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Industry Analysis Of Walmart

727 words - 3 pages

Michael Porter's framework for industry analysis keys in on five forces that shape the competitive environment. The five forces are: 1. Rivalry among existing firms. 2. Threat of new entrants. 3. Bargaining power of buyers. 4. Bargaining power of suppliers. 5. Threat of substitutes. This model can be used by business managers to develop an edge over rival firms. Use of this model will allow the manager to better understand the context of the industry in which his/her firm operates in.To demonstrate Michael Porter's model on industry analysis, I have chosen Wal-Mart Stores, Inc. The proceeding paper will give a brief overview of the Wal-Mart enterprise followed by Porter's five forces on the Wal-Mart organization.OVERVIEW of WAL-MART STORES INC.Wal-Mart Stores Inc. is a global enterprise that is the largest national retailer in the United States. (1. money.cnn.com/magazines/fortune500). Fortune magazine lists Wal-Mart's 2005 revenues as $288,189 (in millions) which dwarves its nearest competitor Target ($49,934--in millions) Wal-Mart operates on an "Every Day Low Price" philosophy because they are able to maintain their low price structure through complete expense control. With this philosophy, they have proven to be extremely profitable domestically. Their primary task is buying from suppliers at a low cost and reselling the goods to customers at a low price. Thus, the company philosophy of low prices and great customer service is achieved.5 FORCES FRAMEWORK for ANALYSISRivalry among CompetitionDue to Wal-Mart's size, domination in the retail industry lacks any real rival intensity among its main competitors at this time. While Wal-Mart excels in the retail industry, much of the competition nationally is struggling to stay in business let alone compete. Two retailers that fit this description would be K-MART and Sears. It appears the nearest rival companies at this time would be Target and Costco discount stores. Both retailers offer discounted merchandise, but in company size and total distribution outlets pale in comparison to the Wal-Mart machine.Threat of New EntrantsThe existing barriers of entry are high for companies aspiring to challenge Wal-Mart in the retail industry. This can be attributed to Wal-Mart's vast sources of resources. Wal-Mart employs economies of scale which spreads out the cost production through the number of units produced. The cost of product unit declines as the volume produced increases. The purchase of massive quantities of items from its...

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