MARKET ENTRY STRATEGIES OF WAL-MART
Founded in the year 1962, by Sam Walton, Wal-Mart was a single discount store in Rogers situated in the state of Arkansas. Then the growth of the Wal-Mart chain of stores has been tremendous. Initially the chain consisted of 9 stores amounting to a total sale of 1.4 million US dollars and the growth exploded with a overall sale of 118 billion US dollars in the year 1998 and the number of stores amounted to over 2,316 stores. The company also includes discount stores, warehouse outlets offering deep discounts, the whole sale club, supercenters of Wal-Mart. The success story of Wal-Mart is unique in the history of retailing and this success could greatly be attributed to the dynamic leadership of Sam Walton. Its innings in the international arena started when the company inaugurated a store in Mexico in the year 1991. Then the international chain kept on expanding to many nations like Argentina, Canada, Germany, South Korea and Brazil. By the year 1998 the number of international stores of Wal-Mart alone amounted to over 600 and these stores generated a revenue of over 7.5 billion dollars (Wal-Mart Annual report, 2008). The lines of merchandise of Wal-Mart is inclusive of electronics for consumers, goods related to sports, house wares, items for the lawn and the kitchen, apparels, paints, hardwares, items for repairing the automotives and their maintenance, games, grocery, toys, fashion items for homes, goods related to other types of maintenance activities. In the region of the United states, the company plays an important role in the generation of jobs and the number of jobs created by the company amounts to over 800, 000. Apart from this the company is also involved in the supporting of many types of manufacturing jobs in the US and this is being facilitated through the campaign called “America first” (Wal-Mart Annual report, 2008).
International presence of Wal-Mart
The company is involved in the serving of over 179 million people in one year and it also possesses over 2 million associates all over the world. The number of stores possessed by Wal-Mart numbers to over 7, 343 and its Sam’s Clubs are also present in over 14 markets. Hence it is not surprising that it is the biggest retailer in the whole of United States. From the year 2002 the company has been topping the list of fortune 500 list and in the year 2006 it was pushed to the second place, next only to Exxon- Mobil due the rise in the price of oil in that year. In the year 2008, the annual revenue generated by Wal-Mart was over 378 billion dollars (Wal-Mart Annual report, 2008). Hence the company continues to be successful in many nations exploiting the human resources as well as the other resources in the nations. Its idea is to capitalise on the strategy set by the company for global expansions and the present targets of Wal-Mart are the big nations with huge human resources like Russia and India (Newsweek, 2007).
There are lot of strategies employed by the company and it has had a huge impact on the local culture of the retail in every nation it has occupied so far. The major strategies that are used by the company before it ventures into another company are as follows:
Establishment of partnership with the organisations and business that are present locally
Working in close association with that of the governments of the states and nations
Trying to exploit the flourishing purchasing power of the people in the middle class (Newsweek, 2007)
Strategies for global expansion
The strategy used by Wal-Mart at the multinational level is being modified in such a way that it becomes the transnational strategy and the key aspects of this strategy includes response at the national level, operations at the international level and also taking lessons from the operations that are being conducted on a global scale. The aim of the company in following such an approach is that it should become the best choice for goods that are low cost in the United States as well as the whole world (Fishman, 2006). As the company is basically a retail company it stresses on the concept of orientation of the consumers by acquisition as well as distribution of goods at a low cost and at the same time facilitating learning on a global scale by the process of decentralisation, tackling competition over the borders and by sharing its acquired knowledge. But still in the global business arena, the company is relatively new and on its way to become a leading player. The stress placed by the company on the concept of national response has to an extent, brought about reductions in the operational efficiency of the company because it was not able to accomplish economy of scale which is enjoyed by the customers when it comes to the products that are standardised.
The company is involved in the formulation of blueprints for the managers when it comes to the strategies which they are supposed to follow (Coleman, 1999).
According to the needs as well as the culture of the people there is a high level of adaptation and the company has its location which is proximal to its market. The company also shows a lot of sensitivity when it comes to individual needs of every nation and also responds in an appropriate manner to these needs. There is also close contact and co-operative working shown by the company with the respective government so that every rule or legislation that has been passed by the government could also be taken into account while designing the strategies. The company is also involved in a lot of community works by provision of sponsors for the student community and contributes its share to the welfare of the people in the nations where it has its operations.
Success factors of Wal-Mart
Each of the stores operated by Wal-Mart is from that of the product being stocked by the company which would move towards the equipment at the front end and this would go a long way in helping checkouts in a rapid manner with the philosophy set by the company in place- provision of goods at low prices every day and at the same time providing customer services that are of top quality. Hence the added advantage of the low costs is that the expenses incurred in organisation of promotions for sales could be cut down to a large extent. Moreover the predictability of sales also increases. The company firmly believes in the system of “cross docking inventory system” and hence has invested a lot in the same. The process of cross docking has led the Wal-Mart to attain economies of scale and this has in turn brought about considerable reductions in the costs that are incurred for sales. In the system followed by Wal-Mart, there is a continuous delivery of the goods to the stores in a time of maximum two days and at times there are no requirements even to inventory them. Hence the shelves of Wal-Mart are refilled faster than four times of the existing competition in the market (Thomson, 1998). This is a particular advantage possessed by the company when it comes to competition. The power of buying of Wal-Mart is leveraged by means of purchasing in bulk quantities and also the company takes care of its own distribution. Hence every day low prices are guaranteed by the company and hence it has become a one stop shop. Hence at present the company owns stores in a variety of companies like argentina, mexico, brazil, Canada, UK, Korea china and also in Germany (Nelson, 1999).
Single business strategy
The major reason behind the success of Wal-Mart lies in the fact that the company believes and concentrates on the strategy of single business. This is the strategy that has been providing the company with success over a period of over 30 years. In the three decades the company has never believed in the concept of diversification for the sustenance of its growth and also its advantages at the competitive level. Hence the services provided by the company and the low prices offered are the major reasons behinds its success. The concentration on one particular strategy also poses a threat to the company because it is equivalent to place all the eggs in one single bucket (Richter, 1998).
Supply chain, distribution
The competitive advantage gained by a company depends on the efficiency existing in the system of operation of the company and also on the degree of efficiency of the supply chain. The chain of stores owned by Wal-Mart is highly successful only due to the ability of the company in the distribution of the merchandise from that of a huge network of distribution centers that are modern and are in turn served by means of truck fleet that is private. Wal-Mart has also been highly efficient in the maintenance of a good position in terms of the instock and also in the filling of the shelves that are in the new stores being established by the company every year. This is evident from the fact that though Wal-Mart has increased its sales by 30 in a time of two years, there was only a 12 percent increase in the inventory value at the cost of replacement in the same period of time (The Bay Area Economic Forum, 2003). Hence the strategy of leveraging a chain of supply for the purpose of restricting of the growth of the inventory continued to be followed by the company and during the first quarters resulted in a 14 percent increase of the inventories and a subsequent 3 percent increase in the inventories. Wal-Mart was also highly efficient and capable of investing in distribution capacities that are new and particularly this is true in case of the foods sold which is one of the areas responsible for a major portion of the growth shown by the company. The first centre for distribution of food by Wal-Mart located at Clarksville is only 10 years and there are twelve other centers for food distribution which are very new (Economist, 2006).
WAL-MART IN INDIA
Wal-Mart’s entry into India
The nation of India is very different from the other nations in many ways. Being aware of the historic challenges and changes that have shaped the nation, the Indian government as well as the private sector existing in India have been taking rapid steps for the better shaping of the retail sector that is evolving at a rapid pace. Hence the changes taking place in the sector of retail should be considered keenly by the retailing giants. In the structure of the Indian retail transformations are continually being introduced and it is expected that the retail sector would grow towards 635 billion dollars by the end of the year 2015. The growth of the Indian population compounded by the escalation in the disposable incomes of the people of India is the basis for this boom in the sector of retail. Particularly the retailing of food is experiencing growth by leaps and bounds and the Grocery and Food segment contributes to around 60 percent of the whole of the market of India (Franklin 2001).
It was in the year 2005 that Wal-Mart began to look for ways to venture into India.. This was possible due to the decision of the Indian government to relax the regulations pertaining to the opening of foreign direct investment in India. The initial plan of Wal-Mart was the launching of whole sale stores in the country by means of joint ventures by the year 2008. it also had the initial target of expanding to over 75 nations in time of 7 years. But since the company faced a lot of opposition from the Indian side, they had to hold up their plans. However in the year 2008, there were three stores opened by Bharti retail in the stated of Punjab under the name of “Easy days”. Sunil Mittal from Bharti also mentioned that the local markets would be the source of over 90 percent of the goods and this combined operation would also lead to Wal-Mart increase its sourcing at the global level from the nation of India. The aim of the joint venture between Bharti and Wal-Mart is that Bharti would supply Wal-Mart with the products it buys directly from that of the agriculturists, artisans and craftsmen (Goetz and Swaminathan, 2006).
The challenges facing Walmart in India
India was rated as one of the top international investment destination in 2005 amongst 30 other emerging markets that were short-listed for mass merchant and food retailers who wished to internationalize (Business Credit, 2006). Compared to other countries, India is seen as a rapidly accelerating economy whose gross domestic product (GDP) is rising at an average annual rate of about 7.5 percent continuously for the past three years (Choi, 2006; Economist, 2006) while its retail market has witnessed a growth of 10 percent on average (Business Credit, 2006). It is stated that the Indian retail market with a projection of $250 billion annually, is actually the world’s eighth largest market and it is expected that this will reflect a growth of more than 7% yearly (Dutt, 2005). These factors reflect that it is the strong economic conditions of the country that draw the attention of companies such as Wal-Mart who are interested in starting operations in the Indian retail market.
Despite deregulations which have seen the rapid rise of the Indian economy, the retail economy is protected from foreign competition as rules disallow direct foreign investment in this sector. The multi-brand retailers cannot invest directly in the country and are not even allowed to open and operate their own stores (Kravilanz, 2006). This rule has forced Wal-Mart to enter into a partnership venture with Bharti Enterprises, which in turn is an Indian business group that is a leader in country’s telecom sector. This joint venture between Wal-Mart and Bharti has resulted in them managing the supply chain together while it is Bharti Enterprises that will act as franchisees to conduct the retail operations (Lakshman, 2006; Mukherjee, 2006). This particular model in India that has been selected by Wal-Mart will throw open likely challenges pertaining to ownership as well as internalization dimensions of the model. This particular model is not the way Wal-Mart operates in other countries such as Germany and South Korea. Thus the company needs to take care that the definition of the model is in tandem with the partnership entered into with Bharti as well as the strengths that are associated with Wal-Mart’s classic operating model. There have been cases wherein partnerships have failed. This would require Wal-Mart not only to manage its joint -venture closely but simultaneously work patiently with Bharti. Wal-Mart also needs to protect well the huge amount of supply chain and information technology intellectual property that it has introduced in the joint venture. As far as India is concerned this is a big challenge and there is a requirement on part of Wal-Mart to comprehend in detail managing the relation in this context at least.
As far as the location is concerned, the size of market undoubtedly makes India an attractive destination which however is limited by many facets that need to be managed in order to ensure success. The present population of India is more than a billion. Despite having a large population that is relatively poor, the strength of India’s middle class population is around 300,000,000 people, which makes the number much larger in comparison to the total US population (Choi, 2006; Economist, 2006). This will prove advantageous to Wal-Mart as it has a large potential to which it usually caters to.
The Indian market may be large but is typically characterized by intricate variety and difference. The complexity is clearly visible by differences that exist in religion, language, dialect, value system, food habit, economic buying power, clothing selection, fabric, tradition, and access to transportation. Indeed markets in India comprise of several sub-markets. The main factor will be how successful Wal-Mart is in segmenting the market as per different facets. The ability of Wal-Mart to build merchandise that is local and its ability to locate and supply approximately 75,000 products that are usually sold in a typical supercenter will be put to test (Dutt, 2005). The standards of Indian shoppers are difficult to meet as the Indian middle class customer is usually a value-conscious shopper. This is clearly reflected in the Indian customer’s mindset of expecting products that meet global standards albeit at process those are Indian.