X Международная студенческая научная конференция Студенческий научный форум - 2018

Each head of the company who loves his business and leads it forward to success, expansion and development wants to understand the key points that will help him towards the goal. Leaders study world experience leading companies all over the world, trying to implement their model to their company's activities. One of such companies, the success of which want to retry many newcomers worldwide, is Walmart company. It is the corporation wich nowadays is the largest provider of retail trade networks operating throughout the world. The company's activity comprises the following segments: supermarkets, small shops, retail web sites that offer a wide range of consumer products from food and clothes to appliances and furniture. Let's try to understand what is the secret of its success and whether all as smooth as it seems from outside?

1. How well is Walmart performing? Your answer might consider to what extent its performance is attributable to industry attractiveness and to what extent to competitive advantage?

Walmart has a long way to go. But you can’t disagree that company is quite successful on its way despite the fact that it had gone through many economic recessions and political crises in the history, as well as the ever-increasing competition in the industry. And yet, still the company deserves respect, and many analysts watching its activities on the world's leading markets in the field of traditional retail.

Today the range of products offered by the company, is wide and diverse. It varies from food products to providing financial and medical services.

As you know, the word "mission" translated from Latin means "order”. So it clearly defines the reasons for which the organization exists and points to the main directions of its activity. The mission shall agree with each other's expectations and interests of the company's management, its employees, suppliers and consumers. The Walmart’s mission is that it help their customers save money to make their lives better. The aim of the company is its formation as an international brand and receive high incomes on invested capital.

Competitive advantage of the company must be sustainable in order to receive more revenue, i.e. quality of offered goods and services must be higher than competitors one. Towards that competitive advantage will be sustainable company must constantly invest in the development of productive capacities. Thus, the strategy of the company directly depends on the definition of competitive advantage of the company, from the development of its capabilities and resources that ensure its competitive advantage in pretty quickly changing world.

Strategy is the determination of how the company acts in a competitive environment. According to M. Porter (1985) strategy is not a detailed plan describing exactly what the company will do. It defines a direction of development and focus on the activities that company will do.

The key to success in current activities of Walmart is the company’s ability to meet the highest professional standards and to ensure continued effectiveness in achieving the objectives.

The main goal of the company is to produce beneficial correlation between price and quality. Make the price lower than the competition-that's the philosophy of the company. For example, the company's founder S. Walton argued that wealth is not a privilege. He has never boasted his position. Opposite each expense item was challenged-so whether you need it and how you can make it even cheaper.

In theory of retail trade there is a concept “glocal”. This word is formed at the confluence of two words: “global” and “local”. Today Walmart confidently operates on “glocal” market, linking international trade strategy with knowledge of local consumer markets.

According to Shane theory (1991) the concept of "leadership" is significantly different from the concept of "management". Manager is tough enough concept that implies a system of building relationships as dominance-subordination. In turn, the leader is a role model for the entire group, who was Sam Walton. It's a unique person worthy of attention. He tried to show by example that the most important is prosperity of his brainchild and not banal gain on clients. In my opinion, a very important innovation for team building and develop a united strategy were imposed weekly meeting of top managers of the company. Unfortunately, with the grows of company this link was lost. And common thinking is very important to choose a common vector of development. Also it is necessary to raise and maintain the corporate strategy and the spirit of the company.

Let's analyze how the retailer could become fourth in the ranking of the 500 largest companies in the world, beating all the banks and oil companies and losing on total sales only three automotive companies: “ General Motors”, “Chrysler” and “Ford”?

First, uniquely is that from year to year Walmart manages to reduce the amount of gross profit, albeit slightly. This means a constant decrease of the prices in the stores. In this case, the corporation's net profit - revenue less all costs - grows annually

The basis of victories are huge investments in various systems streamline trade-especially in information and technological systems. So, one of the richest men in America-Sam Walton, who spared even at the expense of travel allowances of their subordinates (they must stay in the cheapest hotels and even in the same room together), decided to purchase its own satellite. This isn’t cheap acquisition reduced the time for purchases using credit cards, and more importantly-unite all stores in a single information system, in which every manager owned information, when and what happens in any trading floor across the country. Walton went ahead and merged into a single network not only shops, but also truck drivers delivering goods, as well as warehouses and bases storing goods. Innovative it was also decided to make their accounting transparent to suppliers, because the vast majority of sellers worldwide hides information from suppliers how much profit they receive.

Originally another competitive advantage was opening of the stores on the suburbs, where labor is cheaper and land rent and taxes are lower. Innovation has been maximized use of trade area available only to make purchases.

One of the main advantages of the company - the lowest prices-is achieved due to the fact that half of all products are manufactured under the store-brand or arrives on store shelves directly from manufacturers, excluding intermediaries.

In 2016 Walmart within 20 minutes lost nearly 10 percent of the capitalization, which amounted to almost 20 billion dollars. The collapse of the shares became the largest over the past 15 years in the company's history. Chief Financial Officer company Hall (2016) said that the profitability of shares falls due to growing the company's investment in e-commerce and the increase in wages of workers. The company also has plans to repurchase its shares in the amount of 20 billion dollars. The company expects operating profit growth, starting from 2017. Financial results will support the resumption of the expansion of the sales network, as well as projected growth in operating margin. The company's financial results for the period 2003-2015 is shown in Figure 1.

Figure 1-Financial results of the Walmart company

As we see in Figure 1, the company's key figures are constantly growing, thereby increasing its capitalization.

International expansion of the company began after the company took a leading position in the market of United States. Market entry methods were varied: somewhere company acquired a local trading company, in other countries it has created joint ventures. There were no single market entry strategy, so not all international operations of the company ended in success. Perhaps the company isn’t sufficiently developed the cultural specificities of each country. She appeared on various markets under different names, that doesn’t provide the company integrity and brand recognition. Though all of this brought the company's profitability, but not as high as on the home market.

Currently, there is no more accurate techniques for analysis of industry profitability and business strategy than technique developed back in 1979 year by M. Porter – it is Porter 5 forces analysis.

The essence of this method is to determine the level of competition in the particular industry and, therefore, the definition of the attractiveness of the industry. The word attraction here means quite high profitability of individual industry. Companies striving to leadership, must use their core competencies, business models or distribution networks to make a profit greater than the industry average.

Porter 5 forces analysis (table 1) includes three forces of "horizontal" competition: the threat of the emergence of substitute products, the threat of the emergence of new players, the level of competition; and the two forces of "vertical" competition: the bargaining power of suppliers and bargaining power of consumers.

Table 1 - Porter 5 forces analysis of Walmart

Figure 2 - Porter 5 forces analysis of Walmart

As we can see from Porter 5 forces analysis the company must continue to develop and constantly look for new possibilities in order to retain a competitive advantage in the long term, also analyze their strategy and try to improve it. Focus on the development of competitive advantage allows you to avoid the entrance of new players on the market. For example, a company might invest more funds in the automation of internal processes in the value chain. It is also necessary to improve the system of management of human resources, which can help in enhancing the competitive advantages of the company.

PEST analysis helps identify the most significant moments, which are worth attention in decision-making within the company. It shows the negative and positive effects of some factors affecting business. PEST analysis of the Walmart company is represented in the Figure 3.

Figure 3 – PEST- analysis of Walmart

PEST analysis showed that the company had more opportunities than threats. Walmart can work towards the improvement of human resources management, also continue to invest in technology, improve quality and expand its presence in international markets. These factors may change over time, bringing new opportunities or creating, on the contrary, new threats and challenges for the company.

2. In which of Walmart’s principal functions and activities (namely: purchasing, distribution and warehousing, in-store operations, marketing, IT, HRM, and organization and management systems/style) do its main competitive advantages lie? Your answer should identify the distinctive resources and capabilities in each of these functions and activities.

Outstanding performance indicators of Walmart are achieved vastly due to the constant aspiration of the company to the maximum result. This helps increase the effectiveness of its activities and continued cost reductions. None of the competitors failed to reduce costs as it managed to Walmart.

According to the famous marketing guru T. Levitt (1983), the future belongs to global corporations, because global markets are available for standardized goods at lower prices due to the effect of economies of scale production and sales.

Cost reduction of Walmart aims to offer its customers better prices as possible, which in turn will help to increase sales and profitability of the company as a whole. Received funds management of the company invest in the new stores construction. It allows to increase the scale of the company. In turn the last one also leads to lower costs. The company is also in constant search of new ideas and the development of new technologies and their operational implementation. All of this is the main secret of success of the company.

As you know, Porter 5 forces analysis is only one part of all Porter’s strategic models. The other elements are the "value added chain" and "generic strategies”. In my essay, I would like to consider the value added chain of Walmart (Figure 4), which from the beginning to the end was created with the support of the store employees (partners) and clients.

Initially small towns were chosen as a target market. The strategy was that by offering goods at prices not higher than those in the retail networks of large cities, the company is able to attract consumers through proximity. Instead of selling cheap goods unbranded (as did other stores selling discounted), Walton overran stores shelves the products with recognizable brands by selling it at discounted prices. Thus, he lured away customers of other local shops and freed villagers from having to go shopping in the city. One of Walton's aspirations was to enable people to buy all necessary for family things in one store.

The main supplier is China because of diversity of products and certainly the lowest prices. International cooperation allows the company to keep purchasing goods directly from abroad without going through third players.

Once Walton has seen that his main competitor-giant company Sears has shortages in the supply of essential goods, and he has developed its own distribution network. On the way to success was one of important innovative solution - the creation of own distribution centers. One of such centers could maintain to 100 outlet shops. Deliveries to distribution centers and stores are carried out by the trucks of Walmart.

Figure 4 – Value added chain of Walmart

Logistics system is built in such a way that one truck could deliver in a few stores of essential goods. On the way back it can take the returned goods from stores back to the distribution center and not follow empty to the distribution center. Also they can pick up goods from local vendors. Specialty packaging products was designed and it allows trucks to make maximum use of the place in the body.

Cross-docking system allows to maximum exactly agree shipment from a warehouse and delivery of goods on time. The benefits of such storage is faster delivery of products to destinations and reduced storage space, decrease the cost of renting warehouses and labor personnel. To understand how innovative and successful was a company Walmart in its improvement of the logistic system it is enough to say that the main competitor Amazon logistics managers lured away from Walmart to build at itself the same system.

On various promotions company spends less than its competitors.

Today there are several formats of shops to suit all tastes: warehouse clubs-the so-called Sam’s Clubs, similar in format of Metro company. There are also shopping malls, local markets and also operates Walmart Express. The sale of goods through web sites is very well developed in the company. Innovative at online Walmart stores was that people could see the real availability of the required product, order it and pick up in convenient store on the same day.

Of course, the company Walmart today has a number of problems: it is a problem with market entry (such as Russia), the fight against main competitor-Amazon, criticism from society, numerous lawsuits that may significantly spoil the company's image. Of course, all these problems can be solved, given the growing level of capitalization of the company and its impact on the industry. Today, giant size companies can only worsen its position. Because the world is changing, and in such conditions a huge company with a complex structure and the ingrained control system will not be able to adapt quickly to new conditions. Therefore, the success of Walmart depends only on her own. Only managers competent actions will be able to continue to bring company to leading positions in the industry.

3. To what extent is Walmart’s competitive advantage sustainable?

The main objectives of the successful companies are creating, saving, and exaggerating the clients. In this regard Sam Walton was a unique manager. He didn’t sit in the office, but tried to devote his time maximum to his brainchild. He attended all the stores, moreover he visited competitive stores at the same time considering the number of cars in the parking lot. Walton found that clients is the basis of success, that’s why his staff comes to work every day. The maximum concentration on the consumer, teamwork, helping each other and continuously improve its work are the basic tenets of doing things in the company of Walmart.

Walton's strategies was saving at all and always. But as often happens, leadership in price isn’t the only thing on what consumers watch. Such notion as product quality largely determines customer satisfaction. In Walmart stores along with the known brands located products of unknown brands, but the quality of goods isn’t the best.

Today time often acts as the crucial factor for making a purchasing decision. Considering that Walmart successfully combines in its work the work of suppliers, distribution centers, information about points of sale, customers ' preferences, system of air service and speed of delivery. All of these are competitive advantages in the struggle for leadership in the retail segment. Product availability and speed of delivery in suitable condition are both important.

Source of price leadership is that some activities and processes run with less overhead than its competitors.

In order to remain at the peak and be competitive, the company must continuously improve. Today Walmart joins its forces with Google for a fight with their main competitor-giant Amazon. This merger will allow Walmart to become the world's largest retailer which is represented in the online service from Google. This partnership will allow Walmart to get access to voice of the order for clients. Although this functionality doesn’t yet occupies a large niche among consumers, but this market segment is the fastest growing segment of the market of online trading.

The company carefully and lovingly refers to its users. Proof of this, is that the company even with the 1990-s collects data for production planning. This program provides the most detailed analysis of customers ' preferences and predict daily sales by the store.

The company promotes "green world", i.e. moving towards environmental management of natural resources. Walmart is working towards the resumption of energy and achieve Zero waste yet from 2005. These actions were caused by a big criticism by politicians and trade unions. They accused the company in a tough exploitation of staff and the oppression of small family shops. There is also a view that the company exerts a pressure on suppliers, "wringing" minimum prices from them.

Designed back in 1991 year by J. Barney VRIN - analysis of 4 key criteria (valuable, rare, inimitable and non-substitutable) allows to evaluate the available resources of the company, its internal environment and its ability to achieving sustainable competitive advantages. VRIN-analysis of Walmart is presented in table 2.

Table 2 – VRIN - analysis of Walmart

It can be concluded from table 2 that the competitive advantage of Walmart is a well-developed supply chain, logistics operations, also in the application of modern IT systems. It is necessary to work on the improvement in personnel management, as well as try to keep the leadership in sales.

Excellent system of delivery and control products which use modern satellite communications and allowing the timely replenishment of inventories which are quickly delivered from warehouses by trucks, wholesale purchase prices, regular training programmes for staff and competent marketing enabled the company significantly to minimize costs. Despite the existence of such competitors as retail giants Sears and Kmart, the result was in fact that competitive positions of Walmart were sustainable.

To compete at the appropriate level with Walmart pricing policy should be maintained at the same level, also have a range similar to the products in Walmart stores, but product quality should be much higher. Because product quality isn’t the strongest item of Walmart.

It is not a secret that working conditions are also isn’t a strong point of the company. Walmart mainly employ people uneducated from the backwoods. Competitors obviously need to work on improving personnel policy.

With the appearance of the similar competitor company can apply the strategy of "blocking". This means to minimize the price level. In the future Walmart will do everything possible to acquire the company.

4. What challenges does Walmart currently face and what measures does it need to take to sustain its recent performance and defend against competitive (and other) threats?

Purchase products and various required for daily living goods is an integral part of each life even in a century of high technologies. Visiting supermarkets takes away enough time. Especially when you consider that the rhythm of modern life doesn’t allow to spend precious minutes wasted. To reduce the time for buying food people are trying to acquire them at a nearby shop. But the problem of such shops is that the quality of the products isn’t always at the highest level, as well as the range of goods is often limited.

As stated by the director-marketing platform of one advertising agency D. Roth (2015) during the conference titled: "10 revolutionary retail innovations" that in next 10 years the retail trade expects more changes than in the past half-century.

Indeed, there are already visible changes in the trade today. So, for example, the South Korean retail network Emart represents the so-called "flying shops" as an alternative to the usual shops. These stores are like special balloon attached to router Wi-Fi. Using the app buyer selects the necessary goods, pays by credit card and point delivery address. Thus, the time on shopping trips can be minimized. Through this marketing solution company Emart was able to increase its sales by 150%.

Of course, Walmart network is huge and diverse, but even such giant has no the above format store. As the board we want to point out that retailers must pay more attention to the collection and analysis of data directly, because of it they will be able to increase sales and build customer loyalty.

In the future, a dominant position would take a trade from anywhere on the planet and the delivery at the customer's request. According to leading marketers retail concept will be given by holographic models of goods on showcases and drones. Speaking at a conference once (2017), devoted to the transport of the future, I noted the importance of the presence of drones in the life of mankind. Also that had high hopes for the delivery of products and medicines and much more. But along with this, there are many problems, particularly with regard to their movement in the air of the city limits.

Another innovation, which today is in the top of retail innovations is invisible data. This means that due to the fact that the clothes will be marked unique labels, a man will be able to purchase his favorite clothes just looking at the passer-by in the same clothes. The whole flow of information from devices contactless communication and electronics all allow marketers to fully appreciate its target audience in determining marketing strategies. Today in this direction works the well known company Adidas.

Another breakthrough in trade industry can be a "smart" dressing that will remember all the selected clothes and will allow user to compare easily several options.

Despite all the innovations and innovative solutions in retail, usual shops won’t disappear, but that they would have to change. This is an obvious fact. And what format they will tune and which direction to change they will select is addressed to top-managers of each store individually.

It is appropriate to consider the company in terms of SWOT-analysis in response to such questions: what are the challenges which Walmart faced today and what is needed to be done to strengthen its position in the market. It is presented in Figure 5.

Today, Walmart holds strong position in its segment, but the future isn’t far off and nimble minds are so hungry for change in the usual process trade. The company's wish is to be able to keep afloat and to keep up with the times without fear. As before they want to implement innovative projects and expand the boundaries to take a greater share in international markets. I would like to advise the company to choose a common development strategy, also not to expand the range of goods and services up to infinity, pay more attention to the quality of offered products and to keep pace with the times developing direction of E-commerce and, of course, pay close attention to the organizational culture of the company to the dissatisfaction of workers grew into a mass protest. Here, they should pay attention to the Gore’s organizational culture. Close and friendly relations with employees and senior management are principle in the company like "all in the same boat." As you know, satisfied employees are the key to success of the company.

Figure 5 – SWOT – analysis of Walmart

What strategy will elect the management of the company and whether or not it is successful is the main issue, and only time will give the answer.

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