How Wal-Mart continued its extraordinary growth
Over the years, Wal-Mart has witnessed rampant growth both in its domestic and foreign markets. This is evident from the fact that the firm has been able to establish a number of stores. For example, the firm has established approximately 3,200 stores in the US, 350 in Europe, and 440 in Asia. During the period ranging from 2002 to 2004, the firm continued to witness positive growth. Its net income increased from $6,592 million in 2002 to $9,054 million in 2004.
On the other hand, the shareholders equity increased from $ 35,192 million to $43,623 million. As a result, the firm has managed to become the leading retail store in the world with a human resource base of 2.1 million employees. By 2005, the firm’s annual sales were $260 billion. In addition, the firm had managed to establish a total of 5,000 stores. According to Yoffie (2005, p.1), the firm has managed to attract a large number of customers due to its low pricing strategy. During the year 2005, the number of customers who patronized the store on weekly approximately 100 million customers patronized the store weekly.
It is universally accepted that firms must attain and sustain their growth to succeed in the long run as going concerned entities. Attaining extraordinary growth increases a firm’s competitive advantage. This results from the fact that the firm increases its profitability level contributing to its efficiency in entering the market. According to Sexton, Pricer, & Nenide, (2000, p.3), a firm’s growth is an indicator of its health. Considering the fact that the retail market has become saturated, it is important for firms to develop strategies aimed at sustaining growth both in the local and foreign market (Hayden, Lee, McMahon & Pereira, 2002, p. 13).
In order for the firm to sustain and increase its extraordinary growth in the long term, it is paramount for the management team to formulate effective operational strategies. Of great concern to the firm’s executive is how to sustain its extraordinary growth. An internal evaluation analyzing some of the strengths that have contributed towards the firm’s growth is illustrated below.
Firms SWOT analysis
Good reputation resulting from the firm’s low pricing strategy.
Ways of sustaining extraordinary growth
There are a number of strategies that Wal-Marts Management team can consider in an effort to sustain extraordinary growth some of these are discussed below.
Increasing its global expansion
Wal-Mart’s management team should consider increasing its penetration to other countries through the adoption of an internationalization strategy. The firm’s team should ensure that its expansion strategy is aggressive. As a result, it will be possible for the firm to attain economies of scale. This means that the firm’s cost of operation will be greatly improved thus increasing its survival rate. According to Sexton, Pricer, & Nenide, (2000, p.4), a large firm has a high probability of surviving compared to a small firm. In addition, attaining economies of scale in the course of the firm’s operation will contribute towards the firm attaining a higher operational scope.
There are a number of strategies that are at Wal-Mart’s disposal in the process of conducting its internationalization. Some of these strategies include formation of joint ventures, merger and acquisition, partnering or going it alone through foreign direct investment. Acquisition is one of the most effective strategies that Wal-Mart should consider in its internationalization process. Wal-Mart’s management should conduct a comprehensive market study to evaluate the best firms to consider in its acquisition.
Some of the issues that the management should consider include the firms operation and management strategies. To ensure that the firm is quick in penetrating the foreign market, it is vital for the management team to target national retailers.
After acquiring the foreign firm, Wal-Mart should convert them into its own stores through redesigning them. This will play a vital role in building the firm’s brand familiarity in the foreign market. After effective penetration, the firm’s local management should scan the environment to evaluate the intensity of competition. This will enable the firm to determine on the best strategy to adopt in dealing with competition. For example, the firm can consider conducting foreign direct investment by building larger stores (Hayden et al, 2002, p. 13).
Targeting the large corporations will contribute towards the firm eliminating competition from large players in the foreign industry. In addition, massive presence will be attained in the foreign market. A substantial amount of capital is required if the firm is to penetrate the foreign market successfully. As a result, it is vital for the firm’s management team to increase the rate of financial reservation so as to build the firm’s financial stability.
Creation of a positive brand and brand name recognition
Customer loyalty is one of the issues that Wal-Mart should consider in an effort to sustain its extraordinary growth. In order to achieve this, the firm’s management team should create a positive brand image. The ultimate effect is that customers will develop emotional association with the firm. Brand name recognition can be attained through effective communication which will culminate into creation of positive publicity. Brand recognition will enable the firm to attract and retain a large number of customers.
Currently, the retail industry is characterized by hyper competition. As a result, customers have got a wide range of product choices which they are able to fulfill instantly. In their purchasing patterns, consumers base their decisions on uniqueness of products that are provided by a give firm. In order to sustain its extraordinary growth, it is paramount for the firm to integrate the concept of product differentiation.
Wal-Mart has integrated product diversity in its operation. This makes consumers to consider the store in their purchasing purpose due to convenience attained. To enhance its brand recognition, Wal-Mart’s management team should be committed at ensuring that it provides quality products and services. This will contribute towards the customers attaining value for their money (Hayden et al, 2002, p. 14).
The firm’s management team should consider integrating private branding with its differentiation strategy. According to Ching-Ling (2009, p.741), there has been an increment in the rate at which private branding is being utilized by firms in the retail industry. The core objective is to meet the customers shopping preference. Private branding will enable the firm to survive in a market characterized by continuous product development. Ching-Ling (2009, p.741) asserts that private branding enables a firm to meet diverse customer product and service requirements.
Sustaining its extraordinary growth through brand recognition can also be attained thorough integration of other retailing sectors in its operation. This will give the firm a higher competitive edge in competing with other firms which have already specialized in provision of such products and services. The ultimate result is that Wal-Mart will be able to limit competition from small firms.
Improvement of its supply chain
Apart from physical and territorial expansion, Wal-Mart’s management team should be committed at improving its entire supply chain. For effectiveness, it is vital for the firm to integrate channel management. This will enable the firm to develop a good relationship with other parties within the channel. For example, good relationship with suppliers will enable to stock its stores sufficiently. All the activities involved within the supply chain should be focused at customer satisfaction. One of the ways through which this can be attained is incorporation of Enterprise Resource Management (ERP) and Customer Relationship Management (CRM) technologies.
These are software which enables a firm to create an effective communication network with its stakeholders. Upon implementing these technologies in its supply chain, Wal-Mart will attain efficiency in its information management process. This is due to the fact that the firm will be able to connect with all its suppliers, stores and warehouses. The CRM will enable the firm to understand its customer’s needs through the interaction that is created. As a result, the firm will provide products that result into increased customer satisfaction.
By adopting these strategies, there is a high probability of the firm succeeding in the long run as a going concern entity and at the same time sustain its extraordinary growth. This results from the fact that the firm will be able to create a high competitive advantage relative to its competitors. Through its global expansion, the firm will be able to increase its market share by venturing into new markets. Creation of a positive brand and brand name recognition will contribute towards the firm developing customer loyalty and hence its publicity. This arises from the fact that consumers will want to associate themselves with the firm. Improving its supply chain will enhance the firm’s relationship with the customers, suppliers and financiers.
Possible limits to the growth
The success of a firm’s growth strategy is affected by the nature of the business environment. Different countries have got diverse business environments. This presents a challenge to firms which intend to implement internationalization strategy. Before venturing into the foreign market, it is vital for firms’ management team to conduct an analysis of the business’ external environment. Some of the factors that should be evaluated relate to political, economic, technological and social cultural factors. This will aid the management in determining the feasibility of adopting particular growth plan.
Difference in political system across countries can limit the firm’s international expansion. For example, in venturing into some countries, the firm may be required to partner with local firms. This may limit the firm’s expansion strategy since the firm may not have a large stake to influence decision making in that firm. In addition, the firm may be restricted on the extent to which it can expand in the foreign market. Some governments may completely restrict the firm from entering a given market through denial of an operating license. This means that Wal-Mart will not be able to achieve the desired market share.
Economic factors can also contribute towards a reduction in the firm’s extraordinary growth. For example, during the 2007 financial crisis, both individual and institutional customers reduced their consumption rate.
This had a negative impact on the firm’s sales despite its low pricing strategy. Reduction in sales volume arose from a reduction in demand for luxury products. This resulted from the fact that consumer’s disposal income was reduced which forcing them to cut consumption of some products (Emerson, 2008, para. 1-4). In the event of the financial crisis occurring again, there firm’s expansion strategy may be affected. This may result from a decline in the firm’s profitability leading into financial constraints which may have negative impact tin the process of the firm conducting international expansion.
Social and technological factors
Change in social factors can also contribute towards a reduction in the firm’s growth. This is due to the fact that consumers cannot be able to penetrate the entire market. For example, a shift in consumer preferences may culminate into a reduction in the firm’s customer base and hence its profitability. Considering the volatility of the technological environment, Wal-Mart’s growth faces a challenge in relation to its effort to incorporate emerging supply chain technologies. For example, the firm will incur significant cost in implementing and managing the required technologies. In addition, some countries that the firm may consider as feasible investment destination may not have the necessary technological infrastructure to support such technologies.
A firm’s growth may be limited by a number of external factors which include political factors, technological, economic and social factors. In order to enhance its growth, Wal-Mart’s management team should consider evaluating the factors that may limit the growth. This will make it possible for the firm to formulate strategies to counter these limitations depending on the particular factor limiting growth.
Did Asia and Europe offer Wal-Mart real opportunities for international market dominance?
In venturing a foreign country, it is vital for the firm’s management team to consider analyzing the investment destination. One of the regions which present a viable opportunity for international market dominance to Wal-Mart is Asia and Europe. This results from the fact that the retail industry in these countries has not been saturated. Over the past two decades, Asia has been categorized as an economic powerhouse. In addition, the continent presents dynamic investment opportunities.
In Europe, Wal-Mart has not succeeded in penetrating the entire market. According to Hayden et al (2002, p. 13), the firm has only established 400 stores most of which are located in Germany and UK. Japan is one of the countries which present a feasible opportunity for expansion to Wal-Mart. Wal-Mart’s management team has been considering venturing this market through acquisition of Daiei Incorporation. By acquiring this firm Wal-Mart will be able to increase its market share.
The concept of discount retailing is gaining prominence in emerging economies such as Asia. By introducing this concept into these markets, a large number of consumers will be attracted to the firm considering their price conscious nature. This means that the firm will increase its customer base and hence its profitability.
In order to penetrate countries located in Asia and Europe, Wal-Mart should adopt inorganic penetration strategies. In venturing emerging economies, Wal-Mart should conduct a comprehensive risk evaluation. This is due to the fact that countries in this region are characterized by numerous environmental, governance and social challenges (Vontobel Asset Management, 2010, p.1). However, the firm should go consider how it can develop a strong positioning strategy that will enable it succeed in this market.
Wal-Mart should consider venturing into Asia and Europe. This is due to the fact that the retail industries in these countries have not been fully exploited. In Europe, Wal-Marts penetration is minimal with most of its stores located in UK. On the other hand, most of Asian countries are categorized as emerging economies. These countries present a feasible investment destination. However, considering the environmental challenges facing Asian countries, it is vital for Wal-Mart to conduct a comprehensive market analysis prior to its entry.
How the company could take advantage of its global reach to propel itself through the years to come
International firm have a high probability of succeeding in the long term as going concern entities compared to domestic firms. Through internationalization, a firm is able to increase its profit levels hence enhancing its financial stability. In spite of the challenges facing Wal-Mart in sustaining its growth, the firm’s management team can take advantage of its global reach to propel its future growth. This can be achieved through incorporation of a number of strategies.
This will be achieved through innovation. Its presence in a wide market will enable the firm to localize its operation. The ultimate result is that the firm will be able to appeal to its foreign market. Through product innovation, the firm will be able to appeal to the local customer product requirements. For example, the firm’s management team in the foreign country will be able to understand local market through comprehensive market research. This will enhance the firm’s efficiency in serving the local market compared to when universal international operating strategies are adopted. Through effective marketing strategies, Wal-Mart will be able to increase its global market share enhancing its position as a market leader.
Wal-Mart can also utilize its foreign market to enhance its future through external sourcing of finances. This can be attained by issuing shares to foreigners. This means that the firm’s gearing ratio will be reduced. Increasing shareholders equity will increase the firm’s efficiency in executing its expansion strategy. This is due to the fact that equity capital is long-term in nature. From the period ranging from 2002 to 2004, the firm’s shareholders increased from 324,000 to 335,000. By issuing shares, the firm can increase its capital base.
Enhancement of its human capital
Wal-Mart can also enhance its long term success by utilizing local human capital upon venturing the foreign market. This will contribute towards the society associating themselves with the firm. In addition, use of local human resource will enable the management to develop effective strategies. This arises from the fact that the customers are aware of their country’s market dynamics. In its marketing strategies, the firm can make use of local agents in its initial phase in distributing its products. This will increase the probability of the firm reaching the entire market.
Through its global reach, Wal-Mart can increase its future success. This can be attained through incorporation of strategies such as product innovation. The effect is that the firm will increase customer satisfaction. By employing local citizens, the firm will enhance its position in the society through development of positive publicity. In addition, the firm will improve its marketing strength.
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