Multi-National Corporation Major Multinational Corporation

¶ … Multi-National Corporation

Major Multinational Corporation

The incremental forces of competition created a new international setting in which economic agents became able to transcend boundaries and benefit from the comparative advantage of other regions. This comparative advantage included elements such as labor force cost efficiencies or an abundance of natural resources.

The increase in international operations was however supported not only by the comparative advantages, but also by the fact that the economic agents could expand their retail operations to other global regions. In other words, globalization and the liberalization of markets allowed economic agents to retail their products and services to other countries as well and as such increase their market shares and the adjacent revenues.

Wal-Mart is often recognized as the number one retailer in the United States of America, but the company has also been able to open numerous plants outside the North American country. The story of Wal-Mart International is often assimilated with the failures in Europe, mainly Germany, where the company was eventually forced to count its losses and close its store. The main issue pegged to this failure was the company's inadaptability to the local culture. In the years that followed however, the organization developed stronger strategies and is now a notable international competitor.

The current project sets out to analyze the reputable retailer from two distinctive angles -- their organization and their strategies. The analysis is divided into two specific sections -- the presentation of the data as it is revealed from the research of the company, followed by the actual analysis of the strategic course of action followed by the firm. In order to better understand this analysis, it is first necessary to set the background by presenting the company.

2. Company description

Wal-Mart was founded in 1962 in Bentonville, Arkansas by Sam Walton. The young Sam Walton had returned from the army and had a vision of creating a store in which people could purchase all of their commodities, without having to travel around the town and in various stores to do so. The focus in creating this one stop store was represented by the creation of a wide product palette, from which the customers could choose those specific items that they desired. Additionally, Walton strived to offer these product selections at low prices. This motto is still valid in today's Wal-Mart and the organizational slogan is "Save money. Live better" (Wal-Mart Website, 2011).

"Saving people money to help them live better was the goal that Sam Walton envisioned when he opened the doors to the first Walmart. This focus drives everything we do at Walmart. And, for the millions of customers who shop in our stores around the world each week, it means they can trust that our brand means we have every day low prices" (Wal-Mart 2011 Annual Report).

Today, Wal-Mart operates in a total of 8,970 locations, in both the United States as well as outside the country. The retail store is the number one consumer preference in the United States and it also registers success in other American countries, such as Argentina, Brazil and Canada. In all of its stores, Wal-Mart employs a total of 2.1 million individuals, all headed by Chairman Robson Walton and Mike Duke, the latter serving as President and Chief Executive Officer.

Wal-Mart is a publicly traded company on the New York Stock Exchange Market, under the WMT insignia. Its stock is being currently sold at a value of $59.32, and it reveals a rather stable trend.

Source: Morning Star, 2011

Specific statistics regarding the market share of Wal-Mart are difficult to retrieve, but the company's executives have declared that they seek 30 per cent of the total grocery industry (Democratic Socialists of America). As a retailer however, Wal-Mart is the preferred choice of American consumers and this was proved even in the current times of economic crisis.

3. Organization and strategy

Wal-Mart is traditionally associated with its retail facilities. Still, the organization is much more complex, integrating multiple operational divisions. These divisions include the Wal-Mart stores, Wal-Mart the discount stores, the Wal-Mart supercenters, the Wal-Mart neighborhood markets, the marketside, Sam's Club and Wal-Mart International. Each of these divisions is characterized by its own specifics, as briefly described below:

The Wal-Mart Stores represent the largest division of the corporation, contributing with more than 60 per cent in the groups' total revenues. The stores would traditionally focus on non-grocery types of products, but throughout the recent years, more emphasis has been placed on grocery items. The stores are divided into three specific formats: discount stores, supercenters and neighborhood markets.

The Wal-Mart discount stores have an average size of 12,000 square feet and they sell general merchandise and food selections; several of these stores also have adjacent facilities, such as tire service, a pharmacy or an optical center.

The Wal-Mart supercenters have average sizes of 197,000 square feet and they are similar to the discount stores in the meaning that they retail all items sold by discount stores and they also have the adjacent facilities. Aside from these however, the supercenters also have a full service supermarket. This means that they sell fresh meat, baked goods, dairy products or fresh seafood.

Finally, the Wal-Mart neighborhood markets are smaller stores, with an average size of 42,000 square feet. They retail a wide array of products, including general merchandise and food products (including fresh food) and they are perceived as intermediary stores between the discount stores and the supercenters.

The marketside stores are a new format of stores and they are characterized by the fact that they are smaller in size than the traditional submarkets. The first marketside store was opened in 2008.

Sam's Clubs are large size stores which sell general merchandise and food products. Their distinctive characteristic is represented by the fact that they sell in large volumes and are accessible based on membership cards.

Wal-Mart International integrates over 3,000 stores across various global regions and the revenues generated by this division account for more than 30 per cent of the group's total sales (CIPP, 2009).

At an administrative level, Wal-Mart is headed by S. Robson Walton and Mike Duke, as well as numerous directors. The chart below reveals the organization of the American retailer.

Source: Cogmap

From a financial standpoint, Wal-Mart has been following a constantly ascendant trend, revealing growths in its sales levels throughout each of the past five years. With the exception of 2009, when they slightly decreased, the organizational assets have also been gradually increasing from $151,274 million in 2007 to $180,663 million in 2011. The table below reveals the five-year financial summary of Wal-Mart.

Source: Wal-Mart 2011 Annual Report

At a strategic level, the Wal-Mart executives have developed and implemented a strategic course of action based on the following:

A cost leadership strategy according to which Wal-Mart strives to offer the lowest possible price to its consumers (Ireland, Hoskisson and Hitt, 2008). This commitment to the low price has represented the "strategy [that] shaped Wal-Mart's culture and driven the company's growth" (Wilbert).

A focus on cost efficiencies and operational efficiencies

A sustained strategy of expansion in both the United States as well as outside it, through traditional stores, as well as new formats (Blanchard, )

Starting with 2010, the organization has also developed and implemented an electronic commerce strategy through which it hopes to gain three specific objectives: "1) Develop and execute a global eCommerce strategy; 2) Accelerate global online channel growth; and 3) Create technology platforms and applications for every Walmart market" (Wal-Mart 2011 Annual Report).

4. Long-term strategic assessment

Wal-Mart is the largest American retailer and it is the preferred choice of the American consumers. Throughout its decades of operations, the company has created tremendous competitive advantages, such as financial strength and stability, extended managerial expertise, intense global presence or a strong supply chain system. Nonetheless, the organization also encounters a series of internal problems, materialized primarily in its weak global presence, in its implementation of the same business model globe wide or in the negative image it has created as a result of employee, customer and public complaints.

A noteworthy source centralizing various complaints about Wal-Mart is represented by Robert Greenwald's documentary Wal-Mart: the high cost of low price. Within the documentary, the producer interviewed numerous people that had interacted with the company and identified numerous problems, including the following:

Employees were asked to work extra hours and were not paid for them

Women and minorities were discriminated against in the promotional opportunities

Customers complained about the poor quality of the products, which had been imported from long distances in improper conditions

The public complained about the negative impact of Wal-Mart within their communities (namely the demise of local small businesses)

The company was accused of not investing in security as people were robbed or even killed in the Wal-Mart parking lots. These accusations were even more so dramatic when the security inside the store was fierce to prevent theft.

This negative perception of Wal-Mart represents their main limitation and emphasizes the inability of the low price strategy to generate long-term sustainable success. These shortages decrease the company's competitive position in the U.S., but even more so abroad.

Within the international setting, one additional strategic aspect is represented by the relatively low position of the retailer. While it is the undisputable leader of the American retailing industry, within the international arena, Wal-Mart's international position is rather weak.

The company had previously attempted to penetrate the European market, but had failed. The most eloquent case is represented by Wal-Mart Germany. The company opened the store in 1998 as a result of gradual purchase of local chain stores.

Wal-Mart Germany implemented the same business model as in the United States. There was the joyful morning cheer, the casual outfits and the expectation of intense social interaction. Still, this behavioral model was not applicable in Germany, where the population is more reserved and private. Additionally, the American retailer penetrated the German market with the same strategies as in the United States, without customizing them. But the German market was different, the consumers revealed different purchase behaviors and the competition was highly intense from established European retailers such as French Cora, German Metro or French Carrefour.

Wal-Mart "pursued a fundamentally flawed internationalization strategy due to an incredible degree of ignorance of the specific features of the extremely competitive German retail market. Moreover, instead of attracting consumers with an innovative approach to retailing, as it has done in the U.S.A., in Germany the company does not seem to be able to offer customers any compelling value proposition in comparison with its local competitors. Wal-Mart Germany's future looks bleak indeed" (Knorr and Arndt, 2006).

All in all, Wal-Mart failed in Germany because it did not understand the principles of the German market and it did not adapt to them. This ability to understand a foreign market and to develop a customized business model to serve its specific needs is a key success factor. In other words, the future success of Wal-Mart is directly pegged to its strategic ability to diversify its business model in order to integrate economic, social, political and other differences across the markets it serves.