Competitive and Development
Wal Mart’s management has been sensitive to feedback received from the external environment and amenable to constant change. Thus during the share holder meeting in 2005, it was evident that transition was essential. The management accepted this criticism and its poor stock performance as well as low merchandising standards. (French: 2005). It signaled its commitment for making the company a better place to shop, work and invest. Apart from internal growth, strategic acquisitions and share repurchases were the other areas for growth.
Effective implementation of this strategy by the company is seen by its acquisition of 363 supermarkets and other stores in Guatemala, Honduras, El Salvador, Nicaragua and Costa Rica branded as Wal Mart Central America. (Wal Mart Growth: 2006). Wal Mart has a strong tradition for change. Thus it is said to be a young company at heart. (CRM: 2006). A review of strategy in line with the bottom line of the company on a regular basis has led to consistent growth.
Evaluating competitive and development strategies by Wal Mart from the generic strategies model of Michael Porter (1980) and the risk strategy model of Ansoff (1957) would provide useful insights into its competitive growth and change management philosophies. Porter has identified three main options for companies to stay ahead of the competition, these being cost, and differentiation and niche strategies for growth. A company thus operates on the basis of lower costs than its competitor, differentially superior product or a narrow niche in the market segment.
Porter’s competition matrix is as shown in Figure 1 below. Figure 1 Wal Mart has consistently been following the cost differential strategy over the years. Thus it is leveraging procurement volumes and efficiencies in distribution to gain a significant cost advantage. This is reflected in the company’s philosophy of providing the consumer products at best price. This has enabled its successive entry and growth in the markets of North America, Europe, Japan and South America.
However in matured markets as the USA in 2005, Wal Mart’s lack of focus on differentiation in products led to competition from rivals as Target Corporation which offered more exciting products. (French: 2005). The recognition of this shortcoming by the management led to remedial measures by providing better products in the US markets in 2006. Ansoff on the other hand has provided guidance for the level of risks strategies for market entry or growth which is depicted in a box matrix at Figure 2.
Firms which sell new products in old markets are said to be taking marginal risks which is equivalent to selling old products in new markets. Selling new products in new markets has maximum risk as signified by diversification strategy. (Ansoff: 1957). Wal Mart has consistently followed the strategy of penetration and market development or product development. All these are safe and risk free strategies offered by the company. Thus is has consistently grown its market in the USA by expanding its network of stores over the years. Starting with 15 stores in the 1970’s, it has over 5000 stores globally.
Having stabilized its core competence of retail growth, the company has expanded into newer markets with its tried and tested strategy of lower cost of products and achieved admirable success in Europe as well as in Japan and South America. The company has also been undertaking growth through development of new distribution strategies such as the Supercentres and neighborhood markets, wherein these were introduced in the old markets with demonstrated need for varied modes of distribution. These risk free strategies followed by the company over the years have spelt success with stability.