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Wal-Mart Stores Inc. Australia

Wal-Mart Stores Inc. Australia

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Table of Contents

Abstract 4

Introduction. 5

External analysis (PESTLE) 6

Political 7

Economic. 7

Social 7

Technological 8

Environmental 8

Porter’s five factors. 8

Competitive rivalry. 8

Bargaining power of buyers. 9

Threat of new entrants. 9

Bargaining. 10

Threat of substitutes. 10

Rivalry among existing players. 10

Internal environment analysis (SWOT) 10

Strengths. 11

Weaknesses. 11

Opportunities. 12

Threats. 12

Conclusion. 14

References. 14

Abstract

We studied the different organisational strategy approaches in Wal-Mart Inc. Australia and how the policies have affected the company. Looking at various aspects such as economic, technological, and demographical, in Australia and how they influenced the organisation. Also, Walmart’s organisational strategy and decision-making positively affected its success in the market. The company has managed to establish its business activities in the Australian business market and has been able to emerge victorious despite stiff competition from other local businesses offering retail services by increasing its branding, customer loyalty, and lowering its product costs. However, the company has faced significant challenges such as stiff competition from rival businesses and resistance by local stores to open shops in the country.

Introduction

Wal-Mart is a multinational retail corporation that was first founded in 1962 by Sam Walton in America. The business contains a chain of grocery stores, hypermarkets, and discount department stores including 11,695 stores and clubs in countries around the world. The company’s shares got listed on the NYSE and had over 8, 613 retail outlets and approximately 2 million employees. Its headquarters are in Bentonville, Arkansas. The business evolved from Walton’s goals and objectives of greater values and customer services, he believed in leadership and argued that the type of leadership in an organisation determines the organisation’s overall performance. Walmart was built on the principles and belief that true leadership depends on reliable service from both the leaders and the followers (Arli et al., 2013). The company’s history is predominately influenced by Sam Walton and will be rooted in his principles in the future as well.

In 1969, Sam built his business around offering excellent service to customers and lower prices, these led to the company’s success which made it go public in 1970 helping in the expansion of the business. He credited the growth of the business to his associates and low costs of goods and services which attracted more customers. Sam shared his vision with his partners and created a healthy work relationship built on high principles, and this enabled him to share his vision (Mizrachi, 2015). He made the feel part of the success of the company. As the company grew, so did Sam’s vision for the business, he experimented with new technologies and store formats including the Club and Walmart Supercenter. His strong commitment to values and principles that lead to the success of companies and countries got him the presidential honour of freedom in 1992 awarded by President George H.W. Bush.

Before considering expansion into a foreign market, it is crucial for a business to carry out a country analysis of the business environment in the country concerned. Before Wal-Mart considered its expansion into Australia, the company took a thorough review of the international institutions and government forums and policies in the country (Bubb, 2015). Detailed market research was conducted to increase the probability of the company’s success and reduce risk to its profitability and reputation. A primary focus was on the political, social, cultural, and economic environment of Australia. In July 2006, executives from Walmart visited Australia to look at possible targets, competitors like Coles Myer and Woolworths were identified, “Wal-Mart has been looking at Australia carefully and after the German situation it will be seeking to do a deal very quickly.” (Barmel, 2016)

Australian investors encouraged the expansion of Wal-Mart into the country because they had seen a growth potential for the success of the company in Asian countries. However, any move by Wal-Mart into Australia posed a potential threat because the company would face stiff competition from the aggressively expanding German discount supermarket chain, Aldi.

External analysis (PESTLE)

PESTLE analysis is a model of marketing doctrines. Furthermore, the model is used by companies to analyse the environment they are planning to launch their business activities, projects, and product services. The model is a mnemonic representing five aspects of a business climate which are; political, economic, social, technological, and legal environment.  However, the design has undergone some alterations over time from marketing gurus; they have added the ethics aspect of a business which installs the issue of demographics in a business environment.

All aspects of this framework are vital for any business; the model represents one of the backbones of strategic management that guide a company on its plans and objectives. It also accounts for an organisation’s goals and the strategies strung to them. The importance of each aspect may be different depending on the kind of structure, but it is vital for any establishment that wants to conduct a business environmental study to use the PESTLE framework.

Political

The company is facing particular problems in its mission to expand into foreign markets like Australia. The limitation on an overseas direct venture in multi-brand retail in Australia is proving detrimental to its expansion plans. In 2007, a gender judgement lawsuit was filed against Wal-Mart, the lawsuit alleged that the organisation discriminated against women regarding promotions, salaries, and salary increments. These regulations negatively affected the company because they changed people’s perception of the business (Brown, 2013).

Economic

The customers in Australia have substantial purchasing power; this is a good sign for the company in Australia. However, the effects of the economic slowdown in the country present an undesirable scenario for its business activities. Currently, Wal-Mart is facing high interest and taxes rates in Australia, these factors adversely the customers’ demand for the organisation’s products and services. An Australian Daily observed that the company is a remarkable job creator in countries around the world in the private sector. Hence, the fact that the international brand has been a strong force in the retail sector for a long time cannot be denied (Cavalo, 2017).

Social

Wal-Mart has faced certain social challenges in its expansion into Australia. For example, people in the country do not like to travel much to buy their daily rations. Hence this translates into a loss for the company since they cannot open stores in every corner of the country. Another challenge is competition from local retailers since the enterprise is also a threat to their small businesses. However, Wal-Mart has a large following in social circles; many places throughout Australia consider the company as the best shopping destination. Consequently, consumers throughout the country visit the company’s stores; hence it has become their primary choice thanks to the positive social impact on the brand (Frynas et al., 2017).

Technological

The company is leveraging technology to its advantage in online marketing and distribution. Wal-Mart relies on modern technology to advertise its products and services. About three years back, the company made advancements in its home delivery system for client convenience. Being a new retail business in Australia, the company needed to improve its customer service operations and employ marketing strategies like home delivery to ensure that people all over the country were able to access its products (Roath, 2016).

Environmental

The company has implemented a number environmental measures to increase energy efficiency. It is the largest retailer of organic milk, and it has reduced its packaging and energy expenses.

Porter’s five factors  

An academic approach to the study was made by researching the strategies of management that the company applies. Porter’s five forces were the main concepts considered in the survey, the ideas include:

Competitive rivalry

Competitive rivalry is an essential aspect of success for an organisation as it involves the ability of the company to understand its competitor’s moves and business strategies. Wal-Mart Stores Inc., in Australia, has over the recent years faced stiff competition from other well-established companies. Therefore, to ensure its longevity, it was crucial for the enterprise to understand the differences between its rivals. The knowledge was essential to developing a strategy that enables the company always to stay ahead of the stiff competition. There are two commonly used indices for judging a company’s competitive edge and that of its rivals:

  • Concentration ratio
  • Herfindahl-Hirschman Index

The intensity ratio (CRx)

The power ratio approach measures the total output produced in a company by a given number of corporations.

The Herfindahl-Hirschman Index (HHI)

The HHI includes measuring the size of organisations in the sector and the amount of competition amongst these groups.

Bargaining power of buyers

Wal-Mart operates on the principle that clients should get the lowest prices for their lives to be improved. The company makes this happen by implementing a scheme like the ‘rollback,’ ‘everyday low price’ and the ‘special buy,’ they ensure that the enterprise enjoys customer loyalty. Hence it gets very low pressure from customers (Santos et al., 2016).

Threat of new entrants

Wal-Mart has the necessary capacity to produce more goods and has enormous buying powers, hence can produce more goods cheaply compared to the new entrants, these give the company economies of scale (Fernie et al., 2015). Thus, for new entrants, the barriers that prevent their establishment in the Australian retail market are many. The company enjoys customer loyalty and can produce a variety of products at cheap costs. Moreover, Wal-Mart has unlimited access to advanced technology and foreign distribution channels, therefore, new entrants would face very stiff competition from the company.

Bargaining power of suppliers

The company has many businesses offers to wholesalers because of its huge market share. It believes in long-term associations with vendors, but for Wal-Mart to offer business contracts to the suppliers, it must have financial stability, excellent products, and proven market success.

Threat of substitutes

Few companies can offer the same marketing strategies such as low costs such as Wal-Mart, many have tried but have failed terribly. The company operates on a customer-oriented approach that guarantees customer satisfaction; this enhances goodwill and makes it impossible for substitutes to flourish in the same market alongside Wal-Mart Stores Inc. in Australia (Huch, 2014).

Rivalry among existing players

Currently, Wal-Mart faces stiff competition from Target and K-Mart. Among the

Two, Target is the strongest opponent to Wal-Mart in domestic markets.  The company has experienced significant growth and established its niche in the Australian market. Nonetheless, Mart failed to reach the low prices offered by Wal-Mart and also could not match the customer satisfaction standards of Wal-Mart. When comparing the sales of Wal-Mart and Mark, Wal-Mart has four times the sales over Kmart; their stores are smaller hence Wal-Mart leads in the market share (king, 2016).

 Internal environment analysis (SWOT)

A swot analysis identifies a company’s strengths, threats, weaknesses, and opportunities. It is a basic framework that assesses what an establishment can and cannot do in its internal and external environment according to certain factors. The model helps evaluate the position of an enterprise in the market and its ability to manipulate market trends to its advantage. It also identifies obstacles, the organisation’s position today, and where it will be in the future (Wilson, 2015). A swot analysis helps guide business strategy meetings and can be used for general business strategy sessions. Moreover, it can also be used for specific aspects of the organisation like the sales of the company and their customers’ bargaining power.

Strengths

  1. Customer-oriented approach- the company’s most significant advantage is its customer satisfaction policy. Its brand is well known for its value money, its ability to offer a broad range of products, and its convenience in Australia. Wal-Mart has client satisfaction guaranteed systems that enhance customer goodwill.
  2. Technology- the company relies on IT for its efficient procurement. The Walmart.com website has enabled increased sales in Australia and provides a platform in which customers all over Australia can access a broad range of its products available online.
  3. Human resource capital- Wal-Mart invests in human capital because its employees are essential to the company’s success. It spends time and money to retain and develop staff to enable them to achieve their best performance in the organisation. The company also shares its profits and stocks with its employees; this is paramount as it distinguishes it from other institutions (Rich et al., 2015). Its management style is inclusive and equitable to all employees in the organisation. Active community-based initiatives and corporate structures are well managed with core principles like striving for excellence and respect for every individual’s position in the company. The type of management in Wal-Mart has propelled them to be the world’s largest company and a successful company in Australia.
  4. Market capitalization- the company has a market of 208.37 billion US dollars which is the highest. The large market share makes Wal-Mart financially sound and very attractive to investors in Australia.

Weaknesses

  1. Product recall- recently, the company has been involved in several product recalls like ‘hip charm’ and the ‘holiday’ Frequent recalls show lax quality control measures hence damaging its brand in the Australian market.
  2. Numerous legal issues- legal matters such as the gender discrimination in 2007 at the time of promotions and salary increments may adversely change the perception of employees about the company.
  3. Marketing aspect- Wal-Mart faces a big challenge of expansion into foreign markets. Many areas in Australia have tried to block the company because it poses a threat to local retailers and the environment. The company has a damaged reputation because they force the opening of new stores in new locations. It shut down its underperforming business in Germany in the 2007-08 fiscal year.

Opportunities

  1. Expanding brand portfolios- it offers many products under different private labels. The company plans to increase these private labels since they enable Wal-Mart to incur low operational costs. Furthermore, private brands have greater demand and offer high-quality low-price alternatives to national brands.
  2. Global expansion and acquisitions- Wal-Mart have an opportunity to merge with other global retailers focusing on markets such as Australia.
  3. Increasing online sales- online marketing has experienced significant popularity in Australia. Wal-Mart sells its products and services through online portals like sanclub.com.

Threats

  1. Stiff competition- the company faces competition from many businesses in the retail market in local stores. This contest can adversely affect the profits of Wal-Mart. The growing resistance to opening new stores from local communities and entry into the Australian market can hold back the company’s expansion plan.
  2. Technological factors- as technology advances, products being sold today become irrelevant in the future; this reduces the number of goods to be sold by the company. As a result, Wal-Mart is obliged to update its technology as per the current demands; upgrading requires high capital investment.
FE Matrix of Wal-Mart Stores, Inc.
Key Internal FactorsWeightRatingWeighted Score
Strengths
Market Capitalization0.1540.6
Human Resource Capital0.153.50.525
Technology0.153.50.525
Customer oriented Approach0.240.8
Weaknesses
Exit from foreign markets0.240.8
Product Recall0.052.50.125
Legal Issues0.0530.15
Unmanageable Product Range0.052.50.125
Total13.65
EFE Matrix of Wal-Mart Stores, Inc.
Key External FactorsWeightRatingWeighted Score
Opportunities
Expanding Brand Portfolio0.1530.45
Rising Australia  Healthcare Spending0.130.3
Increasing Online Sales0.1530.45
Global Expansion and Acquisitions0.240.8
Threats
Intense Competition0.23.50.7
Government Policies0.130.3
Opposition and resistance from communities0.0530.15
Negative Brand Image0.052.50.125
Total13.275

Conclusion

Walmart Inc. Australia has been fortunate in its establishment in the country’s market environment; this has been proved by its impact on the retail world since its arrival in Australia. It has negotiated low prices for its products and services from vendors attracting more customers. Wal-Mart is always involved in improving its business activities and customer satisfaction programs. However, it faces stiff competition from local retailers in Australia which significantly affects the profitability of the company. To stay at the top, Wal-Mart Inc. Australia needs to build stronger relations with its stakeholders and guard their brand name against criticism from labour unions, women’s rights groups, and community groups.

References

Arli, V., Doyle, S., Burgess, R., Campus, R. and Soldo, E., 2013. Woolworths Australia and Walmart US: Best practices in supply chain collaboration. Journal of Economics, Business & Accountancy Ventura, 16(1).

Babb, J., 2015. National affairs: Can Australia post be saved? News Weekly, (2945), p.10.

Barrel, F.T., 2016. Competitive Advantage in Technology-Intensive Industries. In Technological Innovation: Generating Economic Results (pp. 233-256). Emerald Group Publishing Limited.

Brown, J., 2013. In Walmart and fast food, unions scaling up a strike-first strategy. Labor Notes, 23.

Cavallo, A., 2017. Are Online and Offline Prices Similar? Evidence from Large Multi-Channel Retailers. The American Economic Review, 107(1), pp.283-303.

Frynas, J.G. and Mellahi, K., 2015. Global strategic management. Oxford University Press, USA.

Fernie, J., Fernie, S. and Moore, C., 2015. Principles of Retailing. Routledge.

Hassan, S.M., Sistani, A.J. and Raju, R.S., 2014. Top Online Shopping E-companies and their Strength and Weakness (SWOT). Research Journal of Recent Sciences  ISSN, 2277, p.2502.

Huch, A., 2014. How Walmart built sustainability into the supply chain. The Business & Management Collection.

Kling, J., 2016. National affairs: Can Australia post be saved?. News Weekly, (2945), p.10.

Mizrachi, I. and Sellitto, C., 2015. Building a Facebook Strategy: Some Insights From Australian Accommodation Small Tourism Enterprises (STEs). Journal of Quality Assurance in Hospitality & Tourism, 16(1), pp.63-79.

Roth, F.T., 2016. Strategic management. New York, NY: McGraw-Hill.

Rich, Evans, P.C. and Basile, R.C., 2016. Revealing the API ecosystem and enterprise strategy via visual analytics. Communications of the ACM, 59(2), pp.26-28.

Santos, N. and Laczniak, G., 2015. Marketing to the Poor: A SWOT analysis of the Market Construction Model for engaging impoverished market segments. Social Business, 5(2).

Wilson, D., 2016. Uber is the Walmart of transport. Guardian (Sydney), (1718), p.2.

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