Walmart Comparitive Strategy Essay

Custom Student Mr. Teacher ENG 1001-04 26 December 2016

Walmart Comparitive Strategy

This paper looks at Wal-Mart Stores as the subject of study. This large United States based organization is recognized as the world’s leading retailer and has extensive global operational influence. Wal-Mart has been the object of much research, both by economists, trade organizations and scholars. This company has evolved from very humble beginnings to establishing itself as an ‘economic power’ in its own right. Wal-Mart opened its first store in 1962, in Rogers, Arkansas, based on its founder, Sam Walton’s experience in the retailing sector during the 1950’s, and a study he conducted prior to opening his first store. In 1972, the Wal-Mart stock was offered on the New York Stock Exchange which led to significant capitalization and growth. During the 1980’s, Wal-Mart experienced rapid growth opening Sam’s Club members-warehouse stores and later ‘Supercentres’. A recent corporate press release sums up its current status, “Today, 10,185 stores and club locations in 27 countries employ 2.2 million associates, serving more than 176 million customers a year” (Wal-Mart Corporate, 2012, p. 1). Understanding the Wal-Mart business model

Wal-Mart’s position as the world’s No. 1 retailer inevitably invites strong competition worldwide. This in turn has strengthened this organization’s resolve to maintain their position by utilizing multiple strategies in order to maintain competitive advantage. One of their strategies has incorporated the ability to form relationships or partnerships not only in the United States, but also within the international environment. In order to implement its overseas representation, Wal-Mart has embarked on an expansion program, seeking to maintain both growth and profitability. Its primary methodology in securing partnerships with large overseas retail operations has been primarily by the acquisition of majority shareholdings.

Much research has been conducted regarding the viability of acquisition and potential problems inherent within this corporate growth strategy. Effort is directed within this study to ascertain the long term viability of Wal-Mart’s implementation of modern economic principles. This analysis is conducted regarding opinions derived from researched sources either favoring the implementation of trade and comparative advantage utilizing the acquisition mechanism or perhaps the employment of less opportunistic methods. Moreover, the issue of costs and profit maximization will be evaluated relating to the Wal-Mart model in order to establish strategies that can be utilized in order to achieve optimal efficiency. However, there are conflicting viewpoints regarding the best methodology needed to enable such efficiency. Finally, attention is directed at the consumers’ choice, and how it is directed and influenced by strategies implemented within the Wal-Mart corporate business model.

Competing viewpoints

In evaluating trade and comparative advantage via the acquisition trail, Hayward (2002) suggests that multinationals tend to invest in overseas start-ups rather than acquiring existing overseas operations. His argument is based on the premise that for an organization’s planned entry into a foreign market, expertise derived from a multinational’s existing operational and marketing experience is more relevant to overseas market entry than the benefits derived from acquisition. However, he concedes that expansion by acquisition can be enabled by investing in existing overseas operations which have a similar corporate product and management function, or by acquiring a more diverse though related business model, which will allow for market changes to be factored into any risk analysis. Hayward and other sources are accessed, so as to provide a balanced viewpoint of an organization such as Wal-Mart; regarding its choice of acquisition strategy and its effectiveness in achieving growth and profitability.

Costs and profit maximization is also looked at by enabling research into previously conducted studies. Wal-Mart has exploited costs and profit strategies by utilizing and capitalizing on its ability to offer products at rock bottom prices due to its enormous buying power and also committing suppliers worldwide contractually to price and cost control agreements. This has enabled this organization to take advantage of the economic environment in the U.S. and elsewhere within countries in which it has operations. This advantage leverages its buying power, allowing it to offer the ‘best deal’ by focusing on product costs and potential higher volume of sales; thereby maximizing its ability to impact global retail markets.

Jones and Hill (1988, p. 160) maintain that a transaction requiring cost can be more effectively enabled if facilitated within the organization’s corporate infrastructure or “internalizing”, rather than by enabling such transactions within the marketplace. This paper looks at how Wal-Mart internalized its ability to control costs by facilitating a diversity of acquisitions within overseas markets. Apposing Jones and Hill’s (1988) findings, Denis, Denis and Sarin (1997, p. 135) point to studies which suggest that the “cost of diversification outweigh the benefits”. This paper seeks to establish more definitively the viability of costs and profit maximization via the acquisition methodology within the Wal-Mart corporate business model.

Further attention will also be directed at ‘consumer choice’ and how it is impacted by costs and profit strategies incorporated within Wal-Mart’s operational function. Key to this organization’s diversification strategy has been its ability to supply and meet consumer expectations worldwide. According to research conducted in 1985, it was noted that consumers’ choice was driven by three variable buying habits (Quigley, 1985). Firstly, the consumer tends to select one choice when looking at a product even when offered many alternatives. Secondly, products on offer to the consumer are endowed with a large range of options and variety. Finally, the issue of price is a consideration that needs to be factored into the consumers’ expectations.

Countering Quigley (1985), another source points to evidence suggesting that consumer participation is achieved not only by ‘price information’, but also by providing “non-price information” (Degeratu, Rangaswamy & Wu, 1999, p. 8). Here their hypothesis maintains that allowing the consumer too much choice can compromise the consumer’s long term participation as a loyal customer. This tends to counter Quigley’s point of view, from which in part he suggests that the consumer is motivated by a ‘large range’ or variety of choice. Furthermore, Degeratu et al. (1999) argues that establishing consumers’ personal preferences enable choice to be restricted and issues such as price to be focused on specific product choices. This in turn allows the ability to negate competitors’ influence by diverting the consumers’ attention from a wide choice to a product personalized to include aspects such as price and brand. One of Wal-Mart’s key marketing strategies is to attract the consumer by the offering of ‘rock-bottom’ priced consumables. This paper endeavors to establish what really drives and captures consumer choice, with further attention allocated to further research sources in order to establish why Wal-Mart focus so much marketing attention on product price .

Anticipated Evidence

This study acknowledges that evidence from research offers numerous validated opinions related to the abovementioned trade and comparative advantage, costs and profit maximization and consumer choice. Based on evidence obtained relating to Wal-Mart’s growth and profitability, effort will be focused on accessing credible information from further sources that validates this organization’s decision to implement acquisition strategies that are both strategically sound and beneficial to both the supplier and consumer alike.

Moreover, attention will be directed towards obtaining information and data that promotes Wal-Mart’s costs and profit maximization via strategies including the combining and internalizing of available resources. Customer choice will be further investigated so as to establish how this organization was enabled to achieve marketplace leadership by focusing on primarily on consumers’ expectations of price, whilst factoring in important considerations relating to brand and quality. While directing effort into the sourcing process, recognition will be given to the diversity of sources available, with viewpoints garnered from those sources perhaps not directly connected with economics or the retail industry.

Additional Information

Due to the significance of Wal-Mart’s dominant position within the international retail industry, consideration will be directed at additional factors that may be relevant to its growth and profitability. One factor that perhaps deserves some further researched evidence relates to overall management of costs, not only directly related to products (for resale), but also concerning the cost control of issues such as money transfer, exchange rate mechanisms and entry into overseas markets that is exposed to risks presented by cultural diversity and local traditions. Accessing these and other (perhaps secondary factors), may indeed shed light on this paper’s primary objective which is to establish how trade and comparative advantage, costs and profit maximization and customer choice impact and influence Wal-Mart, based on the variety of information and opinion sourced.


Overview: Three Economic Strategies.

Attention is now directed to ascertaining the importance of establishing factors that influence the economic viability of the Wal-Mart business model; whilst acknowledging its consistent historical growth pattern enabling it to become the world’s leading retailer. As briefly mentioned earlier, this study looked at various factors contributing to its critical competitive advantages, leveraged in part by its ability to set up overseas operations by investing in acquisitions. Utilizing the acquisition methodology of growth has raised concerns by previous research regarding if acquisition is the preferred or most efficient way to facilitate growth objectives on an international scale.

Moreover, mentioned was allocated earlier to Hayward’s (2002) claim, in which a multinational’s accumulated operational and marketing track record is more influential to successful overseas entry than by enabling the acquisition of another business operation. Further attention will be given later in this study regarding the viability of international growth via acquisition. This study has also verified the implementation of ‘costs and profit maximization’ by the Wal-Mart management structure; thereby allowing this organization to utilize growing financial resources in order to maintain its dominant position within the international retail marketplace. Such dominance was facilitated in part by leveraging its enormous organizational buying power on a global basis in order to extract the lowest product cost from suppliers; thereby increasing the possibility of a higher profit margin.

In turn, creating the lowest possible cost retail product range for resale purposes, has allowed effort to be directed to ‘consumer choice’, as without the vital component of consumer participation, no business can enjoy financial longevity or long term sustainability. Perhaps it is important to understand that within the law of economics, comparative advantage is enabled by one competitor retaining the ability to produce a product and service at a lower cost than other competitors; thereby creating an ‘inequality’ of competitiveness. It may be argued that comparative advantage can be further exploited by acquiring competitors rather than engaging in an environment of conflict. This raises the question whether the investment needed to effect acquisition is more financially viable than by directing financial resources to combating potential competitors.

Another consideration propagating the argument towards favoring an acquisition suggests that this corporate strategy enables the utilization of resources from a base of existing suppliers and consumers; whereas starting from scratch in an overseas marketplace requires significant resources being allocated to catching up to existing retailers’ marketplace penetration. Strategy based on the latter option may result not only in ‘over-investment’ or excessive capital expenditure, but also necessitating additional time to be allocated to effecting a market entry strategy. As has already been noted, previous research has varying viewpoints regarding which route is more financially effective and sustainable.

Therefore, the thesis of this study will be to establish that acquisition, effective costs and profit maximization and targeted consumer choice are invariably linked and are perhaps the most effective economic way to enable growth and profitability, especially pertaining to a large corporate infrastructure such as Wal-Mart. This idea will be demonstrated utilizing the Wal-Mart operational business model, both from a historical point of view and also from its current operational function. Implementation &
Viability: Three Economic Strategies.

As previously noted, this U.S. organization has exploited these three strategies by utilizing the existing infrastructure, consumer base, experience and local knowledge of the acquired company. This has been achieved whilst capitalizing on its own ability to introduce sophisticated management and operating systems, derived and developed both in the U.S. and via a number of worldwide partnerships enabling the procurement of products at rock-bottom prices. In addition, significant investment into hardware and software technology has enabled this organization access accurate data and information quickly and efficiently.

Perhaps one of its greatest business strategies in developing comparative advantages was the planned penetration of overseas markets, which may not have been so exposed to such a high level of expertise as their Western counterparts. This expertise has been derived from exposure to the ongoing development of business systems and comprehensive utilization of human resources. Their expertise also incorporated a company and management ‘culture’ that encouraged the promotion of talent, including enabling the availability of both in-house and external based training.

Furthermore, another strategic development facilitating their competitive advantage was the penetration of the Asian marketplace, an area of the world which had not been impacted so severely as in Western markets since the onset of the global economic recession in 2008. Furthermore, due to Asia’s lesser exposure to debt and systemically faulted credit mechanisms, Wal-Mart was able to exploit its penetration of Asian markets due to a higher consumer demand; thereby leveraging their enormous internal buying power by trading with economies such as China and India, in order to facilitate growth and profitability. Overall its penetration of international markets has enjoyed remarkable success and is endowed with multiple opportunities. This fact is verified by a recent analysis of the Wal-Mart business model, “Over time, the international segment probably has the greatest opportunity to improve sales and operating margin” (, 2012, p. 1).

Their strategy of sourcing cheap products by utilizing their enormous purchasing power has enabled this organization to pass on the benefits directly to the consumer, thus facilitating their ability as a leading international retail competitor to compete effectively against more established overseas retail chains. Therefore, due to a severe competitive environment in the United States, Wal-Mart will no doubt continue to take advantage of overseas markets, which may allow it to further utilize their sophisticated management and monetary control systems within an easier and less competitive operating environment. To date, this organization has implemented this advantage by employing a corporate culture incorporating in part, international expansion and penetration by means of acquisition. Furthermore, Wal-Mart further developed their advantage over competitors by employing sophisticated exchange control mechanisms that reduced their risk exposure to fluctuations of foreign currency. They achieved this in part, by pricing their revenues and costs utilizing a strategy of securing a ‘fixed’ or more stable exchange rate on which to base their costings and revenue forecasts.

Whilst acknowledging their obvious success which was enabled in part by their strategic management planning gaining access into global markets, further study from previous research is now directed to the critical evaluation of alternative overseas market penetration strategies. In addition, focus into the feasibility and effectiveness of costs reduction and profit optimization is also included within this investigation. Inevitably this study will also factor in the enhanced ability of the consumer to enjoy options that allow both choice of product, and increased purchasing power due to rock-bottom product pricing.

According to a study conducted into organizational fit and acquisition performance, it is argued that acquisitions are known to “have a high failure rate—nearly half of all acquisitions are rated as being unsatisfactory by managers of acquiring firms” (Datta, 1991, p. 281). It is also surprising to note that companies and organizations targeted by acquiring companies have an above average chance (over 50%) of experiencing a fall in profitability. According to Datta (1991), challenges posed by the corporate targets of acquisition include implementing and combining the operational functions of both the acquirer and the acquired. This is indeed challenging in overseas markets where cultural differences and corporate practices are perhaps significantly diverse in nature.

However, balanced against this argument, Datta (1991) did not constructively conclude that the same profit related challenges are faced by acquiring companies. It can possibly be inferred from Datta’s (1991) study that the benefit of acquisition may be more weighted in favor of the company conducting an acquisition. Assuming that this company assumes a majority control over the acquired company’s infrastructure and operational function including an existing consumer base and marketplace penetration, further suggests that the trade and comparative advantage lies with an incoming organization such as Wal-Mart.

Supporting this thesis in part, Dussauge, Garrette & Mitchell (2000, p. 100) claim “that no one business can create all resources needed to prosper and grow”, however they continue to maintain that “collaboration” (p. 100) between competing companies allows each company to possess and leverage “complementary resources” (p. 100); thereby enabling the exploitation by both participating companies of opportunities within the marketplace. Dussauge et al. (2000, p. 100) further adds that such collaboration facilitates the ability to ensure “survival and growth”. However, this paper cautions that based on Datta’s (1991) research, such exploitation may be more beneficial to the incoming acquiring company.

Attention is now focused on the economic aspects regarding the maximization of profits and minimizing costs. Wal-Mart’s exposure to exchange risk is significant due to capital investment into overseas markets from which it is assumed that subsequent returns of investment (ROI) will in part be transferred back to the United States. Furthermore, issues such as incurring debt and ongoing initial overseas expenditure including legal costs are also budgeted necessities that require the enactment of currency control mechanisms.

Also assuming the implementation of a larger and more diverse product range made available within the newly acquired overseas marketplace, accumulating procurement expenditure for resale products from overseas suppliers and business ‘partners’ will be to be factored into the ‘costs analysis’. To reduce its risk exposure to fluctuations of foreign currency, Wal-Mart has priced their revenues and costs by securing a ‘fixed’ or more stable exchange rate on which to base their costings and revenue forecasts. The methodology employed to reduce exchange rate risks was by utilizing interest rate swaps; as a report studying ‘Cash flow instruments’ points out, “The Company [Wal-Mart] was party to a cross-currency interest rate swap to hedge the foreign  currency risk of certain foreign-denominated debt.

The swap was designated as a cash flow hedge of foreign currency exchange risk” (Wikinvest 2008, p. 1). This factor incorporating the leveraging of exchange rate mechanisms has continually facilitated maximized profitability and minimized costs. However, on a cautionary note, exchange rate mechanisms are by no means guaranteed to remove potential exchange rate losses, but can be seen to perhaps ‘dilute’ or lower the risk of foreign currency and exchange rate losses. Furthermore, due to Wal-Mart’s enormous purchasing power and ability to source the lowest priced products and services from cheaper overseas suppliers, minimal costs are achieved whilst also subsequently allowing the maximization of profits to be realized.

Moreover, the benefits attributed by optimizing costs and profits, facilitates passing on to the consumer, both choice and low prices. However, revenue based on price and choice is not necessarily conducive and conclusive to enabling long term consumer loyalty. This was noted earlier in a study conducted by Degeratu et al. (1999), in which they argue that giving a consumer too much choice creates an environment in which competitors can compete on a level footing, whereas by personalizing the marketing away from price and a wider choice negates in part the threat from competitors.


Based on the aforementioned sourced evidence, this study suggests that enabling trade and comparative advantage is indeed viable by implementing expansion and growth via a strategy of acquisition. Despite evidence some pointing to the high failure rate of acquisitions and the possibility of achieving growth by internalizing expansion, such evidence does not disprove that the proven success already demonstrated by corporate organizations such as Wal- Mart, cannot be continued to be planned and implemented. Perhaps the primary factor allowing this positive viewpoint of acquisition is regarding the significant time needed to build and develop market share in a new overseas market. According to Singh and Montgomery (1987, p. 378), internal development into a new market can take up to eight years in which to achieve “accrual of returns”. Further supporting acquisition, Singh and Montgomery (1987, p. 379). maintain that such markets may be “characterized by substantial barriers to entry”, further justifying Wal-Mart’s strategy of comparative advantage by acquisition.

Accepting the relative initial high investment of acquisition, as compared to that of internalized growth, creating mechanisms to allow costs efficiency is of vital necessity in order to create positive cash flow and sustainable growth. These findings have showed that the combination of ‘purchasing power’ and mechanisms lowering the risk of exchange rate losses, have in part led to the success of one of the world’s largest companies. Additionally, acquiring existing overseas operational structures provides a company such as Wal-Mart the opportunity to offer the consumer the ‘best deal’ due to the collaboration, ‘expertise’ and infrastructure of two related corporate entities. However, this study would be remiss by not cautioning against the possibility of future areas of conflict between corporate collaborators, in the event of inequality of opportunity between collaborators as highlighted earlier in this paper by Dassa, (1991, p. 13).

Free Walmart Comparitive Strategy Essay Sample


  • Subject:

  • University/College: University of Chicago

  • Type of paper: Thesis/Dissertation Chapter

  • Date: 26 December 2016

  • Words:

  • Pages:

Let us write you a custom essay sample on Walmart Comparitive Strategy

for only $16.38 $13.9/page

your testimonials