Taking a Look at the Background, Strategic Analysis, External and Internal Environment, Problem Statement, Alternative Solutions and Recommendations of Wal-Mart

Taking a Look at the Background, Strategic Analysis, External and Internal Environment, Problem Statement, Alternative Solutions and Recommendations of Wal-Mart

INTRODUCTION
Wal-Mart Company is one of the most successful companies in the world. The founder, Sam Walton, opened his first Wal-Mart discount store in 1962. Today, there are 670 stores offering a pleasant and convenient shopping experience across the United States. The size of an average store is 108,000 square feet. Each store employs about 225 associates. (Kirklin, 2006)
In the current environment of business, having a reliable and sound strategy is an indispensable requirement. However, in order to achieve this, an in-depth strategic analysis is necessary to establish the actual controversies and possible potentials of the held by the organization. This is the intention of this paper, to provide a strategic analysis on a particular player in the market. (Zook, 2006)
Our paper is going to discuss the Wal-Mart company through several parts, and their background, strategic analysis, external environment, internal environment, problem statement, alternative solutions, and recommendations. We are focusing on the performance of Wal-Mart in the year of 2009.

BACKGROUND
Vision Statement
In these years, the Wal-Mart’s vision statement is that Price Leadership Drives Global Performance. (Michael T, 2001)

Mission Statement
At the same time, Wal-Mart’s mission is to help lower income people live better by saving them money. We offer all type of products such as groceries, electronics, clothing, beauty, health, and sporting products to name a few. But as we see it, helping people live better is about more than just saving them money. (Wal-Mart, 2008)
Component 1 2 3 4 5 6 7 8 9
Company X X X X X

(1=customers, 2=Products and services, 3=Markets, 4=Technology, 5=Concern for survival, growth, and profitability, 6=Philosophy, 7=Self-Concept, 8=Concern for Public Image, 9=Concern for employee)
History/Timeline
1962: The Company was found by Sam Walton in 1962.
1972: Became Publicly Traded
1983: First Sam’s Club Opened
1992: Wal-Mart International was formed
2000: Walmart.com was founded
2008: 100% Renewable Energy

Industry
There can be no argument that Wal-Mart has revolutionized the discount retailing industry. Wal-Mart may be growing, but at a rate under 10% for the first time in years. (Ranade, 2006)

Company Overview
Wal-Mart is one of the more stable firms that operate a chain of stores that offers the basic commodities that the public needs at competitive prices. The Wal-Mart’s business level strategy is that efficient use of value chain to minimize cost essential, and it uses the cost-leadership approach. (The Wal-Mart timeline, 2006) The business units include Wal-Mart supercenter, Sam’s club, and Neighborhood Market. There are three aspects in the corporate level strategy, which are vertical, horizontal, and geographic. There is no vertical integration strategy; it has 100,000 global suppliers for 8,000 stores eliminate need for potential integration in supply chain processes. However, the primary focus is that expansion through acquisition. In the past 20 years, Wal-Mart has expanded globally into 16 nations, and international focus targeted towards developing markets. The fact is, Wal-Mart is bigger than these companies and their direct competitors Kmart and Target are doing everything in their power to close that gap. They are lurking not so quietly in the shadows, benefiting from Wal-Mart’s past choices, successes, and failures.

Strategic Analysis
SWOT CHART
Strengths
• Customer oriented
• SAM’S Club customers able to buy in bulk
• Super centers offer one stop shopping
• Satisfaction guaranteed programs promoting customer goodwill
• Buy from local merchants when possible
• Stock ownership and profit-sharing with employees
• Leads industry in information technology
• Ongoing development of its employees
• Strong community involvement
Weakness
• No formal mission statement
• Membership only for SAM’S Club
• Keep poor performing employees on hand
• Old fashioned store policies
• Few women and minorities in top management

Opportunities
• Consumers want ease of shopping
• Internet shopping growing
• Dollar value increasing
• Similar shopping patterns worldwide
• Retail sales expected to increase
• Environment conscious consumers
• Elderly population growing
• Asian market virtually untapped by retail
• European Market untapped by retail
Threats
• Regulation of Wal-Mart pharmacies
• Small towns do not want entry of Wal-Mart
• Bad media exposure for Kathie Lee Brand
• Variety of competition nationally, regionally and locally
• Substitute products more easily because of intense competition

External Environment: General Environment (Hitt, Ireland, Hoskisson, 2007)
A customer-intimate firm often has the expertise to change the way a client manages the underlying problem (Ann Zimmerman, 2010). The most common characteristic of customer-intimate companies is that they offer a unique range of superior services, from education to hands on help, so that customers can get the most out of their products (Ann Zimmerman, 2010).

Sociocultural. Wal-Mart makes sure that the products they offer will be accepted by the public. Wal-Mart does not authorize the delivery of some products they know will cause outbursts or complains from different groups in the society. Wal-Mart makes sure that they have a very good relationship with different sector in the society although some sectors hold a grudge towards them.

Political-Legal. Wal-Mart makes sure that it follows the different laws of a country they engage transaction in.

Economic. Wal-Mart can be said to be economically stable for the past years. Its economic stature is doing well that’s why they try to improve their products to give the best to their clients.

Technology Wal-Mart offered new innovations in its technological aspect and introduced new concepts with regards to its industry. Wal-Mart makes use of highly advanced cash register or better performing slot machines.

Global. Wal-Mart worked globally under the philosophy: Different store for different folks. As it grows around the world, it is important to its success that it exchanges best practices among all the countries where it operates. (May 2008) Wal-Mart began our retail operations in China in 1996 with a Supercenter and Sam’s Club in Shenzhen. Neighborhood Markets soon followed, and in February 2007, Wal-Mart China invested in the hypermarket chain Trust-Mart, which operates more than 100 retail units. (Wal-Mart, 2009) Wal-Mart Canada began in 1994 with the acquisition of the Woolco Canada chain of 122 stores. (2008.Walmart)

External Environment: Industry Analysis (Dess and Lumpkin, 2003; Porter, 1980)
Threat of New Entrants: Percentage (Barriers)= 27% Force Rating= Moderrately Low
___85%____ 1. Economies of Scale
___20%____ 2. Product Differentiation
___70%___ 3. Capital Requirements
___4%___ 4. Switching Costs
___15%___ 5. Access to Distribution Channels
___3%__ 6. Cost disadvantages independent of scale
__ 2%_ 7. Retaliation of Existing Competitors
(Indicate all “present” items. Rate overall force as High, Moderate, or Low.)
Bargaining Power of Suppliers: Percentage= 40% Force Rating= Moderate
___70%____1. The supplier industry is dominated by a few large producers.
___20%____2. The supplier doesn’t compete with substitute products.
___50%____3. The industry is not an important customer of the supplier group.
___20%____4. The supplier’s product is an important input to the buyer’s business.
___30%___5. The supplier group’s products are differentiated or
___45%___6. There are switching costs.
___40%____7. The supplier group is inclined to forward integration.
(Indicate all “present” items. Rate overall force as High, Moderate, or Low.)
Bargaining Power of Buyers: Percentage= 23.3% Force Rating= Low
___70%____1. The buyer is concentrated or purchases large volumes relative to the seller’s sales.
___30%___ 2. The buyer purchases standard or undifferentiated products from the industry.
___20%____3. The buyer faces few switching costs.
___10%____4. The buyer earns low profits.
___5%___ 5. The buyer is inclined to backward integration.
___5%___ 6. The industry’s product is unimportant to the quality of the buyer’s products/services.
(Indicate all “present” items. Rate overall force as High, Moderate, or Low.)
Threat of Substitutes: Percentage=21% Force Rating= Low
___45%____1. They are subject to trends improving their price/performance value relative to the industry’s product.
___3%___ 2. There are no switching costs.
___30%____3. The substitute industry is experiencing a growth rate in sales.
___15%___ 4. The substitute industry is experiencing expansion of capacity.
___4%___ 5. The substitute industry is experiencing high profits.
(Indicate all “present” items. Rate overall force as High, Moderate, or Low.)
Industry Rivalry: Percentage= 55% Force Rating= Moderate
___45%____1. Many equally balanced competitors
___50%____2. Slow industry growth
___45%____3. High fixed or storage costs
___75%____4. Lack of differentiation or
___60%____5. No switching costs
___47%____6. Capacity augmented in large increments
___65%____7. High exit barriers.

Above all, Wal-Mart has moderate bargaining power of suppliers and industry rivalry. However, it also has moderately low threat of new entrants, and low bargaining power of buyers and threat of substitutes. Wal-Mart has moderate bargaining power of suppliers and industry rivalry. However, it also has moderately low threat of new entrants, and low bargaining power of buyers and threat of substitutes. That means the new competitors has no influence to Wal-Mart, but suppliers have a effect to Wal-Mart. I think that Wal-Mart should focus on the differentiation, and it can promote the competitiveness. That is good for Wal-Mart. Overall, Wal-Mart also is an attractive industry.
External Environment: Strategic Group (Major Competitors)
Major Competitor #1. Target is an American retailing company headquartered in Minneapolis, Minnesota (Barwise, 2004). It has expanded its number of stores more slowly than the other two national discount chains. Target started in the suburbs of Minneapolis as the discount format of Dayton’s, an upscale Minneapolis department store. It focus on more expensive, more stylish, and higher quality merchandise than other discount chains. From its origin as an offshoot of an upscale department store, Target has always focused on the market niche as the upscale discounter (Zook, 2006). At present, thought operates stores in all regions of the country; the Target discount chain has yet to enter all of the states.
Major Competitor #2. "Membership has its privileges." That slogan belongs to American Express, but it might better apply to Costco Wholesale, the leading warehouse-club operator in the U.S., whose determination to deliver value and innovative products to its 23 million members has made it one of the country's top retailers (Jana, 2008). Costco has succeeded by flouting industry norms. The big-box retailer charges customers a base yearly fee that offers quality goods at low markups. Consequently, its margins are among the slimmest in retailing. The privileges also extend to employees, who are paid well and enjoy generous health-care benefits. Small businesses are big customers at Costco, but the company also has managed to make discount shopping fashionable for affluent Americans by offering fine wines, books and big-screen televisions at low prices, and staples such as paper towels and razor blades in bulk. The weakness is Costco's overexpansion domestically risks cannibalizing the sales of preexisting stores. Costco's average pay, for example, is $17 an hour, 42 percent higher than its fiercest rival, Sam's Club maintaining profit margins.
Internal Environment: Financial Analysis (See Appendix C)
From the historical financial analysis of Wal-Mart we can see, it has a strong liquidity because the current ratio and quick ratio are increase. It also has strong asset utilization because of the rising inventory turnover, fixed assets turnover. From the debt ratio decline and the times interest earned we can get a result that Wal-Mart has a strong debt management. Then we can see the gross and operating margin increased; profit margin increased; return on assets and equity decline. So, the profitability is unstable. The weak market performance show from the price/earning ratio, price/cash flows ratio, and market/book value (Ewing, 2006)
.
Internal Environment: RBV and Balanced Scorecard
RBV (See Appendix D): Compared to its competitors, Wal-Mart has much strength. It has a very strong brand name with reputation for low prices and wide range of products. Its enormous sales volume allows it to have very strong bargaining power over its suppliers. Integrated technology in supply chain enables Wal-Mart to achieve high operation efficiency. Due to its superior logistic systems, Wal-Mart saves transportation costs and is independent from outside logistics. Wal-Mart has capable managers who contribute to the success of the company. However, capable people may not be enough without a very strong culture and values that are shared among associates at all levels. And Wal-Mart does have both. It not only leads the U.S. market, but also is very successful in Canada and Mexico.
Along with the strengths, Wal-Mart also has weaknesses. It can only attract price sensitive customers; those who demand higher quality will stay away from shopping at Wal-Mart. For example, Wal-Mart’s Sieyu chain failed in Japan due to its inability to attract quality-obsessed shoppers. The expansion plan in both product and service range and geographic areas also comes with the cost of losing control in some areas and can negatively affect its ability to compete.
Balanced Scorecard (See Appendix E): Wal-Mart’s long-term goal includes marketing, human resource, finance, operation management, and information systems. For the marketing long-term goal are come up with new ideas of marketing programs, motivate customers to use Wal-Mart’s web page to make purchases, and advertise the company’s believe in recycle. The long-term goal for the human resources is to minimize internal issues that lead to lawsuits, satisfy employees with new policies and reward programs and improve employee motivation. The financial goal is to be the number one retailer among competitors. The operation long- term goal is to keep improving their operational system and improve their operations in the Internet.
Problem statement
Problem 1: Employees
Wal-Mart has faced a torrent of lawsuits and issues with regards to its workforce, because of more tow million employees worldwide, These issues involve low wages, poor working conditions, inadequate health care, as well as issues involving the company's strong anti-union policies. Critics point to Wal-Mart’s high turnover rate as evidence of an unhappy workforce, although other factors may be involved. Approximately 70% of its employees leave within the first year. (Stilgoe, 2006)
Problem 2: Destroy Small Businesses
When Wal-Mart is the world's largest retailer, it is obsessive about numbers. It is number one, after all, and it wants everyone to know. In global business world, only larger size cannot imply that Wal-Mart is better and successful. In fact, Wal-Mart also came under criticism for its impact on small retail businesses. (Sang-Hun, 2007)
Problem 3: Culture Different
The biggest barrier that Wal-Mart is facing when trying to grow in Global market is the opposition at the local level. The company is seldom accepted from community groups when it opposes plans to build new stores. It is not only the protection for local business itself but also the differentiation in culture. (Stilgoe, 2006)
Alternative solution 1
Full-time employees are eligible for benefits, but the health insurance package is so expensive (employees pay 35 percent - almost double the national average) that less than half opt to buy it, Wal-Mart needs to reduce the percentage of employees paying of the health insurance. Another benefit for employees that Wal-Mart needs to Restructuring of this point which is an obstacle to the employees and especially when we know that the level of wages are very low compared with the option to buy company stock at a discount.
Alternative solution 2
Wal-Mart should cooperate with local small business to make business together. I think that if Wal-Mart and local small businesses cooperate, it will make their business more smooth. In addition, local customers will not want to ban Wal-Mart. As a result both of them will get the high profit together. For example, they should advertise together in the period of time that is different in order to reduce the prohibition of local small businesses. In other words, local small businesses should feel that they do not have pressure from a big box. However in this point, the government should look at them also, because it may be the cause of trade monopoly. Alternative solution 3
Wal-Mart should arrange different kinds of merchandise. The difference of merchandise helps customers to be able to choose goods to follow their desire. As a result, both Wal-Mart and local small businesses can sell their merchandise. In other words, it helps to reduce competition with each other.
Recommendation/Implementation
While some of the employees may have stock in the company, many of them have an economic stake in the company just because their job is their primary source of income. They want Wal-Mart to do well because then they will keep their job and their source of income. Wal-Mart should focus on their employees. Giving employee benefits or rewards will increase morale as well as their image.
CONCLUSION
Wal-Mart is really a good company. Strategic analysis provides for the company a relatively clear description of the actual faculties on which it could use to maximize its operations, hence acquiring greater returns. The discussions above shows that the current situation and systems implemented on the part of Wal-Mart are doing the company great. (Attwood, 2009)
The mission statement that is to help lower income people live better by saving them money shows that Wal-Mart Company cares about customers. The history of Wal-Mart shows that Wal-Mart Company always get improvement, so till now it becomes one of the top companies in the world. From the SWOT analysis, we also can find the advantages and disadvantages of Wal-Mart. Wal-Mart makes sure that the products they offer will be accepted by the public, and it also makes sure that it follows the different laws of a country they engage transaction in. Wal-Mart offered new innovations in its technological aspect and introduced new concepts with regards to its industry, and it goes global. Because of that, the economy of Wal-Mart does so good. Wal-Mart has moderate bargaining power of suppliers and industry rivalry. However, it also has moderately low threat of new entrants, and low bargaining power of buyers and threat of substitutes.
There are still few competitors of Wal-Mart, and they are also strong. In the internal environment part, from the historical financial analysis of Wal-Mart we can see, it has a strong liquidity because the current ratio and quick ratio are increase. Compared to its competitors, Wal-Mart has much strength. It has a very strong brand name with reputation for low prices and wide range of products. Wal-Mart’s long-term goal includes marketing, human resource, finance, operation management, and information systems.
Our team also gives some problems that Wal-Mart Company is facing. The first one is employees, because Wal-Mart company keeps poor performance employees on hand. The second one is destroy small business. In face, Wal-Mart also came under criticism for its impact on small retail businesses. The third one is culture different, because Wal-Mart stores opened all over the world. The culture different problem cannot be ignored. Then, we give the solutions and recommendations to Wal-Mart company.

Work References
1. Ann Zimmerman (2010-06-07). "Rival Chains Secretly Fund Opposition to Wal-Mart". The Wall Street Journal. Retrieved 2010-06-08.
2. Attwood, James (January 23, 2009). "Wal-Mart Completes Takeover of Chilean Grocer D&S (Update4)". Bloomberg L.P.. Retrieved 2009-02-16
3. Barwise, Patrick (August 16, 2004). "Bullseye: Target's Cheap Chic Strategy – HBS Working Knowledge". Hbswk.hbs.edu. Retrieved February 21, 2010.
4. Berner, Robert. "Out-Discounting the Discounter."BusinessWeek. May 10, 2004.
5. Ewing, Jack. "Wal-Mart: Struggling in Germany."BusinessWeek. April 11, 2005. Retrieved July 27, 2006
6. Jana, Reena (July 2, 2008). "Wal-Mart Gets a Facelift". BusinessWeek. Retrieved 2008-07-07
7. Kirklin, Paul. (June 28, 2006). "The Ultimate pro-WalMart Article". Ludwig von Mises Institute. Retrieved August 17, 2006
8. May (2008), Wal-Mart: An Analysis. Retrieved Aug 28 2008, from
http://www.associatedcontent.com/article/916627/walmart_an_analysis.html...
9. The Wal-Mart annual report (2009). Wal-Mart (published on walmart.com). Retriever Feb. 15,2009
10. Michael (2009), “Wal-Mart vision statement” (published on walmart.com). Retriever Oct 8.2001
11. Ranade, Sudhanshu. "Satellite Adds Speed to Wal-Mart." The Hindu Business Line. July 17, 2005. Retrieved July 24, 2006].
12. Sang-Hun, Choe. "Wal-Mart Selling Stores and Leaving South Korea." The New York Times. May 23, 2006. Retrieved December 2, 2007
13. Stilgoe, John. "Wal-Mart Giant Can Be Tamed". The Boston Globe. November 23, 2003. Retrieved January 11, 2006.
14. The Wal-Mart timeline (2006). Wal-Mart (published on walmart.com. Retriever July 24, 2006
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16. Zook, Matthew; Graham, Mark (2006). "Wal-Mart Nation: Mapping the Reach of a Retail Colossus". In Brunn, Stanley D.. Wal-Mart World: The World's Biggest Corporation in the Global Economy. Routledge. pp. 15–25. ISBN 978-0-415-95137-1.

APPENDIX A: SWOT MATRIX
APPENDIX B: GRAND STRATEGY MATRIX (David, 2005)

RAPID MARKET GROWTH

Quadrant II Quadrant I

Wal-Mart

WEAK
STRONG
COMPETITIVE COMPETITIVE
POSITION POSITION
Quadrant III Quadrant IV

SLOW MARKET GROWTH

APPENDIX C: FINANCIAL RATIOS
Financial Ratios: Historical Comparison
(Citation)

2007 2008 2009 Assessment
Liquidity Ratios
Current Ratio 0.81 0.88 0.87 Positive
Quick Ratio 0.16 0.2 0.22 Positive

Asset Utilization Ratios
Inventory Turnover 10.65 11.63 12.21 Positive
AR Turnover 102.5 102.75 97.74 Negative
Fixed Asset Turnover 3.86 4.19 3.96 Positive
Total Asset Turnover 2.29 2.46 2.37 Positive

Debt Management Ratios
Debt Ratio 0.67 0.63 0.56 Positive
TIE 10.6 10.57 11.69 Positive

Profitability Ratios
Gross Margin 23.50% 24.78% 25.26% Positive
Operating Margin 5.87 5.68 5.91 Positive
Profit Margin 3.4 3.34 3.54 Positive
ROA 8.80% 8.50% 8.40% Negative
ROE 22% 21% 21.20% Negative

Market Ratios
P/E 16.36 15.43 14.66 Negative
P/CF 8.9 8.6 8.5 Negative
M/B 3.22 3.17 2.97 Negative
Financial Ratios: Competitor Comparison Case Year 2009

APPENDIX D: RESOURCE-BASED VIEW OF THE FIRM
Tangible Valuable Rare Inimitable Non-substitutable Competitive Expected
Resources Advantage Performance
No -- -- -- Normal
replenish inventory

Competitive parity
prices Yes No --
--
Temp. comp. adv Above Normal

process payments Yes Yes
No --
Temp. comp. adv Above Normal

Transportantion costs Yes Yes Yes Yes Temp. comp. adv Above Normal

Intangible Valuable Rare Inimitable Non-substitutable Competitive Expected
Resources Advantage Performance
Integrated technology of supply chain Yes No No Yes Competitive parity Normal

Ability to generate large sales volume Yes Yes No Yes Temp. comp. adv Above Normal

Operation decentralization Yes Yes Yes No Temp. comp. adv Above Normal

Management routines and practices Yes Yes Yes Yes Sustainable comp. adv Above Normal

Appendix E: Balanced Scorecard
Perspective Goal
Measurement

FINANCIAL Firm Growth &
Profitability Sales > 25%

Net Income minimum 4% of sales
CUSTOMER Value Creation & Satisfaction > 96%

Customer Loyalty
Repeat > 98%

Product Quality
Returns < to 1%

INTERNAL BUSINESS PROCESSES Organizational Efficiency Departmental Market Share > 0.5%

Employee Satisfaction
Retention Rate > 94%

LEARNING & GROWTH Climate that Supports Change, Innovation, and Growth > of Women and Minorities

Employee Training
New Products

10% Annual > in Product Innovation