Supply Chain and Logistics Strategy - Wal-Mart International Corporation - Research Paper Example

? Wal-Mart International Corporation Contents Contents 2 Introduction 3 Mission and Goals 4 Core Competencies 4 Operations Strategy 5 Supply Chain and logistics Strategy 5 Mode of Expansion and Justification 6 Wholly owned subsidiary 6 Joint Venture 7 Franchising 8 Wal-Mart Cultural Differences 9 Wal-Mart in Mexico 10 Wal-Mart in China 11 Conclusion 12 Recommendations 12 13 Works Cited 14 Name of the Student Name of the Professor Course Number Date Wal-Mart International Corporation Introduction Wal-Mart is the one of the largest corporation in the world. It is also one of the biggest private employers in the US. The company was first established as a discount store by Sam Walton, in the year 1962. At the end of 1993, Wal-Mart was among top discount departmental stores in the world. Wal-Mart is a common household name and world’s largest retailer. The company has worked very hard to get into this position by pursuing right strategies in both national and international regions. The organization thrives as an efficient merchandiser with effective processes and systems. These strategies have contributed to the overall buying power, superior growth and leadership in various systems such as logistics and supply chain. The company is headquartered at Bentonville, Arkansas, United States. The company has established more than eighty-five thousands stores across the globe. Product portfolio of the company includes, apparel, footwear specialty, supercenter, discount store, warehouse club, cash & carry, superstore, hypermarket and supermarket. The strategies of corporate management include selling products of high quality and high brand name and it lowest prices (David 293-298). The low prices are kept by reducing the overall operational costs through the use of advanced and unique electronic technology and unmatched warehousing. Merchandising deals are negotiated directly from the manufacturers which eliminate the work of middle men and save a lot of costs. The community outreach of Wal-Mart is focused on various goals such as involvement with local community services, customer satisfaction, providing scholarships for higher studies etc. The major emphasis of the company is on environmental and child issues. Mission and Goals Mission and goals are the building blocks of an organization. They guide the actions of an organization and define the goals and objectives. Whether an organization is big or small, to have a mission is the first step for setting up a business. The mission and purpose of Wal-Mart is to save the money of its customers so that they can have a better life. Apart from that, the purpose of the company is derived from the philosophy of the company’s founder. The motto of the retail giant is to work together and lower the living cost for everyone (Ahmed 23-30). This will provide an opportunity for the world in terms of saving money and enjoying a better life. Core Competencies Competitive advantage for Wal-Mart lies in its ability of cost differentiation and strong distribution channel across the globe. Cost leadership and distribution strategy of Wal-Mart has created barrier for competitors to copy the strategy of Wal-Mart (Gagnon 130-135).Expanded distribution channel of the company has helped them to sell products to large base of customers and increase market saturation for competitors. Wal-Mart follows a low cost leadership strategy. Macroscopic view of Wal-Mart’s competitive strategy shows that the company uses a resource based model in order to develop a value chain proposition which can’t be matched by competitors. With the help of the resource based view (RBV) model, it can be summarized that Wal-Mart has three major resources which are tangible, intangible and human resources, in order to create and maintain strategic capabilities. Resource capabilities of Wal-Mart can be explained in the following manner. Access to both tangible and intangible resources has helped Wal-Mart to achieve the capabilities which has established the departmental chain as a global market leader. Maintaining store as per customer convenience, deliver products and services in accordance with the changing customer demand and many others contribute to the capabilities of Wal-Mart. Delivering new products to customers in cost efficient manner through deploying technological resources has helped in decreasing the overall cost of the company. Efficient and responsive human resource pool has helped the company to decrease the service delivery gap and increase customer loyalty. Operations Strategy The objective of the brand is to offer a wider range of products in lowest possible prices with a pleasant shopping experience. It stores both private labels and national branded products. Most of its private brands are value for money products tailored for local demand (Harvey 10-15). It is also engaged in continuous expansion of its range of brands and products in order to meet the growing and changing demand of customers. The company has recently included brands such as Apple, Sony and various other kitchen aid brands. A very distinctive and unique strategy of the retail giant’s operations is decentralization of store and warehouse management. Store managers are given authority to make decisions related to product range, product display, location and pricing. Department managers can also implement their own ideas in the store strategies in order to increase profits and reduce expenses. This tends to differ as majority of strategies are conjured as well as implemented by the higher level authorities and come from headquarters. This empowerment helps the managers to serve its customers in the best possible way, because only local managers entirely understand the local competitors and shopping and demand behaviors of the local customers. The brand was able to drive their business in a successful manner by eliminating elements which were of little or no value to the company. Through this, the organization was able to pass on the savings to its customers in the form of lowest everyday prices. The efficiency of Wal-Mart in business growth was so huge they had reached a stage of critical mass. The market of US was not able to sustain Wal-Mart’s growth and the domestic market had saturated. Thus, the company started looking for opportunities outside US and started global expansion (Terpstra and Sarathy 35-60). In order to maintain control levels at a moderate stage, minimize various operational risks well as major costs such as transport, the brand studies strategies from its neighboring countries and tested its global expansion plan (Lewis, Brandon-Jones, Slack and Howard 1040-1050). Supply Chain and logistics Strategy The supply chain management strategy of Wal-Mart helped the brand to maintain its market leadership for a long time. The tactics lies in efficient supplier integration, effective warehouse and manufacturing management and store distribution (Walters 709-720). The key components of the brand’s strategy of supply chain includes distribution management and cross docking, vendor partnerships, integration and technology. The supply chain process starts with strategic sourcing in order to find best priced products. The suppliers are carefully selected so that they are able to meet the organization’s demands. The company has established strategic partnership with majority of its vendors and offers them potential high volume and long term purchases. In exchange, the company recovers lowest possible prices. The products are then shipped to the distribution centers of Wal-Mart and they are cross-docked. From the distribution ventures, they are delivered to different Wal-Mart outlets. Effective distribution management, cross docking and efficient transport management keeps the inventory and transportation costs to minimum. The logistics system of Wal-Mart is of superior quality and involves a fast and responsive transportation system. There are more than 7000 company owned trucks which cater to various distribution centers. These trucks helps in shipping of the goods and services from the distribution centers to the stores in two days and also enables replenishment of store shelves twice weekly. For these trucks, experienced drivers are hired and their movements are continuously monitored through ‘Private Fleet Driver handbook’. This increases the awareness of terms and conditions among drivers and safe transportation of Wal-Mart goods. Mode of Expansion and Justification The process of internationalization is an important decision. Being first to enter into a market has always been advantageous for organization. In the next section, various entry mode strategies will be discussed. It will include those strategies which the company is already using for expansion as well as others which can be implemented while entry into markets such as Mexico and China. Wholly owned subsidiary Establishing a wholly owned subsidiary means acquiring full control of other organizations. Control of operations, assets and management is transferred from the target firm to the acquirer firm. A WOS can take place by either of green field investment or acquisition. Green field investments provide the organization with full control over all operations and activities. Therefore, potential challenges experiences in mergers and joint ventures are minimized. Thus the acquirer company is able to make quicker decisions (Fox 2-6). The company is also protected in terms of copy rights and patents. However, Greenfield investment can be riskier as sales can be low compared to overhead costs during the initial stages. It also makes the organization less flexible during emergencies and cases where the company wants to pull out. Furthermore, it is a slow entry mode and the operational facilities can take years to start which might lead to a loss of first mover advantage. In order to deal with slow entry, organizations can consider acquisition strategy. When an organization wants to make quick entry into a foreign market, acquisition strategy can be considered. The strategy also gives quicker access to the distribution channels, labor force and market knowledge of the acquired companies (Sternquist 35-50). The payback period is also shorter. However, this strategy can also prove to be risky and costly. Also, the integration process is often challenging and results in low performance and ultimately failure. Acquisition is even more risky in case of manufacturing and production companies. Most of the organizations in emerging markets do not posses technology and are unable to match the standards of their developed counterparts. Another issue which may arise as a result of acquisition is over diversification which can have negative impact on the long term performance of the firm (Barkema and Freek 10-20). Thus it can be said that green field acquisition should be considered in case where the foreign market is completely different from the organization and the company is equipped with high set of skills required to undergo this strategy. Acquisition strategy as an entry mode should be recommended in case of mature markets. Since cultural integration is a big challenge in an acquisition, proper research is required before taking the final step. Joint Venture A joint venture is another entry mode which is highly favored in case of international expansion. During a joint venture, a third company is created which is owned by two or more companies. A joint venture can be divided on the basis of equity holdings. It can be minority, majority or an equal partnership joint venture. The biggest advantage of using joint venture mode is that risks and costs are shared by the parent companies. In cases of risk exposure, a certain amount of control can be established. Another advantage of joint venture is the quick access to information and knowledge regarding the host nation and the local market. Furthermore, Joint ventures are more politically accepted compared to wholly owned subsidiaries (Welch and Welch, 110-120). This makes the entry process smoother and easier. Regarding disadvantages, this type of entry mode may involve partners from culturally diverse nations. The objectives and aims can be divergent and backgrounds can be incompatible. This might lead to various internal and external challenges. It has been found out that the biggest and most common reason for joint venture failures is cultural incompatibility. Another disadvantage might rise due to more number of partners. A large number of partners might lengthen the decision making process which can further hamper the operational and strategic efficiency. In spite of the above disadvantages, joint ventures are more than often the only feasible mode of entry. These may be due to regulations or popularity of multiple investment partners in order to evade the risk. Joint ventures have been particularly successful in case of retail organizations. The major advantages come in the form of new and international markets, site location and entrepreneur skills, recruitment of new executives, establishment of store image and retail branding in the new market and establishing relationship with the local partners in order to secure the business and political influences. As of now, joint ventures are preferred entry modes for emerging markets. Franchising Franchising can be defined as “an organizational agreement form based on a legal agreement between a parent organization (the franchisor) and a local partner (the franchisee) to sell a product or service using a brand name and process that have been developed and are owned by the franchisor.” (Alexander and Doherty 15-19). Through this agreement, the franchisor shares the risk and costs associated while making foreign entry. Also, the franchisor does not enjoy g much control and the potential profit is shared among respective partners. Retail industry and fast food industry are the major implementers of this entry mode strategy. Franchising has gained a quick acceptance among US retailers and is increasingly being used by organizations across the globe. The entry into the new market is rapid and expansion is fast. Franchising is best suited when an organization wants to replicate its business format or model. Even though the strategy is underdeveloped and carries the risk of adaptation of the operating models, major franchisers around the globe are demonstrating enormous ability to adapt to the local environment. Also, there are markets where the tastes and preferences of consumers are almost similar. The main drawback of franchising lies in adapting to the local market preferences and tastes. Wal-Mart Cultural Differences Wal-mart has been one of the successful global organizations in terms of domestic as well as international expansion. However, the company has been suffering few setbacks and issues in terms of cultural differences. While entering into new economies, cultural differences are inevitable. Though the company always takes certain measures to avoid such issues, many times these situations go unnoticed and unattended. Translating the main message of the company into local and regional language is not enough to guarantee total acknowledgement among local consumers and employees. Misinterpretation of the correct message might happen. Most of the companies just translate the statements and objectives into local language but fail to interpret the right message. Wal-Mart found out that its tagline did not gowell with the Germans. They seemed to take it a different sense which was rather negative. Thus Wal-Mart had to change its tagline in Germany. Companies need to understand that these changes should be implemented not only in terms of company objectives and mission statements but also in their HR policies and business models. Implementation qualities have always been important while establishing brand image. However, in case of cross cultural differences, these images are become extremely difficult to interpret and decode creating communication issues too. It is important to understand the contextual value meaning of the products and services in the country where the expansion takes place. For example, even through the products of Wal-mart were qualitatively fine, they were rejected in countries like Germany and China (Ryu and Jeff 2-8). The main reason was that the consumers were not attracted to the packaging of products. Thus it is important to understand that value of the services and products can be perceived in a different manner. Many companies formulate their global expansion plans taking cue from other successful companies. While the successor might have established itself through certain strategies, it does not guarantee success to every other organization stepping into its path. Since each service or industry has its own local customers and conditions, a firm cannot assume that a particular set of customers for a particular product or service will have the same response for their own services or products. Lack of knowledge regarding consumer perception is one of the major issues which companies face during global establishment. Same applies while implementing successful strategies from other brands. The smallest service or product difference can create big difference in a market which is unfamiliar to the organization. For example, Wal-Mart failed while trying to replicate winning strategies of Asda in UK. Another cultural issue which companies face during international expansion is making assumptions. Monoculture strategies are out of date now and companies cannot afford to consolidate their establishment to one region only (Etgar and Rachman-Moore 6-13). Assumptions made in case of cultural perceptions and marketing communications can also lead to misunderstandings such as insensitivity and arrogance from the brand which tries to connect with the locals. Failing to take account of important attributes such as role of unions and labor laws resulted in Wal-Mart’s failure in Germany. The Germans have a very different perception about the Americans and the company failed to adjust according to that. In the next section, Wal-Mart’s strategies and issues during expansion in various countries will be discussed, giving emphasis to China and Mexico. This will help in underlying the most apt international expansion strategy for other emerging economies. Wal-Mart in Mexico Wal-Mart used acquisition as well as joint venture strategy as an entry mode in Mexico. The brand penetrated the Mexican market by establishing joint venture with local organization, CIFRA. The joint venture was helpful as it helped Wal-Mart to gain better information and knowledge about the local market. The local player helped Wal-Mart through supplier connections, local market knowledge as well as establishing relationship with local authorities (Belin and Pham 45-50). In return, Wal-Mart shared its logistics knowledge with CIFRA and helped in improving their supply chain and logistics management strategies. The brand acquired Central American Retail Holding Company and renamed it as Wal-Mart Centroamerica. The company re-launched the entire retail stores chain by providing wider range of services and products assortments and lowering the prices. The major strategy followed by Wal-Mart in Mexico was multi-format strategy (Millman 80-81). Here different consumers had been served by meeting their numerous needs. However the company also faced many legal as well as cultural challenges in Mexico. As a result of the monopolistic laws in Mexico, Wal-Mart faced the challenge of losing its technology and larger size in order to provide lowest prices. At present the company is facing low spending rate from the consumer due to economic recession and negative consumer sentiments. Another challenge for Wal-Mart in Mexico is the less number of convenient stores which is preferred among Mexican customers. Some cases of bribery and corruption have also negatively impacted Wal-Mart’s reputation in Mexico. Wal-Mart in China Most companies recognized that the market of China was a strategic necessity for their business future. Rapid economic growth, ever growing population dominated by young energetic customers and increasing consumer spending made China a popular destination for international companies (Schlevogt, “Doing business In China, part I: The business environment in china—getting to know the next century's superpower”). Wal-Mart entered into China by acquiring Trust-mart. Apart from acquisition strategy, Wal-Mart also implemented strategy of offshore sourcing. While entering in China, the objective of Wal-Mart was to establish itself as a national retail chain without an interrelated system of national distribution (Produce Marketing Association 49-59). Distribution system was the main challenge and controlling the trade unions was major problem. In order to establish itself, the company had stretched its target market to low end customers too. Thus, Wal-Mart adopted a cost leadership as well as implemented the differentiated strategy. However, Wal-Mart does not own any manufacturing factories or plants in China. Also, the company does not directly control its supplier’s production process. The suppliers are expected to meet certain degree of requirements such as delivery and quality in order to take responsibility and control of the production process (Paul, Noh and Hwang 325-332). Though the strategy is yielding profits to the company it might create potential challenges in the future. The overall control of management is low in Chinese stores. Another challenge which the company poses is establishment of new stores in the country. The Chinese government expects all international as well as private entities to have union branches and Wal-Mart was negatively known for its union stances (Schlevogt, “Doing business in china, part II: Investing and managing in china—how to dance with the dragon”) Conclusion Wal-Mart’s decision for global expansion has been successful so far. The company has been able to successfully dominate emerging as well as advanced markets. The entry modes and business strategies were mostly chosen in a strategic manner and after much research. Even though the company has faced challenges in many foreign markets, the overall penetration strategies have been successful and they have been able to dominate their retail competitors. The company also showed its strategic management skills while choosing their target countries and locations carefully. The major expansion strategies used by the retail giant included joint ventures and acquisition. Apart from that, Wal-Mart’s international success can also be credited for their efforts in satisfying customers from all demographics and social classes. The wide range of products and lower pricing strategies attracted brand loyalty from the consumers and helped the company to become a household name in every nation that it had chosen. Another notable success which helped the firm survive the recession periods was its just in time strategy, slower business cycles etc. However, the company has also suffered losses and exit in various markets. The latest, as mentioned above, is Germany. As a result of the cultural as well as political differences, the company was unable to branch out its operations in Germany. Recommendations Looking at the above analysis, it can be said that the overall global expansion strategies of Wal-Mart have been successful. The company has been using joint ventures and acquisition as its major expansion strategies. As the emerging economies are continuously developing their technology and skills, the retail giant can also opt for franchising strategy in few of these economies. For example, while entering in nations such as India, Sri Lanka, Singapore etc, the company can start off with franchising. The overall labor cost will be cheaper and the company will also be able to well train the employees. While expanding in more developed economies, the organization can opt for premium strategy. Apart from targeting the traditional low income categories, the brand can also look for up market positioning. Although the company has enjoyed price leadership in majority of its categories, not many of its products boasts the same in terms of quality. This era belongs to social media and customer expectations are likely to increase with their increasing expenditure. With the help of research feedback, the organization can acquire a better respond. In order to balance its decreasing store sales in some markets, the company can opt for internet retailing. The company has tasted success in countries such as UK and US in terms of internet retailing and it’s timing for taking the risk in other nations too. Though the company has started its chain of operations in countries like South Africa and Canada, it is yet to establish itself as a preferred and global brand in these markets. Thus, the company needs to position itself in both financial and strategic terms in order to drive sales in these emerging markets. Works Cited Ahmed, Pervaiz, K. “Culture and Climate for Innovation.” European Journal of Innovation Management, Vol. 1.1(1998): 30 – 43. Print. Alexander, Nicholas and Doherty, Annie Marie. “International Market Entry: Management competencies and environmental influences.” European Retail Digest, Vol. 42(2004): 14-19. Print. 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