Study Analysis Of Wal Mart Management Essay
The topic selected for this research is Wal-Mart’s global strategy, its US operations and its entry into Indian market. Despite the importance of the topic, the vast majority of research on globalization is theoretical. Research on how Wal-Mart applies its global strategy and the impact of different type of approaches taken has received relatively little attention. Moreover there is literally no data or research available on organization’s entry into Indian economy. There was only one comprehensive research that the writer could take hold of. Even in that research, researcher tended to apply those obsolete and inadequate techniques which although were successful in the past but that could not have work on company’s global approach. It also did not take into account Indian cultural, political, social and economic environment.
This research takes all the relevant factors important for this study into account. The paper was constructed after considering Wal-Mart’s globalization method, its benefits of extending business globally (putting special interest in the Wal-Mart’s business in India), how successful was it globally and its effect on cultural, political, economic and social issues and vice versa. The main purpose of the essay is to evaluate Wal-Mart’s success and the reasons that caused this in the global economy. The following essay reflects upon Wal-Mart’s global pursuit and venture into international market, reasons for going globally, its global strategy of market entry, its dealing with relevant factors, its marketing strategies of positioning and growth. It will also discuss benefits and issues that happened due to globalization. This essay will critically evaluate the literature and findings with the help of various strategic theories available and corresponding recommendations will be made to Wal-Mart for its current and future foreign ventures.
2. Aim and Objectives
The aim of this essay is to analyze Wal-Mart’s globalization in India
Objectives of the paper are:
* To analyze published data/existing literature on globalization and related subject areas and apply this to findings of Wal-Mart’s study.
* To discuss all the issues related to globalization such as mode of entry, SWOT, PESTEL, benefits of globalization, problems that arise and impact of globalization.
* To summarize the findings and provide recommendations.
3. Outline of the Essay
Globalization is defined as a process of integration and interaction among the people, organizations, and governments of different countries; it is a process aided by information technology and is driven by investment and international trade (Hill, 2010). The process of globalization affects the environment, political systems, culture, prosperity and economic development, as well as human physical well-being in societies around the world. For companies, globalization means taking their business foreign by any possible means (Hill, 2010). Organizations go global for many different reasons. Main reasons for businesses going global include making money and growth of the organization. The multinational companies tend to attain economies of scale when they go global due to the large base of customers (Clarke and Getler, 2003). They know if they operate successfully in foreign ventures, their brand name and value will increase. The other drivers for going global varies and include improved communications, convergence, larger customer access, better information technology, cultural distribution and transportation, reduced barriers in trade, privatization programs, and development of international standards (Hill, 2010). Often organizations of developed world set up their businesses in developing countries because of easy access to cheap labour and increasing disposable income of the global middle class (Hill, 2010). Entering a global market is a lengthy process and penetrating the existing market set-up for development is a difficult task. Businesses require marketing infrastructure and proper extensive market knowledge before initiating the plan and a well-developed global strategy (Rugman and Verbeke, 2008). Number of factors plays an important role for options of entering an overseas market. These include a trade-off between the amount of control and the level of commitment of resources. There are number of ways an organization can gain a global entry: By ways of acquisition, joint ventures, exporting, licensing, franchising, royalties, merger, subsidiary, setting up a completely new company, or just by going into partnerships (Peng, 2008). The impacts of globalization involve the economic, social, and environmental outcomes of increased economic integration. The supply chain has been fragmented between nations with extensive geographical relocations of each component (e.g. harvesting materials, parts manufacture, assembly, marketing and sales, distribution, research and development). Today’s globalization includes a new international financial system, a new division of labour (e.g. unskilled and skilled workers, overseas buyers, traders, branders/advertisers, retailers), and a new challenge to the countries to guide its economic development (Bradley, 2005). A global shift has made considerable advantages and disadvantages on today’s society. A particular advantage of globalization is the opportunity of free trade and the result on the global economy. Other advantages among others include Increase flow of communication, knowledge, technology, reduction of cultural barriers, greater flexibility. However, the disadvantage is the destruction of local jobs and markets, exploitation of resources, environmental issues, and forced movement of people (Bennett and Blythe, 2006).
4. Wall-Mart and reasons for its selection
Wal-Mart Stores, Inc. is the largest public corporation (by revenue) of the world and operates a chain of large department stores (DATAMONITOR, 2009). It is also the biggest private employer and the largest grocery retailer in the United States (MINTEL, 2009). The main reason for selecting this company is that it is the perfect example of successfully operating business on the global scale. It has businesses in many countries of the world, both in developed and developing nations. Wal-Mart is one of the best known industries all over the world. Due to company’s successes over the years, it is considered as a retail giant. Its history is one of innovation, leadership and success. For some this corporation is a market trendsetter (Bushan, 2009). In terms of information systems, it is the most sophisticated retailer. Its concentration of a single business strategy is the basis of its success domestically as well as globally. Wal-Mart has achieved desirable success over the decades by this strategy without having to rely upon diversification to sustain its growth and competitive advantages. The leading marketing strategies of Wal-Mart are low prices, service, and smile (Mintel, 2009). There are many factors in Wal-Mart’s success. It’s shared passion, constant improvement, customer focus, speed improvement in operations and community services are values presented by Wal-Mart. One of the success factors is obviously growing in the era of globalization (Bellman, 2009).
Other reasons for choosing this company are: As different countries’ markets became open, Wal-Mart didn’t hesitate to enter them through many different modes depending upon the environmental requirements of the specific countries. The Wal-Mart had a potential to go globally in hope of earning more profits. Wal-Mart concluded many transactions with a lot of foreign companies that allowed it to buy goods at cheaper prices and offer them to the population (Bellman, 2009). Globalization created so-called global economy, entering more and more economic spheres Wal-Mart received more and more loyal customers worldwide thanks to the well-known brand of Wal-Mart. Important reason for selecting Wal-Mart is its global approach in Indian market, the problems it faced, how it tackled different issues, its policies and procedures regarding social, cultural and other important environmental factors, and how it benefited the local environment (MINTEL, 2008) (KEYNOTE, 2008).
This research is an investigation to search for relevant information on globalization. The author has ensured that the research meets the college criteria set to complete the paper with enough investigative data. It has been used in a technical sense as it is an academic activity. The main aim of carrying out the research on globalization is to discover answers by applying applications of scientific procedures (Bryman and Bell, 2007) Keeping in mind the research aim and objectives, the researcher has produced the research design that provided the framework for data collection and analysis (Saunders et al. 2009). Gnatt chart has been produced to keep the record of the process and set targets to achieve. It has assisted in planning and coordinating detailed tasks during the research work. It has also proved beneficial in keeping the data sought within the project scope throughout the research. The researcher has ensured the research to be rigorous and procedures adapted to be relevant, systematic, justified and appropriate; and the approaches taken should follow a certain logical sequence. The researcher has also made sure that the conclusion would be viable and verifiable. The research findings are examined for reliability and validity. The researcher has applied both descriptive and analytical research in the project (Saunders et al. 2009). Fact finding enquiries are made to measure frequency and preferences of similar data. Some information has been analysed for critical evaluation purposes. Deductive reasoning has been applied for this research (Saunders et al. 2009) as it works from general to specific. The researcher has narrowed down the theory into more specific hypotheses for testing and finally it lead to the hypotheses with specific data. There are two basic research approaches: qualitative and quantitative (Bryman and Bell, 2007) (Saunders, 2009). Qualitative research has been carried out in the beginning of the research to deduce more in depth information. The researcher has tried to gather maximum information available (relevant and related to the topic area) (Saunders et al. 2009). Secondary research has been conducted which was the data already collected. It was actually the exploration of all the facts, figures and findings that were already researched and organized in the same line of topics. Examples of secondary research are books, magazines, websites, journals, latest articles and market data reports (e.g. Mintel). Every research method has its pros and cons. That’s why the researcher has adapted multi-method approach and triangulated data from multiple sources to reduce research limitations to minimum (Saunders et al.2009). As the researcher progressed through this research project, limitation has raised that included biased information, unavailability of relevant data, resource and time allocation, etc.
6. Literature Review:
As defined by Steger (2010), Globalization is a term which describes the movement of people, ideas and knowledge, money and goods, across borders that in turn has led to increased interconnectedness among people of the world. As defined by Downing (2007), Globalization is as a process of integration and interaction among the people, organizations, and governments of different countries; it is a process aided by information technology and is driven by investment and international trade. The process of globalization affects the environment, political systems, culture, prosperity and economic development, as well as human physical well-being in societies around the world (Hill, 2010). Although often thought of in economic terms, the process of globalization process has various social and political implications as well. Some economists associate globalization with modernization. Globally it is regarded as challenges it poses to government’s role in international affairs and the global economy. The meaning and contents of globalization and internationalization of market is changing rapidly (Steger, 2010). Globalization is sometimes termed as international trade but it is more than this perception, it’s an on-going process by which regional economies, societies and cultures become integrated through a global network of trade, infrastructure, transportation and communication (Maed, 2005). It is a system by which nations interact in order to develop a global economy. It involves social, cultural, economic, technological exchanges.
6.2 Why go Global?
Most organizations move their business operations to foreign nations by going global. They take their business overseas for different reasons. There are various motives why companies opt for becoming multinationals. Simple and compelling reasons for going global includes, to build more brand and shareholder value, to reduce dependencies of home market, for business growth, to exploit the opportunities available globally, to add new revenue sources, exploiting foreign resources, and to compete internationally (Downing, 2008). The reasons for companies entering international market vary but the fundamental reason is the potential demand of the new market. The organizations move towards internationalization because of domestic market’s saturation and extreme competition (Peng, 2008). The companies are forced to seek opportunities in newer global markets. They often go global to expand their market base in order to target huge number of customers and to earn revenue. When competition becomes intense businesses often move towards foreign trade in order to avoid competition (Rugman and Verbeke, 2008). Some reasons for choosing globalizations are trade barriers, customer demands, and globalization of competitors, regulations and restrictions in home countries (Rugman and Girod, 2006). Companies often go global in order to achieve economies of scales, to benefit from incentives provided by foreign country and to save costs. Organizations tend to invest their excess revenue in expansion and the best way to expand is globalization when home market is not mature. The companies also try to maximize efficiency by employing their underutilized resources in human and capital assets such as management, machinery, and technology (Maed, 2005). In certain cases, a company can enter a new market just as a reaction to competitor’s move to neutralize the competitor’s advantage (Bennette and Blythe, 2002). At times, companies undertake foreign market entry with the objective of learning to develop itself as a global player for the future.
6.3 Modes of Entry
The process of penetrating a global market is a difficult and lengthy task. This activity requires proper extensive knowledge of the market, marketing and management infrastructure, as well as a developed global strategy (Rugman and Verbeke, 2008) (Hill, 2010) (Peng, 2008). Options for entering an overseas market depend upon a number of factors like a trade-off between the amount of control and the level of commitment of resources. Some of the ways of going global are acquisition of local businesses, by merging with domestic company and sharing resources, costs and benefits. Joint venture is another good way of investing in foreign markets so is acquiring a subsidiary or setting up a completely new organization (Maed, 2005). Exporting directly or indirectly is a cheap and easy way of doing business globally. The multinational can also indirectly operate by providing licencing, franchising, royalties or by getting into a partnership. All modes of entry have advantages as well as some advantages (Steger, 2010). These differ in degree of risk they present, the control and commitment of resources they require and the return on investment they promise.
6.4 Pros and Cons of Globalization
Scholars debate about globalization and its positive and negative effects. While globalization is considered by many researchers as to bring knowledge and information to people globally and having the potential to make societies richer through trade, some perceive globalization as contributing to the exploitation of the poor and as a threat to traditional cultures as the process of modernization changes societies (Hill, 2010). Globalization is intensely controversial. Advocates of globalization argue that it allows poor nations to economically develop and raise their standards of living, while opponents of globalization claim that the creation of an unrestrained international free market has benefited multinational corporations in the Western world at the expense of local enterprises, local cultures, and common people (Hill, 2010). Some advantages of globalization for the societies include increased trade between nations, liquidity of capital, greater flexibility to operate internationally, free flow of information, greater speed and ease of transportation, spread of democratic ideas, reductions in likelihood of wars, interdependence of nations, and increase in environmental protection (Steger, 2010). Disadvantages of globalization consists of threat of control of few, economic disruptions, exploitation of resources, chances of globalization being violent, increase in chance of civil war, spread of diseases, and decrease in environmental integrity (Hill, 2010). Organizations and people need to understand how globalization works to find the right balance between costs and benefits associated with it.
6.5 Factors affecting globalization
There are many factors that affect globalization and determine the choice of modes of market entry. Examples include legal, political, cultural, social, technological factors (Hill, 2010). Organizations going global have to take into account government legislations, social and employment policies, tax, trade and tariff controls, government type and stability, likely changes in the political environment, environmental and consumer protection laws, supply of labour, economic trends, economic growth, labour costs, likely changes of technology to the economy, cultural aspects of the society, organizational culture, education and occupations of local people, ethical issues, diversity, demographics, maturity of technology, ethnic and religious factors, transportation and technology access (Steger, 2010). The multinationals also have to consider all the risks related to globalization.
The companies should use SWOT analysis and PESTEL analysis to figure out how to deal with all the above mentioned factors that have a great impact on globalization. SWOT or TOWS analysis help companies to make good use of its strengths to minimize weaknesses, exploit opportunities and to counter threats successfully. The companies need to pay urgent attention to issues related to globalization.
6.6 Global Strategy
In order to analyse whether the company was successful in its strategy of globalization and how successful it was in achieving its goals, following theories are examined.
The organization needs to clearly define its role and strategic priorities (Steger, 2010). It is necessary to develop appropriate strategies to tackle different issues related to globalization. Strategy in home country may not be successful in target country; therefore, organizations have to carefully plan their approach (Hill, 2010) (Bradley, 2005). It is essential to select an appropriate and most relevant mode of entry. Some companies enter the global market at maturity stage of life cycle while many have to research and develop from scratch for the new market (Peng, 2008). Positioning is another significant strategy that a company must focus upon. Positioning refers to how organization wants its potential global customers to perceive its product or service (Steger, 2010). Positioning depends upon which market is targeted and how competitors behave in that particular market. The organization should identify a niche using traditional marketing placement strategies. Porter suggested that organization can obtain competitive advantage globally either by differentiating its product or service, or by low cost focus (Bradley, 2005). He proposed three generic strategies: global differentiation, global cost leadership and global focus or segmentation. Porter also presented fourth generic strategy of protected market which focuses on competing in countries where particular government protects or favours the business (Bradley, 2005). The company seeking to develop an edge over its global competitors can apply Porter’s five forces model to better understand the global context in which the company operates (Peng, 2008). It deals with negotiating and bargaining powers of suppliers and buyers in respective countries, domestic and global rivalry, threats of new entrants and threats of substitutes. For companies who operate in international business, it is sometimes amazing how people in different countries and cultures behave. The companies have to make business decisions according to the individual cultural behaviours. Geert Hofstede’s dimensions analysis may help the company in better understanding the intercultural differences within regions and between countries (Peng, 2008). It is important for organizations to acknowledge different strategic options to operate in different types of markets. No one strategic option for growth is appropriate for all types of environments at all times (Steger, 2010). The Ansoff’s growth matrix or model provides the basis for an organisation’s objective setting process and sets the foundation of directional policy for its future (Peng, 2008). The Ansoff’s model allows marketers to consider ways to grow the business through existing and/or new products, in existing and/or new markets. The company must also examine the global integration and local responsiveness paradigm and its impact on the adaption of global business strategy. A principal means for studying international strategy has been through the integration-responsiveness (I-R) framework (Downing, 2007). It can be employed to study the relationship among the alternate international marketing strategies (multi-domestic, multifocal, global, and transnational).
Which international strategy is actually pursued will depend upon the characteristics of the external environment and the organization’s internal capabilities (Peng, 2008). No matter what model or strategy a company applies, the basic aim remains the same: to survive, grow and earn revenue globally.
Following analysis will examine the Wal-Mart’s globalization and its success in its global operations in India, the issues it has encountered and success factors that contributed to its success.
Wal-Mart Stores, Inc. runs a chain of large, discount department stores. It is the world’s largest public corporation by revenue (DATAMONITOR, 2009). Wal-Mart is the largest private employer and the largest grocery retailer in the United States. It operates in Mexico as Walmex, in the United Kingdom as Asda, in Japan as Seiyu, and in India as Best Price (MINTEL, 2008). Wal-Mart is one of the best known industries all over the world. Due to company’s successes over the years, it is considered as a retail giant. Its history is one of innovation, leadership and success. Although it started trading with only one store in 1962 but has grown and became the world’s largest and the most emulated retailer. Today, this retailing pioneer has annual revenues of over $100 billion, more than 3,200 stores in USA as well as over a thousand stores in approximately 14 other countries worldwide (Mintel, 2009). It employees around 2 million persons and through its international reach, an estimate of one hundred million customers are said to visit Wal-Mart stores. According to Wal-Mart’s report, the foreign revenue counted for around 25% of the total sales worldwide (Mintel, 2009). Its concentration of a single business strategy is the basis of its success domestically as well as globally. Wal-Mart has achieved desirable success over the decades by this strategy without having to rely upon diversification to sustain its growth and competitive advantages. The leading marketing strategies of Wal-Mart are low prices, service, and smile (Mintel, 2009). Wal-Mart launched its international operations in 1991 through a joint venture in Mexico. Apart from operations in USA, there are wholly owned subsidiaries Brazil, in Argentina, Puerto Rico, Canada and the UK. In addition to its wholly-owned international operations, Wal-Mart has joint ventures in China and India. It also owns subsidiary in Mexico, associations in Japan and stores in Guatemala, El Salvador, Honduras, Nicaragua, and Costa Rica (Fishman, 2006). These modes of entry depended upon the countries’ laws and regulations other than political pressure and social norms of the society (Bellman, 2009).
Wal-Mart was not allowed to directly enter the Indian retail sector or sell to public but to restricted population in order to protect small retailers. In August 2007, Walmart announced an agreement with Bharti Enterprises to establish a joint venture, Bharti Walmart Private Limited, for wholesale cash-and-carry and back-end supply chain management operations in India (Bajaj, 2010). Its current operations include retailing to specific population and large stores in bulk. Globalization in India has been advantageous for Wal-Mart in many ways. It has ventured into Indian market simply to increase its base of operations and getting access to a broad range of consumers (Bajaj, 2010). Wal-Mart has not just gained from the Indian market but has opened up many profitable opportunities for the local people as well. There are many factors in Wal-Mart’s success in India. It’s shared passion, constant improvement, customer focus, speed improvement in operations and community services are values presented by Wal-Mart. One of the success factors is obviously growing in the era of globalization (Bellman, 2009). As Indian market became open, Wal-Mart didn’t hesitate to enter it in hope of earning more profits. Wal-Mart concluded many transactions with a lot of Indian companies that allowed it to buy goods at cheaper prices and offer them to the population (Bellman, 2009). Apart from the above mentioned strengths, Wal-Mart acceptance in India was largely due to its international brand name. It is a powerful retail brand with a reputation of value for money and convenience. Other strengths include its previous experience of globalization, its use of information technology to support its international logistics and its focused strategy (Helepete and Iyer, 2010). Wal-Mart’s weaknesses consist of its less knowledge of Indian market, its dependence on its Indian partner, failure to tackle government restrictions and huge span of control. But Indian market provides a range of opportunities for a retail giant such as Wal-Mart that also helped made a decision to enter the market. The reasons to enter the Indian market are to access the huge base of potential customers, cheap but hard-working labour, growth of the Indian economy, future retail boom and less tariffs. The main threat faced by Wal-Mart is competition from local competitors as well as global competition such as Tesco who also has a presence in Indian market. It also has to face government restriction of its business restrictions to protect its small retailers (Halapete, 2010).
Wal-Mart launched its operations because Indian economy was at its highest in decades and growing considerably fast. Wal-Mart had to take into account several social, ethical and cultural issues before initiating its business (Bushan, 2009). Even after starting its operations these issues need to be addressed continuously. Indian culture is unique in its own way. It’s a blend of many societies, religions, attitudes and beliefs. Wal-Mart, as a retail organization offered almost all the products in the market and also launched some new items specifically designed according to the demands of local population and distributors to whom all the products are sold. The way of doing business is different from American culture (KEYNOTE, 2009) (MINTEL, 2009). Wal-Mart faced problems dealing with the less efficient hierarchal structure of the authorities. The political issues faced by Wal-Mart included government restriction on its business to sell to the public. Wal-Mart still ventured into India in hope of lifting this restriction in future. Indian market is filled with thousands of small stand businesses. They were fearful of losing their businesses. With the help of small retail organizations and NGO’s they launched an official campaign against issuing licence to Wal-Mart. Other political and legal issues were the government as well as different state laws and regulations, employment policy of employing local employees, lengthy and hectic tax and other administrative problems (Bushan, 2009).
To measure its success Wal-Mart’s strategies need to be analysed. Wal-Mart entered the Indian Market at its maturity stage. It had the vast experience of retail sector as well as doing business globally. It positioned itself carefully and chose to enter into a partnership. Wal-Mart focused on providing low cost but high quality products to specific segments of the market. It followed a generic strategy of protected market because of government restrictions. Although Wal-Mart has successfully conducted its business operations successfully but its bargaining power both with suppliers and consumers is weak, competition high and constant threat from local and small traders. Its other success was its growth strategy of market development by introducing the existing products in the newly acquired market. Although Wal-Mart was not very effective in integration it demonstrated impressive growth and proven to be a source of both ideas and talent.
In order for Wal-Mart to become a major global retailer in India, it has to closely examine and use its strategy effectively. It needs to take into consideration all the important social and cultural issues as well as current economic and ever changing political conditions in India. Wal-Mart needs to adjust its positioning strategy and increase its bargaining power. It has to introduce up to date and advanced procedures in Indian markets that has been practiced globally in different countries. It also has to use the technological advancement it’s been using in American stores e.g. stock management software. The company will face many competitors and in order to compete, Wal-Mart must continue providing high quality products at low cost. IT also needs to open more stores to achieve true economies of scale. To deter competition, it has to open stores near to large customer base. Wal-Mart can involve local people in its business directly or indirectly by trading with them, purchasing local goods or to manufacture locally. This will provide employment and revenue to Indian people and will encourage them to participate enthusiastically as well as satisfy their needs. As the Indian economy is growing and the government is providing opportunities for multinationals to invest, Wal-Mart should get permission to deal directly with customers and provide direct services to them. This will enable them to increase revenue and become a true retail giant in Indian retail market. Lastly it needs to conduct a thorough research of the retail market of India on advance basis as demand of Indian consumer changes quickly. This will help them to stay in touch with up to date information and assist in its business operation in meeting their requirements.
The process of globalization affects the environment, political systems, culture, prosperity and economic development, as well as human physical well-being in societies around the world. Wal-Mart is the best example of globalization in the foreign market. Its success depends on many factors including its successful choices of modes of entry into foreign market, utilizing its strengths to exploit every possible opportunity available and taking account of social, political, legal, technological and environmental issues, into consideration. The significance of global approaches taken by Wal-Mart cannot be underestimated. It has worked hard to achieve its targets though it faced many complications. Indian market is a complicated one for Wal-Mart. It needs to consider all the important factors related to Indian environment in order to conduct its business successfully and to open new dimensions for future ventures.