly vulnerable to the this threat. Wal-Mart was forced to accept trade unions in all of their China supermarkets, contrary to the U.S. model. With over 20,000 local suppliers and over 60,000 worldwide suppliers, Wal-Mart has a low product availability threat. Wal-Mart is a global retail leader and has been in China over 14 years; they have perfected their China model and have the competitive edge on the competition.
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Environmental Audit Cont’d
Competitive Rivalry
World Retail Giants
Domestic Retailers
Cost Savings to Consumers
Bargaining Power of Customers
Economic Conditions
Price Sensitivity
Freshness of Food
Convenient and Accessible Locations
Apart from Wal-Mart, other world retail giants has also established a significant presence in China. These included France’s Carrefour, Thailand’s Lotus, UK’s Tesco, and Germany’s Metro to name a few (Farhoomand, 2006). These foreign operators mostly operated in the form of hypermarkets. Other competition came from the domestic players boasting about having better knowledge of local consumer preference (Farhoomand, 2006). These local rivals were competing head-on with the foreign operators and dominated the supermarket segment. Their success was due to establishing an extensive network, and many of their stores were located in prime areas. They were also picking up new revenue models and management techniques from their foreign rivals and rapidly improving efficiency in their supply chains. Chinese consumers shop daily making small purchases versus the U.S., where consumers usually shop twice a week spending a large sum of money. This causes a problem for Wal-Mart due to having the hypermarket format, which is usually based on the principle of “infrequent shopping and bulk purchase” this doesn’t fit well with China’s shopping pattern, the highly fragmented market, impaired distribution network and unique consumer buying behavior pushed Wal-Mart’s operating costs higher (Farhoomand, 2006) than their U.S. home model. China consumers were brand conscious, but loyalty was very hard to cultivate because cost savings is their main determining factor. Wal-Mart is a global leader in the industry and economic conditions could leave the organization vulnerable to this threat. All of Wal-Mart’s superstores sell live animals, such as frogs, eels, snakes, turtles, fish, etc. due to the Chinese consumers’ obsession with the freshness of food (Farhoomand, 2006). Wal-Mart has 189 stores in 101 cities, this increases the convenience and accessibility of the Chinese consumers.
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Environmental Audit Cont’d
Bargaining power of suppliers
Buying power
Local sourcing
Partnerships
Wal-Mart aims to increase their buying power and decrease their expenses by partnering with suppliers (Boyle, 2010). Wal-Mart firmly believes in local sourcing. They have established partnerships with nearly 20,000 suppliers in China. Over 95% of their merchandise in China is sourced locally (wal-martchina.com).
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Wal-Mart’s Business Analysis
Market Opportunity
Products
Execution Plan
As the world’s largest retailer Wal-Mart has been successful in penetrating markets worldwide. Currently, the company has 8,500 stores operating in 15 countries. In China, Wal-Mart has 189 stores and has become the second largest retailer through the acquisition of 100 retail outlets of Trust-Mart stores (www.nytimes.com, 2007). Last year, international sales accounted for 24.6% of Wal-Mart’s total sales. In the U.S. its $285 billion of sales, 51% came from its grocery business. At the end of fiscal year 01/31/2010, Wal-Mart grew its retail business from 10.5% the previous year to 11.3%. This was the largest increase by any retailer. Target, a competitor, grew its business in that same time frame from 2% to 2.3%. Wal-Mart uses three formats to market a variety of products and services. These retail formats are Discount Stores, Super Centers, and Neighborhood Markets. The Discount Stores sell general merchandise and a variety of groceries. They also have a pharmacy, tire and lube, photo and portrait studio, and cell phone stores. The Super Centers carry everything the discount stores has in addition to a full service supermarket, baked goods, deli, garden centers, pet shop, and a fast food store. The Neighborhood Markets are grocery stores. They fill the gap between discount stores and super centers. The also offer a pharmacy, health and beauty aids , photo, and a limited selection of general merchandise. Wal-Mart has been an industry trendsetter and throughout its history is renown for its innovation, leadership, and success. Its operation stretches from its products sold in the stores to its logistically placed warehouses. Its core values of everyday low prices and superior customer services keep it at the top. The company’s unique cross-docking inventory system helps the company attain economies of scale, which helps the company to lower its costs of sales.
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Wal-Mart’s Business Analysis Cont’d
Financial Engine
Human Capital
Strategy
Wal-Mart’s strategic position has been defined by its strong financial position. From 2009 to 2010, Wal-Mart’s total assets have grown from $163,429 million to $170,706 million in 2010. Its liability and equity have also grown by this amount. However, the company has seen a decrease in its debt due to a decrease in short term borrowing from $321 million in 2009, to $260 million in 2010. The increase in free cash flow from $11.6 billion in 2009 to $14.1 billion in 2010 has the company well positioned to meet the need for future liquidity. Wal-Mart’s solid balance sheet can help the company maximize its strategic capability in growing its business domestically and internationally. Wal-Mart plans to expand its future business with capital infusion of $13 to $15 billion in Fiscal 2011. This expansion an other acquisitions will be financed mainly from cash flow from operations. The ROI has held steady at 19.3% from 2009 to 2010. However, its ROA has grown from 8.4% to 8.9% these numbers are a good sign of solid performance and will attract future investors. Another area that Wal-Mart must consider in its financial strategy is the companies risk profile. Currently, top rating agencies such as Standard and Poors has given Wal-Mart and A-1+ grade for its commercial paper and a AA rating for its long term debt. Moody Financial Services has allocated a P-1 grade for its commercial paper and AA2 for its long term debt (walmartstores.com, 2010). Wal-Mart over the years have acknowledged that its greatest and most valuable component of its company’s success has been its employees. As the world largest employer its has 2.1 million associates throughout its international operations. In the U S it employs 1.4 million employees and is the largest employer in Mexico and Canada. The diversity of its workforce also adds to the intrinsic value of its human and intellectual capital. The company has 257,000 associates of African American descent, 41,500 Asians, 5900 Pacific Islanders, 171,000 Hispanics and 16,000 American Indians and Alaskan Natives. In addition, 869,000 of the associates are women and 430,000 are seniors (walmartstores.com, 2010). Wal-Mart practices internal promotion as one of its motivating strategies. 75% of its managerial staff began as hourly paid workers. Wal-Mart has been focused on a single business strategy in its domestic and international operations. The strategy is low prices, service and smiles. The company is positioned to grow sales beyond the $137 billion mark and surpass the net income of $4.4 billion . To grow internationally the company will continue to build more super stores. The company must also take advantage by participating in more Free Trade zone distribution centers. In China the company has to continue to acquire more outlets from competitors to gain more market share. These stores already have their infrastructure in place and would help to reduce costs in its international expansion.
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Recommendations
Market Penetration
Market Development
Maximizing Its Use of Technology
Improving Labor Relations
Growing Shareholders Value
Wal-Mart must continue to expand its market internationally. Ninety five percent of the world’s population live outside the U.S. Therefore, the company must continue to build stores in the 15 countries where it has already established infrastructure. In China, Wal-Mart can continue to build Super Centers in the densely populated areas and Neighborhood Stores in the remote areas. Another recommendation that Wal-Mart can implement immediately is the development of new markets that are ripe for harvesting. Two countries Wal-Mart can begin operations are Australia and Russia. Australia has a solid economy which enjoys high growth, low inflation, no interest, flexible labor market, and an efficient and democratic government. Its potential competitors such as Franklin, Aldi, Tesco, and Ahold would be forced to lower their prices. Russia has been able to bring inflation under control and the ruble is now stable. Its large population are looking for quality goods at bargain prices (seekingalpha.com, 2010). Wal-Mart has developed one of the best logistics systems in the retailing industry. It should continue to expand this network to build stronger bonds with its partner suppliers globally. In addition, it should continue to expand its online shopping environment to increase traffic on the web. Wal-Mart has dogged by class action lawsuits by female associates. These law suits should be settled immediately to improve its image which has been tarnished through high media exposure. A very important stakeholder are the shareholders. Its stock price has been loosing value in double digits. The board of directors has approved share repurchase to the sum of $15 billion dollars. The company should continue to repurchase outstanding shares which will help to stabilize the fluctuating stock prize (seekingalpha.com, 2010).
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Conclusion
Critique of Analysis
Critique of Recommendations
The Future of Wal-Mart
The environmental analysis done on Wal-Mart has shown that the company is solid in all the areas of the Porter’s model. The business analysis has proven that the company’s current business model has been successful and has the financial and marketing ability to expand and grow market share globally. The company has the human resources and the appropriate network of suppliers and partners to be successful in its global expansion. However, with the current state of the world’s economy there is the possibility that the company can loose billions of dollars by expanding too rapidly in the uncertain world economy. The recommendations made for Wal-Mart are sensible and justifiable. As the world’s largest retailer they are poised to continue market penetration. Nevertheless, there is a possibility that foreign governments can change the laws and limit Wal-Mart’s expansion in their countries. In most of the foreign countries, the labor unions are critical of Wal-Mart and would be eager to stop any exploitation of their members. Some of the countries Wal-Mart might target for market development might not have the infrastructure and technological framework to facilitate immediate expansion. Wal-Mart will benefit from the potential growth in the global economy as investors seek more opportunities in the global arena. Wal-Mart has been recognized by Forbes Magazine as one of the top companies in the world, and by Fortune Magazine as one of the most admired companies. The company has been cited as one of the most philanthropic organization worldwide. Wal-Mart has a bright future. At some point in your life you will either work for Wal-Mart or shop at Wal-Mart. With the current unemployment rate now in double digits Wal-Mart will play a vital role in providing opportunities for all levels of employees who might be interested in their corporate offerings.
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References
Boyle, M. (2010). Wal-Mart seeks partners to improve buying power. SFGate.com. Retrieved from http://articles.sfgate.com/2010-10-09/business/24119216_1_wal-mart-suppliers-wal-mart-stores-sugar-costs
Coyle, J., Langley, C., Gibson, B., Novack, R., & Bardi, E. (2008). Supply Chain Management. SouthWestern: Cengage Learning.
Farhoomand, A. (2006). Wal-Mart Stores: “Everyday Low Prices” In China. TheUniversity of Hong Kong.
http://investors.walmartstores.com/phoenix.zhtml?c=112761&p=irol-reportsannual
http://www.nytimes.com/2007/02/27/business/worldbusiness/27iht-walmart.4741017.html?_r=1
www.wal-mart china.com
