Meike Albers 129030 Francesca Garbaty 123613 David Ehling 125277 30.05.

2011 Group 1 Anja Reckermann 123745 Ivander Laurentius Atmojo 2430243

Table of content
Management Summary .................................................................................................................................... 4 Introduction ..................................................................................................................................................... 5 General Overview ............................................................................................................................................. 6 Wal-Mart...................................................................................................................................................... 6 Wal-Mart Vision and Mission Statement ................................................................................................ 7 Proposed Vision ....................................................................................................................................... 8 Proposed mission statement ................................................................................................................... 8 Value statement ...................................................................................................................................... 9 Competitive advantage .......................................................................................................................... 10 Objectives and Strategies ...................................................................................................................... 11 Opportunities and Threats ......................................................................................................................... 12 The External Analysis...................................................................................................................................... 12 DEPEST ....................................................................................................................................................... 12 Demographic factors ............................................................................................................................. 12 Economic factors: .................................................................................................................................. 13 Political factors: ..................................................................................................................................... 13 Ecological Factors .................................................................................................................................. 14 Social/Cultural Factors ........................................................................................................................... 14 Technological Factors ............................................................................................................................ 15 Porters Five Forces .................................................................................................................................... 15 Rivalry among competing businesses .................................................................................................... 16 Potential Entry of New Competitors ...................................................................................................... 16 Potential Development of Substitute Products ..................................................................................... 17 Bargaining Power of Suppliers ............................................................................................................... 17 Bargaining Power of Customers............................................................................................................. 17 External Factor Evaluation (EFE) Matrix ..................................................................................................... 18 Competitive Profile (CPM) Matrix .............................................................................................................. 21 Strengths and Weaknesses ........................................................................................................................ 22 The Internal Analysis ...................................................................................................................................... 23 Financial Performance Analysis.................................................................................................................. 23 Key Financial Ratios ............................................................................................................................... 23 Price Ratios ............................................................................................................................................ 23 Profit Margins ........................................................................................................................................ 24

Investment Returns ............................................................................................................................... 24 Management Efficiency ......................................................................................................................... 24 Growth & Profitability ........................................................................................................................... 24 Wal-Mart Revenue/Income compared with direct competitors ............................................................ 25 Value Chain Analysis .................................................................................................................................. 26 Internal Factor Evaluation (IFE) Matrix ...................................................................................................... 29 Problem statement .................................................................................................................................... 31 Models ........................................................................................................................................................... 32 SWOT Matrix .............................................................................................................................................. 32 Space Matrix .............................................................................................................................................. 35 Boston Consulting Group (BCG) Matrix ...................................................................................................... 37 Internal-External (IE) Matrix....................................................................................................................... 37 Grand Strategy Matrix................................................................................................................................ 38 The Value Disciplines Model Treacy and Wiersema ................................................................................... 39 New Strategies ............................................................................................................................................... 40 Pre-selection .............................................................................................................................................. 40 Selection of Strategies for the QSPM Matrix based on the costs of the alternative strategies .................. 41 Johnson and Scholes Suitability, Feasibility and Acceptability Model.................................................... 41 Evaluate strategies ..................................................................................................................................... 46 The Quantitative Strategic Planning (QSPM) Matrix .................................................................................. 47 Selected Strategies ......................................................................................................................................... 48 Specific strategy and Long term objectives ................................................................................................ 48 Comparison: Actual vs. New strategy ........................................................................................................ 48 Implementation and Expected Results ...................................................................................................... 49

Management Summary
This report analyses the company Wal-Mart and the retail industry and discusses possible new strategies Wal-Mart could embark on. The final goal of this report was to develop one strategy for Wal-Mart that enables the firm to increase its sales revenue and ensure continuous growth. To analyze Wal-Marts internal position and the environment it operates in, the report started with a thorough micro analysis as well as a macro analysis. The main findings were that Wal-Mart is by far market leader in the industry, has a stable economic position with the ability to finance its endeavors with company owned capital, and is able to offer the lowest prices in the industry, which is mainly due to their superb value chain activities. However, their costs saving measures are reaching a bottom line and realizing further savings is getting more difficult. Other retailers, especially online retailers are still able to cut significant costs. This is particularly dangerous for Wal-Mart which built its entire strategy and marketing around being cost leader in the industry. Taking the external and internal data as input, alternative strategies were developed. From these, the four most suitable strategies were analyzed in Johnson and Scholes Suitability, Feasibility, Acceptability Model. The evaluation showed that- based on the economic environment, the resources needed for each strategy, and the financial costs and expectations of each strategy- two strategies promise to provide Wal-Mart with the highest success rate. These two strategies were Enter European market through a joint venture, and Backwards integration through taking over the supplying function. After evaluating these two strategies in a QSPM matrix, the final strategy was determined based on the highest score: Enter the European market through a joint venture. The implementation stage shows up what the long-term objectives are and how they will be achieved. WalMart will enter the European market through a joint venture with Auchan, the French retail chain. In the first 10 years, the business will open 50 new stores in Europe. A new company name for this joint venture will be developed, both businesses will share risks and costs, and both businesses will invest capital and resources. An additional positive side effect of this joint venture is that Wal-Mart can benefit from Auchans knowledge of the French culture and business operations and products can be adapted to local needs easier. Later on, Wal-Mart can also use Auchans international network to enter other retail markets in Europe. The idea of this collaboration is that Auchan paves the way for Wal-Mart into the European market and the goal is to create brand awareness. The joint-venture will include opening 50 new stores; an investment of $10 Billion is required and will be paid in 4 consecutive years. In return, this joint venture is expected to increase Wal-Marts net income margin by 1.20% or $8 Billion by 2017.

Introduction
This workout is the exam-case of the IBMS6 Strategic Management module. It needs to be accomplished in teamwork, whereat each member has to demonstrate his ability to work in a team. Furthermore, each team member has to proof his ability to apply the theoretical knowledge learned during the lessons to this case. The assignment deals with the analysis of the Wal-Mart case (p. 293, Strategic Management cases by Fred R. David) and includes a general overview about the company (including vision and mission identification) as well as an internal- and external-analysis. The internal analysis consists of an IFE-matrix and a financial analysis, which will provide detailed information about Wal-Marts financial situation. Within the external analysis, several matrices will be used for further analysis as appropriate. In addition, our group will recommend specific strategies and long-term objectives. In this respect, a QSPM matrix will show possible feasible alternative strategies. At the end of this workout, recommended strategies will be compared to the actual strategies planned by Wal-Mart. All data and facts used in this report refer to Wal-Marts state in 2009 as being published in their 2009 annual report.

General Overview
Wal-Mart
Wal-Mart is a public company, active in the retailing industry. It was founded by Sam Walton and his brother J.L. (Bud) Walton in 1965, with the opening of the first Wal-Mart store in Rogers, Arkansas. Nowadays, Wal-Mart owns 8,500 stores worldwide, employing more than 2million employees and headquartered in Bentonville, Arkansas, United States. Since 2009, Mike Duke is CEO of the company. Wal-Mart runs different chains, which have different main target groups. The divisions of Wal-Mart are separated into 891 Wal-Mart discount stores, 2,612 discount centers, 602 Sams Clubs and 153 neighborhood markets. The discount stores, neighborhood markets and superstores are mainly targeting the broad customer base, whereby mostly low- and middle-income customers make the majority of all customers. These three divisions are mainly differentiating through size of the store, size of the city where the store is resident and the number of employees. The discount stores are mostly sized between 50,000 and 100,000 square feet, employing 220 employees in average, while the superstores have 186,000 square feet in average and employ between 200 and 550 workers. The neighborhood markets have usually round about 40,000 square feet and employ between 80 and 100 people. In addition to these three divisions, the Sams Club division is a membership-only business and has more than 45 million registered members. It mainly offers groceries and general merchandises in large quantities. One can say that the Sams Club segment found a niche market, because it is often used by owners of small sized businesses. However, also non-members and private customers that want to try out the offers can join the club by buying one-day memberships or paying surcharges as a percentage of the price of the purchase.1 In 2009, Wal-Mart reported $404 billion of revenue and a net income of $13.6 billion. Since 2002 (except for 2006) Wal-Mart was ranked number one on the Fortune 500 list (an annual list published by Fortune magazine that ranks the top 500 U.S. corporations with the highest gross revenue). Outside the U.S.-market, Wal-Mart is active in 14 countries, including 4,200 stores and 600,000 employees. Especially the Mexican and Canadian market (1,200, respectively 318 brands) are important markets for Wal-Mart.

1 http://en.wikipedia.org/wiki/Walmart

Wal-Marts Vision and Mission Statement

The vision- and mission statements of a company should provide different benefits. A vision statement should answer the question What do we want to become? and should remind every employee of the company about the overall goal of the company. In this respect, the vision is also an important tool to remind the managers what they want to achieve and in which direction they want the company to go to. A mission statement defines the organization's purpose and primary objectives and should answer the question What is our business?. Wal-Mart does not have an official mission- or vision statement. In spite of this, on their homepage, WalMart names the Purpose of their business, which was created by the founder of the company, Sam Walton. This statement can be regarded as being similar to an actual mission statement: If we work together, well lower the cost of living for everyonewell give the world an opportunity to see what its like to save and have a better life. In addition the statement Saving People Money So They Can Live Better can be found on the homepage, which is kind of the short version of the previous statement and, at the same time, serves as one of their main advertisement slogans. Although one could argue that these statements could also be the vision statement of the company it gives more an overall idea of the companys business instead of defining what the company wants to become, even though it does not specifically answer the question What is our business?, which is, according to Fred R David, the main question that needs to be answered by the different components of a mission statement.2 In 2002, when the former Public Relations Coordinator of Wal-Mart, Kim Ellis, was asked how a mission statement of Wal-Mart could be like, he stated that it would probably be To provide quality products at an everyday low price and with extended customer servicealways. (Kim Ellis, 2002). All three statements (the two from the homepage of Wal-Mart and the one of Kim Ellis) point at Wal-Mart offering high quality products for low prices in order to make life of their customers more enjoyable. This is very similar to their main advertisement slogans but not to an elaborated mission statement, wherefore one has to say that both statements are not broad in scope or inspiring; they do not reveal that the firm is environmentally responsible or is enduring. In addition, they do not imply the 9 essential components of a mission statement, established by Fred R. David, which are: Customers Who are the firms customers? Products or services What are the firms major products or services? Markets Geographically, where does the firm compete?
2

http://en.wikipedia.org/wiki/Walmart

Technology Is the firm technologically current? Concern for survival growth and profitability Is the firm committed to growth and financial soundness? Philosophy What are the basic beliefs, values, aspirations, and ethical priorities of the firm? Self-concept What is the firms distinctive competence or major advantage? Concern for public image Is the firm responsive to social, community, and environmental concerns? Concern for employees Are employees a valuable asset of the firm?3

The actual mission statement, obviously, does not state one of these nine aspects, wherefore Wal-Mart should think about creating an official mission (and vision) statement, which meets the requirements of an appropriate mission- or vision statement.

Proposed Vision
A proposed vision statement for Wal-Mart, which answers the question What do we want to become? and reminds every employee of the company about the overall goal of the company could be: Our commitment is to become the leader in the retailing branch all around the world, which makes the life of every customer more enjoyable by offering products with the highest quality standards for the lowest price possible in combination with the best and most supportive service available.

Proposed mission statement

The proposed mission statement for Wal-Mart should define the organization's purpose, primary objectives and also answer the question What is our business? In addition it should stick to the previously mentioned nine elements of an appropriate mission statement, established by Fred R. David. Bearing this in mind, the proposed mission statement could be as following: 1. Our customers - We feel to have the obligation to satisfy our customers all around the world. 2. Our products - All products, in every store, no matter where it is located, maintain the same quality standards to ensure that our customers get highest quality available. 3. Our markets - The world is our market and we will put all of our effort into staying the world market leader in the retail business. 4. Our Technology - The nature of our business makes it indispensable to operate with the most current technology available to increase the speed of our daily operations and to ensure that our customers receive the best service available. 5. Our concern for financial soundness A constantly ongoing strive for increasing growth- and profit rates is the catalyzer of all our employee. In addition it gives an assurance to the shareholders that it is of highest importance to us to put all efforts into our business.

Fred R. David, Strategic Management 13th Edition, p. 75

6. Our philosophy - It is our basic belief that every individual deserves respect and a fair treatment. 7. Our concept - Offering high-quality products for the lowest price possible enables us to obtain a predominant position in the retail business. 8. Our community involvement - The highest concern of our foundations and charitable partners is to be a role model in supporting all kinds of social, community and environmental projects through personal engagement and donations. 9. Our employees - Every employee is a member of the Wal-Mart family and the most valuable asset of the firm, no matter what kind of origin, race, gender, age or religious affiliation.

Value statement
The value statement represents the core principles, priorities and behaviors of an organizations culture. 4 Wal-Mart has developed seven statements to describe how the Wal-Mart culture should be like. These statements can be seen as the value statement of the company. Open Door Policy - Managers' doors are open to employees at all levels Sundown Rule - Answering employee, customer, and supplier questions on the same day the questions are received Grass Roots Process - Capturing suggestions and ideas from the sales floor and front lines 3 Basic Beliefs & Values - Respect for the Individual, Service to our Customers, Striving for Excellence 10-Feet Rule - Making eye contact, greeting, and offering help to customers who come within 10 feet Servant Leadership - Leaders are in service to their team Wal-Mart Cheer - An actual structured chant that was created by founder Sam Walton to lift morale every morning

The elements of Wal-Marts value statement aim at establishing an employee-friendly working environment, which makes working for the company enjoyable and motivating. Especially the open door policy and the sundown rule encourage lower level employees to speak ones mind and also to take responsibilities. Also the 3 Basic Beliefs & Values and the 10-Foot rule are advantageous when it comes to customer handling and service efforts. Management should focus on maintaining this attitude towards a sound working atmosphere, because a lack in employee motivation or satisfaction could soon be displayed through a bad service quality and in the end even to disappointed customers.

Fred R. David, Strategic Management 13th Edition, p. 83

Competitive advantage
Wal-Marts competitive advantage is linked to their success which is attributed to their culture. Wal-Mart states that wherever you go in WalMart you will experience the same Youll feel home because it is everywhere the same design as well as the same philosophy. Wal-Mart gains a competitive advantage through offering low prices (cost advantage), especially in food distribution compared to Super Kmart and super Target, their main competitor. Furthermore, they have the advantages of offering the best value (for low cost products), the great selection of quality merchandise and the genuine, high standard customer service.5 Additionally, Wal-Mart operates in 50 counties within the United States and in 14 international countries and Puerto Rico6. In the US their discount stores amounted a number of 891 and supercenters a number of 2612. Internationally they are represented by 762 discount stores and 1064 supermarkets. These numbers show that Wal-Mart has a competitive advantage through their discounted offers due to their widely spread presence of divisions (discount stores, supercenters, Neighborhood, Sams Clubs). This gives them an overall advantage of strategic global positioning where people will associate the name with the major advantages mentioned above. Wal-Mart invests a lot in information technology7which brings them to the advantage of being leader; in logistics, distribution, and inventory control (having installed a computer network in 1970 which connected all Wal-Mart stores and distribution centers). Furthermore they installed bar-code reader in all distribution centers by the late 1980s which reduce the labor costs.8In the year 1990 Wal-Mart then introduced Retail Link software which connects again its stores and distribution centers but this time with its suppliers to get deliveries even more quickly9. Additionally, Wal-Mart operates the world-largest private satellite communication system. Around the year 2005 Wal-Mart integrate Radio Frequency Identification10 which is a technology in which each individual item receives a tag that can be read by a radio signal, thus facilitating tracking shipments, inventory and sales. To conclude, the size and the high efficiency level result on the one hand from the lower cost Wal-

Mart offers compared to their competitors but alternatively, its expansion could have enabled Wal-Mart to take advantage of economies of scale, reducing its costs in contrast to the competitors.11 The better technology allowed Wal-Mart to grow and this grow has lowered it costs through economies of scale.

5 6

Fred R. David, Strategic Management 13th Edition, p.294, 302 Fred R. David, Strategic Management 13th Edition, p.298 7 Foster, Haltiwanger, and Krizan, 2006; Dorns, Jarmin, and Klimek, 2004 8 Vance and Scott, 1994 9 Fred R. David, Strategic Management 13th Edition, p.302 10 http://de.wikipedia.org/wiki/RFID; http://www.ecin.de/blog/node/313 11 Basker and Van (2007)

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Objectives and Strategies

One of the objectives set out for 2010 was a growing operating income at a faster rate than net sales. In addition, the opening of 715-785 new units worldwide, including 140 supercentres, 25 neighbourhood markets and 500-600 Sams Clubs was a quite ambitious goal. However, the opening of new stores will help Wal-Mart to increase its market share, especially in midsized towns. General Long term objectives of Wal-Mart are permanent growth by expansion in the United States and internationally as well as continual adaptation to the market conditions and the strategies of competitors. Furthermore, the opening of new stores in external markets should bring forward Wal-Marts effort of expanding their international store quantity and increasing their international brand awareness. Widespread name recognition and customer satisfaction shall be linked to the Wal-Mart brand.12 The main strategy of Wal-Mart is to use discount retailing and offering all products for the lowest prices possible in combination with the best quality available for this price. On the one side, this cost leadership strategy mostly creates satisfied customers, because they only have to pay low prices for their products, and, on the other side, local competitors often cannot keep up with the low prices of Wal-Mart. Every WalMart store is expected from management to compete against its local competitors (which are often smaller local stores) until the Wal-Mart store has gained significant control over the respective market. In practice this often means, that either the Wal-Mart store or the other competing store(s) win over customers standing, while the other one often has to be shut down. However, in most cases, Wal-Mart is very successful with this strategy. To push on their international expansion, Wal-Mart often makes use of corporate takeovers of a national retailer to get into the specific markets. After the respective companies have been bought, Wal-Mart reconstructs them into Wal-Mart stores. Even though this aggressive strategy is often successful (for example in the Canadian market) the company experienced setbacks in some other markets. When trying to enter the German market from 1997 on, Wal-Mart bought 50 Wertkauf stores (German supermarket chain) and planned to convert them into Wal-Mart stores. But this effort was aborted in 2006, because of destructive sales figure and Wal-Mart cancelled their mission of gaining ground in the German market. This failure was mainly due to their mistake of not taking into consideration the specific characteristics of the respective markets.13

12 13

http://managementhelp.org/plan_dec/str_plan/stmnts.htm www.articlesbase.com/management-articles/marketing-management-in-walmart-1919747.html

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Opportunities and Threats

Opportunities 1. Trend towards Online Shopping 2. Potential of European market 3. Customers of higher income group 4. Trend towards "one stop shopping" experience 5. Trend in sustainability awareness
Figure 1: Opportunities and Threats

Threats 1. Fast changing technology (e.g. online shops) 2. Fierce price competition in retail industry 3. High bargaining power of customers 4. Instabilities due to external factors(e.g. unemployment) 5. Laws requiring more investment into employee benefits

The External Analysis

DEPEST
Development in the macro environment (DEPEST) Macroeconomic factors according to the DEPEST method have great influence on the company returns.

Demographic factors
Several demographic factors can influence Wal-Marts returns. One example is the level of income of customers within the different countries Wal-Mart is operating in. They offer low cost products with the best value to the following three groups of shoppers for Wal-Mart stores14: The brand aspirational low income shoppers The price sensitive affluent, wealthier shoppers who love deals The value-price shoppers, folks who like low prices and cannot afford much more 15

With the help of this classification, Wal-Mart can locate their divisions properly so that it matches customers expectations and fulfill their demands. Another demographic constraint for Wal-Mart in the next decades will be the aging population. From year to year there exists a bigger amount of older people who have special needs and requirements that have to be fulfilled by a retailer. Wal-Mart has to adapt on the one hand their product range but on the other hand also the shopping conditions their stores provide to older customers. By special product offers or support activities for old customers they can attract this increasing customer group and win them over. It would give them a competitive advantage. Additionally the size of families within the US is growing. Right now the US market represents Wal-Marts most important one. Therefore it is useful to know that the family sizes within this market are growing right now. 16

14 15

http://www.oppapers.com/essays/Walmart-Target-Groups/187060 Barbaro, 2007 16 http://findarticles.com/p/articles/mi_qn4188/is_20090121/ai_n31212055/

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Wal-Mart can benefit from this development simply because they created exactly what those bigger families need. Supercenters in which those family can experience the one stop shopping of products which are offered at extremely low prices.

Economic factors: Economic factors like unemployment and economic growth have an influence on Wal-Marts sales. The best example is probably the financial crisis which has been significantly affected Wal-Mart especially during October and November 2008. Although there was a global instability of the finance banking sector, which continues to affect trade between countries creating liquidity problems, Wal-Mart was still able to keep on growing and increasing their sales. This was caused by the fact that at this point of time also higher income groups were forced to take a closer look at their expenditures. Another reason can be that one of the industries that faced least effect from the crisis was the food industry due to the fact that population was still in need of consuming. This industry represents one of Wal-Marts most important ones. A high unemployment rate can have on the one hand positive influences for Wal-Mart and on the other hand also negative ones. It depends which customer group is affected by the unemployment. Because of the fact that Wal-Mart offers products for very low prices their customers are mainly people from lower income classes. Unemployment can force people from originally upper income classes to reduce their expenditures and save money. This would be a chance for Wal-Mart to enlarge their customer base. Still Wal-Mart is a retailer who wants to sell products to their customers. Therefore some amount of money is still needed. Currently WalMarts core customers are under a lot of pressure and running out of money. 17 Wal-Mart has to observe this trend to be able to react in the right way. Otherwise it would have a huge influence on their sales. Political factors:
Wal-Mart has not only a well established brand image within their target customer groups. By being the No. 1 corporate political contributor, they are additionally highly recognized on the federal level. In year 2006 they supported with $943,455 the US election cycle. 18 Political instability and the lack of resources caused fuel prices to rise during the last years. This affects Wal-Marts operations and returns in two ways.19 On the one hand customers have less money in their pockets and are only willing to spend less during their shopping trips. On the other hand transportation costs for Wal-Mart itself are rising. This increase in costs cannot be balanced by offering higher prices because it exists the risk that customers
17 18

http://money.cnn.com/2011/04/27/news/companies/walmart_ceo_consumers_under_pressure/index.htm http://www.businessweek.com/bwdaily/dnflash/content/sep2006/db20060928_251244.htm 19 http://money.cnn.com/2006/04/28/news/companies/gas_retailers/index.htm

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wont come back. Because of Wal-Marts strategy of extremely low prices, they were several times in conflict with government regulations according to predatory pricing. Several experts claimed that Wal-Mart offered prices which were intended to drive competitors down. Wal-Mart has to be very careful with this behavior because the fines for violating this law are extremely expensive.

Ecological Factors Ecological aspects should play an important role for Wal-Mart. It is urgent that every company includes some amount of environmental awareness within their processes. Wal-Mart realized this by founding their Sustainability 360 initiative. This initiative is directed to all of Wal-Marts associates, suppliers, communities and customers. Their main goal is to sustain resources and the environment by making use of renewable energy instead of producing waste. Additionally they put effort in reducing water and electricity usage within their own stores. By working in this direction Wal-Mart does not only improve the environment they operate in but in the same way also improves their image. This is of high importance for Wal-Mart because at this point of time there are still several critics who say that Wal-Marts actions within the environmental area are still too little.20 Wal-Mart should strive for changing this opinion by increasing their efforts. As being the largest retailer in the world they should not forget which huge impact their behavior has. Their commitment towards environmental friendly processes has to be in relation to their enormous and continuously growing business size. Otherwise it would neither be efficient nor effective. An improved image according to this topic would lead to a higher amount of customers and therefore higher sales revenue. Social/Cultural Factors
There are several social and cultural aspects which might have an influence on Wal-Marts sales. First of all it is possible to say that Wal-Mart concentrates their operations on the continental US market and 14 other countries which are not part of it. Examples are Argentina, Brazil, Honduras, etc. As we can conclude from their website, Wal-Mart is not present in any European countries at the moment. During the past WalMarts target customers came from the lower middle class or poorer segments. 21 During the recession in 2008/2009 they were clever enough to recognize new trends within their customer groups and tried to use them to enlarge their customer base. Now that also people out of the middle and upper-middle class started to review more carefully their expenditures, Wal-Mart was able to benefit from this situation. Customers asked for inexpensive food and cheaper goods and Wal-Marts stock rose about 50% during this time.22 But not only the recession but also the steady improvement of their stores attracts a higher-income audience.
20 21

http://business-ethics.com/2010/05/15/1411-assessing-walmarts-environmental-impact/ http://snippets.com/who-and-what-is-Walmarts-target-market.htm 22 http://articles.moneycentral.msn.com/learn-how-to-invest/Walmart-vs-target-who-will-win-the-recovery.aspx?ucpg=6

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All in all we can describe Wal-Marts customers as easy shopper. They want to be able to buy all they need by doing one stop at a Wal-Mart store. Wal-Marts huge quantities and broad product assortment enables them to fulfill exactly these demands.

Technological Factors
When we take a look at Wal-Marts distribution activities we can conclude that technological aspects play an important role for the company. To be able to organize their highly automated distribution operations and their huge amounts of items in stock they have to make use of latest technologies. With the help of their private satellite communication systems and the point-of-sale bar code scanning they ensure that everything is linked with each other and orders are placed at the right time at the right place. To satisfy customers demands it is urgent to have all needed items available as quick as possible. Additionally the technological tools facilitate the work of all employees within the company. The other way around technological advancement can also be seen as a negative impact on Wal-Mart. As we all know rapid changes in technology lead to shorter product life cycles.23 Especially retailers like Wal-Mart which handle very broad product assortments and huge amounts of items are less flexible in changing their product lines. This could be a disadvantage towards smaller competitors which are maybe more capable of offering newest products.

Porters Five Forces

This model, developed by Porter, is used to develop strategies while taking competition into account. Most of Wal-Marts product range is in the lower-return segment and in this segment competition is particularly fierce. According to Porter, there are 5 forces which determine the competitiveness of an industry. These are: 1. Rivalry among competing businesses 2. Potential entry of new competitors 3. Potential development of substitute products 4. Bargaining power of suppliers 5. Bargaining power of consumers24

Source: http://www.soopertutorials.com/business/strategic-management/3028-porter-fiveforces-model.html
23 24

http://herkules.oulu.fi/isbn9514264509/html/c953.html Strategic Management, Concepts and Cases, Twelfth Edition, Fred R. David pages 118-121

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Rivalry among competing businesses

This is usually the most powerful of the five competitive forces. Wal-Mart can only be successful when its strategies have a competitive advantage over strategies followed by its rival firms. 25 There are three main competitors in this industry, namely K Mart, Sears and Target. All of them follow a low cost strategy, but none can beat Wal-Marts. Wal-Mart follows a policy of monitoring retail prices charged by competitors and set prices below theirs regardless of the items costs. They were sued and later found guilty for predatory pricing.26 Wal-Mart goes to great lengths to maintain low-price leadership. Since they can afford to set prices below competition all the time their value chain activities must be flawless and their cost saving measures are innovative. In 2009 Wal-Mart was trying to bring a legislation under way which required all employers to provide health insurance to employees. Wal-Mart itself already provides insurance to all its employees. 27 If this legislation became active, many of Wal-Marts competitors would have to struggle with the costs this brings along and give Wal-Mart a strategic advantage since they will not have more costs than they already have. While its competitors will have to save money somewhere or increase prices, Wal-Mart can continue with its low cost approach. At this point in time the risk of rivalry among competing businesses is low for Wal-Mart.

Potential Entry of New Competitors

The more firms can enter the market the higher the competitiveness. Entry barriers, enforced or of natural origin, can influence the level of market entrants.28 There are only few rules regarding market entry and basically any business can enter. However, Wal-Mart is a strong presence and makes it difficult for firms to establish themselves in this industry. The biggest problem is that Wal-Mart has economies of scale due to their size. A new business will have large scales and this is hard to afford. Besides that, WalMart draws customers through wide Marketing.29 A new business would also have to rely on large and expensive Marketing campaigns to increase understanding and knowledge of its business. Consequently, huge sums of capital are required to successfully enter this industry. For Wal-Mart, the risk of potential new entries in the industry is low.

25 26

Strategic Management, Concepts and Cases, Twelfth Edition, Fred R. David p. 120 Walmart Stores, Inc.-2009, Amit J.Shah and Michael L. Monahanat, Frostburg State University p. 304 27 Walmart Stores, Inc.-2009, Amit J.Shah and Michael L. Monahanat, Frostburg State University p.293 28 Strategic Management, Concepts and Cases, Twelfth Edition, Fred R. David p. 120 29 http://www.helium.com/items/888341-how-Walmart-really-works

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Potential Development of Substitute Products

Deals with the level of competition between a firm in a certain industry and its competition which produces substitute products in another industry. Competitive pressure increases when prices of substitute products drop.30 Wal-Marts biggest competitor in this segment is Target, which produces more upscale and chic products than Wal-Mart at inexpensive prices. 31 Wal-Mart is still cheaper than Target, but those customers who want superior quality and are willing to pay slightly more for it might swap. Another substitute alternative is online shopping. Here, customers can find cheap alternatives since online businesses do not need real stores and on site staff, can save this money and therefore reduce product cost. The risk of developments of substitute products is medium.

Bargaining Power of Suppliers This force affects the level of competition in any industry, but as a general rule it can be said that competition gets fiercer when: - there are many suppliers - there are only a few good substitute raw materials - the costs of switching raw materials is especially costly Usually, it helps both the business and the supplier when they enter into a closer relationship with more visibility, an agreement on fair prices and better cooperation. 32 The volume of Wal-Marts orders is so large that suppliers bargaining power is fairly low. 33 Suppliers do not want to lose this big customer and are willing to reduce products prices accordingly. Wal-Mart sells mainly undifferentiated and standard products. For these, the costs of switching raw materials are low, lowering the bargaining power of suppliers further. The bargaining power of suppliers is low. Bargaining Power of Customers
When there are many customers or when customers buy large volumes their bargaining power is high, affecting the level of competition. Competition is particularly high in industries with little product differentiation, which is the case with Wal-Mart.34 Therefore, Wal-Mart is forced to offer the lowest prices, or the customer will go buy the product somewhere else. Besides that, the number of customers in this industry is huge, increasing customer bargaining power further. Wal-Marts customer bargaining power is

30 31

Strategic Management, Concepts and Cases, Twelfth Edition, Fred R. David p. 120 Walmart Stores, Inc.-2009, Amit J.Shah and Michael L. Monahanat, Frostburg State University p. 306 32 Strategic Management, Concepts and Cases, Twelfth Edition, Fred R. David p. 121 33 http://ezinearticles.com/?Porters-Five-Forces-Analysis&id=15116 34 Strategic Management, Concepts and Cases, Twelfth Edition, Fred R. David p. 121

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high. To sum it up it can be concluded that Wal-Mart has Porters Five Forces under good control and integrated it into its strategy. There is not much rivalry to be expected since Wal-Marts biggest competitors are still much smaller than itself and cannot beat its prices. Wal-Marts size also comes in handy when controlling new industry entries, making it almost impossible for new entrants, unless they bring a lot of capital. There exists a risk of substitute products, especially from the online store development which are, due to their nature, often able to beat Wal-Marts prices. The bargaining power of suppliers is low, again this is due to Wal-Marts size and power, as well as the type of products they are selling which are easily available from other suppliers. The bargaining power of customers is high due to the size of the market and the availability of the same products from other Markets.

External Factor Evaluation (EFE) Matrix

Within this matrix we will give, based on the importance of each aspect, weights to all opportunities and threats. The rating will describe the ability of Wal-Mart to react to the opportunities and threats. The weight multiplied by the rating then gives us a weighted score whose total sum demonstrates if Wal-Mart lies below or above the average of 2.5.
.

Key External Factors Opportunities 1. Trend towards Online Shopping 2. Potential of European market 3. Customers of higher income group 4. Trend towards "one stop shopping" experience 5. Trend in sustainability awareness Threats 1. Fast changing technology (e.g. online shops) 2. Fierce price competition in retail industry 3. High bargaining power of customers 4. Instabilities due to external factors(e.g. unemployment) 5. Laws requiring more investment into employee benefits Total
Figure 2: EFE Matrix

Weight

Rating

Weighted Scores 0,6 0,39 0,4 0,28 0,15 0,4 0,39 0,21 0,15 0,1 3,07

0,15 0,13 0,1 0,07 0,05 0,2 0,13 0,07 0,05 0,05 1

4 3 4 4 3 2 3 3 3 2

The overall score of Wal-Mart is 3.07. From this it can be concluded that the companys response to external opportunities and threats is above average.

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Opportunities
1. Trend towards Online Shopping Online Shopping is a new technological trend and provides huge potential to interested businesses. The amount of time consumers spend shopping online is increasing rapidly.35 For those businesses that are already active in the market, opening online stores can lead to additional sales. Besides these points, products from online stores can usually be marketed at lower prices than their equivalents in retail shops. This is due to cost savings. Online stores do not need retail stores nor do they need sales staff and other costs associated with these stores. 36 2. Potential of European Market Half a billion people live in Europe37 and the GDP per capita was $32,900 in 2010.38 It can be said that Europe has a very large buyer market and that the money generating potential is very promising. 3. Customers of higher income group The higher income group is an opportunity for Wal-Mart. Experts says that the people from higher income groups spend about 40% more on retail articles than people from the lower income groups do. Consequently, they are seen as potential candidate to boost sales considerably.39 4. Trend towards one-stop shopping experience One stop shopping is a trend as it allows customers to buy everything they need at only one store, saving them the trouble of spending extra time and traffic to go to another store to buy other products they need.40 The advantage for businesses providing a one stop shopping experience is that it keeps customers longer in the store and that they are more likely to buy all their needed products there instead of going to a competitor. 5. Trend in sustainability awareness The consumers awareness in sustainability issues rises and they begin to favor products from businesses that focus on sustainable production. 41 Businesses that do not put more pressure on the environment than necessary are preferred42 as well as products that are as biological as possible.43

35

http://www.prnewswire.com/news-releases/couponalbumcom-to-provide-great-savings-as-consumers-trend-toward-online-shopping-thisholiday-season-103996793.html 36 http://www.archive.dcita.gov.au/2001/10/ecommerce_cs/summary_report/revenue_and_cost_savings 37 http://europa.eu/about-eu/facts-figures/living/index_en.htm 38 https://www.cia.gov/library/publications/the-world-factbook/geos/ee.html 39 http://articles.moneycentral.msn.com/Investing/Extra/Walmart-moves-more-upscale.aspx 40 http://www.4managers.de/management/themen/one-stop-shopping/ 41 http://www.wornthrough.com/2011/05/16/cfp-sustainability-marketing-claims-and-consumer-behavior/ 42 http://www.sustainablebusinessoregon.com/columns/2011/05/where-sustainability-and-consumer.html 43 http://greenretailingnews.blogspot.com/2009/07/retailtrends-biological-products-in.html

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Threats
1. Fast changing technology (e.g. online shops) This issue provides a threat as it gets increasingly difficult to always stay on top of technological trends and to use them in creating a competitive advantage. 44 An example for Wal-Mart is the online shop development. Some businesses like Amazon and EBay developed a well working technology incredibly fast which helped them in their rise to industry leadership. 45 2. Fierce price competition in retail industry In the retail industry, especially in food and clothing exists fierce price competition. Prices decrease and as a consequence so do profit margins. Businesses have to develop new ways of saving costs to stay competitive in the industry.46 3. High bargaining power of customers Customer bargaining power is high in the industry due to the large number of customers. Besides that, product differentiation is low in Wal-Marts case which also has a strengthening effect on bargaining power of customers.47 Consequently, customers are very price sensitive and perceptible to lowest price offer, which drives down Wal-Marts profit margin. 4. Instabilities due to external factors (e.g. unemployment) Instabilities that arise from external factors, like unemployment, can affect the retail industry because peoples feelings of security change. This aspect is influenced by psychological factors. People who are insecure about what is going to happen are more likely to save their money than to spend it. 48 This has a negative effect on businesses. 5. Laws requiring more investments into employee benefits Wal-Mart employs 2,100,000 employees.49 If the U.S. government decided to bring a new legislation under way requiring businesses to invest more money into employee benefits, this would mean huge costs for the big employer.

44 45

http://www.information-management.com/news/insurance_technology-10016312-1.html http://www.industryleadersmagazine.com/ebay-scores-over-amazon-acquires-gsi-for-2-4-billion/ 46 http://www.marketing.uni-frankfurt.de/fileadmin/Publikationen/natter_7.pdf 47 http://ezinearticles.com/?Porters-Five-Forces-Analysis&id=15116 48 http://www.npd.com/press/releases/press_100126b.html 49 http://money.cnn.com/magazines/fortune/global500/2010/snapshots/2255.html

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Competitive Profile (CPM) Matrix

The Competitive Profile Matrix (CPM) Walmart

Critical Success Factors Advertising Global expansion Price competitiveness Product quality Community Involvement Consumer loyalty Market share Financial position Total Weight 0,25 0,2 0,15 0,1 0,1 0,1 0,05 0,05 1 Rating 3 4 3 3 4 3 3 4 Weighted Score Rating 0,75 0,8 0,45 0,3 0,4 0,3 0,15 0,2 3,35 2 3 3 4 4 2 3 3 Weighted Score Rating 0,5 0,6 0,45 0,4 0,4 0,2 0,15 0,15 2,85 3 3 3 2 3 2 2 2 Weighted Score Rating 0,75 0,6 0,45 0,2 0,3 0,2 0,1 0,1 2,7 2 1 4 3 2 3 1 3 Weighted Score 0,5 0,2 0,6 0,3 0,2 0,3 0,05 0,15 2,3

Figure 3: CPM Matrix

According to Fred. R. David the CPM identifies a firms major competitors and its particular strength and weaknesses in relation to a sample firms strategic position (David, 2008, p.127). The main competitors of Wal-Mart are Target (American retailing company; headquartered in Minneapolis, Minnesota, United States) and Kmart (American chain of discount department stores, headquartered in Detroit, Michigan, United States) as well as several national supermarket chains in the respective international markets. However, Target can be considered to be the main competitor of Wal-Mart, having sales of $65 billion and 1,700 stores. Kmart is the second competitor of Wal-Mart. Till 2001, they have been the main competitor, but after having declared bankruptcy in 2001, they are only the third biggest retailer with having sales of $17 billion and running 1,300 stores. Due to the bankruptcy they operate now as a subsidiary of Sears Holding.50 Another competitor is the Costco Wholesale Corporation, a membership warehouse club, which is mainly competing the Sams Club segment of Wal-Mart. Other smaller competitors are Shopko (chain of retail stores based in Ashwaubenon, Wisconsin) and Meijer (regional American hypermarket chain, based in Grand Rapids, Michigan). 51 The critical success factors in a CPM include internal and external issues which therefore refer to strength and weaknesses where 1 is a major weakness and 4 a major strength. The above CPM Matrix shows that Wal-Mart is the market leader. Wal-Mart dominates compared to its competitors with the highest score of 3, 35. Target is on the second position and dominates Kmart (Sears Holding). Costco is only a competitor to the Sams Club and although its rating is in the overall industry low, it is one of the biggest competitors for the Sams Club.52

50 51

R. David, Strategic Management 13th Edition,.p. 306 http://wiki.answers.com/Q/Who_are_wal_mart's_main_competitors#ixzz1McNLNuBO; http://finance.yahoo.com/q/co?s=WMT+Competitors; http://www.kmart.com.au/Community.aspx; http://sites.target.com/site/en/corporate/page.jsp?contentId=PRD03-001817 52 http://shop.costco.com/en/About/Charitable-Giving.aspx

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Rank

Company Wal-Mart Stores Costco Target Sears

Fortune 500 Revenues rank ($ millions) 1 28 33 57 421,849.0 77,946.0 67,390.0 43,326.0

On the Fortune 500 list published 2010 Wal-Mart leads the second year in a row -- and the eighth time this decade. This supports the results calculated by the CPM matrix above. Nonetheless sales at its U.S. stores have dropped for seven straight quarters, despite gains in worldwide revenues and profits.

1 2 3 4

Figure 4: Industry General Merchandiser42

To fight against this the CEO Michael Duke is restocking shelves with lower-priced products dropped by his predecessor, Lee Scott. Wal-Marts recent adaptations to changes in consumer behavior to increase sales include the reconfiguration of thousands of packaged food items to cut their salt and sugar. In stable economic times Target's low-cost inventory was always demanded. But to capitalize on increased traffic during the downturn, Target started to stock produce and food products, competing with some grocery stores. Also entering new markets such as Seattle, San Francisco and Boston with smaller stores should boost Targets slowing U.S. growth rate. Also expanding northward, by taking over 220 stores previously owned by Canadian chain Zellars is part of their financial strike back.53

Strengths and Weaknesses

Strenghts 1. Well established brand awareness 2. Cost leadership in comparison with competitors 3. Continuous growth 4. Control over suppliers 5. Profitable organization of distribution channels
Figure 5: Strengths and Weaknesses

Weaknesses 1. Lack of presence in many developed countries 2. Failure of entering foreign markets 3. No formal mission statement 4. Continuous product recalls 5. "Everyday low prices" could be connected to poor quality

53

http://money.cnn.com/magazines/fortune/fortune500/2011/snapshots/2303.html; http://money.cnn.com/magazines/fortune/fortune500/2011/snapshots/2292.html

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The Internal Analysis

Financial Performance Analysis
In order to measure the financial performance of companies, financial ratios are the fundamental base in order to create the comparison between rival companies, the industry, and the market leaders or the top companies. For the analysis of Wal-Mart, we are using the financial ratios function from msnmoneycentral.com, which utilizes 4 main Ratios with detailed ratios in each one, such as the Growth Rates, Price Ratio, Profit Margin, Investment Returns, and Management Efficiency to create a benchmark of Wal-Marts Performance in 2009.

Wal-Marts sales growth rate can be considered low compared to the industry, and even lower compared to the S&P 500. On the other hand, Wal-Marts net income is more than twice compared to the industrys 3.60, which indicate a very great cost management. Sales & Net income does not vary very much from industry and S&P 500, which indicate the competitiveness of Wal-Mart. However, Wal-Mart seems to score almost 3 times in dividends paid to stakeholders and slightly higher than the industry average which shows Wal-Mart honors their stakeholders interests.

Key Financial Ratios

These ratios are easily determining the current situation of any companies. Wal-Mart scores extremely well in these ratios, as their Debt/Equity ratio is only 0.73,most of their investments are financed through equity rather than debt. Although most of their key financial ratios are impressive, their current ratio is 0.9, which means they are barely able to convert their current assets into cash to off short term liabilities. Price Ratios As the Price Ratios has shown, Wal-Mart is very competitive in their pricing, which we can assume resulted on their high Net Income Ratio. The big differences between Wal-Mart and S&P are due to different industries.

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Profit Margins Wal-Mart Profit margins is very impressive. Wal-Mart is very competitive in their pricing, yet still able to retain its Gross & Net profit margin really high compared to the industry, and does not vary very much from the S&P 500, except for the Net profit margin, but this is due to different industries.

Investment Returns
Wal-Mart is more profitable compared to the Industry, in spite of the lower pricing, and their shortage of current asset (the current ratio). Wal-Marts return on equity still can better with a more thorough investment plans.

Management Efficiency
We can assume that the low cost strategy also have impact on employee salaries, since yearly employee salaries and almost all cost in management are much lower compared to the industry, and even more than 12x lower compared to the S&P 500, but this is due to different industries.

Growth & Profitability

WMT Growth Analysis (2006 - 2009)

500,000.00 400,000.00 300,000.00 200,000.00 100,000.00 0.00 308,945.00 344,759.00 373,821.00 401,087.00

11,408.00 2006

12,189.00
2007 Total Revenue

12,863.00
2008 Net Income

13,235.00 2009

Figure 6: Wal-Mart Growth Analysis (in $ million)

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As the growth analysis graph shows, Wal-Mart gained more than $ 20 million revenue increase from 2008, but it is lower compared to the previous year (2007-2008) which Wal-Mart gained almost $ 30 million, also again lower than 2006 -2007. This is indicating a lower growth percentage each year. Although revenue growth has been decreasing each year, Wal-Marts net income is steadily increasing each year. Despite the recession in the U.S Wal-Mart was still able to make quite a sum of profit even though it is $ 200 million less than the previous year.

Wal-Mart Revenue/Income compared with direct competitors

Figure 7: Revenue/Income comparison 2009

As of 2009, Wal-Mart clearly is the market leader with the most revenue compared to Target, Costco, and almost 10 times than Kmart. Even though Target, Kmart, Costco are direct competitors to Wal-Mart, none of them pose a major threat according to their respective Revenue and Net Income, especially Kmart with only $ 53 million net income was barely able to cover their expenses in 2009.

Figure 8: 2009 Net Profit Margins

Although Wal-Mart had significantly higher revenue and net profit, Targets Net Profit Margin (3.4%) seems to be slightly better than Wal-Marts (3.3%) even though Targets Revenue and net profit are almost 7 times lower than Wal-Marts. All in all, Kmart seems to be in a lot of trouble with their net profit margin (0.1%) being lowest compared to all other competitors.

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Value Chain Analysis

The Value Chain, as developed by Porter, deals with all activities undertaken by a business to create value. More precisely, it calculates total revenue minus total costs of all activities undertaken by a business to produce and market a product or service, and results in the yielded value of this process. Profitability is therefore granted as long as total revenues exceed the total costs of creating and delivering the product or service. The purpose of the value chain analysis (VCA) is to identify where in the value chain process low cost advantages or disadvantages lie. It also helps businesses to define its strengths and weaknesses. Once core competences are defined the firm should try to convert these into distinctive competences.54 The value chain is divided in primary activities and support activities. The primary activities encompass every process that directly relates to production or sale of the product or service. The support activities are functions which support the business in
Source: http://www.provenmodels.com/26/value-chainanalysis/michael-e.-porter/

optimally conducting the primary activities.

The graphic Figure above depicts a typical value chain. The elements printed vertically are primary activities; the elements printed horizontally are support activities. All these activities combined are responsible for the profit margin. In the next step, each of these activities will be analysed for Wal-Mart. The reason we use this analytical tool is because Wal-Marts pricing is the most competitive in the market. We assume that this is related to a very well-working value chain and decided to give this issue some thought.

Primary Activities
Inbound Logistics Wal-Marts many stores and its huge product assortment make a well working inbound logistics system an essential part for success. Wal-Mart was among the first businesses to implement a hub and spoke distribution network. This network is a centralized and integrated logistics system which is designed to keep costs down. These distribution canters receive products from various origins, consolidate them and then send them directly to their destinations. This way of managing distribution reduces transportation cost, inventory levels and overall costs and provides businesses with a competitive logistics advantage.55 Wal-Marts knowledge and expertise in logistics greatly contributes to its cost leadership. Since 2006 Wal-Mart uses a vendor transportation consolidation program called Remix. This distribution system requires vendors to work together with transportation and logistics providers to turn lightly filled
54 55

Strategic Management, Concepts and Cases, Twelfth Edition, Fred R. David pages 164-166 http://scm.ncsu.edu/scm-articles/article/success-with-hub-and-spoke-distribution

26

truckload deliveries into full truckload freight before reaching the store. 56 This saves tremendous costs through using carriers efficiently. Wal-Mart uses carriers to take care of inbound logistics. At this point, over 60% of Wal-Marts inbound freight is taken care of by its suppliers.

Operations Wal-Mart knows of the importance of its inventory system and in just 5 years invested over $600million into information systems. The business uses telecommunications to create a link between each store, the central computer system and from there to suppliers. This allows for greater invisibility and speed and saves money invested in inventory. In fact, many products leave the warehouse without ever really being stored there and only 10% of warehouse space is used for inventory whereas the industry average is 25%. At the same time, the increased coordination helps the suppliers in making more consistent planning which brings costs down. These cost savings will also be passed on to Wal-Mart.

Wal-Mart uses barcode scanners for their point of sale system. This enables the company to record each item sold and make this information available for recording and for sales analyses. 57 Besides these technical aspects Wal-Mart introduced some principles which make the shopping experience at Wal-Mart more enjoyable and lead to more sales. An example of this is the 10 foot rule, which means that whenever an employee gets within 10 feet of a customer they are to greet him and ask if they can help. 58 Outbound Logistics Here again, the excellent inventory tracking and point of sale system are of essential value to Wal-Mart and bring costs down.59 Marketing and Sales Wal-Mart has always tried to attract customers by their everyday low prices strategy. Besides that, they have a large and diverse product assortment under one roof which suits especially those customers living in rural areas. Wal-Mart is already at the top, but instead of relaxing they are constantly looking for new ways to attract customers and investigate potential methods of reducing costs along their value chain. According to Wal-Marts Marketing director the businesses major objective is that sales are always increasing. Other business objectives are to increase Wal-Marts availability all over the country and especially in rural areas, and working on the image of Wal-Mart being a friendly retailer. 60Wal-Mart does not invest much money into marketing and this is somewhat unusual considering their size. Instead they
56 57

http://www.accessmylibrary.com/article-1G1-146221038/remixing-inbound-channel-wal.html http://www.prenhall.com/divisions/bp/app/alter/student/useful/ch1walmart.html 58 http://walmartstores.com/AboutUs/285.aspx 59 http://www.prenhall.com/divisions/bp/app/alter/student/useful/ch1walmart.html 60 http://www.articlesbase.com/management-articles/marketing-management-in-walmart-1919747.html

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use public relations as their most notable marketing strategy. They take part in charitable events and market themselves as a community based institution to enhance their image of being the average Americans friend. However, they also struggle with negative media attention by wrong treatment of their employees and predatory pricing accusations.60

Service Wal Mart has set aside extra page on its website for help` features. 61 They have a return policy in place that allows customers a 90 day return on receipt and a lot of information on shipping costs, shipping time and ordering status.62 They provide the customer with the necessary information but do not go to great lengths to provide exceptional service. This goes in line with their low cost strategy.

Support Activities
Firm Infrastructure Wal-Mart is a three product divisional structure consisting of Wal-Mart stores, Sams Club, and International Stores. This divisional approach used by Wal-Mart helps them in setting different goals for each division.63 Human Resource Management Wal-Marts HRM goal is to make every employee feel fulfilled, motivated and empowered in their job. 64 However, in the media they do not manage to keep this image up. The most significant negative media is coming from lawsuits filed by Wal-Mart employees against the company regarding discrimination.65 Technological Development Despite Wal-Marts incredible investment in IT and its top of the arts supply chain, its founder Sam Walton never cared much for technology. Consequently, the business was stagnating and encountering difficulties in 2007. For instance, despite Wal-Marts size and its control over the market, they were unable to match the growth of internet platforms like Amazon and missed its chance to also outperform competition in the online segment.66 Procurement This is probably the most valuable and cost saving part of Wal-Marts supply chain. Wal-Mart is such a big business that it exerts immense control over its suppliers. Most of Wal-Marts suppliers depend on their sales to this retailing giant and have no choice but to accept the prices Wal-Mart is willing to pay for incoming products. Consequently, Wal-Mart is able to buy in at very low costs and transfer these cost savings to its customers.67

61 62 63

http://www.walmart.com/cp/Help/5436 http://www.walmart.com/cp/Returns-Policy/538459 http://www.associatedcontent.com/article/782963/the_organizational_structure_of_starbucks.html?cat=3 64 http://walmartstores.com/Careers/7684.aspx 65 http://findarticles.com/p/articles/mi_m3495/is_1_49/ai_112799800/ 66 http://www.cio.com/article/143451/How_Wal_Mart_Lost_Its_Technology_Edge 67 http://procureinsights.wordpress.com/2007/07/09/public-sector-procurement-and-the-Walmart-effect/

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Internal Factor Evaluation (IFE) Matrix

Within this matrix we will give, based on the importance of each aspect, weights to all strengths and weaknesses. The rating will describe the ability of Wal-Mart to react to the strengths and weaknesses. The weight multiplied by the rating then gives us a weighted score whose total sum demonstrates if Wal-Mart lies below or above the average of 2.5.

Key Internal Factors Strenghts 1. Well established brand awareness 2. Cost leadership in comparison with competitors 3. Continuous growth 4. Control over suppliers 5. Profitable organization of distribution channels Weaknesses 1. Lack of presence in many developed countries 2.Failure of entering foreign markets 3.No formal mission statement 4. Continuous product recalls 5. "Everyday low prices" could be connected to poor quality Total
Figure 9: IFE Matrix

Weight

Rating

Weighted Scores 0,72 0,52 0,4 0,27 0,2 0,39 0,2 0,08 0,16 0,18 3,12

0,18 0,13 0,1 0,09 0,05 0,13 0,1 0,08 0,08 0,06 1

4 4 4 3 4 3 2 1 2 3

The overall score is 3.02 which means that Wal-Marts response to internal strengths and weaknesses is above average.

Strengths
1. Well established brand awareness With their more than 8,500 stores, Wal-Mart represents the number one retailer in the world. By providing 15% to 25% lower prices for grocery products than the average retailer store 68 Wal-Mart can support their strong brand attribute of offering everyday low prices. As shown within a study Wal-Mart is the only retailer in the U.S. that carries two brands which are directly identified and connected to Wal-Mart by more than 52% of all American women. 69 To establish their brand awareness also through modern networks, Wal-Mart makes use of social media networks like Facebook. 70 All in all it is possible to say that if you believe the experts, WalMart is a store that every single citizen, at least in the United States, knows. 71 2. Cost leadership in comparison with competitors Wal-Mart makes use of the cost leadership strategy which gives them a competitive advantage. In the beginning, when Wal-Mart was not that well known, they had to develop economies of scale
68 http://www.emorymi.com/allen.shtml 69 http://www.marketingforecast.com/archives/4880 70 http://www.psfk.com/2011/02/walmart-uses-facebooks-viral-platform-to-offer-groupon-like-discounts-and- increase-brand-awareness.html 71 http://www.associatedcontent.com/article/104858/walmart_the_great_american_dream_so.html

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and find as many ways as possible to reduce costs. One way was to cut down overhead costs, keep the inventory level as low as possible and gain high control over suppliers.72 Today they are able to keep their concept of everyday low prices on offer. 3. Continuous growth Wal-Mart is a continuously growing company. From their foundation in 1946 until today they developed a network consisting out of 891 discount stores, 2612 Supercenters, 602 Sams Clubs and 153 Neighborhood Markets.73 When taking a look at the net sales from year 2007 up to 2009 one can see an increase from $344.7 billion to $401.2 billion. Important to mention in this case is that although there was a financial crisis within these years Wal-Mart was still able to keep on growing. 4. Control over suppliers All in all it is possible to say that many of Wal-Marts suppliers totally depend on this collaboration. The majority receives more than 30% of their revenues from the huge retailer. 74 Because of increasing debts and financial problems Wal-Mart founded the Supplier Alliance Program that they offered some selected supplier to give them a new financing option. With the help of this program Wal-Mart wants to ensure the steady flow of inventory. From the view point of suppliers it makes them even more dependent on Wal-Mart. 75 5. Profitable organization of distribution channels By making use of latest technology Wal-Mart creates highly automated distribution operations. To be as cost effective as possible Wal-Mart frequently orders their stock and maintains a close connection with their vendors.76

Weaknesses
1. Lack of presence in many developed countries At this point in time Wal-Mart is mainly present in continental US and additionally 14 other countries. It is important to mention that they are not present in Europe yet, except for the United Kingdome. Other developed countries such as Australia are not entered yet either. 2. Failure of entering foreign markets The unsuccessful entrance in the German market symbolizes a significant example for this weakness. In the year 2007 Wal-Mart finally decided to sell 85 German stores to its competitor Metro.77 Because of poor inter-cultural management and a poor approach to international marketing Wal-Mart lost a lot of money. They had to realise that simply trying to convert the American way of retailing to Germany did not work out.
72http://www.icmrindia.org/casestudies/catalogue/Business%20Strategy2/Business%20Strategy%20Walmart%20Cost%20Leadership.htm#Achievi ng%20Cost%20Leadership 73 Walmart Stores,Inc-2009, Amit J. Shah and Michael L. Monahanat 74 http://adage.com/article/news/Walmart-weans-suppliers/96969/ 75 http://www.storebrandsdecisions.com/news-print/2009/11/19/Walmart-offers-suppliers-financing-option 76 Walmart Stores,Inc-2009, Amit J. Shah and Michael L. Monahanat 77 http://www.donnellyspire.com/research/how-not-to-do-it---learning-from-walmarts-failure/index.php

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3. No formal mission statement The mission statement should give an answer to the question What is our business. Within the mission people can identify the companys main purpose and objectives. This is especially important for employees to ensure that everybody knows in which aspects the company is engaged in and that everybody is working in the same direction. Therefore a lack of a formal mission statement can lead to an internal weakness. 4. Continuous product recalls The company image is always suffering if it comes to product recalls. In the year 2007 for example Wal-Mart had to recall several toy products which were produced in China. 78 What huge impact this has for the image shows a customer study made afterwards. This study documents that 39% of respondents were more fearful to buy products from Wal-Mart in comparison to 22% for their competitor Target. 5. Everyday low prices could be connected to poor quality There are several people who believe that Wal-Mart offers low quality just because their prices are so extremely low. Everybody knows that if a company always offers way lower prices than competitors, it is in need of cheap production and operations.

Problem statement
All in all Wal-Marts main goal is to continuously grow and increase their sales. This goal is endangered caused by several aspects. At this point of time Wal-Mart can be seen as the definite cost leader within their industry. The majority of their business operations is placed within the continental US and they are additionally present in 14 other countries. One of their major weaknesses is the lack of presence in several well developed countries. Except for the UK, they are not operating in any European countries at all. To gain a bigger international market share should be one of their main goals for the future. Another problem which might occur within the near future will be the disability to offer lower prices than the competition does. Especially the development of online shops gives competitors the opportunity to lower their prices significantly. Up to now Wal-Mart was able to offer the lowest prices partly due to their bargaining power over suppliers. However, in this area the bottom line is reached and Wal-Mart is in need to find other ways of saving costs and increasing sales.

78

http://www.environmentalleader.com/2007/09/10/product-recalls-hurt-Walmarts-brand-perception/

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Models
SWOT Matrix
This matrix is an important matching tool. It matches key external and internal factors and helps us to develop four types of strategies: SO (strengths- opportunities) strategies, WO (weaknesses-opportunities) Strategies, ST (strength-threat) strategies and WT (weaknesses-threats) strategies.79

SWOT Matrix

Key External Factors Opportunities 1.Trend towards Online Shopping 2. Potential of European market 3. Customers of higher income group 4. Trend towards "one stop shopping" experience 5. Trend in sustainability awareness Threats 1.Fast changing technology (e.g. online shops) 2. Fierce price competition in retail industry 3. High bargaining power of customers 4. Instabilities due to external factors(e.g. unemployment) 5. Laws requiring more investment into employee benefits
Figure 10: SWOT Matrix

Key Internal Factors Weaknesses 1. Lack of presence in many 1. Well established brand awareness developed countries 2. Cost leadership in comparison with 2. Failure of entering foreign competitors markets 3. Continuous growth 3. No formal mission statement 4. Control over suppliers 4. Continuous product recalls 5. Profitable organization of distribution 5. "Everyday low prices" could channels be connected to poor quality SO Strategies WO Strategies 1. Introduction of a premium product line (S1, 1. Enter European countries S3, O3) through joint-ventures (W1, O2) 2. Improvement of general 2. Extensive sponsorships in Europe (S1, O2) image through environmental friendly operations (W5, O5) Strenghts

ST Strategies 1. Backward Integration and take over the function of suppliers (S2, S4,T2, T3) 2.Target people with financial uncertainty by more agressive "best deal" marketing (S1, S2, T4) 3. Improve existing e-commerce by investment into IT and online presence (S1, S2, S3, T1)

WT Strategies 1. Improved customer satisfaction through better quality management (W4, T3)

79

Fred R. David, Strategic Management 13th Edition, p. 224

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SO Strategies
1. Introduction of a premium product line (S1, S3, O3)

The introduction of a new premium product line would make Wal-Mart more appealing to high-income customers. Obviously, the products within this product line should have a satisfying quality and therefore cost more than a standard product of a similar product group. If Wal-Mart succeeds in convincing the customers with a higher income (which usually do not buy at Wal-Mart) that they are able to offer premium quality products for a fair price, than they have the chance to gain some steady customers out of this group. However, it will be necessary that Wal-Mart can ensure and maintain the highest quality standards for this product line. High income customers would probably not come back to Wal-Mart if they are not satisfied with the quality of their products at first try. 2. Extensive sponsorships in Europe (S1, O2) Extensive sponsorships in Europe could increase Wal-Marts chances of succeeding in Europe. Even though, Wal-Marts brand awareness in Europe is not as high as in the United States, most of the Europeans will link the retailing business to Wal-Mart. However, before entering a European market the brand awareness could be further increased through sponsorships. Sponsoring of sports events, fairs, concerts or festivals are possible ways of improving the chances of Wal-Mart to gain ground in the respective market and even offer Wal-Mart the possibility to gain more experiences about the local culture.

WO Strategies
1. Enter European countries through joint-ventures (W1, O2) Wal-Mart has a recognizable lack of presence in many developed countries. This lack could be filled by making use of the potential that exists in the European market (W2,O2) . At the moment WalMart operates mostly in the US, despite the UK as the only European country. Due to the fact that they already have a strong presence in the US, increasing sales even more would be difficult to realize but therefore in Europe. Wal-Mart needs to be aware of the fact, that in Europe the brand awareness will not be as high as in the US. Factors like customer buying behavior, cultural aspects and competitors, will influence their operations in Europe. The entry can be performed by doing joint-venture. This is a partnership between two (or more) partners to form a joint venture in the new market. Reasons for that might be complementary technology or management skills and it increases the speed of the market entry and saves additional costs.

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2.

Improvement of general image through environmental friendly operations (W5, O5)

Furthermore Wal-Mart could make use out of the growing trend towards sustainability. According to the CEO Mike Duke sustainability is an important part of Wal-Marts culture (O5). They strive for being supplied by 100 percent renewable energy, create zero waste and sell products that sustain their resources and the environment. 80 Right now there does not exist a time frame for this goal. An implementation within the near future could lead to an improvement of Wal-Marts image. Customers would recognize that Wal-Mart is not just searching for the cheapest way of production and supply but also for the most environmental friendly one. Quality and sustainability play an important role within their operations. (W5)

ST Strategies
1. Backwards integration and take over the function of suppliers (S2, S4,T2, T3) Wal-Mart is cost leader in the industry and this is to a great degree due to their high bargaining power over suppliers. Wal-Mart was able to negotiate supplier prices down to a minimum but at this point there are no more savings to be realized from this area. However, price competition in the retail industry is fierce and customers have high bargaining power. Consequently, Wal-Mart has to find new ways to lower prices to keep its status of cost leadership in the market. A suitable strategy to follow is: backwards integration in doing so, Wal-Mart takes over the supplying function and can look for new ways to save costs in this area. 2. Target people with financial uncertainty by more aggressive best deal marketing (S1,S2, T4) During the economic crisis, many people from the higher income group turned to Wal-Mart. The same applies to people who are unemployed. The feeling of insecurity and the desire to save costs where possible can be used by Wal-Mart to target these people and bind them to Wal-Mart through offering the lowest prices. 3. Improve existing e-commerce by investment into IT and online presence (S1, S2, S3, T1) If Wal-Mart invested more money and resources into its online presence, they might profit from it in the long run. It might lead to higher sales, Wal-Mart will be able to save more costs in online sales and is therefore in a position to stay cost leader, and the businesses strong brand image can help in reaching the target group more easily. This can only be achieved with an increased investment in IT to develop a superior online shop system.

80

Strategic Management, Concepts and Cases, Twelfth Edition, Fred R. David , p.305

34

WT Strategies
1. Improved customer satisfaction trough better quality management (W4, T3) Because of the extremely high bargaining power of customers Wal-Mart has to keep their customers as satisfied as possible. Because of the fact that within the retailer business there exists much more supply than demand customers do have a lot off power. Continuous product recalls can harm the company image and motivate customers to switch to competitors. Therefore Wal-Mart should improve their quality management to avoid future product recalls. They should have clear requirement for all their suppliers. This would ensure that they only collaborate with high quality suppliers. By making use of regular statistics and accurate capturing of information and data it is easier to control suppliers. If it still comes to product recalls Wal-Mart can directly identify the source and decide on follow up activities.

Space Matrix
The Strategic Position and Action Evaluation (SPACE) matrix is a matching tool, which helps to determine if either an aggressive, conservative, defensive or competitive strategy is best fitting to the company. The different average scores regarding to their financial-, stability-, competitive-, and industry-position lead to a X- and Y-coordinate, through which a graph can be drawn that shows which type of strategy (aggressive, conservative, defensive or competitive) is most attractive. 81

Space Matrix
Internal strategic position Financial Position (FP) Investment returns Inventory turnover Operating Profit Liquidity Profit margin Average score: +4.6 Y-axis = 4.6 2.8 = 1.8 Competitive Position (CP) Market share Product range Product quality Product life cycles Customer loyalty Average score -3.4 X-axis = (-3.4) + 5.0 = 1.6
Figure 11: SPACE Matrix

Score 4 3 4 6 6

External strategic position Stability Position (SP) Technological changes Rate of inflation Price range of competitors Demand variability Risk involved in business Average score: 2.8

Score -3 -2 -2 -4 -3

Score -2 -2 -4 -5 -4

Industry Position (IP) Growth potential Profit potential Financial stability Resource utilization Extend lerveraged Average score: + 5.0

Score 5 6 5 4 5

81

Fred R. David, Strategic Management 13th Edition, p. 214

35

Figure 12: Strategy result from SPACE Matrix

When looking at the final result, one can see that the graph with the directional vector point (+2.2|+1.8) is positioned in the aggressive sector. This means that the organization is in a good position to use its internal strengths, take advantage of external opportunities, overcome internal weaknesses and avoid external threats. For these reasons, market penetration, market development, product development, backward integration, forward integration, horizontal integration or diversification are feasible strategies dependent on the circumstances.(1) In the case of Wal-Mart one could focus on using their control over their suppliers to apply backward integration, which means taking over or seeking increased control over their suppliers. Additionally, the lowest price strategy applied by Wal-Mart is the right way to penetrate the respective markets in order to compete aggressively against their competitors and putting them under pressure .

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Boston Consulting Group (BCG) Matrix

Usually, the BCG is used to determine what products of the business take priority over others, based on their product life-cycle. Our BCG will be adapted and deal with Wal-Marts divisions instead of with its product lines. Roughly, the following divisions exist Wal-Mart Stores U.S. Sams Club Wal-Mart International
F i gure 13: BCG Matrix

Two variables are of importance and influence the result. These are business growth rate and market share. The retail business makes sales worth $3trillion per year and Wal-Marts market share in this is 11.3% as of 2009.82 When comparing the net sales by operating segment for the year 2009, the following things become obvious: Wal Mart U.S.s market share of Wal-Marts overall sales was 63.7%, with an increase of 6.8% compared to the previous year. Wal Mart International market share of Wal-Marts overall sales was 24.6%, with an increase of 9.1% compared to the previous year. Sams Club market share of Wal-Marts overall sales was 11.7%, with an increase of 5.6% compared to the previous year. 83

Internal-External (IE) Matrix

The IE matrix analyzes the strategic position of an organization. It uses the total weighted scores of the EFE- and IFE matrix as inputs. The total weighted scores of the EFE matrix are shown on the Y-axis, the total weighted scores of the IFE matrix are shown on the X-axis. A score of 1.0 1.99 on the X-axis represents a weak internal position, while 2.0 2.99 is considered to be average and 3.0 -4.0 represents a strong internal position. Similar to this, a score of 1.0 1.99 on the Y-axis is a low score, 2.0 2.99 medium and 3.0 4.0 is a high score. Depending on the outcome of this analysis, the result will be a positioning in one of the three main regions: If the division falls into cell 9, 8 or 6 the prescription would be harvest or divest. Most appropriate strategies for this case would be retrenchment or divestiture. If the division falls into the cells 7, 5 or 3, the prescription would be Hold and maintain, where market penetration or product development would be fitting strategies.
82 83

http://money.cnn.com/2009/06/05/news/companies/Walmart.shareholders.meeting.fortune/ Walmart Stores, Inc.-2009 Amit J.Shah and Michael L. Monahanat, Frostburg State University

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Figure 14: IE Matrix

In our case, the outcome of the EFE was a total weighted score of 3.07 and the outcome of the IFE was a total weighted score 3.12. Therefore Wal-Mart falls into cell 1. All divisions that fall into cell 4, 2 and 1 have the prescription Grow and build. Because of this, also the fitting prescription for Wal-Mart is Grow and build, which means that backward-, forward- or horizontal integration as well as market penetration, market development and product development are appropriate strategies.

Grand Strategy Matrix

The Grand strategy matrix is an additional tool for the formulation of alternative strategies. Depending on market growth rate and the businesses competitive position, a company will be positioned in one of the four strategic quadrants. In the case of Wal-Mart, the Grand Strategy Matrix identifies that the company is situated in quadrant I. When having in mind the Competitive Profile Matrix, Wal-Mart has a strong competitive position and scored with 3.35 in total. This score is relatively high and shows that Wal-Mart has a strong competitive position. Wal-Marts market growth rate in 2009, with 11.3%, can also be considered to be a rapid growthrate. For these reasons the company can be positioned in the first quadrant of the matrix. 84 In this respect, the following alternative strategies are feasible:

Market development Market penetration

Product development Forward Integration

Backward integration Horizontal integration

Related diversification

84

http://money.cnn.com/2009/06/05/news/companies/Walmart.shareholders.meeting.fortune/

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The Value Disciplines Model Treacy and Wiersema

The Value Disciplines model of Michael Treacy and Fred Wiersema describes three focus areas which are called disciplines. Any company must choose one of these value disciplines and act upon it consistently and emphatically. The first value discipline is operational excellence where the focus is on efficiency and smooth
Source: http://www.valuebasedmanagement.net/methods_valuedisciplines. html

running. This discipline focuses on fluently running operations as well as supply chain management,

and volume of products is counted. The objective is to differentiate from competitors. Mostly large companies are operating in this area. Another discipline is the product leadership where the company is strong in innovation and brand marketing and where the company operates in dynamic markets. Here the focus is set on the innovation design, the development and the time-to-market and high margins in a short timeframe. The last discipline is called customer intimacy where the company strength lies in customer attention and customer service; relationship management. The company tunes its products and services to the individual

39

customer as far as possible. The focus here lies in CRM and to deliver the products and services in time and to operate above customer expectations. Furthermore the company works with lifetime value concepts, reliability and is close to the customer.85 With respect to Wal-Mart this means for Wal-Mart that they operate in the first value discipline because their focus is as well on fluently running operations and excellent production operations. Wal-Mart is very well equipped with technology which enables them a direct connection from the retailer to the distribution centre. Furthermore Wal-Mart does not put its focus on the customer itself but on the product they deliver to the customer. Marketing as well as great CRM are not the strengths but therefore the low costs of products which they achieve through their good operations.

New Strategies
Pre-selection
From the eight strategies we developed in the confrontation matrix, we will use four to continue with. These will be: Enter European market to enlarge international market share Backward integration by taking over the supplying function Improve existing e-commerce by investment into IT and online presence Introduction of a premium product line

We decided on these four because they can be directly related to the factors mentioned in the problem statement. Another reason why we decided on these is because all of them either support Wal-Marts operational excellence as reported in the Treacy and Wiersema disciplines, and help in saving costs, or support Wal-Mart in its purpose of increasing sales. The other four were eliminated because they were either already included in -or the same as- one of the strategies we chose to continue with, or aimed at sustainability and customer satisfaction which are both not core efficiencies of Wal-Mart.

85

Quantitative methods in project management, John C. Goodpasture 2004, p.7

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Selection of Strategies for the QSPM Matrix based on the costs of the alternative strategies
Johnson and Scholes Suitability, Feasibility and Acceptability Model
To determine the validity of each proposed strategy, we will now evaluate each strategy and select the two most promising. These two will then be used in the QSPM Matrix. To come up with the two most promising strategies, we will employ Johnson and Scholes Suitability, Feasibility and Acceptability Model. This model first analyses each strategys suitability and its compatibility within the external environment. This will be done by taking all relevant factors from the previous analysis into account. Then the projects feasibility will be focused on to determine whether Wal-Mart has the resources to follow through with the strategy. At this point we will take a closer look at Wal-Marts internal capabilities. As the last point, the acceptability of the models will be evaluated. For this, the financial aspect and the stakeholder aspects will be considered.86 1. Backward integration by taking over the supplying function Suitability: Wal-Mart is famous for its low prices. This is the main reason for their success and without constantly being able to beat the competitions prices they will not be able to keep their position as market leader in the retail industry. Wal-Mart is able to offer their products at prices so low because they have a very well working value change which allows the business to save costs wherever possible. The biggest area of savings to be realized is procurement. Wal-Mart has very high bargaining power over suppliers and was able to lower prices to a bare minimum, making it almost impossible for suppliers to make a profit anymore. A bottom line has been reached and no more cost cuts can be realized from the suppliers side. As was mentioned above, it is vital to Wal-Marts success that they stay low price leader in the industry. This is getting more and more difficult, especially with the rise of online stores like Amazon, who are, due to their very nature, able to save more costs than store retailers and poses a significant threat for Wal-Marts position in this segment. By backward integration Wal-Mart will take over the supplying function itself and be able to save costs by not only cutting out an intermediary who wants a profit, but also by getting the chance to develop new IT systems to continue on its quest for further savings. Feasibility: For this project, Wal-Mart requires a rather large amount of capital investment. The business has the financial means and does not have to borrow money, though. Personnel must be increased to take care of the planning, acquiring, organizing and executing function of the new task. The material input will pose an extra effort as Wal-Mart will have to introduce new measures of quality management. From an organizational point of view, Wal-Mart can probably handle the new task, but chances will need to be made to the organizational chart when it includes the supplying function into its main activities.
86

http://www2.accaglobal.com/pubs/hongkong/students/newsupdate/archive/2010/25/learning_strategic_choice.pdf

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Acceptability:

Ratios Growth Rate

2009 2010 2011 2012 2013 2014 2015 2016 2.40% 2.65% 2.80% 2.70% 2.90% 3.10% 3.80% 4.50% The Lower The better The Higher the better The higher the better The higher the better

Debt/Equity 0.730 1.640 1.494 1.354 1.214 1.077 0.936 0.794 Ratio Net Profit Margin 3.30% 3.21% 3.12% 3.04% 2.95% 2.86% 2.97% 3.10% Current Ratio Quick Ratio
2.000 1.500 1.000 0.500 2009 2010 2011 2012 0.91 0.73 0.26 0.50 0.25 1.640 1.494

0.91 0.26

0.500 0.253

0.586 0.246

0.670 0.239

0.751 0.232

0.827 0.225

0.896 0.234

0.956 0.244

Growth Rate 1.354 0.67 0.24 1.214 0.75 0.23 2013 1.077 0.83 0.23 2014 Debt/Equity Ratio 0.936 0.90 0.23 2015 0.956 0.794 0.244 2016 Net Profit margin Current Ratio Quick Ratio

0.59 0.25

Backward integration for Wal-Mart will ultimately lower costs in the long run, but as our group has forecasted the growth rate of this strategy, a huge investment into many suppliers would have to be done since Wal-Mart have quite a number of product lines, and Cost reductions are only will able to take place after 5 years, due to the very heavy investment on acquiring suppliers and intermediaries.

2. Improve existing e-commerce by investment into IT and online presence Suitability:

As was explained in the previous strategy already, the online shopping trend proves to be a threat to WalMart. Online businesses manage to save considerable costs over retail stores and Wal-Marts price leadership is endangered. Wal-Mart already is active in the online business segment but not as successful as other businesses. More and more people have access to computers and to the internet the sales of online stores are increasing as customers become more aware of the possibilities this holds for them. The biggest possibility being that they can compare prices of every product they are interested in and they can buy it at the online store where it is the cheapest. Wal-Mart has the capabilities to enter the e-commerce segment with more force, but the chances of success of this endeavor are not very high. Brands like Amazon are already well established in the market and it will be hard to reach, let alone surpass their level. Wal-Marts success receipt was to always and in every situation offer to lowest prices and now that other companies actually surpassed them this image lost some of its glory, if not all.

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Feasibility:
The development of superior, technologically flawless online system will take time and money. Wal-Mart does have the money, but not the time. Time is crucial and the longer it takes to put a new e-commerce system out there the harder it will be to reach the market leaders in this area. Good IT staff is required and needs to be hired, maybe even enticed away from other businesses at an extra cost. Machinery adaptations are required and current computer systems must be redeveloped to take in this extra area of activity. The current number of employees responsible for online shops must be increased. Wal-Mart must be aware of the difference in market as well. While many of the retail store customers come into the shop also to just have a good time, online shoppers do not feel this way. They want the best bargain, will compare prices online and buy where the price is lowest. If Wal-Mart manages to continue with its lowest price motto online as well, then the business should also encourage customers to use price comparison machines. This will of course lead to additional costs as well. Concluding it can be said that Wal-Mart is able to acquire all of the resources required for this strategy, but they dont have any of them in business already. It will take time and money to take care of these things.

Acceptability:
Ratios Growth Rate 2009 2010 2011 2012 2013 2014 2015 2016 2.40% 2.56% 2.65% 2.74% 2.84% 2.95% 3.30% 3.50% 1.124 1.054 0.975 0.898 0.821 0.744 0.668

Debt/Equity Ratio 0.730

Net Profit Margin 3.30% 3.22% 3.30% 3.39% 3.49% 3.59% 3.71% 3.84% Current Ratio Quick Ratio
1.200 1.000 0.800 0.600 0.400 0.200 2009 2010 2011 2012 2013 2014 2015 2016 0.26 0.25 0.26 0.27 0.27 0.91 0.73

0.91 0.26

0.676 0.253

0.694 0.260

0.713 0.267

0.733 0.275

0.755 0.283

0.780 0.292

0.807 0.302

The Higher the better The Lower The better The Higher the better The higher the better The higher the better

1.124 0.68

1.054 0.69

0.975 0.71

0.898 0.73

Growth Rate 0.821 0.75 0.78 0.744 0.29 0.807 0.668 0.302 Debt/Equity Ratio Net Profit margin 0.28 Current Ratio Quick Ratio

Our Group has made a forecast for the growth rates of this investment and as well as the ratios. Entering the online shopping market is a challenge since there is already well established business as mentioned earlier, so growth rate is not so strong, this maybe an excellent investment to be an addition to Wal-Mart shopping experience but will not be a strategy for the long run.

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3. Introduction of a premium product line Suitability:

During the financial crisis many customers from the medium and higher income group turned to Wal-Mart. This is because in a time of financial uncertainty customers want to save their money rather than spend it. This is best possible when they do their every-day shopping at the price leader Wal-Mart. However, now that the crisis and its after effects are coming to an end, Wal-Mart has to make an effort to keep thesenormally more affluent- customers close to the business. This can be achieved through the introduction of a premium product line. This premium product line reaches out towards the standards and tastes of the higher income group and has them want to come back to Wal-Mart. Besides this, it can also improve WalMarts image in the heads of this customer group by showing up that the brand cannot be so bad when they offer this premium product. An example for a premium product can be biological food. Despite the fact that biological food is a trend, especially among the higher income group, it is not very likely that customers will keep coming to the store to buy their food there just because one area of their product lines actually suits this group. Their interest in the other product lines is likely to still be low.

Feasibility:
Adding a premium product line to the assortment is a low investment endeavor and can be accomplished fairly quickly. However, new suppliers must be found, quality standards must be taken to a higher level, and the marketing of these products must be increased to make the higher income target group aware of WalMarts offer.

Acceptability:
Ratios Growth Rate 2009 2010 2011 2012 2013 2014 2015 2016 2.40% 2.45% 2.51% 2.56% 2.60% 2.65% 2.80% 3.00% The Higher the better Debt/Equity Ratio 0.730 1.124 1.056 0.979 0.903 0.829 0.756 0.683 The Lower The better Net Profit Margin 3.30% 3.22% 3.30% 3.38% 3.47% 3.56% 3.66% 3.77% The Higher the better Current Ratio 0.91 0.676 0.693 0.711 0.729 0.749 0.769 0.793 The higher the better Quick Ratio 0.26 0.254 0.260 0.267 0.274 0.281 0.289 0.297 The higher the better
1.000 0.800 0.600 0.400 0.200 2009 2010 2011 2012 2013 2014 2015 2016 0.26 0.25 0.26 0.91 0.73 0.900 0.75 0.877 0.77 0.855 0.79 0.833 0.81 0.83 0.811 0.85 0.788 0.879 0.764 Growth Rate Debt/Equity Ratio Net Profit margin

0.27

0.27

0.28

0.29

0.297

Current Ratio Quick Ratio

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A new premium product is not a major investment for the long run as the growth rate and the ratio shows. Our group forecasted this investment does not need a substantial amount of capital. Mostly of the investment made to introduce this new product will only be for promotion and marketing. This investment will in the end only add several new products in a new premium product line, with no substantial changes in both net profit margin and revenue.

4. Enter European market to enlarge international market share Suitability:

Wal-Marts has the highest market share in the retail industry in the U.S. and a growing market share in Europe, with potential for more. Market entry barriers into the European retail industry are considerably low. Besides that, Wal-Mart already has stores in Europe, which only simplifies and speeds up the process. The economic crisis affected people all over the world and as a consequence many people in Europe were made aware of the insecurity of their financial situation. Many of these people are more open towards low prices than they were before. Entering a new market abroad will give access to many new customers and provides a high potential of increasing sales. However, people in Europe do not particularly like the name Wal-Mart . Thus, the business plan of entering the European market by employing a joint venture is the best choice because then Wal-Mart could use the name of the company they are joint-venturing with. Another reason for the joint venture is that Wal-Mart in itself is anti-worker union, which is against European law and a joint venture can help avoid this problem. Last but not least, Joint-Venturing provides much less risk than acquisitions due to the experienced local company with already loyal or aware customers.

Feasibility:
Entering the European market with new retail stores requires huge amounts of money as well as new machinery, new employees and new management teams, products to add to the portfolio, knowledge of the market potential within the chosen countries as well as an understanding for cultural differences that need to be considered when designing the store. This is a huge but profitable project that requires a considerable amount of investment of Wal-Marts resources. However, earlier was explained already that the entry to the European market would take place in the form of a joint venture. Using this approach of entering Europe, the European counterpart can take care of cultural differences and other problems that may occur due to these differences for Wal-Mart, greatly simplifying the endeavor. An important factor for Wal-Mart here is to make sure they do not repeat the mistake they made when entering the German market, which they did not adapt their working procedures and their stores locally to the German way of perceiving things and have to face failure in the end.

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Acceptability:
Ratios Growth Rate 2009 2010 2011 2012 2013 2014 2015 2016 2.4% 2.85% 3.28% 3.23% 4.02% 3.62% 4.42% 4.60% 1.44 1.38 1.27 1.12 0.89 0.81 0.74 The Higher the better The Lower The better The Higher the better The higher the better The higher the better

Debt/Equity Ratio 0.73 Net Profit Margin 3.3% Current Ratio Quick Ratio
2.00 1.50 1.00 0.50 2009 0.91 0.73 0.26 1.44 0.77

2.12% 2.60% 2.82% 2.81% 3.62% 3.53% 3.82% 0.77 0.16 0.49 0.10 0.32 0.06 0.31 0.06 0.94 0.26 0.96 0.29 1.12 0.32

0.91 0.26

Growth Rate 1.38 1.27 1.12 0.94 0.89 0.26 2014 0.96 0.81 0.29 2015 1.12 0.74 0.32 2016 Debt/Equity Ratio Net Profit margin Current Ratio Quick Ratio

0.49 0.16 2010 0.1 2011

0.32 0.06 2012

0.31 0.06 2013

With this huge amount of investment our group has forecasted a 4 year breakeven point of the investment made for entering the European market with joint venturing. With forecasted ratios has shown very well in all aspects. Additionally, growth rate more than 2% increases in 5 years and trending up, and Net profit margin for Wal-Mart will increase 0.5% in 5 years and also trending up, creates a significant difference against all other strategies.

Enter European Market Suitability Feasibility Acceptability Total 9 6 9 24

Backward Integration 9 7 7 23

Improve ecommerce 5 8 6 19

Introduce premium product line 4 8 5 17

To simplify the decision-making process each possible strategy will get points from 1(worst) to 10(best), depending on their match with the businesses overall strategy of increasing sales.

Evaluate strategies
Based on the Suitability, Feasibility, Acceptability Model the strategies with the highest score, and therefore with the highest chances for success, are entering the European market and backward integration by taking over the supplying function. These two strategies will now be further evaluated in the QSPM matrix.

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The Quantitative Strategic Planning (QSPM) Matrix

The Quantitative Strategic Planning Matrix (QSPM) is tool that helps to identify the attractiveness of alternative strategies. It includes the strengths/weaknesses and opportunities/threats from the IFE- and EFE matrices and their weights in combination with rating that defines the attractiveness score (AS). These two multiplied make total attractiveness score (TAS). In the case of the Wal-Mart, we compared the two
Backward integration Enter European countries through jointventures AS TAS
3 4 0.45 0.52

Key Factors QSPM

Opportuni ti es Trend towards onl i ne s hoppi ng Potenti al of European market Cus tomers of hi gher i ncome groups Trend towards one s top s hoppi ng experi ence Trend i n s us tai nabi l i ty awarenes s Threats Fa s t changi ng technol ogy Fi erce pri ce competi ti on i n retai l i ndus try Hi gh bargai ni ng power of cus tomers Ins tabi l i ti es due to external fa ctors (e.g. unempl oyment) Laws requi ri ng more i nves tments to empl oyee benefi ts

Weight
AS
0.15 0.13 0.1 0.07 3 2 -

TAS
0.45 0.26

0.05

0.1

0.2

0.2 0.13

3 2

0.6 0.26

2 2

0.4 0.26

0.07 0.05

3 0.15

2 0.1

0.05 1.0 Strengths Wel l es tabl i s hed brand awarenes s Cos t l eaders hi p i n compari s on wi th competi tors Conti nuous growth Control over s uppl i ers Profi tabl e organi zati on of di s tri buti on channel s Weaknes s es Lack of pres ence i n many devel oped countri es Fa i l ure of enteri ng forei gn markets No formal mi s s i on s tatement Conti nuous product recal l s "Everyday l ow pri ces " coul d be connected to poor qual i ty 0.13 0.18 0.13

3 2

0.54 0.26

2 3

0.36 0.39

0.1 0.09 0.05

2 -

0.2

4 -

0.4

0.1

0.08 0.08 0.06

2 3 -

0.16 0.28

2 2 -

0.16 0.16

1.0

Total
Figure 14: QSPM

3,26

3,4

strategies Backward integration and Enter European countries through joint-ventures. The final result of the comparison of those two strategic alternatives shows, that the second strategy, Enter European countries through joint-ventures is the more favorable option. With a score of 3.4 it scores over average and is a promising strategy to implement. However, the first strategy, backward integration, with a score of 3.26, also scores over average and is a considerable alternative strategy.

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Selected Strategies
Specific strategy and Long term objectives
Based on the QSPM Matrix we decided to choose the strategy Enter European countries through jointventures which scored an over average result of 3.4 during the analysis. The joint-venture will give Wal-Mart the possibility to enter the European market through a risk and cost sharing alternative. Both joint-venture partners will invest capital and resources. The retail chain Auchan, which is mainly present in France, will be a considerable partner for this project. Detailed information about the company will follow in the next text Implementation. In the first year they will support Wal-Mart during the process of entering the French market. Their experience about the culture will help Wal-Mart to adapt to the foreign market and develop effective strategies. Depending on the success of this joint-venture Wal-Mart can make further steps in their process of entering European countries. One of the log-term objectives is to make use of Auchans additional experience in countries like Spain, Italy and Poland. The objective is to pave the way for Wal-Mart to gain access to foreign markets and distribution networks. The access to greater resources like for example specialised staff, technology and finance will have advantages for both partners. Wal-Marts most important goal is to increase their brand awareness within Europe. Because of the fact that they will use a joint-venture it is quite likely that both partners will operate under a new company name. Wal-Mart hope to benefit from this because their original brand name does not have the best reputation within Europe. The joint-venture will enable Wal-Mart to keep on growing continuously. It will foster their objective of enlarging their international market share and increase sales. The fear of failure is limited due to the collaboration with the company Auchan. Their strengths will reverse Wal-Marts weaknesses. Within the business world it is not untypical that after a few years the stronger partner, within the jointventure, is able to take over the newly created company. Wal-Marts objective is to become exactly this strong partner within the relationship and turn into one of the big retail players in the European market during the coming years.

Comparison: Actual vs. New strategy

Like mentioned above within this case, Wal-Mart is planning to open 715-785 additional units worldwide in the near future. The definite locations are not published yet but the company agree upon the decision to focus especially on international markets. This comes along quite well with the specific strategy our group developed for Wal-Mart, while working on this case, which is enlarging the international market share by searching suitable joint-venture partners in European countries. Of course this strategy includes the concept of being cost leader within the retail industry, caused by the simple reason that European citizens are quite price conscious. Also in Europe, Wal-Mart will follow their strategy of offering Everyday low prices to their customers. They want to offer the best possible value for the price the customers are willing to pay.

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This strategy already worked out in continental US and 14 other countries, including the UK as the instantaneous only European country. Nevertheless Wal-Mart has to be aware of the differences which exist between strategies in the US and Europe concerning their strategy. The laissez-faire development model of the US is not comparable with the inhibit organic growth that exists in Europe. European regulations are way stricter and strategies need to be adapted to special consumer tastes. Just imposing the American style on the European market and its customers will not work out. At this point of time WalMart mainly makes use of corporate takeovers. Up to now this strategy did not pay out in Europe. A striking example therefore is Germany, where the pure American Wal-Mart concept did not produce the expected results. The strategy of searching jointventure partners within Europe would be a way to correct mistakes made in the past during the processes of corporate takeovers. In China Wal-Mart is already succeeding with the concept of joint-venture. Because of the fact that international companies are just allowed to operate within China via joint ventures or licensees, Wal-Mart is cooperating with CITIC Group (China International Trust and Investment Corporation).87 This example demonstrates the positive results which might occur in the same way if WalMart will use similar strategies as well in Europe. Experts expect that China will be as big and as successful a market for Wal-Mart as the United States. 88

Implementation and Expected Results

Before Wal-Mart can decide in which exact market they want to search for joint-venture partners, intensive market research has to be done and fitting marketing strategies need to be developed. The SWOT analysis, which was made in this case, supports Wal-Mart during their process of finding a partner which is capable to complement the already existing strengths and weaknesses. They have to ensure that the partner has the same objectives and that both companies are working in the same direction. Wal-Mart will start within the French market, because it has the highest level of sales through food retailers and offers a fundamental basis of well performing retail chains. The retailer called Auchan can be considered as a possible joint-venture partner within this market. Right now it is a private owned company which holds 14.3% of the total French grocery market and nearly 3% of the European wide grocery market share. With their 124 hypermarkets and 406 supermarkets in Europe they were able to achieve a sales revenue and profit growth within the last years. Because of this financial stable position and their presence in further attractive European countries like Spain, Italy or Poland, Auchan can be seen as a budding partner for this project. Wal-Mart would contribute with its logistics and cost reduction expertise and the local partner

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http://findarticles.com/p/articles/mi_m0FNP/is_20_41/ai_93917345/ http://www.newsweek.com/2006/10/29/the-great-Walmart-of-china.html

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Auchan with its expertise of the foreign complex market. They have the needed knowledge about the culture, working requirements and legal aspects. Both partners have to develop effective working relationships in which all involved parties need to be open for reorganisation and restructuring activities. Realistic expectations, which will be explained in detail during the last part of this case, have to be set and ways to measure them, need to be found. If the strategy is working out well within France, Wal-Mart can think of doing the same activities as well in Italy, Spain or Poland. Auchan is located there too and can support them another time with cultural expertise.
600,000.00 500,000.00 400,000.00 300,000.00 200,000.00 100,000.00 2009 2010 2011 2012 2013 2014 Cost 2015 2016 2017 2018 2019 Net Income
Figure 15: Forecasted Joint-Venture Result

Revenue

Year Net Income 2009 13,235.00 2010 8,565.88 2011 10,788.59 2012 12,090.67 2013 12,453.39 2014 16,326.99 2015 16,882.11 2016 19,040.51 2017 21,321.17 2018 24,237.98 2019 25,328.69 2020 26,468.48

Cost 381,032.00 395,557.80 404,842.30 417,177.89 430,693.22 444,614.02 460,730.90 479,699.40 500,367.08 523,883.60 545,315.06 567,582.34

Revenue Growth Net Income Margin 401,087.00 3.30% 404,123.68 0.75% 2.12% 415,630.89 2.85% 2.60% 429,268.56 3.28% 2.82% 443,146.61 3.23% 2.81% 460,941.01 4.02% 3.54% 477,613.00 3.62% 3.53% 498,739.91 4.42% 3.82% 521,688.25 4.60% 4.09% 548,121.58 5.07% 4.42% 570,643.75 4.11% 4.44% 594,050.82 4.10% 4.46%
All values in $ million

As Wal-Mart to join forces with Auchan to enter the European market, our plan is to create a joint-venture that will in return generate higher net income margin, and open 50 new stores in 10 years in Europe. This joint-venture will include an investment of $10 Billion U.S dollar, which will be used to create New Stores, Implement Wal-Mart logistic support to existing Auchan Logistic system, and merge of existing supplier to supply American Wal-Mart Product line to Auchan existing and planned stores. The $10 billion will be paid in 4 consecutive years, in 2010 with amount of $5 billion, in 2011 with amount of $ 3 Billion, in 2012 and 2013 with amount of each year $ 1 Billion. This Joint-Venture will in return increase Wal-Marts Net Income margin by 1.20% or $ 8 billion by 2017.

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