The case examines the background to Wal-Mart’s entry into the UK retailing sector by the acquisition of the Asda supermarket chain. Wal-Mart’s strategy in the US and its other international entry strategies are discussed.
Q1a 1a What are Wal-Mart’s sources of competitive advantage?
Discussion should begin by establishing the meaning of ‘sources of competitive advantage’. The natures of these sources are the superior skills and resources of a firm. Their location can be aided by value chain analysis, which provides an opportunity, if the tutor wishes, to use this framework to analyse Wal-Mart’s sources of competitive advantage, which are:
(i) The sophisticated information technology and systems which allow its distribution centres to organise the replenishment of an item in a store 90 minutes after it has been sold. Distribution systems incorporate a state-of-the-art delivery tracking system.
(ii) The scale of Wal-Mart operations. In 2011, Wal-Mart’s sales were over £ 420bn (Asda’s were over £ 20bn), making it the world’s largest retailer. This means it has massive bargaining clout when negotiating with manufacturers like Coca Cola, P & G and Unilever. This has manifested itself in its ability to force manufacturers to accept payment only when a product has been sold to a customer. This helps cash flow and means that it is in the interests of suppliers to sell lines that sell fast.
(iii) The above points mean that it has achieved the lowest cost position in the industry, which is its core competency.
(iv) The size of its stores. Its 200,000 square feet format could accommodate six UK superstores.
(v) It motivates its staff by offering generous share options, encourages them to believe that their views count by setting up a scheme for feeding their suggestions to top management, and promotes a family atmosphere with staff being called ‘associat
1b. How do these sources manifest themselves in creating competitive advantage for Wal-Mart customers?
The sources of competitive advantage create both a low cost position for Wal-Mart and the opportunity to establish a differential advantage based upon offering superior value to customers.
(i) The sophisticated information technology and systems and scale of operation mean that it can offer lower prices than competitors. This was the main basis of its success in Canada . Wal-Mart operates as a powerful late entrant known as a market spoiler. These can shift consumer preferences in their own favour, in this case, low prices. For more discussion of Wal-Mart’s strategies in the US and Canada, see Arnold, Handelman and Tigert (1998)1 and Merrilees and Miller (1999)2.
(ii) The size of its stores means that customers are given a wide selection of goods both within and across product categories.
(iii) It is a mistake to believe that Wal-Mart’s differential advantage is solely dependent on price and selection: Merrilees and Miller (1999) show that their success over the market leader in Canada was also built on superior organisation which is, in part, dependent on the sophisticated information technology and distribution systems which lead to excellent product availability. Nothing is more frustrating for customers than to travel to a store only to find that the particular product model that is wanted is not in stock. This rarely happens at Wal-Mart (refer to the flu epidemic story to illustrate how the sophisticated sales tracking…