Capstone Paper
- Introduction
Wal-Mart is American retail chain that runs its operation on a global scale. The company operates over 10,000 retail outlets in over 27 different countries (Wal-Mart, 2012). Majority of Wal-Mart’s stores are located in the US. The forms the most significant market for the company as it accounts for the largest portion of the company’s revenues. In 2011, Wal-Mart became the second largest private corporation, in terms of revenues, after recording a revenue figure of over $ 400 billion. Wal-Mart is publicly traded company having been listed in the New York Stock Exchange in 1972 (Wal-Mart, 2012). The stock symbol for the company is WMT. Wal-Mart is also one of the largest private employers having over 2.2 million employees working in the organization. Wal-Mart mainly deals with products such as household goods and apparel among other commodities.
External Environmental Analysis
a.The General Environment
General environmental factors refer to factors that affect an organization and which are external to the organization (Gallspie, 2007). Organizations usually have limited control over this factor despite the ability of these factors to create opportunities and pose threats to the organization.
- § Economic
One of the general environmental factors that have an impact of the operations of Wal-Mart is the state of the economy. Economic factors have various implications on a business. These factors are such as inflation, interest rates, tax rates and exchange rates (Gallspie, 2007). Inflation is a measure of rise of prices of essential services and goods. Inflation has both direct and indirect impact on Wal-Mart. Inflation has a direct impact on Wal-Mart because it affects the prices of services and goods on offer by the retailer. When inflation rate is high prices of commodity goes up thus reducing demand. Inflation rate also has an indirect impact on Wal-Mart as it reduced the purchasing power of consumers.
Interest rates also have direct and indirect impact on Wal-Mart. High interest rate increases the cost of obtaining funds by Wal-Mart stores thus exerting a direct impact on the organization. Interest rates also affect the availability of funds to Wal-Mart customers thus exerting an indirect impact on the corporation. Tax rates have an impact on the company’s income as well as on the income of consumers. Wal- Mart is an an international retailer that runs its retail shops in 27 different countries (Wal-Mart, 2012). This means that the company runs it operations in different currencies and thus changes in rates of exchange can have major implications on the company.
- § Social-Cultural
Social cultural factors such as age, gender, income, religion and level of education also have an impact on the operations of Wal-Mart. One way in which these factors affect Wal-Mart is by affecting the consumption behavior of the market (Gallspie, 2007). A population that comprises of many older people is likely to have different demands from populations consist of younger people. Europe and the United States are Wal-Mart’s key markets. These markets are characterized by an aging population.
Similarly, a society with a high level of income and education is bound to have a greater purchasing power than society with low income and education level. Europe and the United States are made by highly educated societies, which have high levels of income. Members of such societies are also more knowledgeable and demanding. Social cultural characteristics of a market also affect Wal-Mart by affecting availability of labor. Presence of an aging population in Europe, United States and other key markets such as Australia, South Korea, China and Japan is likely to lead to shortage of labor.
- § Technological
Technology refers to tools and method that facilitate the production process. Technological changes have major impacts on any business (Gallspie, 2007). Technology affects production efficiency thus organizations that rely on technology are able to become more efficient. Wal-Mart has invested a lot of resources in incorporate new technology into its supply chain. This has result in an efficient and cost effective supply chain.
- § Political-Legal Environment
Political forces also have an impact on Wal-Mart. These forces include government legislation concerning the environment, labor, production, taxation and other issues that affect business (Gallspie, 2007). Wal-Mart is exposed to different political environments due to the international nature of the organization. These legislations may impose costs on organizations or provide opportunities
b. The Environment within the Industry
This section examines Wal-Mart micro environment and how it affects the organization. Micro-environment refers to factors that are very close to the business and affects the outcome of the business (Gallspie, 2007). The relationships in this environment affect the overall costs, opportunities and effectiveness of the business. The section will make use of “Porter’s Five Forces” model to analyze Wal-Mart’s micro-environment. This model focus on five important forces: exiting competitors, threat of new entrants, threat of substitutes, bargaining power of suppliers and bargaining power of consumers.
- § Threat of Existing Competitors
The retail industry, in which Wal-Mart operates, is very competitive. Wal-Mart is the market leader in terms of statistics such as market shares, geographical coverage, sales volume and profitability (Yuansheng, 2011). However, the company faces stiff competitions from other international retailers such as; Target, Costco, K-Mart and Tesco (Moody, 2010). These retailers have similar advantages such as massive financial resources, expansive geographical coverage and great technological capability and hence pose a major threat to Wal-Mart. Wal-Mart also encounters stiff competition from as small local retailers (Blanchard & Comm, 2008). Though these small retailers do not have the financial advantages as the multinational retailers, they have greater knowledge of the local markets and this gives them a competitive edge.
- § Threat of New Entrant
The retail industry is less regulated industry that is characterized by relatively low capital requirement and few other entry barriers (Moody, 2010). This means that the threat of new entrant is very real. Many new stores are being established on a daily basis in different places of the world. Though the magnitude of their operations is not similar to that of Wal-Mart, these stores are capable of out-competing Wal-Mart and other international retail chain due to their close contact with the consumers (Moody, 2010).
- § Threat of Substitute
Wal-Mart deals with a wide range of products; from household consumable goods, textile to furniture and electronic (Yuansheng, 2011). These products can easily find cheaper substitutes in the market and therefore the threat of substitutes is also real (Moody, 2010)l. Wal-Mart has tried to suppress this threat by making its supply chain efficient and capitalizing on the advantages of economy of scale in order to drive the prices of its commodities down.
- § Bargaining Power of Suppliers
Wal-Mart Stores, Inc has numerous suppliers (Blanchard & Comm, 2008). Some of these suppliers are small business entities with relatively low bargaining power. However, the company also deals with large suppliers including; giant electronic companies such general electrics and giant food processors such as Proctor & Allan (Moody, 2010). Such suppliers have great bargaining power and are capable of influencing Wal-Mart’s prices.
- § Bargaining Power of Consumers
Wal-Mart also deals with different categories of consumers (Yuansheng, 2011). Some of these consumers are large organizations or even government institutions and therefore have great bargaining power. Other consumers are small and fragmented and are incapable of influencing Wal-Mart operating decisions (Moody, 2010). However, in markets such as the United States and Europe consumers are becoming well organized into consumer groups, which are capable of influence future decisions of the company. The market is also characterized by highly informed and educated consumers which give them some degree of power.
c. The Organization’s Market
Retailers are entities that buy commodities in bulk from suppliers and offer them to the consumers in smaller quantities (Moody, 2010). Apart from assisting producers to distribute their products, retailers also assist consumers to have easier access to goods and services. Retailers deal with different lines of products. These may include; grocery, apparel and textile, drugs, furniture and electronics. Wal-Mart is a large retailer that deals with most of these lines of products (Yuansheng, 2011). These are very basic and essential products, and thus the market for the retail industry is fairly large. Wal-Mart is relatively popular brand. The company invests huge resources in marketing its brand.
d. Purpose or Mission of the Organization
Wal-Mart’s mission is to improve people lives by offering them with lest costly goods and services (Wal-Mart, 2012). Delivering low process to consumers has been Wal-Mart’s main goal and the main source of competitive advantage. The company has been very effective in implementing this cost leadership strategy.
References
Blanchard C. & Comm C. (2008). “Adding Value to Service Providers: Benchmarking Wal-Mart”. Benchmarking. 15 (2): 166 -177
Gallspie J. (2007). “Foundation of Economics”. USA. Oxford Press
Moody (2010). “Global Retail Industry”. July 24, 2012. http://www.moodys.com.br/brasil/pdf/Global_Retail_Industry.pdf
Wal-Mart (2012). “Wal-Mart 2012 Annual Report”. July 19, 2012. http://www.walmartstores.com/sites/annual-report/2012/WalMart_AR.pdf
Yuansheng L. (2011). “Wal-Mart Business Model Study”. International Journal of Advanced Economics and Business Management. 1 (2); 93- 97
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