Critical Analysis of Internal Resources of Wal-Mart and External Environment.
We have used Porter’s five forces on the discount retail industry to understand external environment(Porter, Michael E., Competitive Strategy(1988).
1. Threat of new entrants: Low
a. Highly price competitive nature of the discount retail industry with already established players vying for market shares forbids new entrants. High entry barriers due to huge capital investments and need for economics of scale.
b. Incumbents already have strong and trusted supplier network which couldn’t be replicated by new entrants
c. Wal-Mart by its scale of operations drive cost and price lower which can’t be replicated by new entrants
d. Wal-Mart possess a strong distribution and logistics network enabled by technology, a deep pocket which could invest in new generation process and a well-established brand name
2. Threat of substitutes: Low
a. Alternatives like Mom-and-Pop stores and Specialty stores fail to provide the consumer choices in terms of products and brands and competitive prices provided by retail chain
b. E-commerce/ Online industry is a maturing industry but fails to attract purchase of daily consumer durables due to higher prices and longer fulfillment times. Grocery stores fail to offer a viable substitution due to high prices.
3. Competitive rivalry in Industry: High
a. Mature industry with few existing players with oligopolistic industry structure.
b. Industry is price competitive with firms focusing on improving internal operations to cut costs and hence price.
4. Bargaining power of suppliers- Low
a. Wal-Mart’s large scale of operations with strong network of stores around the world provides them global sourcing capability with a wide range of vendors/suppliers. This leaves no bargaining ground for the suppliers.
b. With strong supply chain network with over 4k trucks enables Wal-Mart to run independent logistics network
c. Private labels introduced by Wal-Mart also drive bargaining power of suppliers low.
5. Bargaining power of Buyers- Moderate to High
a. Price-sensitive buyers coupled with low or nil switching cost provides high bargaining power of the buyers.
b. Brand differentiation and product differentiation in the consumer durable industry is les leading to convenient shopping.
Below is an analysis based on resourced based view model (RBV) which will help to determine the sustainability of core competencies(Peteraf, M. A. (1993))
Competency Valuable Rare Inimitable Non-Substitutable Conclusion
Deep Focus of technology in supply chain practices Yes No No Yes Competitive parity
Ability to pull demand to generate large sales volume Yes Yes No Yes Temp. competitive advantage
State of the art logistics and return logistics system Yes Yes No Yes Temporary competitive advantage
Decentralized Operation Yes Yes Yes No Temporary competitive advantage
Shared Beliefs, Culture and Values Yes Yes Yes Yes Sustainable...