International Regional Integration: Walmart, Essay Example

Executive Summary

Walmart is a multinational organization that is well-known for their inexpensive products and widespread customer reach. When analyzing the corporate strategy, it is important to review what elements make the company’s operations possible. The findings of the below research show that in order to successfully maintain its market share and expand internationally, the company must collaborate with many different organizations, both locally and overseas. Walmart outsources most of its labor to manufactures overseas, which allows the organization to obtain labor for reduced costs. It is valuable to analyze Walmart’s demographic overview in order to gain a greater understanding of the locations and people that the corporation serves. The low prices of the company attract specific clientele. It is essential for competitive businesses to understand Walmart’s strategy in terms of demographics.

It appears that Walmart is concerned remaining competitive in the market where other organizations on both a local and international scale are focusing on gaining greater market share.  This requires Walmart to significantly alter its practices both domestically and overseas. There are many businesses that compete with Walmart by targeting their business to different subsections of the population, or by attempting to directly compete on the basis of pricing or product availability. The below essay will show that it is time for Walmart to carefully consider their current business practices and determine which actions they could take to their ability to compete with regards to their target demographics and the demographics of relevant competitors. This refocusing of the marketing strategy is expected to promote Walmart’s ability to market themselves more effectively, enhancing profit as a result.

Introduction

Understanding the demographics, needs, and preferences of its customers  is an important component of Walmart’s business practices. Since it is a multinational corporation, company executives must gain a comprehensive understanding of customer segments that allow the organization to become successful both within individual countries on the global level. While the corporation is an American company, it is essential to understand that a majority of its manufacturing practices are outsourced overseas in order to keep operational costs low. In addition, the transport and logistics process for each product is complex; a product may reach as many as three countries to be assembled before it finally reaches the consumer. This process allows Walmart’s products to be manufactured cheaply and sold cheaply. As a result, Walmart shoppers are those that are most eager to find low prices. These individuals typically live near a Walmart store, have heard of the value of the store from either a Walmart promoted commercial or through word of mouth, and tend to have lower than average earnings.

Walmart’s Global Strategy

At the beginning of fiscal year 2015, the company was reported to make approximately 486 billion dollars in profit. Walmart’s business practices and strategies are focused around determining new locations to open stores: expanding to increase market share and operating profit. While many new stores are currently under construction in the United States, the corporation also wishes to spread its influence to other continents. Currently, Walmart stores are located on six continents, although the branding name in these locations differ. In addition, the majority of Walmart’s profit is earned through its United States enterprise. Walmart is willing to expand its practices to areas on the basis of where its target demographic is present. Focusing on consumers attracted by low cost product, Walmart is more likely to successfully expand to developing countries.

Walmart’s Online Strategy

Walmart is conventionally known as a brick and mortar retailer, although it has recently started a trial on several online retail chains. The company is best known for its “supercenter”, which contains a grocery store, non-perishable products, and even services such as a hair salon, pharmacy, and optician. However, the amenities offered at each store vary based on the location and the size of the institution. Recently, Walmart has attempted to expand its online product delivery services, in order to compensate for the lack of physical presence that the store has in some municipalities due to legal restrictions, and tap into new markets. In the United States, the online retailer company operates as Walmart Global e Commerce. Recently, the company has acquired Vudu, a Silicon Valley based company that produces Blu-ray players. It is important to consider that Walmart participated in these internet expansions, because they are aware that this will be considered to be a popular move among their target customers. Walmart customers like to buy inexpensive products, often in bulk. Walmart made this experience even more convenient by allowing customers to shop from the comfort of their own homes. In doing so, the store showed that it listens to customers and tries to understand their preferences. The Walmart management was able to increase the profitability of the organization by acting on information gained about customers.

Competitive Strategy

Walmart is highly concerned with its ability to compete with other large stores, such as Target. However, the two organizations attempt to sell their products to two different groups of individuals; Walmart targets low income individuals that would benefit more significantly from the deals it offers, while Target is more attractive to middle class families. Despite this, Walmart is trying to expand its reach in terms of geography, as it believes that reaching more customers will allow it to become more profitable overall. As such, Walmart constantly creates brands to appeal to different demographics. It’s “Sam’s Club” brand, for example, is meant to appeal to shoppers who wish to acquire bulk discounts. These shoppers are more likely to be considered middle class families and have a need for a larger amount of products over a shorter period of time, indicating that the size of their family is large. Therefore, Walmart is looking to increase its market share through vertically expanding on the market and attracting new customer segments.

Findings

Demographic Factors of Walmart Shoppers

It is evident that Walmart conducts extensive research to determine where it should build its newest location. To do so, it uses census data to determine the population spread in areas where there is land available for building a store from the ground up or installing the store in an already existing structure. Hicks (2008) found that demographic factors that relate to average individual or family income, population density, and distance from competitors are used by Walmart to determine the location of its future stores. It is also important to consider that on an international scale, the country in which Walmart stores are established are relevant because this creates proximity to areas that Walmart receives many of its raw materials or finished products from, thereby reducing Walmart’s trade expenses. A recent study published by Mun (2012) focuses on the company’s global expansion strategies. The findings of the research conclude that the success of Walmart in Mexico, Canada, and China are due to the company’s ability to adapt to new markets, understand demographics, culture, and customer preferences. Moving to BRIC (Brazil, Russia, India, and China) has created an opportunity and challenge at the same time for Walmart. Mun (2012, p. 3) found that “Walmart for BRIC and other developing countries still involved huge discounts and great values on all of their products, similar to strategies in their home country: maintaining low prices every day, especially middle-class customers, yet maintaining profits”.

Walmart attracts the majority of its customers due to its prices, giving shoppers the advantage to save money while continuing to purchase the same types of products that they would have otherwise (Princeton Survey Research Associates International 2005). The survey conducted by the Princeton Survey Research Associates found that price is the top reason that at least half of Walmart customers selected to explain why they shop at these stores. This indicates that Walmart’s differentiation strategy is not based on service and products, but pricing. Porter’s generic competitive strategies (1985) states that in a broad market scope, cost leadership can be extremely effective for capturing market share.

Tanwar (2013) created a review of Walmart’s cost leadership strategy. The author explains the company’s success as follows: “Wal-Mart’s growth during the first two decades was propelled primarily by following the strategy of establishing discount stores in smaller towns and capturing significant market share” (Tanwar, 2013, p. 13).

Approximately 30 percent of respondents on the Princeton Survey Research Associates International (2005) survey reported that they enjoyed the wide selection of items available at Walmart stores, in addition to the convenience of its locations. By building new Walmart locations in areas close to individuals that tend to shop at this category of store, Walmart is able to expand its business. Furthermore, adding a broader selection of items to its shelves has also been shown to be beneficial for this purpose. Other findings of the studying indicated that a majority of people who shop at Walmart earn less than $30,000 each year. Very few people that earn more than $50,000 self-reported themselves as Walmart shoppers. This shows the importance of Walmart using surveys of its customers to gain a better understanding of where to build its stores and how to expand its practice as a result.

Just as Walmart uses customer demographics to adjust its competitive strategy, consumers have been shown to use a reflective algorithm to determine where they shop. Chiou (2009) reported that some customers prefer to shop at Walmart compared to its competitors because they have learned to trust the brand and they consider it to be more convenient than alternative options. The author of the study conducted a statistical analysis that found that the average male customer, a 35-year-old individual that is also a parent, has a college education, and a salary that is reflective of the median income of his area, would be more likely to purchase an expensive electronic product at Walmart, even if it is the same price at another store. It is possible that the individuals that prefer to shop at Walmart affiliate the store with a sense of trust. Even though Walmart’s competitors are likely to have the same refund policy, and perhaps even similar prices, people are more driven to shop at Walmart due to the reputation of the brand and convenient location.

The Impact of Walmart on Competition

On a broad scale, it can be said that Walmart has two different types of competitors. First, there are small, independently-owned businesses. These types of stores are usually wiped out almost immediately after Walmart enters their area because it is impossible for them to offer the same diversity of items at competitive prices (Basker 2007). Statistical studies analyzing this effect have shown that there are generally two to three less general shops in areas with a Walmart compared to areas that do not have a Walmart (Jia 2007). A lot of stores have closed down over the past several decades due to Walmart’s domestic expansion.  Because Walmart stores know that they should open in areas in which there are more individuals that meet their target demographic, they are appealing to members of the population and detracting them from going into smaller stores, where they will pay higher prices and may not find the item that they are looking for.

The competition between Walmart and larger stores is somewhat different. This is mostly because other large organizations are also able to market effectively towards the same market demographic as Walmart. As a consequence, it becomes necessary for the company to implement a greater diversity of strategies in order to accommodate this enhanced needed for marketing.  K-Mart and Target, for example, use the same business practices as Walmart (Basker 2007). Furthermore, these organizations look to determine where Walmart’s are located in order to determine where they should place their new stores. This shows that discount superstores all attempt to market to the same target demographic. Thus, Walmart and similar corporations can use data that has been acquired by their competitors in order to more effectively contribute to practice and meet other organizations at the same competitive level.

Last, it is important to consider that Walmart’s online presence has had an interesting impact on its competitors in the online shopping world. Basker (2007) found that the types of books that individuals purchase from online vendors like ebay.com and Amazon.com are different in areas in which Walmart stores are present. At the same time, online expansion and home delivery could offer Walmart a new diversity strategy that allows the company to tap into a new segment of the market: those who are shopping around conveniently from home for the best prices and greatest discounts. Overall, it appears that customers continue to be more trusting of Walmart’s in-store practice than they are of popular online vendors, even when these vendors can promise to deliver the desired item the next day. Therefore, combining the brand value of Walmart with even more convenient shopping experience (online) could be a winning strategy for the company.

Walmart’s Entry into Mexico

As a company that equates expansion with profit, Walmart’s business strategy primarily involves a focus on opening stores in new locations. In some instances, this requires Walmart to brand itself in a manner that is more appealing to locals in the areas that it is trying to target. As mentioned previously, Walmart currently has stores in six continents and stores in 28 different countries. Since a majority of the American public are already aware of the brand, many Walmart executives believe that the best way to continue building its profit is to open a greater portion of its stores overseas.

Despite their intention to do so in an ethical manner, Walmart has found that it has violated the Foreign Corrupt Practices Act for bribing Mexican officials in a manner that would promote their ability to open a store in their country. While this legal concern first arose in 2005, the company is still trying to actively defend itself for breaking this act, which has amounted in “large fees and fines” (Savage 2012). Apart from the financial cost of the lawsuit, Walmart is facing reputational loss that affects the brand’s value.

Even though it is apparent that the organization broke the law, which was established after the Watergate scandal to enforce ethical business practices, very few companies had been accused of breaking this law prior to this occurrence with Walmart. Professionals attribute this legal response to an enhanced concern with white collar crimes in light of this age of globalization. Today, decisions made by the heads of corporations have the ability to positively or negatively influence the general public. Therefore, federal law enforcement has become more concerned with protecting both the government’s and the public’s interests.

This and similar situations have negatively impacted the ability of Walmart to be successful in some countries, including Mexico. The Walmart brand is primarily strong in the United States, even though the store has subsidiaries across the world. This demonstrates that Walmart has the ability to be successful in areas in which it is considered trustworthy and a better option compared to the other types of stores, on the internet or physical, that are available.

While Walmart’s market entry strategy in Mexico was based on penetration through joint venture partners, in Canada it used the acquisition method. The strategy in China was based on combining different operations: production, distribution, and retail. The offshore sourcing strategy in China has made Walmart become more relevant to the culture, through the acquisition of Trust-Mart (Mun, 2012).

Conclusion

It is apparent that Walmart understands its customers well, and uses this information in order to target its business practice. Knowledge about the target market is important when creating a growth and expansion strategy. As the review of Walmart’s global expansion in Mexico, Canada, and China revealed, adapting to the culture of the target market was one of the main success factors.

Overall, Walmart  preferentially targets new locations based on the demographics of the individuals that live there. Income level, population density, and location are important factors that impact the company’s decision to open in a new location. To supplement the success of the company, Walmart has expanded to engage in online practices in order to continue competing with similar organizations that have also increased their accessibility by expanding to having an internet store. This strategy has a great potential, as it taps into a new, emerging segment of the market, and offers increased profits without the need for opening new brick-and-mortar stores at a huge cost.

In spite of the marketing campaigns focusing on online shopping, however, the majority of Walmart customers prefer to go to the store because it is more closely associated with the comprehensive branding that the company has put forth. The brand image is strongly embedded in the shared knowledge of customers. In order to make Walmart’s online operations more popular among new and existing customers, it is important to focus on the separate branding of online shopping facilities at Walmart.

The target market’s tuts in the organization compared to small businesses and other corporate competitors is high, and this indicates that Walmart still has a high brand value. Overall, Walmart’s understanding of demographics as it pertains to business is beneficial because it allows the organization to remain more competitive in the modern setting.

Recommendations

Demographic Factors of Walmart Shoppers

In terms of competition, it is important for Walmart to continue its cost leadership strategy and branding built around reputation and customer services. While it is valuable for the organization to continue targeting similar demographics in different parts of the world, it is also possible to enter new market segments, such as median income families shopping online. While the Walmart brand is established primarily in the United States, the company could engage in successful expansion by spreading its influence by enhancing its subsidiary brand in foreign countries. The success of Walmart in Mexico and China is based on adapting to the local culture and customer preferences through partnership with local retailer chains or acquisition strategy. When entering a new market, it is important for Walmart to understand the population, operating environment, and consumer preferences. Instead of spending time and effort trying to understand the new culture, the company can rely on the knowledge of local retailers acting as partners. Expanding to overseas will introduce the company to new markets, which will ultimately allow it to grow its profitability.

Furthermore, it is important for the company to continue targeting individuals from primarily low income communities in areas in which other large discount superstores are present through a new approach towards differentiation.

The Impact of Walmart on Competition

It was previously mentioned that Walmart and similar retail companies can use data that has been acquired by their competitors in order to create a differentiation strategy. A company like Walmart has interchangeable products, therefore, it can compete on two different levels: price differentiation or service differentiation. Moving online would help Walmart differentiate its service, and allow the company to tap into new markets. Customers who do not have a store close to their home could benefit from home delivery.  However, it is important for Walmart to conduct market research to determine the competition that is present in local areas and countries that it has not previously entered. When designing the strategy for promoting online shopping among existing and new customers, the company has to conduct a market and competitive analysis focusing on finding a way to offer a better, more effective, or cheaper service.  While Walmart has a comprehensive understanding of the competition present in the United States, it needs to become more familiar with international brands to determine how it will implement its brand in a new location. Through acquisitions and partnerships, the company can significantly reduce the time it takes the management to understand new operating environments.

It would also be beneficial for the organization to study the census data of these locations, just as it does when it attempts to find a new location for a store in the United States. This will allow the organization to understand which areas have a large population density in addition to those that are home to individuals that are primarily low income compared to the median earnings of other individuals living in the area. It would not be necessary to consider small businesses as a threat to the organization, although it is important for Walmart to consider the strategies that are being implemented by large corporations in the area. Just as Walmart, K-Mart, and Target tend to build their practices from one another, it would be beneficial for Walmart to continue acting in this fashion in implementing new stores at the international level.

Walmart’s Entry into Mexico and Maintaining Reputation

Many business law professionals believe that the government went too far in its claims that Walmart legislation by entering Mexico and other new territories. In order for Walmart to continue gaining profit, it is important for them to put forth an effort and ensure that they are entering countries in a manner that will uphold their reputation and prevent them from experiencing financial damages. The company needs to fully understand its external environment: political, social, economic, and demographic. Creating a PESTLE analysis (political, economic, social, technological, legal, and environmental factors) would help the company adjust its strategy according to the above conditions (Anastasopoulou et al., 2007).

When Walmart moved into Mexico, it was fined for several billion dollars for violating international trade code. In this case, it is important for Walmart as a company to understand that it is in the eye of the public, so it is necessary to act with caution. While many Americans are fans of the superstore, there are also those who would wish to have it removed from existence. As long as the company is able to engage in both ethical and legal practices, however, it shouldn’t be concerned with this opposition. If it is not able to do so, the company leadership needs to understand that there are those who will take immediate action to ensure that the organization suffers the appropriate consequences. Maintaining and managing the company’s reputation through branding is essential for global and domestic success.

It is especially important for Walmart to consider that building itself in a new country is contingent upon its ability to market itself as a trustworthy company. Publicizing scandal is a way that Walmart’s ability to compete on the international level can be minimized. Thus, it is also important for Walmart to gain an understanding of the perceptions that people in different areas in the international arena have with regards to Walmart and whether they would welcome a store in their area. It is simply to design a survey to achieve this purpose and doing so may provide Walmart with a more constructive understanding of where it should build its new locations.

Other Factors Impacting Demographics and Competitiveness

At this point in Walmart’s success, it appears that the organization will reach the law of diminishing returns. As the company gains more prevalence around the world, it is inherently reducing the ability of citizens to maintain income, which will ultimately require them to become dependent upon the company for support. Currently, Walmart’s business practices are requiring a greater degree of people to become dependent upon the company, which means that it will ultimately prevent itself from being able to gain profit. There are many individuals who disagree with the company’s business practices in terms of their use of their employees for enhanced profit in addition to the overall organization of the store and lack of support during the Walmart shopping experience. It is therefore beneficial for the company to consider how it can appeal to a greater number of individuals living across the world. Individuals of medium and high socioeconomic backgrounds, for example, tend to avoid Walmart stores because they would prefer to pay higher prices for good if it means that there will be a greater degree of accommodations during the shopping experience. Specifically, Walmart shopping often means disorganization and long lines that people who are able to shop in other locations wish to avoid. By differentiating through service and offering a better shopping experience, the company could increase its brand’s reputation.

Ethical Concerns: Reputation and Branding

In addition, there are many activists that are strongly opposed to the company’s business practices because they do not offer their employees a living wage. Furthermore, several employees report that they have been fired and rehired by their stores because they were due for a raise and the store did not wish to provide it to them. In order for Walmart to be continually successful, it needs to consider the humanitarian aspect of its business practices. Since its store employees are essentially the representatives of their organization, it is important for them to be treated with dignity and respect to encourage shoppers to keep coming back to the store. Furthermore, if these individuals are treated well, it will help detract from the negative press that the company has received in the past several years. This is beneficial for the company if they wish to remain competitive. While Walmart has a high income, Target isn’t far behind, and their business practices are more desirable for middle and high income families.

Cultural Alignment

Walmart would benefit by incorporating a cultural understanding of the individuals that tend to shop at its stores in addition to the individuals in the areas in which it wishes to establish a new location. By doing so, the store will be able to create a version of itself that has a greater appeal to individuals living in different parts of the world. While individuals in certain parts of the United States are satisfied with Walmart due to the low prices that it offers in addition to its convenience in terms of location, some European states would not welcome the store due to the low income that it is known to pay its employees. For the store to be welcome in areas that offer higher wages to their workers, it would be necessary for Walmart to review its practices in order to meet local finance standards. Provided that Walmart is able to make this kind of adjustment, it is likely that it will be able to be successful abroad. However, low income individuals in the United States and in other parts of the world are intrinsically different due to the presence of different cultures and the need to establish stores in a new location. Walmart can take advantage of this understanding, by offering a shopping experience that is unique for a particular area, meets customer expectations, while offering low prices. It is important for Walmart to maintain culturally and legally relevant requirements for new areas of operation.

Bibliography

Anastasopoulou, S., Chobotova, V., Dawson, T., Kluvankova-Oravska, T., & Rounsevell, M. (2007). Identifying and assessing socio-economic and environmental drivers that affect ecosystems and their services. The RUBICODE Project. Rationalising Biodiversity Conservation in Dynamic Ecosystems.

Basker, E 2005, ‘Job Creation or Destruction? Labor-Market Effects of Wal-MartExpansion’, Review of Economics and Statistics vol. 87, no. 1, pp. 174:183.

Basker, E 2007, ‘The Cause and Consequences of Wal-Mart’s Growth’, Journalof Economic Perspectives, vol. 21, no. 3, pp. 177-198.

Chiou, L 2009, ‘Empirical Analysis of Competition between Wal-Mart and Other Retail Channels’, Journal of Economics and Management Strategy vol. 18, pp. 285-322.

COATES, D. (2015). Trade Policy: Countering the Walmart Effect. [online] The Huffington Post. Available at: http://www.huffingtonpost.com/david-coates/trade-policy-countering-t_b_1008084.html [Accessed 21 Jul. 2015].

GUSTAFSON, K. (2014). Wal-Mart defends employee food drive. [online] CNBC. Available at: http://www.cnbc.com/2014/11/20/wal-mart-defends-employee-food-drive.html [Accessed 21 Jul. 2015].

Hicks, MJ 2008, ‘Estimating Wal-Mart’s Impact in Maryland: A Test of Identification Strategies and Endogeneity Tests’, Eastern Economic Journal, vol. 34, pp. 56-73.

Lindberg Ln, Scheingold Sa. (1971). Regional Integration: Theory and Research. Cambridge: Harvard University Press.

MITCHELL, S. (2005). Wal-Mart and the WTO. [online] Available at: http://www.ilsr.org/walmart-and-wto/ [Accessed 21 Jul. 2015].

Mun, L. Y., & Yazdanifard, R. (2012). Walmart Success In Mexico, Canada And China: Global Expansion, Strategies, Entry Modes, Threats And Opportunities. [Accessed 21 Jul. 2015].

Princeton Survey Research Associates. (2005). Why PSRAI. [online] Available at: http://www.psrai.com/why.shtml [Accessed 18 Oct. 2015].

Porter, Michael (1985) Competitive Advantage, The Free Press, NY,  [Accessed 18 Oct. 2015].

SAVAGE, C. (2012). With Wal-Mart Bribery Case, More Attention on a Law. [online] Nytimes.com. Available at: http://www.nytimes.com/2012/04/26/business/global/with-wal-mart-bribery-case-more-attention-on-a-law.html [Accessed 21 Jul. 2015].

Tanwar, Ritika. “Porter’s Generic Competitive Strategies.” IOSR Journal of Business and Management (IOSR-JBM) e-ISSN: 2278-487X, p-ISSN: 2319-7668. Volume 15, Issue 1 (Nov. – Dec. 2013), PP 11-17

Truth And Action, (2013). Monsanto, Walmart influence secret International Trade agreement – Truth And Action. [online] Available at: http://www.truthandaction.org/monsanto-walmart-influence-secret-international-trade-agreement/ [Accessed 21 Jul. 2015].