Kmart de Mexico S.A - Case Study Example

Kmart De Mexico 0 Executive Summary Pursuant to the decision to enter into a joint venture with, El Puerto de Liverpool S.A of Mexico, for opening of a series of Super Kmart Centers in Mexico, the CEO of the newly formed Kmart de Mexico S.A was confronted with various key issues pertaining to the formation of company policies in respect of some basic concepts, which would eventually see that company takes off and attain success without too much of a problem in the new territory. This report envisages analyzing these key issues, discuss the alternatives available to the corporation, identify the best possible course of action and suggest suitable implementation plan where necessary. In the course of such analysis, the report takes into account the different cultural and behvioural factors of consumers and employee groups of Mexico, as they are quite different from those of the United States where Kmart is operating currently. 2.0 Key Issues: The key issues which need the attention, analysis and decision for implementation in the case of Kmart de Mexico can by summarized as below: Hiring of the executive team Creation of a distinct corporate culture Adequacy of the training programme for the staff Use of mystery shoppers for evaluation of employee performance Store layout for the proposed super Kmart centers The proportion of 'food' in the overall product format for the store Merchandise sourcing and distribution 3.0 Hiring of the Executive Team: In the matter of hiring the senior executives there are two possible options available to Kmart De Mexico. They are: a. US managers of Mexican descent or b. US citizens of non-Mexican background. It is observed that while the understanding of Mexican people and their culture is definitely an advantage with the US managers of Mexican descent, they carry the disadvantage that they bring with them an attitude of superiority over fellow countrymen. The feeling of superiority may hinder the working relationship the executives have with the staff subordinate to them. Normally the employees have a tendency to work efficiently under a differently oriented boss than their own class. At the same time the executive who hold the portfolio of buying must have a basic understanding of the tastes, cultures and behavioural pattern of the Mexicans. Considering these, the strategy for hiring executives is: Chief Operating Officer and the Buyer for non-apparel non-food - US Citizen of Non-Mexican Origin Human Resources Manager, Buyer for apparel and Buyer for food - Mexican descent 4.0 Creation of a distinct corporate culture: While Kmart US is following the policy of empowerment of executives, encouraging them at all levels to take independent decisions, the same strategy could not be adopted in Mexico due to the following reasons: Hierarchical corporate structures prevalent in Mexico Employees reluctance to assume responsibility The employee culture to remain silent on the superiors' mistakes and obey their orders unquestioningly. Tendency of employees to look up for solving the issues. Because of these negative factors, encouraging decision making at the lower levels can not be attempted in the initial stages. With continuous training programmes and education of staff at all levels independent decision making ability of the staff can be achieved in future. 5.0 Adequacy of Training Programmes for staff: Since the training programmes meant for all operational positions in the store consisting of various courses and films developed in the United States would ideally fit only for those with a formal higher education, Kmart de Mexico cannot adopt the same programmes for training the personnel in Mexico. There is the need for developing a 'basic training course' to prepare the Mexican staff to receive the formal training of Kmart US. Because of the young average age of the staff it is quite possible for the company to provide the same training as of the United States once they are equipped with the basic training modules designed to prepare them for receiving the training as per the US models. 6.0 Use of mystery shoppers for evaluation of employee performance: Customer service is the key element for the success of any organization especially for a large retail chains it is of utmost importance that they maintain a proper customer relationship. In order to improve the customer service levels, the response level of employees to customers is to be professionally assessed and evaluated so that corrective actions may be taken to improve upon the customer relations. Since the mystery shoppers provide quick and accurate feedback on employee performance and also due to the fact that there are no other feed back mechanisms available for evaluation, it is advisable to engage the services of the mystery shoppers and a proper assessment is made of the employee performance, since this is the key area where the success of Kmart de Mexico lies being a new company that has come into existence. 7.0 Store Layout for the proposed Super Kmart Centers: It is observed that the proportion of time spent on consumption of food still remains high in Mexico as more value is attached to food in the common life. As regards the allocation floor space for food, considering the time and value attached to food in the normal life of a Mexican, it is advisable to stick to the decision of allotting forty percent of the floor area to food as is being followed in the United States. This is also substantiated by the fact that the average spending of Mexico is 38.7 percent on food as compared to in other heads of consumption expenditure. Unlike in the US, the store must have a separate floor area where the meat is made to order by cutting according to the requirements of the customer. This is because the majority of the Mexican customers prefer to buy fresh meat, although the consumption of packed and frozen meat is slowly gaining momentum. May be this activity is kept in an enclosed separate floor area farthest from the door. The allocation of floor area for each department may be based on the same strategy the company adopts in the United States, except that there will be a separate floor space allotted for fresh meat. 8.0 The composition of fresh and frozen food in the overall food stock: The question here is relating to the proportion of fresh and frozen food in the total food merchandise that the store needs to follow to recognize the customer priorities and demand pattern. On this issue of the proportion of fresh food and frozen one, economic factors, psychological perceptions, social values, purchasing habits and lack of appliances for preserving the food need to be considered. While devoting forty percent of the entire store for food, the company may widen the proportion of fresh food more than frozen and prepared food based on the above considerations. Probably a combination of seventy percent fresh food and thirty percent frozen food would ideally be the starting point, which proportion may subsequently be reviewed and changed according to the actual sales. 9.0 Merchandise sourcing and distribution: This is another key area which needs focus. Due to the additional time involved in transportation, getting more supplies from the US would involve keeping more inventories leading to high carrying costs which ultimately will result in the higher product prices deterring the sales. At the same time the consumer preference for the merchandise from the US is also to be taken into account. Thus a ratio of sixty percent goods of US origin comprising mainly of apparel, non-apparel and non food items may be sourced while the balance forty percent of the items may be sourced domestically. The second issue is connected with the provision of the EDI system for transformation of inter office data. Although it would be advantageous for Kmart de Mexico to follow the EDI system as in the United States, the investment of time and money on such a system may not be justified presently because of the poor working conditions of the telephone system in Mexico. Moreover this also involves the installation of high cost labeling machines at the supplier locations. For the short term Kmart de Mexico has to depend largely on Kmart US for its information systems and data analysis. With a long term perspective in view, it is advisable for Kmart de Mexico to encourage local suppliers to invest in the necessary equipments for labeling and coding of the products. The company may enter into guaranteed sales contracts for this purpose. But this step needs to be taken when the supply sources are well established and there is significant improvement in the working of the telephone systems in Mexico. 10. 0 Conclusion: To sum up, this report identified the causes for the concern of the CEO on the key issues relating to hiring policies, corporate culture, staff training programmes, store layout, proportion of food stock, use of mystery shoppers for employee performance evaluation and the sourcing and distribution of merchandise. The report analysed these issues in the background of the social, cultural and behavioural values of the Mexicans and had suggested suitable solutions and measures that may be implemented to make the Super Kmart Centers make a noticeable impact on the Mexican retail environment as envisioned by the CEO. A proper review of all the suggestions and change in them wherever necessary on the basis of practical outcomes is of paramount importance for the effectiveness of such suggested measures. Reference: 1. Kmart De Mexico S.A. DE C.V (Abridged) Richard Ivey School of Business The University of Western Ontario. Read More