Competitive Expansion Strategies Between Retailers

Introduction

The essay focuses on performing a rigorous analysis of Walmart Inc.’s strategic position using Porter’s Five Forces (Porter, 1980) and Ansoff’s Matrix (Carter, Clegg and Kornberger, 2008). The essay will also critically analyze Walmart’s ethics and corporate social responsibility in the retail industry by incorporating case studies.

Walmart the Company

Walmart is among the world’s largest retailer companies in terms of turnover and employee headcount. It specializes in providing an extensive assortment of high-quality services and merchandise at competitive prices (Martínez, Galván and Alan, 2017). The cross-docking inventory system that the company has invested in has been critical in enabling it to obtain economies of scale, thus reducing sales costs (Bhangu, Anand and Kumar, 2019). According to Walmart Inc., the company is strategically positioned to become successful in future retail due to its commitment to delivering value, providing convenience, focusing on large markets such as North America and China, and basing on fresh food (McMillon, 2015).

Porter’s Five Forces

Porter’s Five Forces is a simple but powerful company analysis tool, which helps businesses to determine whether their strategies can be profitable in their competitive environment. If a company explores this model in the right and using the recommended tools, it can give invaluable knowledge regarding the competition the firm faces and the power the company holds in the market (Wee, 2017). This model has been chosen because it can help businesses to adjust their strategic approach to the market for success.

This advantage allows such organizations to sell their products and services at low prices (Chen, 2021). Moreover, since these firms may be facing immense competition over the years, they anchor their growth primarily on higher digitization and better economic activity (Lozic, 2019). Thus, Porter’s five forces enable the company to understand its recent year’s operations, hence highlighting Walmart’s growth opportunities.

The five forces that shapes Walmart strategy

Threats of New Entrants

Even in the presence of such giants as Walmart, the new entry of retail firms can easily be achieved. In terms of convenience, specialty, location, and other factors, small retailers can easily enter the market and compete, thereby intensifying the threat (Deepak and Jeyakumar, 2019). For instance, these companies have low costs of doing business relative to larger firms such as Walmart (Kumar, Anand, and Song, 2017). In the context of the Five Forces analysis, the new entrants can, thus, pose a high threat to Walmart and other international companies.

Threat from the Substitute Products

International companies deal with multiple categories of products from several industries, including health, entertainment, home furnishings, household appliances, apparel, hardware, and groceries. This makes the threat of substitute products a weak force for businesses (Miller et al., 2021). For instance, almost all the products that retail at Walmart have substitutes, this reduces the possibility of a customer moving to another store to purchase an item (Collis, Wu, and Koning, 2018). In Porter’s model, the mix of these external aspects leads to a weak threat of substitutes in Walmart’s industry surroundings.

Bargaining Power of Buyers

As showing in figure 2, Walmart is the world’s largest retail company in terms of sales. However, it has been facing buyers’ bargaining power in the retail industry niche (Ong, Ismail, and Yeap, 2018). This is due to the company’s retailing of products that can be substituted easily (Crowley and Stainback, 2019). As such, the bargaining power of buyers is strengthened, thereby exerting maximum impact on global brands. Thus, the company continues to gain more money than before due to the adoption of different strategies resulting from Porter’s model, which help the organization understand how to navigate this specific force.

World largest retail companies

Bargaining Power of Suppliers

The pressure that suppliers exert on companies by either increasing price, lowering the quality of product, reducing its availability is regarded as the bargaining power of suppliers, and it is the mirror image of buyers’ bargaining power (Porter, 1980). Through this strategy, global firms have realized their missions of saving people’s money by focusing on getting the lowest possible prices from the suppliers through reducing their bargaining power (Chen, 2021). The availability of many suppliers and the fierce competition among them provide Walmart with the benefit of dictating the supply market (Yadav et al., 2017). Thus, with much higher power over suppliers, these organizations always provide quality products at a low price.

Rivalry of Existing Players

The rivalry is utterly intensive in the retail industry; such companies as Amazon, Costco Wholesale Corporation, and Sears Holdings Corporation, and others, are constantly competing to control the market. Many firms imply strong force, and high aggressiveness presents external threats. Thus, there is the need to make strategic decisions to neutralize the forces (Carter, Clegg and Kornberger, 2008). The presence of these companies poses a significant threat to the development of global firms such as Walmart’s cost advantage (Tallman, Luo, and Buckley, 2018). Even though these threats exist, international companies’ success in making their position in the global market is enough to ensure their continued stay at the helm.

Ansoff Matrix

The Ansoff Matrix, which is also referred to as the product and market expansion grid, outlines an organization’s strategy in becoming successful in the industry. It has been chosen for this analysis because it enables companies to decipher which of its four strategic approaches the firm should take to successfully grow its operations (Loredana, 2017). It expounds on the factors to consider regarding market development and expansion, product development, and diversification in the industry. Therefore, the matrix can help in highlighting growth opportunities for any company, and specifically, Walmart, which is used as a case study in this analysis.

Market Penetration

Most international companies do not always focus on specific market niche, such as charging premium prices and offering premium products. For instance, Walmart tries as much as possible to keep its prices low (Chen et al., 2021). It does not target the strategies, which result in increasing profit percentage but the increment in the market share (Tang, 2017). This sometimes may prove risky for an organization in the sense it is usually based on one angle, and little attention is given to the operations of the competitors (Mintzberg, 1990). As such, it can be difficult for an organization to establish its influence in the market even if it has already penetrated.

Market Development

Market development is one of the most challenging issues facing international organizations. However, Walmart understood various issues it expected to meet in its global strategies and developed a way to ease its penetration to new markets. This was possible since, according to Liu, Tsai, and Tao (2020), most established companies understand the implications arising from attempting to penetrate deeper into new markets. This makes it possible for global firms such as Walmart to focus on their growth internationally and less on the local market (Sheth, Uslay and Sisodia, 2020).

This helps such organizations to rapidly capture new places and outperform local businesses. Since Walmart focused on becoming the best provider of alternative products in already occupied markets, the company’s strategy involved having over 10,500 stores located in over 24 countries (Location Facts, 2021). This approach makes it ready to continue expanding in other occupied spaces and locations.

Product Development

Research and development (R&D) is an integral part of a company, and most international brands understand this fact. For example, in 2018, Walmart spent 12 billion USD on R&D, making it the third-highest globally after Amazon and Alphabet Inc. (Nash, 2019). Such critical investments are aimed to enable the firms to improve their production line, especially in technology and advertising their new products and services (Hänninen, Mitronen and Kwan, 2019). This unrelenting attitude towards R&D has been vital in global brands’ growth and enabled it to compete even with e-commerce retailers such as Amazon, eBay, and Alibaba.

Diversification

The company’s firm financial base has enabled the international firms to diversify into different businesses and industries. For example, Walmart has recently acquired Flipkart Inc., which is an e-commerce company that is utterly different from the retail supermarkets that Walmart is known for (Rajan, 2020). Walmart Financial is another diversification that Walmart hopes to use to offer financial services to businesses (Melissa, 2021). The company’s understanding of its reliance on financial institutions led to its venture into financial business.

Walmart’s Corporate Social Responsibility (CSR) and Ethics

According to Walmart’s official statement, it prioritizes people and the planet by ensuring its employees with proper working conditions and caring about the nature (Walmart, 2020). For example, the company installed solar panels on the roofs of its stores to produce more energy, which reflects that the company tries to engage in environmental protection. However, Walmart v. Dukes case (2011) shows that Betty and Duke and five other females sued Walmart for gender discrimination, claiming that 1.5 million women working for the company received lower payment and limited promotion compared to male employees (Pino, 2018).

The Supreme Court made a 5-4 decision, which meant technical flow and inappropriateness of investigating gender discrimination on such a wide scale. Although the claim was not approved, this case confirms that Walmart has complicated and challenging issues with its female employees, treating them unfairly.

Another failure of Walmart in terms of CSR refers to the case when child labor use was detected in Bangladesh. Harrison (2019) reports that young boys worked at the company’s garment factories in 2005, while their working environment did not meet quality standards.

In response to this case, Walmart introduced the Standards for Suppliers, clarifying that children under 14 cannot be employed. The company also claimed that the factories were subcontractors, but it does not relieve it of the responsibility to ensure proper employment conditions for all workers (Harrison, 2019). While Walmart positions itself as a socially and ethically responsible organization, its failures show the inconsistency between what it tries to achieve and what happens in real life. It is evident that the company needs to improve its organizational policies to prevent any discrimination, child labor, and other inappropriate internal activities. The efforts should be made towards better employee benefits, environmental sustainability, and supply chain advancement.

Existing Gaps and Critical Evaluation of Models

Porter’s Five Forces has its inadequacies in addressing business needs, such as Walmart’s technological enhancement to meet the current trends and focusing on its unworthy new entrants. Many authors have differed on the question regarding the usefulness of the Porter’s Five Forces model as a time-static framework that takes little consideration of changes within the market. This is particularly critical in the advancement of technology and digital marketing (Carter, Clegg and Kornberger, 2008).

Walmart’s little acknowledgment of technology has put it in a challenging position of having to alter its operation from 6 a.m. to 11 p.m. during this pandemic for its brick-and-mortar store (Nilufer, 2020). In addition, using the framework would make Walmart concentrate on insignificant new entrants instead of focusing on the business needs. However, the framework has enabled Walmart to overcome some issues in its operations and would not have succeeded without it in present challenging times.

Ansoff matrix’s consideration of the market as rigid makes no allowance for sudden unexpected changes in the economy, which presents a challenge to using the model. This puts an organization in a challenging position since it becomes unclear whether the implemented strategy will create a competitive edge or not (Mintzberg, 1990). Using the model is critical in Walmart’s operations as it helps the company map its strategic options. However, since it only focuses on one part of the strategy, this makes the framework unreliable for the organization.

The business world is competitive and only focus on penetrating a market and paying little attention to the competitors will lead to the downfall of a company. For instance, Walmart’s market penetration ideas are always anchored on the increment of a market share instead of increasing profit percentage (Chen et al., 2021). Moreover, such a strategy may sometimes prove futile thus, instead of increasing market share, it may offer the competitors a competitive edge. The model is also not useful in making a marketing strategy since it only focuses on one strategic path and does not essentially demonstrate marketing options (Tsatsoula, 2018). Thus, the company’s continued reliance on the Ansoff Matrix model would have seen it overstretch itself in penetrating other markets to the extent that it would have managed to support itself financially.

Conclusion

A company’s success is greatly dependent on its strategic management and other factors. The activities carried out by a corporation always determine its long-term success or failure. Strategic management has different models, all of which ensure positive results if implemented correctly. The analysis of global organizations’ using Porter’s Five Forces and the Ansoff matrix has shown the effectiveness of these two strategic management aspects. Thus, to Walmart, the use of Porter’s Five Forces, which analyzes the external forces and overall industry, may be effective compared to Ansoff Matrix whose focus is on growth, giving less attention to new small entrants. Walmart has also ensured that it is committed to upholding ethics in its operations, both internally and externally, offering CSR support.

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