An Internal Analysis of the Wal-Mart Corporation
The Wal-Mart Corporation is among the most successful, recognizable and notorious brand names. The chain of retail stores is associated with low prices, convenient one-stop shopping and geographically permeating accessibility. However, the retail chain is also frequently associated with a poor record on labor rights, negative performance in environmental categories, destructive community orientation, abuse of human rights in its developing sphere production operations, distribution of low-grade products and a general strategy of stifling local business enterprises and devastating local economies. The result is a relative mixed outlook for Wal-Mart, which will certainly continue to enjoy some level of dominance in the U.S. And global retail markets but which must also work to make internal organizational changes that can improve its reputation and its compliance with expectations regarding the environment, human rights, labor and community citizenship. The internal analysis conducted here below will assess various dimensions of Wal-Mart's corporate policies, market orientation and operational practices, balancing consideration both of the positive and negative conditions that comprise the retail giant's identity.
With respect to the resources at its disposal, Wal-Mart is easily among the most successful firms in the world. The real estate, operational, transport and monetary resources claimed by Wal-Mart are substantial. According to the text by Chandran (2003), the retail chain reported revenues of $219.81bn in 2002. This also translated to the ownership at this juncture of over 3500 Wal-Mart stores, Wal-Mart Supercenters and Sam's Clubs in the United States and an additional 1170 outside of the U.S. (Chandran, p. 2) The company, Chandran would report, also maintains a highly visited e-tail operation at walmart.com or walmartstores.com. (Chandran, p. 2) Chandran would also report that Wal-Mart carries roughly 1.28 employees on its global payroll and that its ownership of its own trucking fleet, distribution centers and warehouses, as well as its close partnerships with suppliers in developing countries all make it one of the most permeating firms in the global retail business. (Chandran, p. 4)
One of Wal-Mart's core competencies is its capacity to control cost for the consumer. The result is a relative market singularity for the firm, which is therefore capable of expanding rapidly and maintaining massive retail locations in income areas of a wide variance. In particular, Wal-Mart has made customer-loyalty inroads with lower and lower-middle class socioeconomic demographics that are the most penetrating in the retail industry. This is reflected in the company's stated orientation. Wal-Mart's own website reports that "our commitment to price leadership helped them save money when they needed it the most, which drove significant increases in store traffic. More people shopped at Walmart U.S. this year than ever before. More customers also shopped online during the year and their use of our Site to Store® free delivery service led to a record year for sales with this program." (Wal-Mart, p. 1)
Value control is among the central features of Wal-Mart's corporate strategy. This is because Wal-Mart has historically postured itself as offering the lowest market prices possible for the products which line its shelves. This begins at the site of production, which will often be chosen because of the legal flexibility which allows for lower factory operation expenses. Typically, production will be engaged in parts of the developing world where no legal minimum wage exists, where labor protections are scarce and where the economy cannot sustain environmental regulation.
The article by Banker (2010) reports on this point that decisions which are made throughout the process of selecting production locations, cataloguing specific products and placing store locations are all factors which comprise the value chain for the company. Banker notes that "merchandising's job is to make the best...
The company attempts to select relevant and unique products with a superior value proposition. This value proposition combines quality, price, brand, package size, sustainability, and service. But in selecting products, Walmart thinks about the whole value chain. The company's goal is to reduce costs by carefully analyzing the end-to-end supply chain." (Banker, p. 1)
This denotes that Wal-Mart's priorities as a business have long been directed to the final cost of products sold in its retail stores. Thus, at every step in the value chain, steps are taken to squeeze lower price margins from business processes. Just as this is achieved in product as noted above, so too is it achieved in areas such as the physical distribution of its intended retail output. Banker notes that "another major feature in this Value Chain is reported by Wal-Mart as its internally controlled transport capabilities. According to Banker (2010), Wal-Mart has "linked its ongoing efforts to transport goods more efficiently with its private fleet to its efforts to benefit the environment, lower its operational costs, and improve its ability to offer lower prices to consumers (its price rollback program)." (Banker, p. 1) Here, the maintenance of its own trucking fleet has made Wal-Mart uniquely capable of controlling the considerable costs which are rendered by shipping costs. At a particular point in history where the cost and volatility in cost of fuel can have dramatic effects on a company's ability to turn a profit, the fact that Wal-Mart has the ability to make decisions internally about how to approach transport efficiencies allows it to cut costs that are ultimately passed on in savings to the consumer.
Wal-Mart's rarity can perhaps be best captured in the ranked accomplishments that make the firm so distinctly recognizable. Namely, according to the Forbes ranking of Fortune 500 companies in 2001-2002, Wal-Mart is ranked first in revenue. (Chandran, p. 2) The same report goes on to note that of its closest competitors at the time, Sears Roebuck, K-Mart, JCPenny and Nordstrom combined did not equal Wal-Mart's revenue." (Chandran, p. 2) The report by Chandran also identifies Wal-Mart as the largest employer in the U.S. besides the Federal Government. These characteristics all help to highlight the rarified air of success achieved by the firm.
One factor that prevents Wal-Mart's competitors from imitating the firm's model for success is the manner in which the company has bypassed many of the traditional phases in supply chain management by maintaining so many of the required resources within its own firm. Its claim to its own trucking fleet and distribution centers, Chandran reports, have allowed it to focus directly on partnerships with manufacturers. As Chandran indicates, "Wal-Mart always emphasized the need to reduce its purchasing costs and offer the best price to its customers. The company procured goods directly from manufacturers, bypassing all intermediaries. Wal-Mart was a tough negotiator on prices and finalized a purchase deal only when it was fully confident that the products being bought were not available elsewhere at a lower price." (Chandran, p. 4) This approach would create an ingrained relationship between Wal-Mart and its suppliers that competitors simply could not imitate.
Moreover, because of the above-noted inroad that Wal-Mart has made with selected demographics, the strategy stated here by Chandran has essentially reversed the traditional relationship between the retailer and the supplier. This has made substitutability quite an unlikely prospect. This is because Wal-Mart has singularly overturned the historical power-dynamic by which suppliers have generally controlled pricing in the retail business. Wal-Mart's relative enormity and its success at stifling competition in so many local and regional markets has left major manufacturers and suppliers with little choice but to negotiate on Wal-Mart's terms. This is consistent with the other strategies approached in the value chain analysis presented earlier in this section.
Strengths and Weaknesses:
With respect to its many strengths as a business, its supply chain management approach is widely considered to be among the best in the world. According to Blanchard (2008), "Wal-Mart is the largest retailer in the world, and one of its drivers of financial success is its focus on efficient and effective supply chain management (SCM)." (Blanchard, p. 166) This is underscored by the wide array of strengths in operation produced by commitment to this strategy. Namely, Wal-Mart's pricing is generally impossible to compete with, and even more so for small local businesses. This makes the firm particularly adept at eliminating competitors in local markets. Additionally, the enormity of the store locations typically creates a single shopping experience that discourages the shopper from seeking items elsewhere. These characteristics have served well Wal-Mart's unquenchable thirst for growth.
Among its primary weaknesses, key is Wal-Mart's continued reliance on practices which are destructive to the causes of human rights, labor rights and environmentalism. Wal-Mart has earned a large cross-section of enemies among members of the public and even though it does continue to enjoy massive economic success, regulatory improvements with the progress of globalization and free trade will ultimately force firms like Wal-Mart to significantly reexamine and reform the ways in which they conduct business. First and foremost, it must considered wholly unacceptable and subject to prosecution under international courts that Wal-Mart continues to employ sweatshop labor throughout the…
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