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Walmart's Sustainability Strategy

Posted On: February 18

I would be remiss in not dedicating a post to Walmart's sustainability


strategy, which has had a dramatic impact on how companies interface with corporate
responsibility issues. Once demonized by many (and still by some) for its controversial
labor practices, the company has re-branded itself as a pioneer in environmental
sustainability. Although not all rankings recognize its actions as sufficient for absolution
(Walmart shows up on only one of the three CSR rankings I profiled in an earlier post),
the company has clearly been artful in how it has responded to past criticism.

Whatever you think of Walmart's labor practices, it is hard not to be impressed by the
ripple effects the company has sent through its own supply chain. As early as 2005, the
company had committed to sourcing 100% of the company's power from renewable
energy, moving towards zero waste, and "selling products that sustain resources and the
environment" (note that these goals are often framed as "aspirational", although a target
date of 2025 has been floated for the zero waste goal). Then, just over a year ago, the
company layered on two additional goals of reducing its use of phosphates in detergents
by 70% by 2011 and of reducing its packaging by 5% by 2013. These goals have
garnered significant attention for the company--- its suppliers love to send representatives
to speak on panels about all the good things they are doing for this planet now that
Walmart has turned up the heat.

Why these goals specifically? I spoke with Linda-Eling Lee, a sustainability analyst at
RiskMetrics Group, to hear her interpretation. Ms. Lee points out that four of the five
stated goals focus on sustainability goals that save money by increasing efficiency. After
all, switching to renewable energy reduces dependence on expensive fuel; reusing waste
diminishes the need for purchasing new materials; and using less packaging decreases
fuel use by making items lighter to ship from factory to store. And with the market for
energy efficient products growing, selling products that sustain resources and the
environment is a no-brainer (Ms. Lee says the motivation behind the detergent goal is
less clear, although she notes that it represents a natural continuation of the company's
history of screening out controversial chemicals such as BPA).

So what's next for Walmart? Pointing to the recent launch of its new product scorecard,
Ms. Lee envisions the company requiring its suppliers to label products with information
about carbon footprints and the resources used for each product. While this is a relatively
new idea in the U.S., it is becoming old news in Europe, where companies like Tesco
have been labeling their own private label products for some time. "It's a very cutting
edge way to connect with consumers right now," points out Ms. Lee, referencing the new
GoodGuide iPhone app, which allows users to look up a sustainability scorecard for
different products. And also, "I think they want that information for themselves."

Question to my readers: What are your thoughts on Walmart's strategy?


Disclosure: The author of this post is a contractor with RiskMetrics Group.
Wal-mart’s Strategy for the 21st Century: Sustaining Dominance

Overview

In the past two decades Wal-Mart has been the leading domestic retailer. Its

primary success has come from its excellence in customer service, supply chain

management, and ability to keep prices low. The problem facing Wal-Mart is determining

how to sustain its dominance in the industry. The underlying strategic factors

contributing to this problem are the United States’ retail market becoming very saturated

and Wal-Mart’s inability to be profitable globally.

In 1994 Wal-Mart’s store sales rates began to fall from the double digits to

between four and seven percent. With the U.S. retail market becoming more saturated,

Wal-Mart knew that to sustain its leadership it would have to expand globally. Wal-Mart

entered Mexico with a joint venture and later entered Canada, Puerto Rico, Argentina,

Brazil, Japan, Korea, China and Germany. Despite Wal-Mart’s numerous efforts, its

international division’s profitability lagged well behind that of domestic operations. This

is mainly due to Wal-Mart’s inability to adapt to local cultures, maintain its excellence in

customer service, and maintain low prices.

Conclusions and Recommendations

Wal-Mart will be able to sustain its leadership in the industry if they can find a

way to be profitable globally. The pressures in foreign countries for local adaptation and

to lower costs are high. To cope with these pressures Wal-Mart should obtain a

transnational strategy. This international strategy will enable Wal-Mart to adapt to local

markets, locate activities in optimal locations, attain economies of scale, and increase

knowledge flows and learning.


Analysis

External Environmental Conditions: Unfavorable.

• The U.S. retail market is becoming very saturated, so Wal-Mart needs to compete

globally to sustain its leadership in the industry.

• The pressure for local adaptation in foreign countries is high. Wal-Mart prides itself on

its excellent customer service. In order to have excellent customer service in a foreign

country, Wal-Mart needs to understand the local culture very well.

• Local regulations and laws need to be clearly understood and followed. In Germany,

Wal-Mart got bad publicity because they did not follow some important German laws

and regulations.

Internal resources and capabilities: Excellent and creating differentiation.

• Tangible resources. Wal-Mart operates the world’s biggest private satellite

communications system. This system allows it to track sales, replenish inventory,

process payments, and regulate store temperatures all in real-time. Wal-Mart already

has built many stores in foreign countries. Now it just needs to manage them efficiently

and adapt to the local culture.

• Intangible resources. Wal-Mart has exceptional brand reputation in the U.S. which is

primarily due to emphasis on customer and community service. Wal-Mart also has

excellent employee loyalty because it gives its employees profit-sharing and stock

ownership plans. This helps employees to think and behave like an owner of the

company.

• Financial Resources. Wal-Mart has plenty of financial resources because it is the

United States’ leading retailer. The profits that the domestic stores produce will help

Wal-Mart to improve its global operations.


• Capabilities. Wal-Mart’s core competencies are its supply chain management and

customer value focus. The hub and spoke distribution system allows Wal-Mart to

quickly replenish stock in its stores and to minimize unproductive space. Wal-Mart’s

state of the art information systems track in-store sales and transmit the information to

the suppliers. The customer value focus puts emphasis on customer service which helps

to improve brand recognition. Wal-Mart can very easily transmit its supply chain

abilities overseas but customer service in a foreign country requires extensive research

into the local culture.

Summary: Wal-Mart needs to successfully compete globally to sustain its leadership in

the retail industry. Its current international division is no where near as profitable as the

domestic division. The domestic success is primarily due to Wal-Mart’s excellent

customer service, supply chain management, and brand recognition. Wal-Mart has not

successfully adapted to foreign markets and this is why their customer service and brand

recognition is not very strong in foreign countries.

Implementation: Wal-Mart needs to obtain a transnational strategy because it will help

Wal-Mart to deal with the pressures to adapt locally and keep prices low. This

international strategy will allow Wal-Mart to obtain economies of scale, adapt to local

markets, locate activities in optimal locations, and increase knowledge flows and

learning. Wal-Mart’s knowledge and learning of foreign markets is very important if it

wants to have excellent customer and community service in foreign countries.

In addition to obtaining a transnational strategy, Wal-Mart should only enter into

joint ventures until their knowledge of foreign markets is strong. Joint ventures with

companies in foreign countries will help Wal-Mart to adapt locally. The foreign company
can help Wal-Mart understand the country’s laws and regulations as well as customs and

culture.

Home Page > Business > Management > Wal-mart- Eying the Global Market

Wal-mart- Eying the Global Market


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<h1>Wal-mart- Eying the Global Market</h1>
<p><strong>By: <a
href="http://w w w .articlesbase.com/authors/prabhat-shukla/43040"

Wal-Mart- eying the global market

Wal-mart, the largest retailer in the world was established in US (Arkanas) in the year
1962 by Sam Walton, and grew steadily with sales figure of $218 billion and some 4500
stores by 2002. In the early stages Wal-mart operations were confined to the United
States, where it established a competitive advantage based upon a combination of
efficient merchandising and progressive human relations policies, probably taking a leaf
out of the book of F.W Taylor.
Wal-mart was among few of the companies to implement information system to track
product sales and inventory. Among some of the other successful strategies Wal-mart
implemented were sharing widespread stock ownership among employees and pass on
some of its benefits as low prices on to the consumers. With having substantial market
share in general merchandising where it already had huge market presence, allowed the
company to successfully foray into food retailing and make a huge dent in the market
share of some of the established supermarket.

The competition in the domestic market by the year 1990 made Wal-Mart to think of
expanding and by 1995 they were already present in 50 states of USA and by the year
2000 the company decided to go Global as they could sense saturation in the US market.

Going global was not such a smooth sailing though for the company, the critics wrote
them off saying Wal-mart is to American a company to succeed in the global market.
They predicted that constraints of Infrastructure, logistics and different consumer
preference and some well established retailer’s presence would make it difficult for the
company to succeed globally.

Unperturbed by the perceived constraints Wal-mart started its global venture in 1991 by
opening its first store in Mexico, as a joint venture with Cafera, one of the largest retailer
stores in Mexico. As predicted, Wal-Mart made a number of mistakes that seemed to
prove the critics right. Poor infrastructure, crowded roads and a lack of understanding
with local suppliers, many of whom could not or would not deliver directly to Wal-Mart
stores or distribution centres resulted in stocking problems and raised costs and prices
.There were also problem with merchandise selection as most of the items housed in the
Mexican shop were similar to that of/in the US, which did not go too well with the
Mexican market.

Learning from its mistakes Wal-mart adapted itself well to meet the local environment
requirement and needs. Some of the initiatives taken by the company to resolve the
current crises included:

• A partnership with a Mexican trucking company which helped the company to


dramatically improve their distribution system.

• A more careful approach towards stocking practices meant the stores sold merchandise
that appealed more to the local tastes and preferences.

These strategies started paying rich dividends to the company and in the year 1998,Wal-
mart acquired a controlling interest in “Cifera” and by the year 2002 Wal-mart was more
then twice the size of its nearest rival in Mexico with 600 stores and revenue of more
then $10 billion.

With some great results in Mexico, Wal-mart followed the same strategies and
subsequently entered into eight other countries. It entered into JV partnerships with other
retailers in Canada, Britain, Germany, Japan and South Korea .In Brazil, Argentina and
China Wal-mart established its own stores. As a result the company had over 1200 stores
outside the United States, 303,000 associates and generated international revenue of more
then $35 billion.

Wal-mart continued its steady growth globally in spite of the few early difficulties it
faced, and registered high growth rate.

• In 2004 Wal-Mart generated over $256 billion in global revenue, establishing a new
record and adding more than $26 billion in sales. The Company earned almost $9.1
billion in net income and grew earnings per share by over 15 percent.

• Subsequent to fiscal year-end 2004, in February 2004, the Company completed its
purchase of Bompreco S.A. Supermercados do Nordeste (“Bompreco”), a supermarket
chain in northern Brazil with 118 hypermarkets, supermarkets and mini-markets. The
purchase price was approximately $300 million.

• In 2006 Wal-Mart net sales rose 9.5% to a record $312.4 billion. Net income rose 9.4%
to a record $11.2 billion. Our earnings per share grew double-digits from $2.41 to $2.68
per share.

• In 2006, Wal-mart were doing around 20% of there business abroad. Wal-Mart’s
marketplace is clearly the world.

• Wal-mart has total International portfolio divided among three of the Geographical
locations(The Americas, Europe and Asia) with Americas – 71%, Asia – 17%a and
Europe – 12%

While store development and expansion has experienced significant growth, it is not the
only measure of success. The division has posted impressive financial results as well.
Wal-Mart International announced that 2007 fiscal year end sales reached $77.1 billion, a
30.2 percent increase over the previous year, and that operating profit rose to $4.2 billion,
an increase of 21.5 percent over the prior year.

Looking at some of the key information pointers above, Wal-Mart U.S. expects to open
over 305 new, relocated or expanded units in the fiscal year ending January 31, 2007.
Wal-Mart International plans to open over 220 new, relocated or expanded stores in the
fiscal year ending January 31, 2007. The company further plans to continue acquisitions
where they can add strategic value to the business.

In the year 2007 Wal-Mart were hit by twin turmoil’s in the housing and credit markets,
which further fuelled there, reason to look beyond U.S. and identified India as one of the
potentional growth market. Wal- Mart which already pulled out of Korea and Japan this
year, were constantly on a look out to enter the India Market and there reasons were quite
obvious.

India being one of the emerging markets was an obvious choice for Wal-mart with an
estimated 12 million kirana shops in India. Of these, the largest consumer-goods
companies in the country are only able to service less than 10% of them. This means that
90% of these small stores are not directly serviced, providing a large and new market
opportunity for the joint venture. However entering a country through the wholesale
channel will be the first time for the Wal-mart globally.

After years of looking for a way into India's fast-growing but highly protected retail
market, Wal-Mart Stores Inc. is trying a backdoor approach teaming up with an Indian
phone company Bharti Enterprises to court the country's burgeoning middle class. India's
Bharti Enterprises plans to invest up to $2 billion to $2.5 billion by 2015 in setting up a
nationwide chain of supermarkets and retail shops in partnership with U.S. chain Wal-
Mart. Together, they will set up 15 wholesale cash-and-carry stores over the next seven
years. Focusing on the wholesale segment is Wal-Mart's best immediate option, given
that India restricts direct foreign investment in consumer retailing. Despite obvious
cultural and business challenges, Wal-Mart International has experienced success because
of its ability to transport the company's unique culture and effective retailing concepts to
each new country. The company makes a concerted effort to adapt to local cultures and
become involved in the local community. Associates respond to customer needs,
merchandise preferences and local suppliers. By serving each hometown in the same
way, Wal-Mart International has realized significant growth with potential for much
greater development worldwide.

In 2007, Wal-Mart International has opened around 320 to 330 units in existing markets.
Relocations or expansion of existing stores has accounted for approximately 30 of these
units, while the remainder represents new operating units for the company.

In the coming year 2008, The Company projects its capital spending in fiscal 2008 to
increase by approximately 2 to 4 percent, which compares to the 15 to 20 percent
increase forecast for fiscal 2007, Wal-mart, believes that capital spending in the U.S. will
be approximately flat to the current fiscal year. This reduction in growth is expected to
result from: building fewer U.S. units; anticipated flattening of construction costs;
improvements in the distribution centre network; and design efficiency.”

Sources: Wal-Mart annual report, One source, Business week, Wal street journal,
International journal of retail and distribution management.

Prabhat Shukla is a business consultant by profession, and can be contacted for any
feedback or response on prabhat.shuklaa@gmail.com

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