Nature And Source Of Walmarts Competitive Advantage Management Essay (2024)

1. What is the nature and source of Wal-Mart's competitive advantage?

Wal-Mart Stores Inc. is the largest retailer in the world. The company was set up by Sam Walton in 1962 with a goal of offering low prices to everyone. There are several reasons for Wal-Mart success in the competitive American retail market. So the nature and source of Wal-Mart's competitive advantage can be concluded as follows:

The first factor is the tangible resources including financial tangible resource and physical tangible resource. 1) Financial tangible resource: In 2003, Wal-Mart's total cost of goods sold was $192 billion. Its net income was $8 billion on sales of $245 billion, and increased about 21% and 12% respectively comparing with the year of 2002. At the same year, Wal-Mart's online shop generated estimated $100 million and overall sales per square foot amounted to $440. It earned $12.5 billion in operating cash flow and paid out $1.2 billion as dividends and $3.2 billion in a stock repurchase program. In addition, from 1988 to 2000, Wal-Mart's revenues were up from $20 billion to $200 billion. Also, Wal-Mart had achieved to grew inventory turns from 3.2 in 1973 to 4.4 by 1983, 4.5 by 1993 and 7.6 by the beginning of 2003. 2) Physical tangible resource: Wal-Mart Stores, Inc. operated more than 4600 stores with a total are of about 561 million square feet in 2003. David Glass who was the Vice President of Finance and Distribution in 1976, focused on investments in IT and built automated distribution centers and used computers to connect stores and suppliers. Walton installed private satellite network in the early 1980s. Wal-Mart separated its retailing format into two parts: domestic (including discount stores, supercenters, neighborhood markets and SAM'S Clubs) and international. Wal-Mart's stores usually concentrated in small towns and rural areas. The company increased its discount store with average size of 42,000suqare feet in 1975 to 57,000 square feet in 1985 and 91,000 square feet in 1995, and neighborhood markets helped Wal-Mart enter into suburban areas.

The second factor is the intangible resources including technology and reputation.

1) Technology: In the early 1980s, Wal-Mart installed private satellite network creating the communication with suppliers. For example, using electronic data interchange (EDI) to communicate with suppliers. In 2002, Wal-Mart's data warehouse with a 250-terabyte analytic database became one of the largest private database in the world only second to telecom company SBC's. Moreover, Wal-Mart invented a "Scan 'N Pay'"(SNP) model to maintain suppliers ownership, and introduced a new radio frequency identification (RFID) technology to avoid the shortage of products. Moreover, the Assortment Planning System (MCAPS) could also be viewed as a good tool of managing the products. To streamline these tasks, Wal-Mart set up a "hub-and-spoke" network of 103 massive distribution centers (DC). 2) Reputation: Wal-Mart is one of the largest retailers, and emphasizes on its image of everyday low prices and high quality goods when marketing. It used the market slogan EDLP (every day low price) which means the price is always the lowest price as its long-term target, and maintained this EDLP image by advertising, sponsoring community events and creating in-store excitement. Every month, the company distributed leaflets to above 40 million families. Use its satellite network to communicate with suppliers, and improve customer service. For instance, the credit card could be accepted in Wal-Mart by the end of 1980s.

The third factor is the human resources. Wal-Mart has a concrete organizational structure in place, and hired experienced senior managers from outside retailing and other areas. Managers in Wal-Mart have more chance to be trained than other retailers. Each of the Regional Vice Presidents (VIPs) was in charge of 80-100 stores and worked as an intermediary of information to headquarters. The top senior officers of the company have a two- hour meeting on Saturday morning, and its annual shareholders meeting became a big event in the world. Wal-Mart build a media relations unit in1989, extended the function of human resources in 1990s and set up a governmental affairs units in Washington D.C.

2. How sustainable is their …

Students Paper:

… is their competitive advantage?

Wal-Mart's competitive advantage in discount retailing is very sustainable …

http://www.megaessays.com/viewpaper/24017.html

… How sustainable is Wal-Mart's competitive advantage in discount retailing in 1990? Wal …

… very sustainable due to the three reasons.

The first reason is the durability. …

Students Paper:

… the durability. The customers of Wal-Mart value the value of the dollar and being able to buy brand names at low discount prices. For example …

http://www.megaessays.com/viewpaper/24017.html

… competitors in. Wal-Mart's customers value the value of the dollar and being able to buy brand names at low discount prices. Sam Walton's …

… . For example, Wal-Mart created Sam's American Choice detergent only at half price of P&G Tide, and low price might attract more new customers. Sam Walton's principle was that he believed in bringing the every day low price and keeping prices below everybody else's. That's why …

Students Paper:

… That's why he made providing value part of the culture of Wal-Mart. According to …

http://www.megaessays.com/viewpaper/24017.html

… everybody else's. He made providing value part of the culture of Wal-Mart. Competitive advantages …

… . According to the text book, Wal-Mart's competitive advantages can be viewed as …

Students Paper:

… viewed as price, design, convenience, quality, good brand image and reputation connected with …

http://www.megaessays.com/viewpaper/24017.html

… to be price, quality, design, convenience, good brand image and reputation associated with …

… connected with products and services or other factors. So assortment of merchandise that offers one-stop shopping and high in-stock levels provide confidence to customers that Wal-Mart can have what they need, and the online shop (Wal-Mart.com) improved company's access to higher-income customers. In addition, in order to achieve the goal of "EDLP", Wal-Mart store opens in a neighborhood, smaller proprietary retail operations are often driven out of business. The reason is that it enhances the company's ability to set prices below the long-run average operating cost of any smaller proprietary retailer. In order to maintain its brand image of the world's largest retailer, its long-run average operating cost is much lower due to economies of scale it realizes.

The second reason is transferability. Wal-Mart is very successful in Chinese market, and became the largest single U.S importer from China by the mid 1990s. According to the data of 2003, the direct imports Wal-Mart purchased from China were added up to $7.5 billion. In the global market, the procurement of Wal-Mart saved the cost of merchandise goods by 10-20%.

The third reason is that Wal-Mart is not easily replicable by other competitors. Using cross-docking helped Wal-Mart minimize the cost of storage, labor and operation. It is a very powerful tool to use information technology and state-of - the art communication system which can guarantee Wal-Mart steadily and readily decreasing sales and merchandise over the US market even to global operations. Wal-Mart launched its own satellite communication system in order to expand its operations and increase distribution centers. Through using communication system, Wal-Mart can be able to network its suppliers such as the cooperation with the leading supplier P&G. The operation capability of Wal-Mart composed of warehouses and stores. Discount stores were open 24 hours from Monday to Saturday. Managers in Wal-Mart local store …

Students Paper:

… local store using inventory and sales data, could choose which products to display based on customer preferences, and allocated shelf space for a product category according to demand of …

http://www.megaessays.com/viewpaper/24017.html

… store managers using inventory and sales data, could choose which products to display based on customer preferences, and allocated shelf space for a product category according to the demand …

… demand of customers. Unlike other big firms, Wal-Mart can be considered as unskilled labor positions, and does not have labor unions. Thus, we can say Wal-Mart has a strong, sustainable competitive advantage in a highly competitive industry focused on lowest-cost, one-stop-shop business model.

3. What external threats does Wal-Mart face?

Although Wal-Mart is very successful to maintain it competitive advantage, it still has some external threats which the company need to meet with.

First, Wal-Mart's continued to expand the foreign countries especially the biggest developing country-----China. However, China is heavily regulated country, and it is a tough market for Wal-Mart to enter. Some of regulations of Wal-Mart may be not fit for China's national conditions. The economic crisis has a negative effect on customers' purchasing power. Wal-Mart faced Federal lawsuit claiming discrimination against women in salary, position, training and compensation. For example, according to the data in 2002(Exhibit 9), there were only four women in the management team (Regional VP) of total 39 people. Although the women were 1/3 more than men, they only hold 1/3 store management jobs. Illegal labors also become the external threats to Wal-Mart. Over 300 illegal workers employed by Wal-Mart used to clean stores were arrested. This might have a bad effect on Wal-Mart's brand image because the company had to face the investigation about hiring the illegal immigrants and spent money on the litigation fees. Moreover, external factors can also have a great impact on managers and how they run their business. As we all know, the principle of Wal-Mart is reducing the cost and bringing the low prices every day, however, if factors outside of its control interfere then the manager will face the dilemma ------increasing prices to remain profitable. What they do will contradict the purpose of the company. Wal-Mart faces fierce competition from old and new competitors. For example, …

Students Paper:

… For example, Wal-Mart, Target and Kmart are very close competitors. Besides Target …

http://www.echeat.com/essay.php?t=28463

… Compared together, Wal-Mart, Target and Kmart are very close competitors. They are …

… . Besides Target, Wal-Mart and Kmart are both …

Students Paper:

… are both retail-variety discount stores making their existence known throughout the world. All of these …

http://www.echeat.com/essay.php?t=28463

… They are all retail-variety discount stores making their existence known throughout the world, except Target …

… of these three companies have the high reputation of offering the lowest price products. In addition, comparing to other competitors, there's no labor union presented in Wal-Mart's business. But the workers' wages of Wal-Mart were about $3/hour less than other unionized competitors. Comparing with Target and Kmart, the average wages for full-time in 2002 were at least 2000 dollar less than that of in Kmart and Target. In order to earn relatively high wages and benefits, the workers in Wal-Mart will require the company to raise their wages.

4. What are Wal-Mart's opportunities given its goals and values, resource and capabilities and structures and systems?

There are several reasons can be described as Wal-Mart's opportunities for success. The first reason is the international expansion. In order to develop cross-border suppliers, Wal-Mart has stores in Russia, Britain and Asia, and became the largest single US importer from China by the mid-1990s. This gives Wal-Mart chances that it can support social responsibility and local economy by hiring the locals of that region and buying products whenever is possible. Wal-Mart can also benefit from the e-commerce. The Wal-Mart.com becomes one of the largest online shop website which offers consumers a list of products which they can choose from. It attracts a lot of higher-income customers and more and more people enjoy this kind of convenient shopping. So the e-commerce gives Wal-Mart opportunities to increase its earnings including the overseas consumers, and also save labor cost, etc. The growing internet shopping helps the Wal-Mart maintain its brand image. Except for that, Wal-Mart launched is satellite network to communicate with its suppliers, and used a bargaining price with suppliers and manufactures. The business relationship Wal-Mart developed gives suppliers full business loyalty, and gives Wal-Mart chances that they can cooperate with these suppliers in a long-term. Both of the information technology system and satellite communication system brings the efficiency of the whole supply chain management including customers, suppliers, shareholders and trading partners, and enhances Wal-Mart's integration and coherence of what the company has set up. Moreover, the transportation, monitoring and the way of using RFID tags still become the opportunity to Wal-Mart. The company's strategy is to built up their stores closing to small towns and rural areas. The innovation RFID tags helps Wal-Mart track down their products efficiently which allows Wal-Mart replenish shelves and gives the customers more chances to taste new products. That's the good chance for Wal-Mart to grow its sales and expand the market. Wal-Mart's basic principle of EDLP gives the company more opportunities to maximize its net profit. Actually, Wal-Mart is successful in searching the way of capitalizing on each cost saving opportunities. The adoption of efficient logistic system enables Wal-Mart to win unrivaled intangible competitive advantage and maintain its position in the retail market.

Reference:

Pankaj, G., Stephen, B., & Ken, M. (2004, January 30). Harvard Business Case. Retrieved March 7, 2010, from http://hbr.org/product/a/an/704430-PDF-ENG?cm_sp=doi-_-case-_-704430-PDF-ENG&referral=00103

Appendix

The value chain of Wal-Mart

Primary Activities and Costs

Secondary Activities and Costs

Technology and Systems Development

Human Resources Management

General Administration

Supply Chain Management

Sales & Marketing

Distribution

Customer Service

Profit Margin

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Master document text

Name: Jing Li (Doris)

GGU ID: 0554214

Applied by FI-320

March 8, 2010

Mid-term Wal-Mart Stores in 2003

1. What is the nature and source of Wal-Mart's competitive advantage?

Wal-Mart Stores Inc. is the largest retailer in the world. The company was set up by Sam Walton in 1962 with a goal of offering low prices to everyone. There are several reasons for Wal-Mart success in the competitive American retail market. So the nature and source of Wal-Mart's competitive advantage can be concluded as follows:

The first factor is the tangible resources including financial tangible resource and physical tangible resource. 1) Financial tangible resource: In 2003, Wal-Mart's total cost of goods sold was $192 billion. Its net income was $8 billion on sales of $245 billion, and increased about 21% and 12% respectively comparing with the year of 2002. At the same year, Wal-Mart's online shop generated estimated $100 million and overall sales per square foot amounted to $440. It earned $12.5 billion in operating cash flow and paid out $1.2 billion as dividends and $3.2 billion in a stock repurchase program. In addition, from 1988 to 2000, Wal-Mart's revenues were up from $20 billion to $200 billion. Also, Wal-Mart had achieved to grew inventory turns from 3.2 in 1973 to 4.4 by 1983, 4.5 by 1993 and 7.6 by the beginning of 2003. 2) Physical tangible resource: Wal-Mart Stores, Inc. operated more than 4600 stores with a total are of about 561 million square feet in 2003. David Glass who was the Vice President of Finance and Distribution in 1976, focused on investments in IT and built automated distribution centers and used computers to connect stores and suppliers. Walton installed private satellite network in the early 1980s. Wal-Mart separated its retailing format into two parts: domestic (including discount stores, supercenters, neighborhood markets and SAM'S Clubs) and international. Wal-Mart's stores usually concentrated in small towns and rural areas. The company increased its discount store with average size of 42,000suqare feet in 1975 to 57,000 square feet in 1985 and 91,000 square feet in 1995, and neighborhood markets helped Wal-Mart enter into suburban areas.

The second factor is the intangible resources including technology and reputation.

1) Technology: In the early 1980s, Wal-Mart installed private satellite network creating the communication with suppliers. For example, using electronic data interchange (EDI) to communicate with suppliers. In 2002, Wal-Mart's data warehouse with a 250-terabyte analytic database became one of the largest private database in the world only second to telecom company SBC's. Moreover, Wal-Mart invented a "Scan 'N Pay'"(SNP) model to maintain suppliers ownership, and introduced a new radio frequency identification (RFID) technology to avoid the shortage of products. Moreover, the Assortment Planning System (MCAPS) could also be viewed as a good tool of managing the products. To streamline these tasks, Wal-Mart set up a "hub-and-spoke" network of 103 massive distribution centers (DC). 2) Reputation: Wal-Mart is one of the largest retailers, and emphasizes on its image of everyday low prices and high quality goods when marketing. It used the market slogan EDLP (every day low price) which means the price is always the lowest price as its long-term target, and maintained this EDLP image by advertising, sponsoring community events and creating in-store excitement. Every month, the company distributed leaflets to above 40 million families. Use its satellite network to communicate with suppliers, and improve customer service. For instance, the credit card could be accepted in Wal-Mart by the end of 1980s.

The third factor is the human resources. Wal-Mart has a concrete organizational structure in place, and hired experienced senior managers from outside retailing and other areas. Managers in Wal-Mart have more chance to be trained than other retailers. Each of the Regional Vice Presidents (VIPs) was in charge of 80-100 stores and worked as an intermediary of information to headquarters. The top senior officers of the company have a two- hour meeting on Saturday morning, and its annual shareholders meeting became a big event in the world. Wal-Mart build a media relations unit in1989, extended the function of human resources in 1990s and set up a governmental affairs units in Washington D.C.

2. How sustainable is their competitive advantage?

Wal-Mart's competitive advantage in discount retailing is very sustainable due to the three reasons.

The first reason is the durability. The customers of Wal-Mart value the value of the dollar and being able to buy brand names at low discount prices. For example, Wal-Mart created Sam's American Choice detergent only at half price of P&G Tide, and low price might attract more new customers. Sam Walton's principle was that he believed in bringing the every day low price and keeping prices below everybody else's. That's why he made providing value part of the culture of Wal-Mart. According to the text book, Wal-Mart's competitive advantages can be viewed as price, design, convenience, quality, good brand image and reputation connected with products and services or other factors. So assortment of merchandise that offers one-stop shopping and high in-stock levels provide confidence to customers that Wal-Mart can have what they need, and the online shop (Wal-Mart.com) improved company's access to higher-income customers. In addition, in order to achieve the goal of "EDLP", Wal-Mart store opens in a neighborhood, smaller proprietary retail operations are often driven out of business. The reason is that it enhances the company's ability to set prices below the long-run average operating cost of any smaller proprietary retailer. In order to maintain its brand image of the world's largest retailer, its long-run average operating cost is much lower due to economies of scale it realizes.

The second reason is transferability. Wal-Mart is very successful in Chinese market, and became the largest single U.S importer from China by the mid 1990s. According to the data of 2003, the direct imports Wal-Mart purchased from China were added up to $7.5 billion. In the global market, the procurement of Wal-Mart saved the cost of merchandise goods by 10-20%.

The third reason is that Wal-Mart is not easily replicable by other competitors. Using cross-docking helped Wal-Mart minimize the cost of storage, labor and operation. It is a very powerful tool to use information technology and state-of - the art communication system which can guarantee Wal-Mart steadily and readily decreasing sales and merchandise over the US market even to global operations. Wal-Mart launched its own satellite communication system in order to expand its operations and increase distribution centers. Through using communication system, Wal-Mart can be able to network its suppliers such as the cooperation with the leading supplier P&G. The operation capability of Wal-Mart composed of warehouses and stores. Discount stores were open 24 hours from Monday to Saturday. Managers in Wal-Mart local store using inventory and sales data, could choose which products to display based on customer preferences, and allocated shelf space for a product category according to demand of customers. Unlike other big firms, Wal-Mart can be considered as unskilled labor positions, and does not have labor unions. Thus, we can say Wal-Mart has a strong, sustainable competitive advantage in a highly competitive industry focused on lowest-cost, one-stop-shop business model.

3. What external threats does Wal-Mart face?

Although Wal-Mart is very successful to maintain it competitive advantage, it still has some external threats which the company need to meet with.

First, Wal-Mart's continued to expand the foreign countries especially the biggest developing country-----China. However, China is heavily regulated country, and it is a tough market for Wal-Mart to enter. Some of regulations of Wal-Mart may be not fit for China's national conditions. The economic crisis has a negative effect on customers' purchasing power. Wal-Mart faced Federal lawsuit claiming discrimination against women in salary, position, training and compensation. For example, according to the data in 2002(Exhibit 9), there were only four women in the management team (Regional VP) of total 39 people. Although the women were 1/3 more than men, they only hold 1/3 store management jobs. Illegal labors also become the external threats to Wal-Mart. Over 300 illegal workers employed by Wal-Mart used to clean stores were arrested. This might have a bad effect on Wal-Mart's brand image because the company had to face the investigation about hiring the illegal immigrants and spent money on the litigation fees. Moreover, external factors can also have a great impact on managers and how they run their business. As we all know, the principle of Wal-Mart is reducing the cost and bringing the low prices every day, however, if factors outside of its control interfere then the manager will face the dilemma ------increasing prices to remain profitable. What they do will contradict the purpose of the company. Wal-Mart faces fierce competition from old and new competitors. For example, Wal-Mart, Target and Kmart are very close competitors. Besides Target, Wal-Mart and Kmart are both retail-variety discount stores making their existence known throughout the world. All of these three companies have the high reputation of offering the lowest price products. In addition, comparing to other competitors, there's no labor union presented in Wal-Mart's business. But the workers' wages of Wal-Mart were about $3/hour less than other unionized competitors. Comparing with Target and Kmart, the average wages for full-time in 2002 were at least 2000 dollar less than that of in Kmart and Target. In order to earn relatively high wages and benefits, the workers in Wal-Mart will require the company to raise their wages.

4. What are Wal-Mart's opportunities given its goals and values, resource and capabilities and structures and systems?

There are several reasons can be described as Wal-Mart's opportunities for success. The first reason is the international expansion. In order to develop cross-border suppliers, Wal-Mart has stores in Russia, Britain and Asia, and became the largest single US importer from China by the mid-1990s. This gives Wal-Mart chances that it can support social responsibility and local economy by hiring the locals of that region and buying products whenever is possible. Wal-Mart can also benefit from the e-commerce. The Wal-Mart.com becomes one of the largest online shop website which offers consumers a list of products which they can choose from. It attracts a lot of higher-income customers and more and more people enjoy this kind of convenient shopping. So the e-commerce gives Wal-Mart opportunities to increase its earnings including the overseas consumers, and also save labor cost, etc. The growing internet shopping helps the Wal-Mart maintain its brand image. Except for that, Wal-Mart launched is satellite network to communicate with its suppliers, and used a bargaining price with suppliers and manufactures. The business relationship Wal-Mart developed gives suppliers full business loyalty, and gives Wal-Mart chances that they can cooperate with these suppliers in a long-term. Both of the information technology system and satellite communication system brings the efficiency of the whole supply chain management including customers, suppliers, shareholders and trading partners, and enhances Wal-Mart's integration and coherence of what the company has set up. Moreover, the transportation, monitoring and the way of using RFID tags still become the opportunity to Wal-Mart. The company's strategy is to built up their stores closing to small towns and rural areas. The innovation RFID tags helps Wal-Mart track down their products efficiently which allows Wal-Mart replenish shelves and gives the customers more chances to taste new products. That's the good chance for Wal-Mart to grow its sales and expand the market. Wal-Mart's basic principle of EDLP gives the company more opportunities to maximize its net profit. Actually, Wal-Mart is successful in searching the way of capitalizing on each cost saving opportunities. The adoption of efficient logistic system enables Wal-Mart to win unrivaled intangible competitive advantage and maintain its position in the retail market.

Reference:

Pankaj, G., Stephen, B., & Ken, M. (2004, January 30). Harvard Business Case. Retrieved March 7, 2010, from http://hbr.org/product/a/an/704430-PDF-ENG?cm_sp=doi-_-case-_-704430-PDF-ENG&referral=00103