NATIONAL INSTITUTE OF TECHNOLOGY DURGAPUR (DEEMED UNIVERSITY) DEPARTMENT OF MANAGEMENT STUDIES WAL-MART GLOBAL STRATERGY (STRATEGIC MANAGEMENT) SUBMITTED

TO Prof. AVIJAN DUTTA BY BANHI GUHA (07/MBA/47) SUKANTA MAJI (07MBA/40) INDRAJEET ROUT (07/MBA/06) SUBHAN KAR ROY (07/MBA/48) ABHINANDAN DASGUPTA (07/MBA/15) PRAMITENDRA NATH DUTTA (07/M BA/52) MARCH, 2009

WAL-MART GLOBAL STRATERGY.

INDEX 1. INTRODUCTION TO GLOBALIZATION STRATEGY IN RELATION TO RETAILING....3 2. FAC TORS DETERMINING THE EXTENT AND NATURE OF GLOBALISATION IN AN INDUSTRY: ETITIVENESS4 5. INCREASING COMPETITIVENESS... ANALYZING RESOURCES.6 10. P.E.S.T. ANALYSIS Page 2 of 16

WAL-MART GLOBAL STRATERGY. 1. INTRODUCTION TO GLOBALIZATION STRATEGY IN RELATION TO RETAILING Globalization refers to growing economic interdependence among countries as reflected in incr easing cross-border flows of three types of entities: goods and services, capita l and knowhow The term globalization can relate to any of several levels of aggr egation: the entire world, a specific country, a specific industry, a specific c ompany, or even a specific line of business or functional activity within the co mpany. The most strategic expansion routes for international retail expansion ar e global and multinational strategies). Global retailers replicate a standard fo rmat throughout their expansion worldwide while multinational strategies result in adaptation of their retail offering. Multinational retailers expansion is gene rally slower than global retailers and the management is decentralized. Multinat ional target markets in closer proximity. International expansions of retailers are challenging and unpredictable, and a slow approach is healthy As markets evo lve, differentiation becomes more important. Its interesting to note, most of the industries, practically all the industries are attempting to globalize today li ke the automobile industry has done over the last few decades. Automobile indust ry peaked during the 1950s and since then there has been a decline and ever sinc e its been growth of the major players and consolidation of the smaller ones. Suc cess in the motor industry comes not from size and scale but from developing com petitive advantages in operations and marketing these advantages internationally . Global brands are a recent phenomenon. Until 10 to 15 years there werent any gl obal brands, many companies were multinationals tending to function as a collect ion of individual enterprises with separate factories and different products in each country. The manifesto of global brands emerged in 1983 when Theodore Levit t published The Globalization of Markets. It was the emergence of homogenization. Enabling this was technology with mass transport and communication and the disap pearance of national tastes and preferences. The multinational corporation opera tes in a number of countries and adjusts its products and practices in each at h igh relative costs. The global corporation operates with resolute constancy at l ow cost, as if the entire world were a single entity; it sells the same things i n the same way everywhere. 2. FACTORS DETERMINING THE EXTENT AND NATURE OF GLOBA LISATION IN AN INDUSTRY: Market drivers Cost drivers Government drivers Competit ive drivers 3. GLOBAL BUSINESS COMPETITIVENESS This refers to the ability of a c ountry (or firm) to provide goods and services which provide better value than t heir overseas rivals. Page 3 of 16

WAL-MART GLOBAL STRATERGY. This is competitive advantage but on a international scale. 4. DETERMINANTS OF I NTERNATIONAL COMPETITIVENESS Price relative to competitors Productivity - output per worker Unit costs State of technology Investment in capital equipment Quali ty Reliability Lead time Exchange rate 5. INCREASING COMPETITIVENESS Rationaliza tion output to get rid of high cost plants Relocating to places where labor cost s are lower Process innovation Product innovation Incorporating the latest techn ology into investment Sourcing from abroad where appropriate Seeking out new mar ket opportunities Improving relationships with suppliers and customer 6. INTRODU CING WAL-MART Wal-Mart is the worlds largest corporation (Fortune, 2003). Wal-Mar t is also the largest private employer in the United States of America. Wal-Mart is U.S.A.s biggest seller of DVDs, diamonds, groceries, toys, guns, CDs, apparel , dog food, detergent, jewellery, sporting goods, videogames, socks, bedding, an d largest film developer, optician, private truck fleet operator, energy consume r, and real estate developer (Fortune, 2003). Americans save about US$10 Billion by shopping at Wal-Mart. Wal-Marts revenue accounted for 15% of the entire U.S. retail market in 2002, excluding automobiles. Sales globally have been affected over the recent weeks. International sales increased 14.3% to $10.3 billion. Wal Page 4 of 16

WAL-MART GLOBAL STRATERGY. Marts revenues are forecast to approach $700 billion in 2010. Wal-Mart has four l arge scale retail formats; Wal-Mart Stores, SAMs Club, Wal-Mart Supercenters and Neighbourhood Markets. 7. FORTUNE MAGAZINE FRONT COVER FEATURING WAL-MART Source: Wal-Mart Annual Report, 2003. 8. WAL-MART AND INTERNATIONAL EXPANSION Wa l-Mart was enticed into international markets by a conviction that it could achi eve competitive advantage abroad by applying its combination of technology, logi stics and human resources with its tremendous buying power with multinational co nsumer goods suppliers. Wal-Marts strategy has been to acquire companies and conv ert them into the Wal-Mart way stores European retailers like Carrefour and Ahol d, have more than 20 years of international experience than Wal-Mart. Page 5 of 16

WAL-MART GLOBAL STRATERGY. Multinational retailers entry is usually by mergers & acquisitions, which is what Wal-Mart did in its initial entry into Mexico, with a joint venture with CIFRA, the most powerful retailer in Mexico. This results in a faster and more reliabl e learning knowledge base. CIFRA enables WalMarts entry with stronger networks in the trade especially with vendors and understanding the local needs and culture while Wal-Mart brings in its competency like logistics and service. Especially the management is a key resource and enable its contribution to its success. Cas se (1994) argues people are not resources and ethically should not be classified such. In a remarkable editorial in The Economist (2000), Wal-Marts entry into Eu rope and global expansion plans have been heavily criticized and undermined due to the inability of global sourcing capabilities of supermarket products and apa rt from the already well established retail networks of chain stores and discoun ters like Metro, Carrefour, Aldi which all individually and collectively dominat e the market and arent up for sale as Wal-Mart would try to. 9. INTERNAL ANALYSIS ANALYZING RESOURCES 9.1. Financial Resources Wal-Mart is the worlds largest and most profitable retailer. Wal-Marts pre tax return on sales was 8% during 1989 wh ich was double the industry standard and it continues to be the front runner til l today. Wal-Mart commands market value 10 times more than its book value. Fisca l year 2008 ended as another record year for the Company. Total net sales increa sed 8.6 percent to $375 billion. They added about $30 billion in sales, which is equal to adding the annual sales of a Fortune 75 business. Page 6 of 16

WAL-MART GLOBAL STRATERGY. EXTRACTS FROM ANNUAL REPORT Page 7 of 16

WAL-MART GLOBAL STRATERGY. 9.2. Human Resources Wal-Mart promotes internal staff development and over 60% o f their stores managers are promoted internally then direct recruits. Wal-Mart b elieves in recruiting people with a flair for customer service and trains them a ccordingly to its strong company values. Employees are treated as owners as more than 70% of employees have shares of the company and incentives are paid in sto ck options too. One of the significant costs for retailers was shoplifting, or p ilferage. Wal-Mart addressed this issue by instituting a policy that shared 50 p ercent of the savings from decreases in a stores pilferage among that stores emplo yees through store incentive plans. 9.3. Physical Resources Wal-Mart developed i ts computerized inventory system way back in 1970 that decreased check-out and r eordering times and built highly automated distribution centres, reducing shippi ng cost and time. Wal-Mart has continued to be an innovator and has this has led it to create and sustain its competitive advantage by being the first and to be continuous to replace systems and processes replicated by competitors. 9.4. Int ellectual or Intangible Resources Wal-Marts core resources are its customers whic h total over 176 million consumers in 13 countries. Wal-Mart has over 1.3 millio n associates (employees) at its stores, worldwide. WalMart uses its technologica l capabilities to sustain its cost leadership in distribution and superior inven tory systems. 10. P.E.S.T. ANALYSIS 10.1. Political Influences The political inf luences in this industry is probably the most burning concern with organizations going global and many countries restricting the growth of companies by many cou ntries. European Customs and Regulations heavily hamper expansion plans. FDI in many countries are still heavily regulated and global companies are yet to set f oot into emerging markets like India. 10.2. Economic Influences The recent finan cial crisis has had a negative impact on consumer spending and outlook. Dispropo rtionate levels of income and consumer spending in developing countries like Ind ia and China will impact growth of global companies. Exchange rates affect globa l sourcing and pricing policies on a day to day basis. 10.3. Social Influences D eveloping countries are not used to push type marketing and aggressive selling. Bulk buying patterns predominantly present in USA, is non-existent in Asian coun tries. Language and cultural factors is a barrier to globalization. Anti-Globali zation movements in the recent past has affected growth of global companies, esp ecially companies originated USA. 10.4. Technological Influences Page 8 of 16

WAL-MART GLOBAL STRATERGY. Development in technology and satellite systems has given a boost to Wal-Mart. B asic infrastructure still lacks for effective warehousing and distribution, the lifeline of a retail chain. 10.5. Key learning There appears to be legal and soc ial hurdles ahead for global companies. Expansion into growing and emerging mark ets throws in tremendous growth opportunity though localization would be a criti cal success factor. Infrastructure needs to be developed to support activities o f a global distribution channel to achieve global competitiveness. 10.6. Table: P.E.S.T. Analysis Page 9 of 16

WAL-MART GLOBAL STRATERGY. 11. FIVE FORCES ANALYSIS 12. VALUE CHAIN ANALYSIS Wal-Mart takes care of all the activities internally ex cept partially outsourcing its logistics requirements. Its systems integration f rom inventory, to stores, to headquarters to suppliers is the lifeline of its su ccess. The core activity remains in its bulk buying and inventory management whi ch supports Wal-Marts competitive advantage of pricing and every element shows tr aces of cost leadership. Wal-Mart located its discount stores around regional wa rehouses allowing a streamlined and low cost physical distribution Page 10 of 16

WAL-MART GLOBAL STRATERGY. 12.1. Inbound Logistics Wal-Marts primary activity of receiving inventory is planned right from the point of production, which Wal-Mart is not involved with. Wal-Mart has integrated sys tems with key suppliers which communicate in real time data with sales informati on and stock status so it can replenished in time. Shipments are timed and slott ed and planned in an orchestral way. 12.2. Operations Wal-Mart maintains a lean approach to inventory. Wal-Mart innovated a technique of replenishment called the Cross-Docking where incoming goods are offloaded int o outgoing trucks directly without stocking them even for a few hours. Most good s pass through the warehouses within a span of 48 hours, enabling minimum idle t ime and lowering excess inventory possibilities. Most of the goods never touch t he floor of the warehouse, as goods are passed on 24 miles length of conveyor be lts between incoming trucks to outgoing trucks. 12.3. Outbound Logistics Goods a re transferred within 48 hours of receipt from suppliers. The replenishments are also done twice weekly, which is double the industrys standard. 12.4. Marketing and Sales Wal-Mart maintains a simple and effective marketing strategy which it has managed to replicate globally apart it being the focus of its strategy. The Every Day Low Price (EDLP) is simple and eliminates unnecessary advertising tryi ng to push sales, as Wal-Mart has successfully sold the concept to the customers , that it sells its products at the lowest prices, everyday. This is one of the most interesting attributes of Wal-Mart. 12.5. Service Wal-Marts aggressive yet s ubtle People Greeters and in its own fashionable and proud way Aggressive Hospitali ty are the foundations for Wal-Marts success in the highly competitive market. 12. 6. Infrastructure Wal-Mart maintains its own fleet of 2000 plus trucks which hav e scheduled deliveries between warehouses to stores minimizing delays and over r eliance from suppliers. 12.7. Human Resource Management Wal-Mart is the only ret ailer to be in Fortunes 100 Best Places to Work. Wal-Marts empowerment of Associat es is laudable with instances such as allowing its Associates to get on the netw ork and lower its prices, nationwide if its found to be higher than its competit ors, all this done without any consultation or permission requests from superior s. 12.8. Technology Development Wal-Marts technology and inventory management sys tems and software are better than the best in the world and also the lifeline of the organization. Wal-Marts early innovations and Page 11 of 16

WAL-MART GLOBAL STRATERGY. experimentation apart from investments light-years ahead of its time into VSAT c apabilities have boosted its success. 12.9. Procurement Wal-Marts satellite commu nication and electronic data interchange links all its stores to over 4000 suppl iers creating the finest procurement co-ordinated scenario. Wal-Mart integrates its supply chain management activities with key suppliers like P&G with direct s hipments from P&Gs warehouses to Wal-Marts stores and warehouses. Wal-Mart invento ry management is so effective that over 70% of its merchandise is purchased and paid for by customers, even before Wal-Mart has actually paid for the same to it s suppliers. Wal-Mart has outsourced a substantial activity to USSO enabling Wal -Mart to maintain its logistics costs. 13. GENERIC STRATEGY 13.1. Cost leadership Analysis of the value adding activities supporting the generic strategy shows cl ear elements of cost focus. Low cost leadership helps the firm above average ret urns in the industry despite strong competitive forces. Traces of cost leadershi p are noticeable in the value chain. Wal-Mart saves costs by holding stocks for less than 48 hours in its inventory. Wal-Mart is known to negotiate with supplie rs for the lowest cost of the product without any frills and marketing expenses which adds to the cost later. Wal-Marts purchase by the truckload saves costs aga in by bulk purchasing. Wal-Marts inventory handling and logistics distribution wi th its own fleet of 2000 plus trucks help attain a cost effective distribution c hannel than relying on unreliable suppliers networks which costs in delays. 13.2 . Differentiation Wal-Mart appears to have a differentiation strategy. The diffe rentiation strategy is one of differentiating the product or service offering of the firm, creating something that is perceived industry-wide as being unique. I t can be design or brand image, technology, features, customer service, dealer n etwork or other dimensions. High degree of customer service with store greeters and 10 foot attitude policies reaffirms Wal-Marts differentiation from its competit ors. Page 12 of 16

WAL-MART GLOBAL STRATERGY. 13.3. Focus The third generic strategy advocated by Porter is the focus strategy. The focus strategy is focusing on a particular buyer group, segment of the product line or geographic market as with differentiation, focus may take many forms. Wal-Mart right from its foundation located its stores to out of town areas with small pop ulations. This was a segment ignore by its competitors giving Wal-Mart an edge o ver competition by locating itself in a low competitive environment before it cr eates competition. Wal-Marts focus on the segment of people targeted as well as i ts location of stores, does give it an attribute of the focus strategy. Effectiv e implementation of any of these generic strategies usually requires total commi tment and supporting organizational arrangements that are diluted if there is mo re than one primary target. Arguably Porter termed organizations attempting cost leadership and differentiation together as stuck-in-the-middle and it does not le ad to competitive advantage and its sustainability. 14. YIPS GLOBALIZATION DRIVER S 14.1. Market Drivers Existence of homogenous consumer needs can not be ignored but at the same time, it is highly localized due to the nature of products. Glo bal brands are preferred but with local tastes. Distribution channels hang-in-be tween global and local as global sourcing cant be ignored but lot of sourcing is done regionally. Marketing follows the same principle. Global marketing with loc al themes and needs. 14.2. Cost Drivers Cost drivers are in favour of globalisat ion except for research and development costs which are marginal but needs to be catered to each market. Economies of scale are highly important with margins wa fer thin. Transport costs do not discourage centralized sourcing and warehousing . 14.3. Country Drivers Country drivers show a shift to localisation in this fra mework. There is still a marginal amount of trade barriers though its being loos ened up by the W.T.O. and pressure from industry and markets are being built up. 14.4. Competitive Drivers Shift from localization to globalization. There is hi gh volume of imports and exports but for the global markets, there is more of in ternal sourcing compared with the volume of exports and imports. Competitive int erdependence of major markets is increasing with pressure from global competitor s entering the local markets. 15. WAL-MARTS COMPETITIVE ADVANTAGE: Supply chain m anagement Communication strategy with suppliers and associates Page 13 of 16

WAL-MART GLOBAL STRATERGY. Relationship strategy with suppliers and associates People strategy Cost strateg y Location and market strategy Ability and inspiration from Sam Walton Customer service strategy Knowledge management Innovation in I.T. and warehousing and inv entory management 16. CORE COMPETENCES Wal-Marts core competence can be said to b e its knowledge achieved by its inventory management skills with its supply chai n management facilitated by its innovations like the cross-docking techniques an d its innovation in information technology and in relationship strategy maintain ed with its customers, suppliers, and associates and its cost strategy achieved with its scale of operations. 17. KAYS DISTINCTIVE CAPABILITIES 17.1. Architectur e Wal-Marts internal architecture with its associates are phenomenal and the way it manages its one million plus associates. Wal-Marts collegiate culture encourag es innovation and learning. Externally Wal-Mart enjoys a unique relationship wit h its suppliers who go to the extent of locating their offices near Wal-Marts hea dquarters. 17.2. Reputation Wal-Mart enjoys tremendous reputation in the industr y for its standards and living up to them. Wal-Marts rankings in the industry with its phenomenal growth and value for money. It has also established itself as th e lowest price retailer with the highly effective marketing of the EDLP (Every D ay Low Price) concept. 17.3. Innovation Wal-Mart has a reputation for innovation with the formats of stores introduced and its ability to replicate with adaptat ions to suit local markets. Innovations in technology by using VSAT light years ahead of its times and its warehousing and cross-docking techniques are laudable . 17.4. Strategic Asset Although Sam Walton exists no more, he was a strategic a sset and still is with his values deeply imbibed within the companys culture. Wal -Marts benefits from the brand it has it has created and its market position stra tegy. Page 14 of 16

WAL-MART GLOBAL STRATERGY. 18. WAL-MARTS TRANSNATIONAL STRATEGY 19. WAL-MART AND INDIA India is a ripe and appealing market for Wal-Mart with it s growing middle class of 250 million and an economic growth rate of nearly 9% I n November 2006, Wal-Mart beat out Tesco for a joint venture opportunity with In dian mobile services leader, Bharti. The companys priority seemed to be an early entry. Bharti would manage the front-end of the business, while Wal-Mart would t ake care of the supply chain, logistics and other back-end operations. The propo sed Bharti venture seeks to serve the retail market by supplying it with goods d irectly from producers such as agriculturists, craftsmen and artisans. Page 15 of 16

WAL-MART GLOBAL STRATERGY. 20. THREATS The leaders of the retail market are the 12-40 million tiny mom-andpop retail shops which are predominantly run by small family businesses. The mom -and-pops have an advantage as they are conveniently located on street corners o r in the heart of cities and usually have personal relationships with most consu mers. 21. CONCLUSION Large economies (Countries) are clubbed together and treate d as one. Arguments such as only a certain percentage of business is generated o utside the TRIAD making a business less global are arguments the author disagree s with. With the EU becoming as one then soon, the world will become large chunk s of amalgamations. The simple definition or presence in different markets shoul d be taken into consideration of being global. Many strategists do not give conc essions for the time the business has started to expand globally. Wal-Mart for i nstance has grown to such a strong position over 40 years, this would take consi derable time to replicate and adapt in international markets. Page 16 of 16