UNIVERSITY OF SOUTH AFRICAGRADUATE SCHOOL OF BUSINESS LEADERSHIPEXECUTIVEDEVELOPMENT PROGRAMSTRATEGY DYNAMICS AND GLOBAL BUSINESS (EDPSDGN)PORTFOLIO EXAMINATION –OCTOBER 2012FIRST EXAMINER: DR T....

Wal-Mart
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1. Introduction
Wal-Mart, world‟s largest public corporation and a top Fortune 500 company started its
operations in 1969. The founder of the company Sam Walton started Wal-Mart with an idea of
retailing at low prices. Wal-Mart has its headquarters in Bentonville, Arkansas. Employee
strength of Wal-Mart is 2 million globally. It is the largest private recruiter of US with more than
1.4 million employees (Rigby & Haas, 2004). Recently Wal-Mart acquired Massmart to enter the
South African market. The objective of this assignment is to have an understanding of the overall
strategy of Wal-Mart through Porter‟s five forces model, Porter‟s diamond model and Pestel
analysis. Thereon it moves on to assess the Walmart‟s approach to international market,
specifically focus on Mexico, Germany and India. It also evaluates the possible impact to the
South African retail industry. In the end based on the present strategies of the company, the
likely response from the local retailers including Pick „n Pay, Shoprite and Spar is recommended.
2. An overview of the organization
Wal-Mart was ranked first among America‟s largest corporations by Fortune 500 in
2011. The company operates globally through different formats of retail store – Wal-Mart US,
Wal-Mart international, and Sam's Club. The merchandise of Wal-Mart includes grocery,
entertainment, hard lines, health and wellness, apparel, and home wares etc from recognized
brands and private labels. Wal-Mart US comprises of retail formats of supercenters, discount
stores, neighborhood markets, and other small formats across US (Rigby & Haas, 2004). The
company has a very well networked distribution, which is majorly owned by the company only.
Some of these distributors also cater to the formats of Sam's Club for some of their merchandise.
Wal-Mart International stores are the wholly owned subsidiaries of the company. Wal-Mart
International majorly operates in Argentina, Brazil, Canada, Japan and the UK. The company
also operates through majorly owned subsidiaries and joint ventures in different countries. Wal-
Mart experiences a footfall of 100 million customers per week across all stores globally. In
Sam‟s Club most of its products are sold in bulk and the company has a cost advantage on per
unit basis. Wal-Mart is the global leader in discount retailing segment. Its strategies are aligned
to its tagline of “Everyday Day Low Prices”. In 1972, Wal-Mart got listed on the New York
Stock Exchange.
3. Evaluation of Wal-Mart‟s overall strategy
3.1 Wal-Mart‟s entry strategy in the South African market
The entry strategy of Wal-Mart into South Africa is through merging with Massmart by
purchasing 51 per cent stake in Massmart and the underlying condition states that the company
will not be allowed to lay off any Massmart staff for next two years. Wal-Mart‟s bid for
Massmart was $2.4 billion, much higher than the market price (Team, 2011). The entry of Wal-
Mart in South Africa as the initial point of entry to the rest of Africa reflects the importance of
the emergence of the middle class in these countries. This factor attracts the international
companies to invest because of the expected high growth rate. Wal-Mart plans to open stores in
Nigeria, Democratic Republic of Congo, and Angola. Initially before getting clearance from
South African authorities for setting up operations in the country, Wal-Mart has faced resistance
from different local organizations including South African Commercial and labour unions as
people panicked about losing their jobs and perishing of the local shops and manufacturers
(Flores-Arraoz & Musca, 2011). There was pressure on the government to take a protectionist
approach. The unions predicted that around 4000 people would lose their jobs in the general
merchandise and food industry if Wal-Mart acquired Massmart as it would entail the local
procurements to be replaced with imported goods (Flores-Arraoz & Musca, 2011). Wal-Mart
countered these doubts by showing true interest in investing in the most developed African
country and extending to the other African countries. Wal-Mart mentioned its plan of procuring
fresh food locally, and thus contributing to the agricultural sector. Wal-Mart expects to open 54
stores and hire 6300 staff members in accordance to the local labour laws ant not exploiting the
local labour (Flores-Arraoz & Musca, 2011). Wal-Mart aims to be a responsible corporate citizen
of South Africa. Bur still concerns remain about the impact of the Wal-Mart effect on the local
suppliers and retailers. The South African government is concerned with the merger because of
the huge scale of operations of Wal-Mart spread globally that gives the company immense
competitive advantage and this necessitated the government intervention. The projected revenue
of Wal-Mart is higher than the GDP of the country. In 2004 the revenue of Wal-Mart was larger
than the GDP of seventy five percent of the countries globally (Flores-Arraoz & Musca, 2011).
3.2 Competitive analysis of Wal-Mart: Porter five forces model
Porter‟s five forces model analyses the competitive position and competitive advantages
of a company based on threat of new entrant, bargaining power of buyer, bargaining power of
supplier, substitutes and competitive rivalry (Porter, 2008). Based on these parameters Wal-Mart
is assessed below.
Threat of new entrants: It is relatively easy for new entrants to enter the retailing industry.
Grocers have the potential to enter new markets. But to be a threat to Wal-Mart they need to be
really huge capital intensive formats (McCune, 1994). The outstanding supply chain
management of Wal-Mart, excellent distribution channel and brand recognition makes it difficult
for a new entrant to pose a threat for Wal-Mart. So the threat from new entrants is medium.
Bargaining power of suppliers: Wal-Mart is the largest customer for most of its suppliers
including as Kraft Foods, Gillette, P&G etc. Wal-Mart uses this fact to its advantage. It enjoys
favorable payment terms, discounts, and priority delivery dates from its customers (McCune,
1994). So the bargaining power of suppliers is medium to low. Wal-Mart has a large market
share. So through Wal-Mart its suppliers and manufacturers reach to a major population of
customers and end users of their products. Now if Wal-Mart switches over to a different supplier,
it will become a serious concern for the present suppliers as they will lose a huge market. Wal-
Mart enjoys more power, though some larger suppliers like Coca-Cola, P&G etc has more
bargaining power than the smaller suppliers.
Bargaining power of...