Wal-Mart: Strategic Management

Introduction

Wal-Mart is a giant retailer, which has a crucial impact on global economy and consumer culture. The paper will analyze and evaluate Wal-Mart stores in America, internal and external factors that influence the corporation. Recent years, liberalization of markets and new opportunities to trade have a major impact upon the structure of the retail industry.

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External Environment

General Environment

In the first decade of the 21st century, marketing is proving to be of ever-increasing importance to companies of all sizes, to their customers, and to national economies. PESTEL analysis allows marketers to identify and analyze the main economic factors and industry conditions (Pittengrew et al 2006).

Political and Legal Factors

Stable political situation has a positive impact on global business environment and ensures further development and legal protection. Critics admit that the state’s powerful financial interests especially opposed the tight money policy followed by a succession of Republican national administrations, which were supported by eastern financial leaders. They also wanted the government to regulate railroad freight charges, issue more loans, and institute a graduate income tax (Pittengrew et al 2006; Wal-Mart Home Page 2008).

Economic Factors

Economic environment in America is beneficial for the retail company creating new opportunities to increase sales and attract new customers. Low inflation rates and high employment rates allow Wal-Mart to maintain stable position of the market and support its brand image as a family company. Retail industry involves “sellers of consumer merchandise, including electronics, food, beverages, etc.

The retail firms comprise a variety of retail formats to reach end-consumers, including online retail and home shopping networks” (Johnson and Scholes 1998, p. 98). Recent years, retail industry has been influenced by global economic changes. It concerns the type of production and raw materials, new technology, a new system of global manufacture and the rise of national economies. These factors have a great influence on retail marketing and strategic planning. The most important factors for change in retail industry include changing life style of consumers and demand patterns (Wal-Mart: Is it Good for America 2005).

Such phenomenon as cultural globalization receives the development from technological revolution and economic globalization which together create a stream of the cultural blessings. There were no specific regulations governing the goals and structures of the industry, and there are no constitutional restrictions or legislative mandate that restricts leadership of retail stores (Wal-Mart Home Page 2008).

Technological Factors

Technology and innovation involve changes to the work flow system of production. With the traditional ‘functional layout’ of production, lines of similar machines or operations are arranged together so that components are passed back and forth until all activities are completed. However, with ‘group technology’ pro­duction, the work flow system is based on a grouping of workers and a range of machines.

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The recent changes included international distribution changes and own branding products (Drejer, 2002). In this situation, the reasons include complete control over the marketing channel between nations. Wal-Mart products helped to create a core of loyal supporters on the wine market and compete with international firms. Much depended upon the competitiveness of the new product to those already handled by the intermediaries. This view of strategy formulation as an irregular process reflects the Wal-Mart’s tendency to continue on a particular course of action until something goes wrong. Wal-Mart is intended to follow a particular strategic orientation for about10 years before they make a significant change in direction (Wal-Mart Home Page 2008).

Wal-Mart growth opportunities include increase market share and customer’s satisfaction, improved efficiency of work and time reduction. Present day situation in Wal-Mart is marked by two factor – specification, which is to do with the quality’ of service, and conformity, which is to do with the ‘process’ quality which is achieved are of particular importance to customers. These two factors however are themselves determined by other factors (Keegan and Green 2004). Service concepts are based on understanding the unique environment in which Wal-Mart operates. Technological innovations and creativity in production can be regarded as business philosophy of Wal-Mart. Threats include changing legislation and competition (Wal-Mart Home Page 2008).

Demographic Factors

Demographic factors and changes in income distribution lead to decrease in sales. The changes in the environment are changed the demand, but they do not have a significant influence on customers’ purchasing power. The threat is population shift which has a great impact on sales. Increase in interest rates and non-compete clause are another problems for Wal-Mart during the last years. Current economic trends suggest decrease in prices and changes in supply patterns (Johnson and Scholes, 1998).

Internal Environment

Strengths

The strength of Wal-Mart is that it has followed a very competitive position on the national market. The retailer has a hard core of loyal supporters, and develops lines of services to satisfy the needs of wide audience. Wal-Mart maintained high-speed growth through a products mix and constant technological innovation. This was achieved through competitor-based cooperation and absence of anti-competitive behavior between national firms (Johnson and Scholes, 1998).

The positive feature of Wal-Mart is that it uses informal communication method which helps it to achieve the goals. It helps to provide satisfaction of members’ social needs, and a sense of personal identity and belonging. This type of communication provides additional channels of communication and provides a means of motivation, for example, through status, social inter­action, variety in routine jobs, and informal methods of work. Informal type of communication provides a feeling of stability and security, and through informal ‘norms’ of behavior can exercise a form of control over members.

The culture and structure of Wal-Mart develop over time and in response to a complex set of factors. The reason and manner in which Wal-Mart is originally formed, its age, and the philosophy and values of its owners and first senior managers affect its culture. Wal-Mart has a high borrowing capacity and ability to generate internal funds. Organizational and physical resources support strong leadership position and market growth of Wal-Mart.

Human resources and organizational systems of Wal-Mart create the pattern of values, norms, beliefs, attitudes and assumptions that may not have been articulated but shape the ways in which people behave and things get done. So, the main trends are high standards and technological development. The management style can be characterized as charismatic. It helps Wal-Mart to create a strong brand image which has a great influence on employees’ commitment.

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In spite of numerous claims and trials against Wal-Mart labor politics and low pay, it creates a positive organizational culture appealing to its employees. Wal-Mart relies on technological innovation and the Internet changing traditional ways of doing business. Three years ago, it has introduced new supply chain which helps to save time and resources, and increases productivity. The Internet helps retail industry to build a strong relationship with its customers worldwide (Hollensen, 2007).

Weaknesses

The main weakness is that recent years Wal-Mart looses its reputation within the industry because of several complaints concerning quality and class of products it sells (Wal-Mart Home Page 2008). Some customers claim that Wal-Mart sells low quality products merely a particle board substance instead of real wood. Poor reputation had a negative impact on its image and brands loyalty of customers and resulted in decrease in sales and profitability (Hollensen, 2007).

Opportunities

The opportunities of Wal-Mart include high potential to growth and profitability of the company; promotion to other wines; improvement of services. There is a danger of ignoring the environment, as customers and their needs, competitors, changes in technology, etc., could play an important role in determining competitive success. From the economic side home improvement, Wal-Mart has to spend its own resources in order to meet the requirements focusing on technological efforts and productivity. The cost difference when installing the crushing plant is another opportunity for Wal-Mart.

These technological advances are aimed to maximize security and fasten the process of production. Also, it allowed Wal-Mart to react faster delivering customer satisfaction (Keegan and Green 2004). Technology replaced traditional methods of betting business, and caused growth of operations. Long-term contracts are considered an opportunity for Wal-Mart allowing the company to obtain stable competitive position of the market.

Effective management is both strength and opportunity for Wal-Mart. Applications of organizational behavior and the effective management of human resources are upon the nature of the industry, and culture and climate of Wal-Mart (Pittengrew et al 2006).

This strategy helps Wal-Mart to grow rapidly and achieve strong market position in a short period of time. Performance and development reviews provide those involved with the opportunity to reflect on past performance as a basis for making development and improvement plans. Obtaining historical perspective through analysis is a necessary part of the review but reaching agreement about what should be done in the future is what it is all about. The performance review should take the form of a dialogue, not a top-down interview or ‘appraisal’ (Wal-Mart Home Page 2008).

Threats

The main threat is competition. When product standards became established for minimum quality and features, competition between Wal-Mart and Target has shifted to a Research and development shifts. Market niche of Wal-Mart is middle-income families from urban and country areas. However, economic disadvantages occur in some areas where the loss of local business exceeds that of increased wages and tax revenues brought in by Wal-Mart, not to mention the economic disadvantages for local business owners who lose sales, or completely go under, do to the arrival of the retailing powerhouse (Keegan and Green 2004).

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From the political perspective, there appears to be a negative effect on local and wider political arenas, as Wal-Mart often donates heavily to candidates that support their business practices and expansion. And, there is often upheaval from unions causing much turmoil in communities, as they strive against Wal-Mart and its effects on their employees (Wal-Mart: Is it Good for America? 2005). From the sociological perspective, there are many benefits, though, including: increased job opportunities, lowering the costs of living for citizens, and the increased availability of low-cost health insurance (Pittengrew et al 2006).

Wal-Mart and Corporate Social Responsibility

Current Problems and Unethical Behavior Issues

Wal-Mart is one of the retailers often accused in low ethical principles and immoral behavior towards its stakeholders. If a company fails to adopt appropriate Corporate Social Responsibility (CSR) policy, it may result in negative consequences such as distrust of partners, consumers or even a business failure. Following Friedman (2005), the only social responsibility of a business is to “use its resource and engage in activities designed to increase its profit” (p. 285).

Wal-Mart follows this principle paying attention to global expansion and acquisition strategies, monopolistic and dominant position on the market. Wal-Mart does follow most of its promises and ethical principles in terms of Friedman’s arguments. For instance, Wal-Mart has made attempts to acquire some giant stores in Argentina, Brazil and Peru proposing workers comparatively low wages (even if it increases dissatisfaction with its policies and negatively affects company’s image.

Through acquisition plans, Wal-Mart seeks to obtain a monopolistic position in less developed countries increasing its profit but reducing market opportunities of local companies. Following Friedman, a business responsibility is to increase profit and serves the interest of his owners, but even in this case: business should be refrained “from increasing the price of the product” or low wages (Kotabe and Helsen, 2006). Low wages and inadequate compensation proposed by Wal-Mart is another area of concern.

The issues discussed in the documentary ‘Is Wal-Mart Good for America?” vividly portray that Wal-Mart practices stakeholder theory only if it meets its strategic marketing goals and does not influence a profit level. For instance, Hedrick Smith comments: “Wal-Mart has life-or-death decision over all the consumer goods industries that exist in the United States, because it is the number one supplier-retailer of most of our consumer goods” (Is Wal-Mart Good for America?).

Importance of Ethical Rules

Wal-Mart should follow ethical principles and rules in favor of society and its members, because business activity is also a part of social life. In general, social corporate responsibility means co-ordination of activities in accordance with the code established by the company and an industry. In this case, the norms of CSR are directed towards achieving the goals and objectives of the organization. Wal-Mart’s management state: “Wal-Mart is a company founded on the principal of taking care of its customers and whose leader refused to get involved in politics, was reluctant to change its practices at first” (Ferdinand 2007, p. 87).

The importance of new values for Wal-Mart is closely connected with consumer helplessness, as the society becomes more complex. For Wal-Mart responsibility means be honest or responsible towards its consumers. It means that it should follow fair strategies in promotional campaigns and advertising informing potential consumers about products quality and specifications. Information generation and dissemination have reached new heights. So, many consumers rely on product information promoted by the companies responsible for product quality and advertising messages (Is Wal-Mart Good for America? 2004).

Also, the nature of ethical standards is one of the key issues to be addressed by personnel managers operating in large corporation. There should gradually be a growing together of national prac­tice on working hours and insensitive. CSR involves equal opportunity for all staff, although there may be sharp disagreement about what exactly that means in practice. Concentrating for the moment on the delivery of the service, a values-driven approach to specification will consider issues of humanity, whether in a transient encounter or a long-term relationship (Ferdinand 2007).

Timeliness, responsiveness and flexibility, courtesy and friendliness, availability and access, sympathy and support, understanding and guidance; all these, and others such as respect and confidentiality, have to be considered as elements in CSR where the felt experience of the client is at least as important as, if not more so than, procedural or technical precision (Keegan and Green 2004).

Wal-Mart and SCR

CSR can collect many benefits for a business including: obtaining high standards of performance at all levels of work force, and reducing anxiety and confusion over what is acceptable employee conduct. It is important to note that a company’s staff should believe that the prestige of the company and its strong corporate culture removed the need for a written laws of CSR (Ferdinand 2007).

Customers, employees, and suppliers should all be treated in a manner as equitable and proper in their country. Prices should be set at a level that will be viewed as reasonable or fair, according to the conditions in the target market. Thus, Friedman underlines that “there are no vales, no ‘social’ responsibilities in any sense other that shared values and responsibilities of individuals” (Friedman 2005, pp. 284-285).

Social responsibility does not mean decrease in profits. It means that the company should have a CSR as a basic concept of its business. The code should address some aspects of the private lives of employees in so far as they affected the professional performance of the individual or the interests of the company. Sometimes the moral justification comes from a value system that is independent of the business itself and where individual opinion can be sharply divided.

Wal-Mart should change its business principles, because only in this case it would be possible to maintain high standards and prevent unfair actions. Companies need to be concerned with issues related to products and services, promotion, and customers, because a number of the issues are also the subject of legal requirements in many countries (Kotabe and Helsen, 2006).

Social Responsibility and Long-Term Success

Taking into account the present day situation, the best strategy to ensure long-term success should be based on brand loyalty, non-price competition and high-income market segment. Because the market has moved on, there can be a gap between the skills required to compete in the market and those possessed by the firms. Examining what customers appreciate and what they want to receive which helps to attract wide target audience (Keegan and Green 2004). Innovation in products is being brought about by new technologies and standards and the related convergence of computing and consumer electronics which is changing the nature of steel industry (Ferdinand 2008).

Wal-Mart competes on both a price and a non-price basis. The strength of the company is that it was an expert and leader in the retail industry. Its marketing challenge is to position service offerings as the high quality, high value-add alternative. Speaking about the nature of competition it is possible to say that Wal-Mart has a competition advantage. Price competition involves businesses trying to undercut each other’s prices; this will, in turn, be dependent upon their ability to reduce their costs of production. Brand equity represents the added value that accrues to a product as a result of Wal-Mart’s prior investments in the marketing.

Brand equity is thought of as an asset representing the value created by the relationship between the brand and customers over time. In relation to competitors, Wal-Mart provides comparable buyer value but perform the activities more efficiently so as to attain a cost advantage, or perform the activities in a unique way which raises the value to the con­sumer and thus allows them to command a premium price – the concept of differentiation (Ferdinand 2005).

The activities performed may be grouped into two categories: those associated with the core activities of on-going production, marketing and servicing are referred to as primary activities while those providing inputs, technology, human resources and infrastructure to support the manufacturing function are referred to as support activities. Quite clearly, the pri­mary activities draw on a wide variety of support activities in their on-going management.

The advantage is that Wal-Mart can meet the requirement of wide audience. The quality of products and low price is the main criterion for the company. Taking into account company’s policies, it is possible to say that it does not reduce costs of production as it can worsen quality of their products. These marketing principles and marketing approach indicate economic health and growth of the company which become increasingly dependent upon sales as an engine of growth (Ferdinand 2005).

In addition to the increased job opportunities brought to a community by Wal-Mart, another economic benefit is the amount of money community members save each year, thanks to Wal-Mart. The positive economic impact goes on even further. The property taxes and sales tax revenues paid by Wal-Mart support basic community services including: local emergency services, such as police and fire, and schools. Wal-Mart is also a important contributor to local charities. A majority of their donations stay within the community. For many charities, Wal-Mart’s donations are the lifeblood of their organization (Ferdinand 2005).

Wal-Mart is like the kindly uncle they can rely on for a sizeable check in their birthday card year in and year out. Low cost health coverage is another positive economic benefit Wal-Mart brings to communities. Although reports have shown that the introduction or expansion of a Wal-Mart costs communities jobs, as smaller competitors realize reduced revenues, and scale back their workforce, or are forced to close their doors completely, tens of thousands of jobs are created each year by Wal-Mart (Friedman 2005).

Ethical Principles and Global Expansion

There are several reasons why understanding the advantages and disadvantages of Wal-Mart’s global success is important. First, Wal-Mart has become ubiquitous. There is not a state in the nation that Wal-Mart has not made a home in. Large communities have seen the introduction of Wal-Mart’s presence, and the strategic plans of the organization foresee the continued introduction and expansion of Wal-Mart’s both in the United States as well as globally.

Citizens need to be well-informed regarding the positive and negative effects of Wal-Mart on the economy and society, before they can be expected to make intelligent decisions regarding their own community planning, and whether or not to support the introduction or expansion of a Wal-Mart in their area (Friedman 2005). Wal-Mart’s success does not simply affect the economics of a community, the country, and even the globe. It is not simply a social concern either. It is both of these, as well as a political concern as well. Only through the use of an interdisciplinary approach can one hope to cover these diverse facets effectively and efficiently.

The economic effect for the global, American icon has been enormous. A bitter, four-month grocery strike that began in the fall of 2003 was provoked by Wal-Mart’s downward competitive pressure on the old-line supermarkets. There is no denying that Wal-Mart does have a negative impact in some economic respects. Smaller retailers, such as local grocery stores, often find it difficult to compete against the lower pricing and higher level of product differentiation that Wal-Mart offers. The introduction of a Wal-Mart into a community creates significant economic opportunities for a variety of businesses including: construction and building materials organizations, suppliers, and supply and general merchandise stores. (Wal-Mart: Is it Good for America? 2005).

Conclusion

In sum, for many Wal-Mart profits can undoubtedly be made by espousing the right combination of marketing elements. The major supermarket chains have been quick to adopt many innovative marketing initiatives. Wal-Mart is amongst the frontrunners, with policies that include expanding its list of environmentally benign products; rationalizing distribution networks; reducing energy consumption; recycling waste paper; environmental improvements and reduction of pollution. With the arrival of a Wal-Mart in a community, other new businesses spring up as well, often taking advantage of the increased customer flow and flourishing. Current state of retail industry can be identified as growth: increasing sales, increasing number of competitors and repeat purchase behavior patterns.

Bibliography

  1. Drejer, A. 2002, Strategic Management and Core Competencies: Theory and Application. Quorum Books.
  2. Johnson, G., Scholes, K. 1998. Exploring Corporate Strategy. Hemel Hempstead: Prentice Hall.
  3. Ferdinand, A. Wal-Mart Determined to Lead in Corporate Social Responsibility. 2008. Web.
  4. Friedman, M. 2005, The Social Responsibility of Business is to Increase its Profit. In L.P. Hartman, Perspectives in Business Ethics, McGraw-Hill/Irwin; 3 edition, pp. 280-290.
  5. Hollensen, S. 2007, Global Marketing: A Decision-Oriented Approach. Financial Times/ Prentice Hall; 4 edition.
  6. Is Wal-Mart Good for America? TV program Online, 2004. Web.
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  8. Kotabe, M., Helsen, K. 2006, Global Marketing Management. Wiley.
  9. Pittengrew, A. M., Thomas, H. Whittington, R. 2006, Handbook of Strategy and Management. Sage Publications.
  10. Wal-Mart Home Page 2008. Web.
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