"[Wal-Mart] is the largest company around, and it has not lost a bit of the dynamism that it had back when Sam started it. I think that is enormously impressive"
In this part the firm success has been evaluated on the basis of SWOT analysis (Kotler, 2002). The firm strengths, weakness, opportunities and threats are examined and success rate is determined. Further BCG growth-share matrix is also used to evaluate firm market share and growth prospects. SWOT analysis is done in detail in the following paragraph
Strengths
The main reason for success for the firm was its very low prices. Due to its cost cutting strategies, large scale production, effective supply chain and distribution system the company was able to reduce its cost and these cost benefits was passed on to the ultimate consumers.
The firm store provided a variety of products of day to day use under one roof. This always induced the people to buy from one place rather than moving here and there. The firm focused on exclusive dealings with suppliers and they were always forced to reduce cost. This was possible as company had huge influence on them and due to huge network of suppliers the firm always shifted to low cost supplier. Thus supplier in order to survive had to come out with low cost. Wal-Mart was leading employer and retailer in US for last decade. There were more than 5000 store in US itself. This helped the firm in building a good brand image despite of offering cheap products. Due to its knowledge, strategic resources, low pricing, geographical presence, product differentiation, strategic investment and managerial excellence, the firm always had an upper edge on its rivals and generally force them out of the business. Another reasons for Wal-Mart's success was its exclusive relations with government and bureaucrats. Government policies generally were in accordance to Wal-Mart business and strategies. The main reason of decline in Germany was lack of support from government policies. It had competitive advantages in low cost, strategic resources, managerial excellence and knowledge and core competency in business operation it performed. It had huge financial resources at its stake and cheap finances were also available. These enable the firm to make huge investment in the market which was young and emerging. Thus due to these factors Wal-Mart was able to grow at an average of 15.4% per annum despite global slow down.
Weaknesses
Despite of being world No.1 Company, Wal-Mart had many weaknesses and pit holes. Wal-Mart was always criticized by labour unions for poor labour practices. In Wal-Mart at lowest salary rate is US$ 9 per hour where as average salary per hour is $ 13.
Employees have long working hour about ten hours a day. Further Wal-Mart is accused of adopting tax avoidance schemes. It has also earned a great reputation for destroying small and medium business. Thus it's never welcomed in any society. Major weakness of Wal-Mart has been its international operation. It has struggled to make a huge mark in international market unlike America especially in Germany. It has been losing cash since the year it entered German market. Due to low cost and cheap product, Wal-Mart has not been able to create a good brand image and is still looked down upon by some people. In some cases it has also been found those poor quality products are being sold because of discounted price. Thus consumers who are not price elastic prefer other brands. It also suffers from huge labour turnover. According to national survey as many as 44% employees leave Wal-Mart every year. These were some prime weakness that the firm need to look up in near future for its sustenance and survival.
Opportunities
The main opportunity that the company has is to find new markets and development. This is because American market has reached its saturation level and no prospects to grow further. It would only possible by entering new foreign market and improving performance in existing foreign market. Wal-Mart deal with Bharti Airtel as wholesale cash and carry business in India is a welcome step in this direction. Another opportunity that Wal-Mart has is to increase its market share in urban areas of America. Still people in developed cities look down it as a brand with cheap and poor quality products. The firm needs to increase it brand value by targeting this specified consumer with high priced products and better marketing tools.
Threats
Though it is No. 1 today but future is not gone be same as it faces huge threats from intensive low cost rivals. Competitors are coming up these low priced products with better knowledge and marketing techniques which could force Wal-Mart to loose a considerable market share. Due poor labour practices it face huge threats from labour unions for closure and strikes. Increasing government concerns and regulations may also pose a serious threat to its survival in future. At last consumer habits and taste are changing they now want quality product irrespective of price. Thus Wal-Mart needs to adapt to these consumer taste changes for future survival.
In this way SWOT analysis evaluates the basic reason for the firm growth and opportunity it has and threats it needs to think about for sustenance in near future. It throws light that despite of neck to neck competition, Wal-Mart cost cutting and low price strategies are still being fruitful for the company.
But these need strong adaption to changing environment to reduce future threats and ensure long run profitability
Key success/ Failure Factors
A number of factors such as difference corporate culture, stiff competition, political influence and inefficient management and marketing strategies resulted in Wal-Mart's failure in Germany. .
First of all, David Wild believed that cultural differences between American and German consumers were substantial challenges to Wal-Mart. (Debby, 2006) Unlike US customers, the Germans are accustomed to shopping at small-scale discount stores such as Aldi and Netto which provide a narrow range of goods with special offers each week and no customer service. Christopherson (2007) indicates that the German shoppers tend to undertake price averaging combing the purchase of special offer products at discounter and higher price at their neighborhood grocers. (Christopherson 2007)By comparison, the Wal-Mart's big box store does not allow the comparison shopping so it is less satisfying. And as a matter of fact, it also does not offer the adequate merchandise at competitive low prices. (Debby 2006)
In addition to the different corporate culture, the competition has become increasingly intensified between domestic retailers and Wal-Mart. Germany already had a number of well-established discounters such as Aldi, Lidl and Metro. The price difference is really narrowed and sometimes Wal-Mart even had a higher price than their competitors. For example, both Wal-Mart and Aldi offered kid's inline skates, but Wal-Mart price was $6 more expensive than Aldi. And Wolfgang Twardawa, a director of consumer research at Number-based market research at Gfk said that: "In the U.S., Wal-Mart has the image of being of price leader, but Aldi owns that territory in Germany." (Ewing 2005) Consequently, with no obvious price advantage in Wal-Mart Germany, consumers had little incentive to visit its stores.
Moreover, Wal-Mart's low price leader strategy was furthered restricted by German legislation. According to German law Act against Retractions of competition, it is illegal for a firm to sell goods or services below their cost without any justification. And the firm can only operate sales campaign during a uniform two week period twice a year.(Bradley, et al 2004) Consequently, the vicious competition and unfavorable legislation made it extremely difficult for Wal-Mart to capture market share by exploiting a low price strategy.
Furthermore, the difficult relationship between Wal-Mart and the labour union gave it an unfavorable brand image which influenced sales. The labour union in the Germany was aiming to increase the co-determination between the employers and employee in the operational business. When Wal-Mart operated in Germany, it frequently ignored or rejected the labour union. For example, the CEO Kay Hafner decided to reduce the company cost by reducing wages and decreeing that executives share offices rooms which made Wal-Mart Germany an unfavorable employer.(Arndt et al.2003) Christiophere (2007) suggests that even though the labour union maybe weak, the social norm they draw that has more or less influence over individual behavior. Thus, Wal-Mart may have lost its middle class consumer base because of its anti-union decisions.
Finally, Wal-Mart Germany also failed to adapt efficient intercultural management and implement adequate strategies. Arndt and Knorr suggest (2003) that it is vital for a firm's management to understand the specific conditions of doing business in foreign countries and to prevent exposing the lack of intercultural competence and management skills. If a firm fails to accomplish this, it will result in an atmosphere of mutual distrust within the firm and negative impact on the firm's profits. (Arndt et al 2003) This is exactly happened with Wal-Mart Germany where it appointed four CEOs during its eight years in Germany and none of them were able to turn the company business around. The first CEO Rob Tiarks was a U.S. citizen. He showed no interest in learning German and blending into local culture. Furthermore, rather than taking advice from former Werkauf executives, he decided to enforce his American-style management in the market. He tried to establish an "excellent customer service" image by introducing grocery bagging service as it did in the U.S. However, it turned out this service was not well-received since Germans do not want strangers to pack their groceries. Thorsten de Boer, a retail specialist at Roland Berger said that: "The German consumer does not like service. He is worried that he'll have to pay for it…People in this country only ever look at one thing price."(Wiesmann et al 2006) Moreover, ignoring the advice of former Werkauf executives' lead to difficult relations among the company's senior officers, and the top three of Wertkaurf executives left within six months. Wal-Mart tried to appoint someone who had a better knowledge of German culture, so they chose Tolker Barth the first and only German as CEO. Nonetheless, the deal he made with Spar is seen as the worst acquisition in Wal-Mart history. It spent €560 million but most of the stores were in need of renovation. In addition, Spar was seen as independent regional units, but the former acquisition Werkauf was characterized as a highly centralized firm. Barth failed to integrate these two corporate cultures. (Arndt et al, 2003) Kay Hafner replaced Barth as new CEO in 2001. And her strategies were also criticised for not taking German culture into account, instead she simply implemented the American model. For example, she tried to improve the service by asking sales clerks to smile at customers, but this practice was interpreted by male shoppers as flirting. Hans-Martin who represents 500 Wal-Mart employees said that: "People found these things strange, Germans just do not behave that way." (Landler et al, 2006) The final CEO was David Wild who seemed to be the only CEO who realised the importance of culture difference and was willing to make some changes based on the differences such as increasing private label products and abolishing marketing strategy of "forced" employee smiling to consumers. The changes actually brought an increased second quarter sales in 2006 which is more than 11.3% than the previous year's result. (Anon, 2006) However, Wal-Mart Germany was still far from being profitable. And investors began to loss their patience and did want to have future investment in the company.
Key Success and Failure Factors in UK!!!
In the initial years, Wal-Mart operated successfully in the UK with dramatic sales growth. In 2003 ASDA became the second largest supermarket in the UK, running just behind the market leader TESCO. However, by 2006 the growth had slowed down and the company experienced operational problems which mainly stemmed from fierce domestic competition and its cultural insensitivity to local culture in terms of store layout and store merchandise.
First of all, the problem facing Wal-Mart UK subsidiary is that unlike the home country operations, ASDA does not enjoy a significant price advantage over its competitors, TESCO and Sainsbury's have managed to match ASDA in prices and also have a better merchandise mix. According to 'The Economist', a basket of 100 common items purchased at ASDA costs just £0.74 less than at TESCO. This tiny difference makes it difficult for ASDA to catch potential customers with its 'Everyday Low Price' strategy (Arun Kottolli, 2006). In addition, the British government has provided increased farm subsidy, which has diminished ASDA's low cost advantage. Further, the UK retail market is shifting rapidly towards organic foods and people are willing to pay a premium for it. Therefore, ASDA's 'Always low price' slogan is no longer applicable in the grocery segment in the UK.
Moreover, the in-store layout can be a failure factor for low growth. For example, the fresh ready-to-eat sandwiches and breads were placed far away from the counter, which makes it unattractive for a casual customer. It is also noticed that the range and quality of general merchandise offered in ASDA are not as good as those sold in the USA. For instance, some withered vegetables are still displayed on the shelves. Compared with TESCO which always sells fresh and vivid greens well-packed, ASDA products can sometimes mean low quality in consumers' mind.
Last but not least, incompatible culture may create major problems when operating in a foreign country. Even though similar shopping cultures in the UK and US has led to the success of Wal-Mart's superstores in the UK, slight cultural differences between British and American customers is the key issue that influence ASDA's location strategy. The first difference is the shopping habit. US customers like shopping at big supermarkets no matter how far-away because most Americans drive cars for shopping, whereas UK customers like the convenience of small stores on the high street. Both TESCO and Sainsbury's open small supermarkets in city centres, but ASDA does not. In addition, a significant number of British people use public transport, which implies that UK customers often buy in small quantities from stores near to the public transport. However, ASDA's big superstores only locate in distant areas with inconvenient transport facilities, which turned off a large proportion of immobile shoppers. Another cultural difference noticed by Arun Kottolli (2006) is that UK customers put more emphasis on environmental issues than the Americans. People are shifting towards organic foods, public transport and eco-friendly products. ASDA's American image is not helping when it comes to selling "green" products.
