Managers of different organisations and companies are from time to time faced with many decisions especially concerning the growth and expansion of their businesses whether in the domestic or international markets. This is because in as much as the expansions come with benefits like growth and improved company performance, they also elicit various challenges.
This paper seeks to look into Wal Mart’s planned expansion, the challenges it is likely to face, and the opportunities presented by the Asian and Europe markets.
Wal Mart as a Company
Wal Mart was founded in 1962 and since then it has expanded to become one of the world’s largest chain stores. It deals in various kinds of goods such as groceries, toys, footwear, stationery and other merchandise. The company’s include an increase in its customer base, revenues, number of stores and acquisition within United States as well as in other regions such as Asia and Europe. Wal Mart’s quest to expand into different markets both locally and internationally has over the years faced major challenges, but this has not deterred the company’s persistence to exploit new markets.
How Could Wal Mart Continue its Extra Ordinary Growth?
For Wal Mart to continue expanding with its current rate, it should continue implementing its generic and grand strategies. Wal Mart’s grand strategies that have been successful include the cost leadership strategy and the differentiation strategy. According to Porter, the implementation of these strategies works for firms in a manner in which their investments are able to achieve higher returns. They are best for firms that compete in industries with large market shares such as the retail industry in which Wal Mart operates (Eldring 11).
Under cost leadership, Wal Mart has been known to offer high quality products at low prices. This makes their products affordable to most of its customers therefore using this strategy when venturing in new markets will enable it to attract new consumers. This is because consumers always prefer quality products that offer value for them and their prices are affordable. This is the strategy that Wal Mart uses and it have worked for it. The location and premises where most of Wal Mart stores are located are cost effective in terms of maintenance and lease costs.
This helps the firm to operate at a lower cost so that to enable them sell their products at a lower price that their rival firms. Wal Mart’s advantage in this case is that it does not have to compromise on its profits as using this strategy still ensures that the retail store remains highly profitable (Thomas para. 6). In terms of differentiation, Wal Mart has been able to constantly offer its customers’ products and services that are considered unique, setting it apart from the rest of the players in the retail industry thereby creating customer loyalty. This also makes facilitates the company to attract new customers, but also its ability to grow at unprecedented rates. The company’s growth and expansion strategy ensures that it is able to stay ahead of other players in the market.
This is because it seeks out locations that are large and neglected by other industry players. This is where they lease and use to store their goods. For example, instead of focusing on the urban centres which are highly saturated by other industry players, the company sets up shops in small towns with smaller markets and uses their cost leadership and differentiation strategies to infiltrate these markets (Harper para. 12-17). Their continued use of these strategies will ensure Wal Mart’s constant success in the retail market.
What would be the Limitations to that Growth?
Despite the high growth that Wal Mart has achieved over the years and continues to achieve, there are factors that often seek to undermine this growth. Some of them are as a direct result of Wal Mart’s generic and grand strategies while others are as a result of outside influences such as the prevailing economic conditions as faced in the business environment. In order to maintain a company’s sustainable growth, it is important that it engages in strategies that will ensure smooth relations with its major stakeholders such as the consumers, employees and suppliers, among others. Wal Mart’s continued quest for low prices in most cases occurs at the expense of some of the company’s stake holders. In order to maintain low costs on its expenditures, the company has had to acquire its products from suppliers at very low prices and offer its employees low wages and salaries. This has put the company at logger heads with some of the suppliers and trade unions which its employees are members of.
According to Rosenfeld, Wal Mart’s dominance over its suppliers logistics and modes of production inhibits their independence and has forced a majority of them to set up businesses over seas to take advantage of low cost of wages and production of goods in these countries so as to meet the demands of Wal Mart’s low supply prices (para. 11-13).
Most of the suppliers are forced to contend with Wal Mart’s wishes because the company offers them a viable platform on which to advertise and market their products worldwide due to its infrastructure. The company’s workforce is also forced to contend with the low wages the company offers compared to other retailers. Wal Mart also dictates the hiring processes and working hours besides its strict anti union policy meaning that its employees have a limited voice when it comes to dictating their working conditions. In most cases, human resource managers working for the retail chain have to implement constant labour cost strategies in order to stay in line with the requirements of low expenditure costs and limited resources (Rosenfeld para. 18-21).
If these challenges as well as other operational challenges are not taken into consideration and dealt with as required, they will hinder the growth and expansion of Wal Mart as well as limit its competitiveness compared to other players in the retail chain markets.
Did Europe and Asia Offer Wal Mart Real Opportunities for International Market Dominance?
Europe and Asia offered Wal Mart viable opportunities to enter their markets and establish itself as a dominant player as shown by the PESTLE Analysis below. PESTLE (Political, Economic, Social, Technological, Legal and Environmental Analysis) analyses those macroeconomic factors which impact on the company and affect its decision making regarding which strategies to follow in order to achieve its goals (Hunt 249).
A majority of countries in the European and Asian regions experience a reasonable political and economic stability which offers a viable environment for businesses to operate in. For example China’s economic stability and constant growth as witnessed in the retail market sector offers a viable business environment for Wal Mart’s expansion plans. In years leading up to 2005, China’s retail market witnessed a 7% retail market growth rate annually. If Wal Mart is able to take advantage of the available market in this region then the company’s success would be guaranteed. A majority of China’s population are middle class income earners meaning that they have a reasonable amount of disposable income to be spent on consumption and as such Wal Mart’s would be able to benefit if it taps into the consumption resulting from the availability of such disposable income (Bhatnagar para. 8-14).
Wal Mart’s expansion into Asian countries, with specific reference to India will prove a bit difficult due to a number of regulatory barriers which bar most international companies from directly setting up businesses in the country (Wal Mart Watch 3). This is because the government seeks to protect its local businesses from unfair external competition as well as trying to maintain a great deal of business control with the country’s citizens. Wal Mart is likely to face opposition from the India’s community and the existence of cultural differences will also pose challenges to Wal Marts entry into the market (Shounak 9-10). Both these markets consist of a majority of consumers meaning that the markets are largely consumer oriented giving a viable environment for Wal Mart to invest in.
To overcome the challenges presented by these markets and also be able to take advantage of the opportunities they present, Wal Mart’s focus should be on its strengths, how to reduce its weaknesses and threats. Wal Mart’s strengths include its strong market and financial position that has been developed over the years from its operations, its human capital which is a great resource to the company as well as its continued use of the latest technology to run and maintain its operations at an efficient and effective level. The weaknesses that it needs to eliminate include improving its relations with other stakeholders as they also play an important role in determining the overall company’s performance.
Wal Mart should also take advantage of the opportunities provided by these markets and continue employing strategies that have ensured exemplary performance for the company in the past. Some of the markets in these countries are largely unexploited and this offers Wal Mart a chance to establish itself in these areas and thereby reap the benefits that come with increased sales and revenues. The biggest threat that Wal Mart faces in these regions is competition and as such the company should engage in viable marketing strategies that will give it an edge over other industry players.
How could the Company take Advantage of its Global reach to propel itself through the Years to Come?
Wal Mart has been able to do well in the local market, especially in the United States where it was originally founded and has also been able to replicate its performance in the international market where it has been able to extend its operations into. On its quest for global expansion Wal Mart has set its sites on countries like Japan, Brazil, China and India, among other European and Asian countries. The stores to be opened in these countries are not limited to a particular line and can range from supermarkets, hypermarkets and wholesale stores (BBC News para. 4-8). The success of the retail company in these markets will contribute to its encouragement to extend into other regions and parts of the world as well.
Despite the many challenges faced by the giant retailer, Wal Mart continues to achieve success and as such expand its geographical presence. These expansions have fed into its sales, revenues and in return the company’s profits. Sustainable growth for Wal Mart is therefore necessary to ensure continued success. At present, Wal Mart at present has more than 8,400 retail units in about 15 countries.
- BBC News. “US Retail Giant Wal-Mart has embarked on a Global Expansion and Acquisition Spree, With a Japanese Takeover and a Doubling of its Presence In Brazil”. 2005. Web.
- Bhatnagar, Parija. “Wal Mart’s Challenge in China”. 2006. Web.
- Eldring, Jan. Porter’ ́s (1980) Generic Strategies, Performance and Risk: An Empirical Investigation with German Data. Hamburg: Diplomica Verlag GmbH, 2009.
- Harper, Liz. “Wal Mart: Imopact of a Retail Giant”. 2004.
- Hunt, James, John, Schermerhorn and Richard Osborn, Organizational Behaviour. 8th Edition. New Jersey: John Wiley and Sons, 2005.
- Rosenfeld, Herman. “Challenging Wal-Mart: Globalization, Supply-Chain Dominance and Sweatshop Labour”. 2007. Web.
- Shounak, Evan. “Wal Mart’s Expansion in South Asia”. 2007. Web.
- Thomas, Joe. “Generic Competitive Strategies”. 2010. Web.
- Wal Mart Watch. “Wal Mart’s International Expansion: A Primer for Activists”. 2008.