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The globalization strategy: MNC Walmart

Paper Type: Free Essay Subject: Marketing
Wordcount: 3710 words Published: 16th May 2017

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A multinational company (MNC) refers to any enterprise which operates in several countries but has their headquarters in the host country. The particular business is also owned by nationals of several countries where there is a combination of multiracial manpower who serves in the parent company and its branches too. When the business is expanded globally, the main purpose is to acquire the cost advantage where cheaper resources are available. The main criteria of being an MNC are the engagement and contribution toward foreign direct investment into other countries by maximizing their profit and domination on certain industry.

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Walmart has been ranked first among retailers in Fortune Magazine’s 2010 Most Admired Companies survey. Walmart operates under retail industry which gains demand day by day. Retailing is the final process to market products directly to end users without any middleperson. Basically there are two types of retailers in industry such as store retailers and non-store retailers. Store retailers are who has physical location to store inventories and display products to attract customers to actually purchase those products. Non-store retailers are who do not have physical location but uses the similar marketing method as store retailers. For example, click and mortar store via e-commerce, catalogue sales and direct response television advertising. Walmart operates as wholesale retailer which known as “big-box” retailer who sells many varieties of products with discounted price.

The latest trend in retail management is the usage of Customer Resource Management (CRM) and Radio Frequency Identification (RFID). By having CRM system, company can track customers’ preference and suggest other similar products which are interesting to them. RFID enables company to keep track of inventories to facilitate product receivable and delivery. It accurately shows the number of current stock and the demand for a particular product which keeps the supply chain flow efficiently and effectively.

There are many types of retail establishment such as department stores, discount stores, speciality stores, grocery stores, category killers and e-tailers. In order to excel in retail industry, a company should have capital incentive advantage such as large amount of land, high-tech equipment and automated system to process and produce products more quickly.

Since Walmart’s opening on 1962 by Sam Walton which located in Rogers Ark USA, the company has fulfil its globalization process by spreading its business to 15 countries with 4292 stores and employees known as associates whose more than 700 000. With annual profit about $10 million per year, Walmart became the largest private employer worldwide. Even they are named with different banners such as Pali in Costa Rica, Todo Dia in Brazil and Despensa Familiar in Central America but they share the common goal that is “Save people money, so they can live better”. It is obvious that Walmart focuses on cost-leadership management where they provide the lowest price to their customers compare to their competitors.

Walmart practices product standardization where it produces similar products to the countries they operate. Even the products are being supplied by different suppliers, products are not customized. It is because Walmart has adapted to the theory “think globally, act locally” also known as “think glocally”. Basically, Walmart offers all type of household products from kids’ apparel to office furniture which is selected from qualified suppliers.

On 1983, Walmart taken its further step by opening up new concept stores such as Walmart Discount store offers household products, Walmart Supercentre offers bakery and frozen foods, Walmart Neighbourhood Market offers groceries and pharmaceutical products and Marketside offers fresh foods and hot meals. Sam’s Club was opened and named after the founder Sam Walton. It is a chain of membership opens to Walmart loyal customers where they can purchase products in bulk with much cheaper price.

Walmart practices Sam Walton’s culture into their management philosophy such as Open door, Sundown rule, Grass Roots process, 3 Basics beliefs and values, 10-Foot rule, Servant Leadership, Teamwork, Walmart Cheer and Associates Stories. For example 10-Foot Rule is Walmart’s secret to customer service where employees will greet and assist customers who are in distance between 10 feet.

Walmart does service differentiation where retail-tainment is practised in each and every store. It gives customers a new way of shopping experience such as setting up aisles and creative lightings for different sections which cannot be found in other retail companies.

The strength of Walmart would be its offering of lowest price. Being the industry leader, there will not be any shortage of supplies of goods. Supply-chain management of Walmart uses cross-docking method which reduces inventory space and time-of-delivery. Walmart also has the facility of CRM and RFID system to keep track customers and inventory. It has continuously gained associates loyalty by having stock ownership and profit-sharing programme. Recently, Walmart has launched free Wireless Fidelity (Wi-Fi) to its stores and free shuttle bus service to and from Walmart for its customers. This creates strong community involvement toward Walmart’s progress.

The weakness would be the discrimination of gender where there are few women is appointed on the top management. Walmart still using old fashioned store policies such as door checking receipts where after checking out, customer need to wait for 10 seconds until the receipts and goods purchased are being scanned and approved by the receipt checker.

Walmart has made use of opportunities such as growth of Internet shopping when it launched its virtual shopping experience via its website on the year 2000. On 2010, Walmart has penetrated Asian market by investing and joint-venture with Asian giant retail companies. Retail sales are expected to increase in future due to higher demand of quality might be raised from Asians.

Walmart facing threats externally after it has expanded to India. Remote areas or small towns are refusing to accept the entry of Walmart into their spot. It is because they do not want western culture of Walmart or “Walmartization” to wipe away the small business owners. Variety of competition is being faced nationally, regionally and locally. The main competitors in USA are K-Mart, Target, Kohl’s, Dollar General Carrefour and Tesco. Competitors in India are Big-Bazaar, Reliance Retail and Tru-Mart. While in China are Carrefour and Brilliance. Being the industry leader, Walmart is retaining its cost-leadership strategy in order to sustain its position in retail industry.

Walmart expansion which is based on political environment has greater impact currently. Before 1970, Walmart is only known for one-stop-discount-centre which is located in Roger’s Ark. Soon it’s opening on 1962, it has attracted many customers and gained extravagant profit. On 1980, Walmart needed financial assistance to expand its business to other states to be the market leader. During this period, interest rate of financial loan in bank has raised from 9% to 18%. This made easier for financial institution to lend Walmart the needed loan due to Walmart’s selling and monopoly power. According to economic environment, on 1980, individuals’ salary has increased as income tax has dropped from 91% to 50%. There was growth in total family income from low to middle class families in USA. Walmart made use of this income and tax advantage to supply more discounted rate of products knowing that these consumers would benefited from buying mass products with lower cost. During USA recession on the year 1976, Walmart was the only retailer to hit $1 billion sales and contributed to growth of GDP in USA from $3 trillion to $6 trillion in the shortest time. Walmart was favoured by citizens in USA who lives in poverty later followed by enormous rate of unemployment. During this period it enables them to buy large number of products with least price according to their income.

On social environment, Walmart has gained its main strength which is customer loyalty. It has successfully shift consumer confidence from retailers to product brands due to Walmart’s fair pricing, branding and labelling. The return of movie industry after defeat to television dramas’ and telenovela contributed toward Walmart’s profit. During 1980’s, more hit movies are made such as Star Wars, Jaws, Alien, E.T, Indiana Jones and many more which raised the sale of videos and then followed by VCD on 1993. During 1980 to 1990, more population increased as the baby boomers of 50’s and 60’s grew up employed and being married which increased the number of consumers and units of supplies. On, technological environment, Walmart has continuously focused on research and development to optimize the usage of advanced technology. On 1975, Walmart used IBM computers to keep track of inventories, distribution and supply-chain-management. It also created new network to keep track of Point of Sales (POS) data as the customer check-out at register. On 1977, Walmart ease the order to suppliers by using computer based system. On 1983, Walmart emerge as the first retailer to use bar codes to scan POS data which is now adapted by all the retailers. At present, Walmart uses RFID system where a chip is attached to a particular product usually mass product. It is then used to keep track of the location of product whether it is on delivery or already received by customer. RFID system is only used for products which are ordered online via Walmart’s website.

Walmart’s sociocultural environment studies shows that Walmart adapts individualism since it has the sole control on its business. Being the world market leader, Walmart sets the product price, penetrate new market and create demand from suppliers for preferred price. The small power distance between employer and subordinates has made Walmart to be the guideline in cross-cultural management to other MNC’s. Subordinate work based on autonomy concept where they are able to approach their supervisor easily. Walmart has weak uncertainty avoidance where it responses to changes in environment and grab new opportunity. For example, as internet service is getting higher demand in USA, Walmart grabbed this opportunity to sign contract with Hughs Network System to sell their broadband services to customers. This was a part to attract American rural consumers to purchase broadband with high speed internet access with lower cost which is rarely seen in remote areas in USA.

Being adapted to masculinity, Walmart has more female workers than male workers but more priority and privilege is given to male workers. For example on 2001, Walmart faced lawsuit of sexual discrimination where men is paid more wages compare to women who works for the same hours. Fewer women are promoted or hired to top position in management even they are more qualified compare to men employees. Walmart adapted to short-term orientation according to western culture where it focuses on current situation. Walmart rely heavily on current data in decision making. For example, when a new product is introduced in market, Walmart may not have sufficient and relevant data on how the product will be sold. So, in this matter, Walmart adapts to guesswork system where its sales executives are allowed to make assumption on sales because those are people who works close to sales and marketing. By using this strategy, Walmart is able to solve mistakes by any error and trials.

Walmart faced culture clash in Japan (Seiyu) where, in contrast to American culture, Japanese are more focused to group than individualism. Decision making is done after thorough research and analysis based on long-term orientation which takes a longer time to reach decision. This has caused conflict between American and Japanese culture.

Walmart’s made its globalization in China on 1996. Walmart expanded internationally on 1991 when it opened a new store in Mexico City. Soon, it started to globalize to other countries such as Argentina, Guatemala, Honduras and 10 other countries outside of USA respectively. On 1996, Walmart has targeted China as the first Asian country to expand its business throughout Asia via horizontal integration. It has bought Trust-Mart for $1 Billion which already has 100 stores in China and the main source for groceries and retail products. On 2004, Walmart has imported $15 billion products from China which caused US trade deficit in China approximately of $150 billion. On 2007, Walmart has gained its annual profit around $21.32 billion. Walmart gained production cost advantage by entering into China. It was able to cut production cost because more than 70% goods sold in Walmart are made in China. This brings up matter of anti-dumping where Walmart starts to sell products for much lower price than it used to be.

Walmart’s current project is now in India. India’s retail business is the world’s eight largest retailers with worth of $250 billion. It has potential growth of 7% by the year 2011. Walmart entered into India as wholesaler because India does not allow multi-retail foreign retailers to do direct selling to consumers. Factors considered by Walmart before move into India were such as large market opportunities with higher population. Since Walmart’s target markets are the middle and low class people, India has population of 300 million people with low and middle income. Demographics in India attracted Walmart because 60% of Indian population consist age from 20-30 who prefer for a modernized shopping experience. With these factors, Walmart were able to get cheaper manpower and resources by having joint-venture with Bharti Enterprise.

Even Walmart has gain profit in India, but it has to face many threats such as restricted Foreign Direct Investment. Currently, India allows rate of 51% fdi for single-brand retail but none in multi-brand retail. Walmart’s hoping for 100% fdi contribution in India in a way to solve inflation crisis by 50 to 70 bases. It will also help new vendors to emerge since Walmart will source their products from India. It also plans to partner with 600 Indian small and medium farmers by sourcing 50% of their fresh produce. To enhance the farming techniques, Walmart will provide training on crop management and direct marketing channels where the farmers can expect at least 20% increase in their income. India has a poor supply-chain management where there is no refrigerated cold chain for frozen foods. It increases 40% wastage of perishable products by the time it reaches the consumers. Forecasted on 2015, Walmart would sell food worth of $1 billion which is sourced from farmers in India. In 5 years time frame, Walmart forecasted that there will be approximately 2.3 to 3 million more job opportunities by having multi-brand retail. This will reduce the level of unemployment and produce more efficient and skilful workers at the same time.

India’s poor infrastructure and technology makes it difficult to tally with Walmart’s process, marketing and management. Walmart has to re-design the distribution channel, policy, and culture to fit with India’s environment. There is also protest from small business such as Kirana mom and pop business. Walmart would seriously affect their business since it is a small business wholly owned by family members with no formal business atmosphere. Another threat is the poor public image before Walmart’s entry into India. Walmart is identified as monopoly giants who could offshore many small businesses. The proof was from previous opening in UK where many small business retailers faced losses and lost their business to Walmart. It also faces tight competition from other retailers in India such as Pantaloon, Shopper’s Stop and Piramals.

Walmart’s has many actual impacts on globalization. Walmart is the largest private employer in USA with worth of billions. The government of USA has to depend on Walmart’s tax revenue which plays an important source of government revenue annually. It has made consumers left with few choices of retailers after off-shoring other small businesses due to it’s entering into rural and remote areas in USA. Consumer’s has no more purchasing power rather than to shop in Walmart to get the lowest price as possible. Since Walmart has taken over the purchasing power, suppliers have to solely depend on Walmart’s purchase orders and continually re-design their organization structure to meet demand of Walmart. Walmart’s monopoly approach has caused other business to accept any contract with Walmart to gain profit even Walmart has the final saying on the price of product. Walmart continuously persuade consumer’s who are less educated and uninformed by moving into small rural communities who are facing poverty. Its extreme competitive pricing scheme would automatically attract those communities to shop in Walmart.

Walmart’s positive impact was on employment opportunities where approximately 210 000 jobs were created nationwide. Competition with Walmart has made other companies to serve better and offer products with lower price. In order to compete with Walmart, its rivals such as K-Mart, Target and Sears started to emulate effective and enhanced processes.

Walmart negative impact was on off-shoring small business. Being the industry leader, Walmart has the power to take maximum control on retail industry in future. This might cause conflict in the global market where Walmart will have the monopoly power compare to other competitors outside of USA. This will discourage new retail business to emerge due to high competitiveness from Walmart.

Even though Walmart is known as low-cost leaders, it should start focus on quality too. Currently, due to economic recession, consumers prefers for low cost rather than high quality products. In future, once the economic recession is recovered, Walmart might have to change its strategy from low-cost to quality based strategy. Consumers demographic changes will cause psychographic change where preference and quality is given more priority compare to price. Walmart also should focus on cross-cultural dimensions especially when launch its business to Asian countries. A business will fail in Asia if frequently made changes such as rules and regulation, policies and internal environment in an organization. It must change its management approach according to Asian culture. Gender discrimination should be abolished where women are given the similar importance as men subordinates in order to sustain in Asian countries.



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Appendix 1

Source: Walmart 20081

Appendix 2

Source: Walmart, 2008


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