Internal and External Business Environments of Wal-Mart - Case Study Example

? Internal and External Business Environments Background of the Study The study has been conducted in lieu to analyze the internal and external business environment of Wal-Mart. Wal-Mart has been a publicly traded company since 1971. Wal-Mart also happens to be the largest retailer in the U.S. and the world also. Herewith, it is also mentioned the chosen industry happens to be the retail. Over the course of study strategic and analytical framework such as the Porter’s Five Force Analysis, PEST analysis, Porter Value chain analysis, SWOT analysis and resource capability analysis in accordance to the requirement of the study. Answer of Question 1 The main five segments of the of the general business environment that tend to have significant effect on an industry and all the companies belonging to an industry (irrespective of the size and revenue) happens to be macro environmental forces in the form of political, economic, social, technological, legal and environmental or better known as PESTLE. Although it is needless to say that all the factors are of great significance but as per the requirement of the study economic and social factors have been chosen as the two most significant forces to reckon with. The main reason for such choice is the fact that these two factors only affects the businesses & the industry but also have a close interrelation with the other forces and corresponding affect on the businesses and the industry (Porter, 1980). Economic factors The retail industry in U.S. happens to be second largest industry in the country. The industry is responsible for 12% of the overall employment of the country. Majority of the retail industry is dominated by the organized retail chains. The country has the presence of some f the major global retailers in the form of Wal-Mart (the largest in the world) followed by Kroger, Target, Best Buy, the Home Depot, etc. However, like many other industries the retail industry is also looking to combat the wrath of the 2008 economic downturns. The economic downturn coupled the high level of competition has meant that the growth rate of the industry is going to be slow as the economy is still going through a stage of downturn. The economic downturn has also increased the unemployment rate and reduced the disposable income which most certainly will continue be a reason for the slow growth rate. It is needless to say that Wal-Mart has been affected by the economic conditions just like any other retailers. However, there have been certain opportunities that have been available to the industry such as the free trade zone. Also in the year 2009, the retailer awarded benefits worth $2 billion that included bonuses, contributions, profit sharing and attractive merchandise discounts. Here it is to be noted that this was a move that was respected by the employees and the government also most of the retailers were looking to cut down on costs and employee benefits during that period of time. But from the perspective of growth it is to be said that the company needs to focus a lot more on the operations in the emerging economies. Simply because, the economy of Germany, UK, USA is matured in nature and provide very little opportunity for growth; On the contrary the emerging economies like India and china have a relatively un-taped market and hence would provide would provide a lot more opportunity for growth than some of the matured economies. Social Factors Off late the retail industry in the country has witnessed a paradigm of shift in the domain of consumer behavior. This actually has been an affect multiple factors. Due to the environmental concern regarding global warming the customers have become a lot more environmental conscious and like to consume green products. Consumers have also become a lot of health conscious too. Also, as mentioned above the due to the economic downturn there has been a rise in the unemployment rate and dip in the disposable income of the people. Unlike earlier due the hectic and complex schedules and high fuel costs the people prefer to stay indoors and shop from home. This has also been supplemented by the growth of tablets, I-phones, etc. In order to deal with the social changes Wal-Mart has focused on putting up an image of a company that provides green products and services. This has been done through shop branding, use of energy efficient diode lights at stores, packaging, recycling, awareness programs such as the lets move initiative, etc. to combat the effect of the economic factors the company is focusing on retaining the customers through loyalty programs (Walmart. 2013, p.58). Also the Everyday Low Price or EDLP frame work of the company would help the company not only in customer retention but also in targeting the customers belonging to the bottom of the pyramid. In an effort to respond to the changing customer behavior the company has invested a lot more in social media and digital media. This helps Wal-Mart to reach and engage the customers directly. And the customers can also buy the desired product from home over the internet. Answer of Question – 2 In order to address this section Michael Porter’s five force model has been used. The porter five forces are primarily used to analyze the external environmental threats. The five forces suggested by Michael Porter are the suppliers’ bargaining power, buyers’ bargaining power, threat of substitutes, threat of new entrants and rivalry among existing firms. Among these the threats of substitute of products and rivalry among existing firms have been chosen as the degree of threat possessed by both is high. (Henry, 2008) The rivalry among existing customers is very high. The competitors are of similar size. The major competitors of Wal-Mart include retail majors like Target, Home Depot, Kroger, K-Mart, Dollar general etc. Due to the high level of competition the industry growth is low and the exit barriers are also high. The prices and the quality of the substitute product are also competitive. Add to that due to the high degree of competition the customer switching cost is also quite low. So far Wal-Mart has done reasonably well to address the two forces mentioned above. In U.S.A Wal-Mart has been able to hold a market share of almost 30%. Also in order to reduce the level of threat possessed by the competitors Wal-Mart has entered 27 countries outside U.S.A. Although there is high level of threat of substitute products company has been able to maintain steady sales growth. The EDLP model of the company along with high quality or products and services has helped the company to maintain high level of reputation. This has helped the company to retain the existing customers. Answer of Question-3 One of the most effective ways for Wal-Mart to deal with the threat possessed by the high degree of rivalry among the existing firms would be to go for internationalization. Wal-Mart already has a decent present outside USA. But the company may have to enforce a lot more stronger presence, especially in the emerging economies. (Wenderoth, 2009) The retail market in Europe is already quite competitive and the economy is also mature; whereas the market in Latin America is the closest one. It has large amount of population and happens to be an emerging market. Just like Latin America Asia is also mainly an emerging economy. However, it is probably the most far-away geographically and most different logistically and culturally. But if the company has to succeed it has to get a strong hold in both Latin America and Asia. The market entry of the company into China and Mexico has already been a success story. Hence Wal-Mart may use a hub and spoke model to get a firm grip of Asia and Latin America. Both Mexico and China should be used as a hub for the respective countries. In order to reduce the threat of substitute products the company may have to focus on product differentiation through augmentation. Already Wal-Mart has a major advantage over the competitors due to the EDLP model. Add to that the company should focus on the customer loyalty programs to retain the customers and hold on to the market share. The company should also focus on the convenience factor while developing the distribution network keeping the convenience factors of the customers in mind. Answer of Question-4 In order to address this section SWOT analysis has been among which both the external factors opportunity of threat has been considered. The major opportunities that lie ahead for the company happened to be the opportunity for expansion into new geographic locations, opportunity to increase sales through medium and to position itself as a company that produces green products and is environment friendly in nature. Among this the expansion into new global geographic areas is something that the company really has to focus upon. It has already been discussed that the competition in the U.S. market is fierce and the same could be said about the Europe. Hence Wal-Mart has to focus on emerging markets belonging to Asia and South America to reduce industry and economic risks. The major threats for the companies could listed as the intense industry competition, cross cultural differences in case of industrialization, economic downturn, very little scope of growth in the domestic market. Among this most certainly the fierce competition is the major threat and as discussed in the last segment to counter the threat the company should look to strengthen the grip in the emerging markets. However, even in the case of internationalization the company would face a major threat in case of cross cultural difference especially in the Asian countries. As a matter of act in India the cross-cultural differences could be coupled with political complexities. Hence the company should look to maintain healthy relationship with the government bodies and may decide to go for a full scale market research to understand the culture of the host country. This may help the company to reduce the risk to some extent. Answer of Question-5 Just like the previous section in case of this section also SWOT analysis has been used. But in this case the internal factors in the form of strengths and weaknesses have been addressed. The major strengths of the company includes product and service diversification, convenient price and location, high amount of customer loyalty, well designed supply chain. Major weaknesses may include low global presence, friction in relationships among the community groups, environmental groups, labor unions, etc. Among this the major strength would most definitely be the convenience in price and location. This something the company should most definitely look to continue upon. As a result of the dip in the disposable income and change in customer behavior this factor is of great significance. Wal-Mart should continue to cash in the EDLP model to continue the convenience in case of price. On the other the company should focus on the channel distribution to take care of the convenience factor in buying. One of the most significant ways to do so would be to focus on digital marketing to reach the customers directly. One of the major weaknesses that the company should look to improve is the relatively low global presence as compared to the relatively strong domestic presence. The number stores in the U.S. is a lot more than that of in other nations; especially the emerging economies in Latin America and Asia. This is something that the company has to improve and as a matter of fact the probable strategies have also been discussed before. Answer of Question-6 Resource Capability Analysis The resource capability analysis of the company can be done by using the VRINE model. Wal-Mart has decided to focus on some unique capabilities such as international acquisitions, supply chain management, store design and use of advanced analytics to create differentiated value. Wal-Mart has strived to make the capabilities rare to gain competitive advantage. For example the application of point to point data system by the company happened to be revolutionary in nature. The rare capabilities of Wal-Mart are hard to imitate and cannot be substituted easily. Many of the companies have tried to imitate the capabilities of Wal-Mart but to no avail. Only Target has been successful in imitating Wal-Mart to some extent. Wal-Mart has done an excellent job of making full use of the capabilities. For example the company has been able to exploit the supply chain management and have reduced the distribution cost and in turn it lead to the reduced prices of products. Value Chain analysis Supporting Activities Primary Activities Based on the analysis off the resource based view of the company and the resource capability analysis of the company it can be said that the supply chain model, use of integrated technology , capability of the company to generate large sales volume, strong management culture and routine are the core competencies of the company. References Henry, A. (2008). Understanding Strategic Management. UK: Oxford University Press. Porter, M.E. (1980). Competitive Strategy, USA: Free Press. Walmart. (2013). Global Responsibility Report 2013. Retrieved from http://corporate.walmart.com/microsites/global-responsibility-report-2013/pdf/Walmart_GRR.pdf. Wenderoth, M. (2009). Particularities in the Marketing Mix for Service Operations. DE: GRIN Verlag: Read More