Wal-Mart Goes South Essay
Wal-Mart Goes South
Wal-Mart, founded in 1962 in Benton Arkansas by Sam Walton has grown from a small mom and pop store to an international juggernaut of a corporation today. Wal-Mart now, “serves customers and members more than 200 million times per week. We serve them in the ways they want to be served – in retail outlets, online and on mobile devices. Wal-Mart operates under 69 different banners in 27 countries. With fiscal year 2012 sales of approximately $444 billion, Wal-Mart employs 2.2 million associates worldwide.” (walmart.com, 2012)
1.How has the implementation of NAFTA affected Wal-Mart’s success in Mexico? The implementation of NAFTA has affected the success of Wal-Mart in Mexico in many ways. Firstly, the lowering of tariffs on American goods sold in Mexico from 10 percent to 3 percent has allowed Wal-Mart to level the playing field with its major competition.
With the ratification of NAFTA, European countries were more likely to build manufacturing plants in Mexico due to the reduction of the restrictions against foreign direct investments in Mexico. These plants allowed Wal-Mart to reduce supply chain expenses through lower overall cost of goods. Further savings to Wal-Mart were seen when the upgrades in infrastructure allowed for an easing costs of distribution even further, which in turn permitted Wal-Mart to offer product at an even greater discount.
2.How much of Wal-Mart’s success is due to NAFTA, and how much is due to Wal-Mart’s inherent competitive strategy. In other words, could any other US retailer have the same success in Mexico post –NAFTA or is Wal-Mart a special case? Much of Wal-Mart’s success in Mexico is due to NAFTA.NAFTA gave entry to Wal-Mart in the Mexican market where before tariffs, poor infrastructure and regulation prevented a truly successful expansion into the market. Wal-Marts extremely competitive edge in Mexico was sealed when coupled with their ability to use their extreme purchasing power to offer continually lower prices than their competitors. “After NAFTA took effect in 1994, tariffs tumbled, unleashing pent-up Mexican demand for U.S.-made goods. The trade treaty helped eliminate some of the transportation headaches and government red tape that had kept Wal-Mart from fully realizing its competitive advantages here.
And it sent European and Asian manufacturers racing to build new plants in the NAFTA zone, giving Wal-Mart cheaper access to more foreign brands.” (LUHNOW, 2001) Combined with Wal-Mart’s overall competitive business strategy, NAFTA all but cemented the advantage Wal-Mart had in the Mexican market. As if this were not enough of an advantage, it is alleged that Wal-Mart, “orchestrated a multi-year campaign of bribery to win market dominance, paying off officials in “virtually every corner of the country” in its rush to build stores.” (Moreton, 2012) Through lobbying and a campaign to win over the American public, Wal-Mart furthered its own agenda of international growth through the realization of the NAFTA treaty.
3.What has Comerci done its attempt to remain competitive? What are the advantages and challenges of such a strategy, and how effective do you think it will be. In order to stay competitive with Wal-Mart in the NAFTA era Comerci has lowered prices on merchandise. Furthermore, in order to remain competitive, in 2004, Comerci joined forces with the Mexican supermarket chains, Soriana and Gigante to form a purchasing consortium in order to be able to obtain products at lower prices in a quest to match the buying power of Wal-Mart .
In addition to lower prices Comerci has begun to adopt the pricing structure used by Wal-Mart. If these strategies do not work Comerci could possibly, look into a merger with another foreign company or a complete buyout is a viable option to keep the company afloat. Adopting a completely different strategy is another viable possibility. A differential strategy where Comerci focused on appealing to Mexican sentiments rather than the Americanized Wal-Mart model they currently have adopted could help the company remain competitive.
4. What do you think of Wal-Mart’s strategy in Mexico and Central America, and how have bilateral trade agreements and geographic proximity played a role in their success. I think Wal-Mart’s strategy in Mexico is effective, ruthless and successful. Bilateral trade agreements have allowed Wal-Mart to utilize local, inexpensive labor options.
Although NAFTA helped not only Wal-Mart but also all business, Wal-Mart used the agreements to their greatest advantage. Wal-Mart in a bold move used the reduced tariff savings to further lower the costs of products, rather than pocketing the profit, Wal-Mart passed the savings to the consumer, again forcing competitors to cut deeper into their ever-shrinking profit margin, all the while using superior transportation and distribution centers to help eliminate further costs and drive prices down even more.
daniel, r. a. (2011). International Business. nyny: prentice hall. LUHNOW, D. (2001, 8 31). Retrieved 2 3, 2013, from http://www.wright.edu/~tdung/Walmart_in_mexico.html Moreton, B. (2012, 4 26). Retrieved 2 2, 2013, from Harvard University Press: http://harvardpress.typepad.com/hup_publicity/2012/04/wal-mart-in-mexico-bethany-moreton.html walmart.com. (2012). Retrieved 1 31, 2013, from walmart.com: http://corporate.walmart.com/our-story/
University/College: University of Chicago
Type of paper: Thesis/Dissertation Chapter
Date: 16 February 2017
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