How Wal-Mart can continue its extraordinary growth
Wal-Mart is the largest employer in the USA. The company is also a leader in grocery stores industry and ranks third in the provision of pharmaceutical services. This company is the best example of strategic planning, innovation and leadership. The company was started in 1962 by Sam Walton and has become a trailblazer in the retail industry. Wal-Mart has become the world’s largest retailer which is now the largest employer in the US. It has almost 8000 stores around the world in more than 15 countries and serves more than170 customers weekly. Wal-Mart has more than 3000 stores countrywide, more than 700,000 employees around the world and revenue of more than $100 billion. Its corporate headquarters are in Bentonville, Arkansas USA. Its neighborhood marketing revenue topped 404.16 billion $ while its total assets are valued at 163.514 billion$. Its US income was 13.59 billion $. In 2006, Wal-Mart was rated as the 67th most profitable company behind retailers Home Depot Target and ahead of Costco and Kroger. Wal-Mart acquired 122 stores in Canada, operates 310 locations, employing more than half a million Canadians.Its UK subsidiary in UK is called the Asda where it operates 340 stores. In Mexico, it operates under Walmex, In Japan it owns 53% of seiyu stores, 51% of CARHCO in Central American countries of Guatemala, El Salvador, and Costa Rica and has some stores in Brazil, Honduras and Nicaragua. In Asia, Wal-Mart has a strong presence in China where it operates one of the biggest stores in the world. It has 31 stores in China. Most of the stores are located in the Shenzhen region (Wilkinson, 1998).
The company’s philosophy lies in productivity as the principal ingredient for growth. This is evaluated in terms of employees, consumers, and shareholder’s capital. Through the use of highly developed inventory systems and innovative pricing policies, Wal-Mart has emerged as one of the best companies in the world. To continue growing exponentially the company should be able to identify its core aspects in the supply chain model which can help the company to create a very high level of competitive advantage. The company should also make its operations efficient through the use of business level strategies. The most efficient business level strategy that a business can use is the differentiation strategy (Huang 2001). Differentiation strategy has helped very many companies to grow because it enables businesses to create value for all its customers in the different market segments. Inventory management is another business level strategy that can help the retail giant to maintain its profitability and achieve exponential growth. It will also help the suppliers to understand the underlying demand cycles in a way that will open up the supply chain.
The company should continuously study its supply chain in a way that will allow the retail chain to invent new ways of improving efficiency. In order to sustain its growth strategy, Wal-Mart should continue to evaluate its workflow procedures and to incessantly re-invent its business model. The model should always be based on tried and tested methods while at the same time focusing on new customer demands. This is an element of competitive advantage that is culturally oriented. Given that the supply chain is well integrated in a coherent manner, all participants in the chain can benefit. The use of Information technology is another strategy that can enhance growth. This will ensure that the stores, the distribution centers as well as the suppliers are well networked. IT tools can also be used to gather feedback from customers and in the marketing of the company’s products.
Another factor that can enhance growth is the use of sustainable business practices. Businesses practices in a finite system have continued to increase social and environmental problems Firms the size of Wal-Mart have been the main culprits as their production processes create environmental problems. The company is therefore threatened by supply constraints which are accelerated by environmental and social issues, these two factors are impediments to the success of this retail giant. For Wal-Mart to continue growing excellently, it must create a strategic plan that enhances sustainability. The sustainability initiative should involve Wal-Mart, NGOs and other stakeholders whose efforts should be directed towards ensuring that generations to come are able to live and prosper. However, embracing green does not mean that a firm should invest in programs that do not create profit at the expense of the core business practices (Ranade, 2010).
The company should also enhance the employees’ welfare. Despite its outstanding success, Wal-Mart has been widely criticized for underpaying its employees. The company has enormous resources which and it can afford to pay the highest salaries in the land.Wal-Mart profits in 2005 stood at a whooping $10 billion. This put the company at a position where it could afford to do carry out any strategic plan. The company compensation strategy in 2005 currently was sufficiently favorable, but the economic uncertainties such as the global financial meltdown will demand that the company evaluate its compensation package in order to remain competitive. On the other hand, the company should invest in human capital to attract, retain, and motivate the workforce-this will create a fertile ground that will spur more growth. The best human resource practices improve organizational performance which in turn maximizes profits and the value given to shareholders (Ranade, 2010).
Wal-Mart as the largest retailer globally continues to grow steadily. The growth of Wal-Mart is accompanied by a myriad of critical challenges. These challenges are operational, organizational, technical and even cultural. The firm’s future strategies should focus more on the development of human capital. Studies have indicated that there is a huge overt and covert influence of human capital on the performance of any organization and business and there has been intensive research on human capital as a factor in business and organizational performance. This is why organizations are increasingly empowering their human resource departments which deal with the human capital. It has been proved by various studies that any practice that promotes or enhances human capital influences organizational performance directly by molding organizational behavior and attitudes (Huang 2001). Human capital also creates structural and operational focal points that improve efficiency. Contemporary research has documented that a competitive advantage is not all about the natural resources, economies of scale and technological advancements. This is because these are things that the competitors will be able to imitate as they try to keep in touch with the market leaders. Competitive advantage nowadays revolves around the rare, valuable and the hard to imitate resources that are within the firm and human capital is this invincible resource that cannot be imitated by the rivals. What has become increasingly apparent is the importance of the human capital of an organization to the strategic aims of the firm. This is why HR processes should become an integral part of the strategic direction of Wal-Mart to spur its growth. For the firm to acquire a sustained competitive advantage in the dynamic market, it must have the rare capability of acquiring the best talent that it needs for its own operations in a way the competitors cannot. This will ensure that the firm has the best human capital that the rivals do not have and this is enough to make all the difference if the human capital is given the right environment and resources.
What would be the limits to that growth?
Although the giant retailer has successfully tackled many of the challenges which had almost impeded its phenomenal growth, there are still other factors which stand in the way of its growth. Some of these constrains that limit Wal-Mart’s growth strategy are explained below.
People
Wal-Mart’s huge size breeds managerial and leadership deficiencies can derail growth in the retail industry. Quality leadership, however, has been central to Wal-Mart’s success in the retail business. Lack of continuous supply of quality leadership has been one of the main reasons why most successful firms close shop in the long run. Managerial expertise should remain in the hands of a smaller pool of individuals-who are knowledgeable, skilled and experienced to maintain focus, strategy and cohesion. They will also manage the firm’s strategic direction. These very employees should maintain high quality in service delivery and they should replicate the company’s culture and philosophy that Wal-Mart has struggled to build.
Competition
It is inevitable to ignore competitors’ who have been inventing ways to stem the dominance of this company. It is important that even as Wal-Mart continues to expand, it should take note of the ongoing developments and innovation which its competitors are currently implementing or are intending to implement. Wal-Mart could try to employ the idea of developing multiple brands within the same market segment; this strategy has been proved successful in eliminating completion to some extent. This strategy is called differentiation strategy and is one of the most efficient strategies that can create a competitive advantage for a firm operating in a competitive market
Financial limitations
After the effects of the global financial meltdown, companies are facing new financial challenges. Companies require long term funding to be able to implement their business strategies. However, for the case of Wal-Mart this is not a major issue since the firm has a ‘stable’ financial base and besides, the company has developed strong ties with its suppliers who can support the company’s expansion strategies. This should not underscore the fact that the global economy exhibits high degrees of uncertainty (O’Neil 2006).
Consumer backlash
Wal-Mart’s size is a very big player in the retail industry its size can be one of its growth impediments especially if consumers develop negative perceptions. However, managerial consultants have not yet come up with a model that is able to predict consumers’ response since this problem has not yet risen to a significant level.
In the past few years evidence of consumers becoming more aware of their power and rights has been observed. Consumers have in the past lobbied and/or voted against issues that they perceive as unfavorable. This may be downplayed by those who think that it this power has no significant impact on the company but, negative publicity alone is really a damaging concept which could limit Wal-Mart’s future growth.
Cultural limitations
Culture is has been described as being the life line of a company. It is a major determinant of corporate success or failure. Culture as an entity is very elusive and dynamic. Employees exist within an organizational cultural framework and Wal-Mart as an organization is understood through its specific culture. It takes a lot of time and effort to build the build the very culture that the company believes is the best in enhancing the achievement of ultimate corporate goals and objectives. The culture should also add to the shareholder value. However, Wal-Mart should understand that a company is created by a more general environmental culture which is referred to as a meta-culture. This means that, the general culture of the people is the one that determines the retailer’s existence, success and growth. Wal-Mart has more than 3,800 stores U.S. and about 6,500 stores world-wide. The effect caused by the launching of a new Wal-Mart store on a specific community is social-cultural because the company has been known to transform the shopping experience (O’Neil 2006).
Asia and Europe, Wal-Mart’s opportunity for international market dominance
Wal-Mart’s presence in Europe has at times proven adept, and on other occasions inept. The company has increased its presence in the U.K and Germany. The German market gave Wal-Mart a headache while penetrating it. The company has succeeded in competing with other retailers such as Marks and Spencer. In both the British and the German markets, Wal-Mart employed acquisition strategies whereby it has taken over the existing successful retail chains and remodeled them. The European market presents numerous opportunities for Wal-Mart. They include lucrative markets in advanced economies in Switzerland and Finland and Norway. In the Asian market; Wal-Mart began by facing a totally primitive supply chain in China. In 2004, the company subdued to pressure to allow for the unionization of Chinese workers (O’Neil 2006).
However, the company has partnered with Thai-based Charoen Pokphand Group and opened a variety of businesses. In the Japanese market, Wal-Mart met a weak retail ecosystem but the retailer has tried to improve its competiveness through partnership. It’s more difficult to penetrate Asian markets as compared to the European one. However both markets have not been fully exploited by Wal-Mart. In general, Wal-Mart has demonstrated that its business model is being continuously evaluated in generating momentum for creation of superior value through the offering of an organizational culture that is focused on cutting costs and production that offers customers lower prices with higher quality. Incessant study of these markets will result in successful penetration. The success that has been already achieved is still lower than expected since these markets and nations such as the Philippines and Indonesia among others exhibit high potential. However, completion remains one of the challenges of growth in such countries. The company’s strong brand name is one of the key internal factors that can be maximized in order to gain success (Peggen 2004)).
Wal-Mart and opportunities for growth in the global market
During the past few years, several changes have occurred in the global business environment. The aspect of globalization due to increased utilization of information technologies has offered companies motley of opportunities to succeed in their global endeavors. Traditionally, countries demonstrated a tight commitment towards government control of their economies through strict rules and regulations. Radical changes have redirected most nations’ political ideologies and have initiated drastic reforms in government structures so as to allow for trade and industrialization. Wal-Mart can take this opportunity to venture into emerging markets not only in Europe and Asia, but also in continents like Africa and South American. Some of these markets offer huge opportunities due to their big size. The best examples are Brazil and India. The use of new advanced technologies like the Internet has set the pace for the 21at century global environment which Wal-Mart can use to increase its competitive advantage. In addition, the concept of sustainable marketing is continually gaining popularity globally. Since Wal-Mart has demonstrated strength in the implementation of green strategies, the company can use this as an opportunity to market its eco-friendly products. In the new era of international business relations, Wal-Mart can utilize the concept of corporate social responsibility (CSR) in emerging markets as an entry strategy. Such strategies will help in promoting Wal-Mart’s values that are customer oriented and may help in selling the company in competitive markets (Slade 2006). Looking at exhibit four in the case study, the one showing the financial statements of Wal-Mart, it is imperative to note that the company has been increasing its sales volume between 2002 and 2004. The sales volume improved by 25 percent whiles the costs of operation reduced by 10 percent between 2002 and 2004. The company has been constantly been reducing its external long debt while the value given to shareholders increased by 10 percent over the same period. This is the trend that the company needs to take for it to continue experiencing growth in the future.
References
- Huang, C. (2001).Custom and Legal Practice in China.Stanford: Stanford University Press.
- O’Neil, J. (2006). Principles of Strategic Planning. Stanford: Stanford University Press,
- Peggen, K. (2004). HRM: Rhetoric and Realities. Stoke. Palgrave.
- Slade, M. (2006). The Value of HR in Strategic Planning. New Jersey: Prentice hall.
- Wilkinson, A. (1998). HR Empowerment: Theory and Practice: New York: Guilford Press.