Competitive Advantage Corporate Strategy

Wal-Mart has recently experimented with diversifying into smaller stores. Its first move in testing smaller stores was on a university campus in Arkansas, where it offered food and non-food ranges in the Campus store replacing their ordinary parapharmacy / drugstore products. Its objective in diversifying into smaller stores is intended as competition against the other two major players, CVS and Wal-Green who showed rapid growth between 2005-2010.

Wal-mart's other decision to diversify arises from the fact that it has saturated its hypermarket and mass merchandiser channels and wishes to grow and find new store locations without destructing existent ones. Its modest growth sales in the U.S. In 2010, and its disappointing consequences of its Project Impact programme, have compelled it to look into the possibility of diversifying into smaller stores.

Porter (2001) presents three essential tests for assessing the conditions under which diversification will create shareholder value:

1. The attractiveness test; the industries chosen for diversification must be either structurally attractive or show potential of being made attractive.

2. The cost-of-entry test. Whatever it costs for business to enter field and take over / diversity into the new field must not prove too expensive so that it will torpedo further profits.

3. The Better-off test: Either the corporation must gain enhanced competitive benefit from its new acquisition / change in direction / diversification, or vice versa.

Applying these tests to the Wal-Mart scenario, we see:

1. The attractiveness test- operation on the campus stores, with food and non- products (such as beauty goods and sanitary items) offers a structurally attractive situation to Wal-mart. It is a risk in that, even though Wal-mart has some success with small grocery retailing S. America, this is relatively new territory for the corporation, and it will require the company to gain new logistics and supply chain skills. Nonetheless:

2. The cost of entry is relatively small compared to the huge amount of money that Wal-mart has to sink into its large big-box stores, and the amount of money that they sink into this project will certainly not torpedo further profit. Finally,

3. The Better-off test: Wal-mart will be in competition with smaller stores that include CVS and Walgreen as well as convenience store chains such as Seven & I's and 7-Eleven. By providing different products at reduced prices, Wal-Mart's diversification might prove successful. For the campus stores, this could certainly be advantageous in that they will benefit form more customers due to products that are, conceivably, lower-priced. Supplier and manufacturers, particularly food manufacturers who offer fresh products and small portions, could benefit form opportunity too.

4. Some of the direct effects on employees and shareholder values is that in terms of the former, this is relatively new territory for the corporation, and it will require the company to gain new logistics and supply chain skills, therefore some employees will be moved into positions of different responsibility and Wal-mart will expand its workforce therefore creating new opportunity. It will also have to create a new training program. I see opportunity here for employees and challenge for both Wal-mart and employees, but then growth is usually accompanied with challenge.