Analysis Of Wal Mart And Tesco Management Essay
This report analyzes the various aspects related to the globalization of food retail industry in general and Wal-Mart in specific. It also studies the stategic innovations that are conducted by the retail organisations in the global markets. Wal-Mart and Tesco are taken in particular for the analysis as they have conducted successful business for many years in many markets. International business is a consequence of globalisation and is growing even though there are arguments against globalization. A business organization while starting their activities in another country bring out their organisational culture, style, operational practices along with all their products to other countries. Generally those organizations which has an established local market are forced to move towards foreign markets because of saturation in the local market. There are various factors behind this saturation and coupled with the decrease in the demand, threats of new entrants, from substitute products, from existing competitors and also the increased bargaining powers of suppliers and buyers compel them to look in to global markets. As far as food retail industry is concerned, due to the influence of globalization there is growth in the financial condition of most of the organizations. When an organization decides to expand into foreign markets, the management of the company has toconduct research and analyze the market situation to which they are planning to expand and the prospects in that market for their products. This report also discusses the ability of Mike Duke, the current president and CEO of Wal-Mart, as a leader or manager by evaluating some of the major leadership and management theories. While considering the leadership and management theories it can be said that Mike Duke has the characetrictics and capabilties to improve Wal-Mart’s products and customer’s perception by follwoing certain leadership practices. This report by including all these above said matters gives an over all view about the globalization of the food retail industry.
Wal-Mart and Tesco
For a number of years, Wal-Mart has been the largest company in the United States. Its global labor practices and the outsourcing strategies represent for many what contemporary economic globalization is all about (Brunn, 2006). Tesco is a leading food retailer in the U. K. with 1,878 retail stores located throughout the country. It serves international clients with 261 stores in the rest of Europe and 179 stores in Asia. Tesco currently is one of the largest retail firms in the world (Plunkett, 2006).
Wal-Mart the American Retail giant began its international business by acquiring the Werkauf, Interspar and ASDA supermarket chain in Europe (Bruck, 2002). Germany was chosen because it provides a stepping stone for Wal-Mart to expand in to the continent, and Wal-Mart’s customer-focused and price differentated culture seems to be a plus point for the German retail sector (Liu, 2001). Strategic alliances needs to be done with more formal arrangements. These involve fundamental decisions to share risk and are a key component of the corporate growth plans of both companies. For example, Wal-Mart made an alliance with Cifra retailer in Mexico. Both of them have the same belief in innovation, customer care and cheap prices. So Wal-Mart and Cifra made benefits through this alliance in various perspectives.
Strategic alliances done without due care and formal arrangements may lead to failure. Tesco’s acquisition of Catteau is an example. It was intended to be the company’s first step in international expansion and for European growth in particular. The company’s rationale at the time for acquiring a small regional chain was that they were going to build Catteau in to a national chain in France. According to the analysts’ research at that time, Tesco was attracted by Catteau’s good record and high profitability. By the end of the middle 1990s, Tesco was having a rethink about the acquisition of Catteau, and later in 1997 would completely withdraw from France. From this Catteau experience Tesco’s management learned many things and started improving the techniques in terms future acquistion process.
There are many factors which influence the nature of competition within and outside the industry. Porter developed the Five Forces Model to explain these. The threat of new entrants and substitutes and bargaining power of buyers and suppliers are the main factors in Porter’s Five forces Model. In the case of Wal-Mart the threat of new entrants makes only a medium pressure; the small scale grocers could potentially enter in the retail side but entry barriers are relatively high as far as establishing a major chain competing at the level of Wal-mart. Wal-Mart has an outstanding distribution system, is established all over North America, a brand image and adequate financial capability which has provided the company a good competitive positioning ove the competitors. When it comes to the substitutes there are not many substitutes that offer convenience and low pricing. Online shopping is another alternative through which the customers can gain price advantage but Wal Mart has also established online channels of distribution. In case of bargaining power of the buyers, the individual buyer has no pressure on Wal-Mart. The consumers have complained about the pricing techniques of Wal-Mart. Consumers could shop at a competitor who offers comparable products at comparable prices, but the convenience is lost. So it makes low pressure to Wal-Mart. The bargaining power of suppliers like Proctor & Gamble, Coca-Cola who have more bargaining power than small suppliers. Since Wal-Mart holds so much of the market share, they offer a lot of businesses to manufacturers and wholesalers and this gives Wal-Mart a lot of power.
Super market chains like Tesco, Asda, Sainsbury makes considerable barriers entry. Buyer’s bargaining power makes pressure in case of Tesco. If an item in Tesco is more expensive the buyers will move to Sainsbury. Threats of substitute products seen as low threats for Tesco. If the prices of substitute products is less then Tesco also will go for a price reduction.
Globalization in Food Retail Industry
Globalization is mostly seen in terms of consumer market as it depends on the demographics, food preferences, and attitudes. Food processing or food retail industry has became the largest industrial sector in many countries. So the food processing sector has undergone significant structural changes. The present trends in the industry through mergrs and acquisitions, strategic alliances etc.have resulted in fewer and larger enterprises. Globalization has both positive and negative effects on the world. One thing is clear that the open market is beneficial to the food industry. In the suppliers’or producer’s perspective many products such as coffee, cocoa and bananas etc. are producing globally and the value added capabilities of the processed food increased its users worldwide through globalization. Globalization also resulted in increased global food consumption, changing patterns of food consumption and trade liberalization. Increasing demand for environmentally sustainable agricultural products has become a high priority internationally by globalization. From the consumer’s point of view globalization in retail food industry could reduce the risks and it seems to be helpful in various ways because of increasing urbanization. The global food retail industry also became benefitial to the consumers, as it results in a wider variety of high-quality foods that are accessible, affordable and safe, meeting consumer demand. It is a fact that through globalization in the food industry by changing the pattern of food production and distribution enable the customers to have their food even far greater distances than before.
The arguments against globalization focus mainly on the cultural aspects. Globalization is leading to a kind of homogenization of the world’s culture. Every kind of people goes for fastfood worldwide. The spread of restaurents like McDonald, KFC which provide fastfood items making adverse impact on the health of the consumers. The main issue regarding the global food retail industry is that the food safety. It will be a public heath issue. There will be less carefull preparation with a mind set of making profit and it is outside the home. The consumers are also giving less importance to the safetyness of food. They are only goes for the tastes and their preferences. There is an increasing growth of the foreign fast-food economy, it makes easy accessibility to these kinds of restaurents. Through globalization there is an increasing growth of fast food items like burgers, pizzas, noodles etc. It made a shift in the eating habits of the people. It also leads to various types of illness for many people than before globaliztion. This overconsumption of fast-foods requires life long treatment, many health hazards and can ultimately lead to death. The eating of fast foods on a regular basis leads to an overall unhealthy condition. Health is one of the most important aspects that need to be taken care of for being happy in life.
Strategic Innovations In The Foreign Market
Generally there are four basic strategies that can adopted by a firm seeking international business. That are an international strategy, a global strategy, a transational strategy and a multi domestic strategy.(Bartlett et. al.,1989). In these global strategy is a kind of centralized and globally scaled strategy, international strategy is core abilities centralized and the other two are more interdependent and nationally autonomous and self-sufficient strategies respectively.
More than these strategies Wal-Mart used various kinds of innovative strategies while their expansion into foreign markets. Wal-Mart has an approach in the foreign market that is acquiring the weak player in that market. For example, in Canada, Wal-Mart acquired Woolco. This approach was very effective as it provides the global player to transform the weak player within a short span of time. Wal-mart also made many experiments in various markets. It used various store formats to see which had the greatest customer appeal. In the early years, Wal-Mart used the strategy to build large discount stores in small rural towns. But it was a failure. Wal-Mart’s innovation strategy by using sophisticated technology and a streamlined distribution system the the company created value for its rural customers. So the superiority of their innovative strategy ultimately led to a strongest survive. Wal-mart used an international strategy in their first expansion to mexico. By recognizing its failure Wal-Mart chosen the Global strategy for their new market expansions.
Another innovative strategy of Wal-Mart was in distribution. It includes “cross-docking” in this system, goods are delivered through Wal-Mart’s warehouses where they are selected, repacked, and then despatched to stores, always without sitting in inventory. Through this system goods trucked to a distribution centre from suppliers are immediately transferred to trucks bound for stores. It requires continuous contact among the distribution centres and suppliers to ensure that there orders are consolidated and executed within a matter of hours. Wal-mart operates a private satellite communication-system that daily sends point of sales data directly to its vendors. These cross-docking and supplemnting operational innovations led to lower inventory levels, lower operating costs and every day low prices. Another major component of Wal-Mart’s logistics system is the company’s fast and responsive transportation system. Wal-Mart also allowed the unionization of its workers and started programms on community benefits and social responsibility in order to refine the company’s image (Scott., 2007). Wal-Mart’s gross sales are 1992-2009 $405.607 billion. . By 2008, Wal-Mart had more than 3,000 stores outside the United States, 600,000 associates and an international revenue of more than $80 billion.( Hill.,2009). Wal-mart finally reached out the other retail sectors such as pharmacies,optical, Tire and Lube services etc.
Entering into a foreign market is a very risky process because there may be problem in the form of language because there should be a good communication between the employees and managers while there is a problem. For example, while Tesco look into the Chinese market for expansion there was language barrier and it was also lacked the knowledge about the Chinese market or the well-established brands in the Chinese market. But in case of US, it was a good environment for Tesco to expand because the culture in UK and US seems fairly similar and there is no language barrier therefore they can easily communicate between UK and USA. In different foreign markets Tesco adopted different strategies also. In the East Asian markets it follows a partnership approach such as joint ventures with local retailers. In Thailand, where the transportation costs was very high but the labor cost was cheap, Tesco changed their logistics to this situation. Tesco started the real process of becoming an international retailer in the mid-1990s. Tesco has successful operations in the Central Europe and Asia since the year 2000.Tesco’s innovation strategy goes for creating new customer values. It was a “steering wheel” approach with a purpose of achieving the lifetime loyalty of the customers. The framework of this strategy contains four perspectives; people, customer, financial and operations. This strategy led to Tesco’s non-food business such as housewares, giftware, apparel and baby store both online and via catalog. It also started online bookstores and nusic and entertainment stores without changing its brand name (Peppers.,D 2004). Its global revenue increased by 80% between 2003 and 2008. Tesco has now made its strategic innovation for the American market, following extensive consumer research and innovative concepts which the company already operated successfully in other five countries with over 800 stores serving around eight million customers every week. (Mike Kleinemaß, GRIN Verlag, 2007, International Business: Foreign Market Entry Principles). Tesco has started its business in most of the markets, by opening small number of very large hypermarkets. Once it has built sufficient sales and customer awareness then it opened other formats like smaller convenience stores or specialist outlets. Tesco’s earlier approach of distribution was home delivery but, the cost of picking and home delivery operations have been estimated at 14% of sales (Reinhard, 2001). So Tesco now developed their strategies of internet logistics and made their online business faster than its competitors who are creating more parallel distribution system. Tesco also used its global supply chain and retail expertise to manage stock and to keep overheads to a minimum.
Mike Duke and Wal-Mart
Mike Duke the CEO of Wal-Mart, since February 2009 is a good fit for this leadership position in many respects. But Duke was there with Wal-Mart since 1995. He is a demanding boss and a tough negotiator. He used to coach everyone around him. According to Duke Wal-Mart’s previous year annual performance was very pleasing in nature especially when compared to competitors. According to him Wal-Mart’s US stores are having faster delivery checkouts, very friendler shopping atmosphere and cleaner presentations. Future expectations in his mind are aggressive growth plans. He believes that no other global retailer can deliver the kind of growth that Walmart can over the next several years. In the United States, Wal-Mart have considerable opportunities in major metropolitan markets, with innovative new formats and by making their existing assets more productive. He also planning about lots of opportunities in Walmart International by entering new markets and making acquisitions. Wal-Mart will continue to expand into new channels, so customers can shop and experience Walmart when, where and how they want.(www.walmartstores.com/annual report 2010).
A great plus point while considerng Mike Duke as CEO was that he may be the one who holds this position of a company with a broadest experience in the same company. Before he came into the CEO position he was headed Wal-Mart’s international business from 2005 till his role as CEO. It was also the international business seen as growth engine for the company at that time. He has also a good supply chain and logistics background with Wal-Mart as a CEO needs to clearly undrstand the critical charecteristics of supply chain management system.
There are various types of leadership theories. Some of them are Trait theory of leadership, Great Man theory, The Charismatic Leader theory, The transformational leader theory, Quiet Leader Theory of leadership,
Participative leadership theory and The Transactional Leadership Theory.
Generally, leaders cannot follow a single approach, sometimes one leader has to mix the approaches depending on the situations or the requirements. Trait theory of leadership says that human beings are born with inherited traits and the right combination of traits makes them a leader. Great Man theory assumes that leaders are born and not made.
According to the charismatic theory of leadership, a leader should be attracted by more followers by their charm, grace, and personality. If a leader lacks this kind of personality then that individual takes a lot of trouble in maintaining the image and developing requisite skills. Transformational leaders should have a good vision and passion towards achieving greater things and they also inspire and encourage the others who follow him to achieve the individual and group goals. They will show more commitment and are more people-oriented. Quiet leader theory gives more importance for action rather than words.the transactional theory of leadership says about a superior-subordinate relationship. The subordinates should follow the structures that the leader makes. The subordinates will be rewarded and punished. Participative theory of leadership assumes that the decisions taken by many minds will be better than the decision taken by a single mind. So it makes involvement of responsible persons and related people in the process of decision making. Most of the eminent leaders are having most of these abilities and are using these leadership styles in their role as a leader. Mike Duke, the CEO of Wal-Mart also possesing most of these leadership skills.
Many thinkers had developed various management theories. In their opinion, if the management of a company follows the good management theory, it will certainly leads to the success of that company. Peter Drucker, Edward de Bono, Robert Heller are some of them. Drucker in his book, The Practice of Management, wrote the decisions taken by the management of a company will influence both within and outside the enterprise so it must put economic performance first. So according to Drucker management’s first job that is managing the business primarly has an economic dimension. Simply management is an economic organ. Every act, every decisions, every deliberation of management has its first dimension as economic dimension. There are systemstically organized and classified works for a manager and it is not a matter of native ability only. In other words even though management contains the element of both science or a profession it is a practice. For implementing its business responsibilties management has to exercise substantial social and governing authority within the enterprise. But the scope and extent of this authority is severly limited. Drucker also opined that management has to make plannings and decisions according economic environment because the economic environment is constantly changing in character.
He also put forward a term Management By Objectives, it focuses on the communication between the subordinates and the managers in an organization. It gives the subordinate to think and present his own conclusions that would be a major contribution to the organization. But it will be rarely seems to near to the expectations of the manager. The main aim intended in this practice is that it will bring out the divergence in the superior’s and subordinate’s perception. The subordinates will get a chance to understand the complexity of the superiors situation.
Mike Duke as a manager has the potential of a skilled manager. He has greater experience in this competent economy within the same company. He will be able to improve Wal-Mart’s products by making a systematic organization of economic resourses.
The report contains mainly three parts which are globalization of the food retail industry and strategic alliances, corporate strategies of major food retailers, Wal-Mart and Tesco and the third part is about leadership and management theories. The global food retail industry is becoming more larger by using various types of strategic innovations. The major companies go for expansion of their markets sometimes through strategic alliances or through acquisitions. Initially Wal-Mart made its internationalization through starting their branch in Mexico but later the company started acqisitions for further expansion. Tesco made its expansion by diversification of its products to non-food items and through acquisitions also. For successful international operation a company needs to use a good corporate level strategy. Wal-Mart’s corporate strategy of acquiring the weak player in the foreign market and innovative distribuion system all made it a successful international retail brand. Tesco by changing their product range from food items in to non-food items and through aquisitions and expansions made their international opertions successfull. The report also concluded that Mike Duke, the current CEO of Wal-Mart has the ability to improve the quality of products and customer’s perception by the year 2015. It was made on the basis of some leadership and management theories.
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