Walmart External and Internal Environments
The specific course learning outcomes associated with this assignment are:
� Identify how the six segments of the general environment affect an industry and its firms.
� Identify the five forces of competition.
� Analyze the external environment for opportunities and threats that impact the firm.
� Analyze the internal environment of a company for strengths and weaknesses that impact the firm�s
competitiveness.
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� Use technology and information resources to research issues in business administration.
� Write clearly and concisely about business administration using proper writing mechanics.
- Introduction
A company’s external and internal environments are important catalysts for business
performance. Therefore, it is imperative for organizations to understand factors within their
environments in order to develop effective strategies to promote business. Wal-Mart, a renowned
United States retailer has been in existence since 1969 (walmart.com). The corporation operates
through hypermarkets, grocery stores and discount department stores, and is considered the
largest retailer in the globe. This paper is a discussion of the external and internal environments
affecting Walmart, how the company can address factors in the environment to enhance
performance and how the company’s resources, capabilities and key competencies can be
enhanced to create value for the company.
- General environment assessment
The social and economic environment remain the most prevalent segments of the general
environment affecting Wal-Mart. These are discussed as follows.
Social environment
This segment refers to the factors within the social environment which may affect
demand patterns. In the contemporary world, customer needs and preferences are changing
drastically and this has affected companies that deal with consumer goods such as Walmart in a
significant manner. This means that it is not only harder to predict demand but the company has
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also experienced greater instances of dead stock because consumer interest easily dies down with
the introduction of newer and better models of products. New trends such as technological trends
have been a constant challenge because the retailer must keep up with customer demands. An
example is the advent of smartphones, whose demand keeps changing as newer versions are
produced.
Online shopping is a new social trend among consumers and this has led to increased
competition for Wal-Mart. While the retailer also has an online store, Amazon and Ebay have
gained a wide following and consumers are increasingly ordering from these sites.
Walmart is under constant pressure to be socially responsible by participating in charity
work and contributing to community development. This means that the company must invest
more in corporate social responsibility in order to gain confidence and favor from clients (Lamb,
Hair & McDaniel, 2011).
Despite the effects identified above, Walmart should however view social/cultural
changes as an opportunity to make more profits. The increasing demand for healthy products for
example insinuates that the company should invest more on such products to tap the growing
demand.
Economic environment
Walmart like any business operates in a highly volatile economic environment where
different factors affecting the economy are likely to impact business operations at any time.
Economic fluctuations lead to changes in the prices of goods and also affect buying power.
Walmart depends on peoples’ purchasing power to make sales and when this is affected the
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organization’s profitability is also affected. The economic environment also presents
opportunities in terms of the growing economic progress in developing countries which the
company can exploit for future growth.
- Five forces of competition
The five forces of competition greatly influence business operations from a micro level.
Among the five forces presented by Porter, industry rivalry and bargaining power of buyers
emerge as the most influential forces affecting Wal-Mart.
Industry rivalry/competition
Walmart faces stiff competition in the retail market, with major competitors being Target,
COSTCO, K-Mart, Dollar Tree Inc, B&M, Macy’s Inc, Sears, Pricesmart and Dollarama Inc.
among other retail outlets. In addition, Walmart now has to deal with online suppliers including
Amazon, E-bay and Alibaba which supply customers with products of choice from the comfort
of their homes or offices. These sites are also fond of giving discounts, such that customers gain
both convenience and value for money. In an industry that has numerous competitors who are
equally committed to meeting customer needs to the best extent possible, Walmart must invest
more in providing a variety of quality products at affordable prices in order to retain customers.
Walmart has been proactive in addressing the issue of industry rivalry by combining
various strategies. By offering highly competitive prices and offering discount coupons, Walmart
has managed to attract a large number of customers. Enhancing accessibility through convenient
locations ensures that customers can easily find Walmart outlets within their convenience. The
company also provides a store locator on their website to help customers in identifying the
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nearest stores. Walmart attempts to provide the highest variety of products possible in order to
appeal to a wide customer base. One can practically obtain everything from Walmart including
household items, foodstuff, electronics, toys, baby items, beauty products and clothing among
other products, which makes it convenient for general shopping. Walmart has an active online
store, allowing customers to shop conveniently from home or on the move. Finally, Walmart is
becoming increasingly active on social media, where it conducts campaigns aimed at attracting
customers.
Bargaining power of buyers
Product variety and existence of numerous sellers leaves customers with a wider choice
range; such that they can compare price, quality, usability, durability and convenience before
making purchasing decisions. Given the high number of physical retail stores in the United
States, as well as online stores, customers now have a higher bargaining power and tend to
purchase from retailers who offer the best quality at the lowest price, and at the greatest
convenience (Lynch, 2012). In this regard, the bargaining power of customers is exerting
increasing pressure on companies such as Walmart to provide products at lower prices in order to
prevent loss of customers to cheaper alternatives. Walmart must compete with peer organizations
for customers by meeting their growing and changing needs in a better way than competitors.
To address this force, Walmart has been ensuring that only the highest quality products
are supplied at their stores. Low prices also form part of the strategy that Walmart is using to
retain customers. Walmart has become increasingly proactive in obtaining feedback from clients,
a practice that helps the company to effectively predict customer needs and work towards
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meeting them. The online store has also contributed to the company’s ability to enhance
convenience for customers.
- Improving ability to address forces of competition
It is notable that Walmart actively seeks to address the above two forces. However, the
retail giant must exert more efforts towards improving its ability to address the forces more
effectively in order to enhance profitability.
Industry rivalry/competition
Social media has been hailed as one of the most effective marketing avenue in the
modern times. This has been enhanced by advancement in technology, which has inherently led
to increased access to the internet and social media (Johnson et al, 2014). Walmart should focus
more on social media as a marketing tool through creating wide following on social media sites
including Facebook, YouTube and Twitter. This should be accompanied by engagement in social
media campaigns to promote their products.
Bargaining power of buyers
While it may be difficult to control customers’ ability to choose between products,
Walmart can influence buyer decisions by providing favorable conditions that attract customers.
An example is to create value for customers through enhancing customer service. Walmart has
been faulted for underperformance in terms of customer service, a factor that could contribute to
loss of customers to competitors (Lynch, 2012). This can be enhanced by hiring additional staff
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to counter the staff shortage problem and making customer effective customer service a
deliverable for all stores and for all employees. Based on customer feedback, the company
should address issues of poor customer service at departmental level.
- External threats and opportunities assessment
Threats
Competition remains one of the most significant threats faced by Wal-Mart. Existing
firms and new entrants into the market are keen on attracting customers and this is a major threat
to Wal-Mart’s success.
In the recent past, Walmart has experienced employee union issues, stemming from
allegations of poor employee treatment, low wages and understaffing. This has led to negative
publicity in the midst of ethical concerns. Bad publicity related to poor customer service could
also threaten the company’s future performance.
Economic fluctuations influence business performance and profitability to a significant
extent, particularly when it affects the price of supplies and the purchasing power of customers.
In the event of unforeseen economic turbulence such as through economic crises, forex
fluctuations and inflation, Walmart could suffer major losses.
Opportunities
Technology advancement
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Technology advancement is a valuable opportunity to exploit in enhancing profitability.
Advances in technology have led to the development of computer and mobile phone applications
that can utilized to enhance performance. Online selling, which Walmart has already invested in
is a great opportunity to reach customers. Secondly, social media is one of products of
technology advancement, and which has led to greater customer reach for organizations.
Through social media, Walmart not only stands a chance to increase its reach through promoting
followership but also through social media campaigns and advertisements
Walmart has the opportunity to expand globally into countries that it does not currently operate
in. This is more so with the increasingly number of developing
Global expansion
There is a growing demand for healthy foods among consumers, as individuals seek to improve
their health and get rid of lifestyle diseases. This is a major opportunity for Walmart to take
advantage of, by serving the needs of this market.
Most serious threat and opportunity
Based on the above discussion, it can be established that competition is the most serious
threat while technology advancement is the most lucrative opportunity. Johnson et al (2014)
notes that businesses must utilize available opportunities to deal with threats affecting the
business. In order to deal with competition, Walmart could utilize technology advancement to
develop competitive strategies such as social media to expand its global reach. Walmart should
focus on providing more products on its online market and improve on delivery in order to attract
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customers. It should also consider expanding globally by allowing customers from outside the
United States to shop from the website and have the products shipped to them. Providing
customers with high quality products will ensure that the company does not lose out to
competitors.
- Greatest strengths and most significant weaknesses
Strengths
Walmart has a well-established brand name and is well known across the United States
and beyond. This gives the retailer advantage over other competitors.
Product variety and favorable prices remain a major boost for the retailer. Customers are
attracted to low products and the additional benefit of being able to shop for majority of the
products they are looking for within Walmart makes it a convenient store.
Due to its expansive size, Walmart has achieved cost leadership based on its bargaining
power. Walmart benefits from economies of scale based on its large purchases. It also sources
some of its products directly from the manufacturer thus enabling the company cut its costs
significantly.
One of Walmart’s greatest strengths is supply chain management efficiency. The
company has a sophisticated supply chain management system which ensures efficient delivery
of products to their distribution centers which are well managed. The same applied to inventory
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management, which ensures that all stores are supplied with required products and that dead
stock is minimized.
Walmart has an expansive store network, with 11,534 outlets under its name.
Weaknesses
Adapting in different countries and cultures has been difficult for Wal-Mart, which is
mostly successful in the U.S. The company has had little success outside the U.S. and this has
impended its global expansion attempts. An example is the flopped entry into Germany which
demonstrated that global expansion is not the company’s stronghold.
A deteriorating public image due to issues such as poor employee conditions and poor
customer service have affected the company through reduced sales, legal battles with unions and
strenuous working relations that lead to inefficiency. In April 2016, Wal-Mart, at the
Pennsylvania Supreme Court, failed at appealing a judgment of $187.6 million issued over
infringing minimum wage laws by failing to pay workers as indicated in their policies (Wheeler,
2016).
Walmart applies the low price strategy to attract customers and this means that the
business must endure lower profit margins. While this is counteracted by the high volume of
sales, the company loses significantly by selling at below market rate prices.
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Walmart is severely understaffed, a factor that has been a cause for criticism over the
years. This leads to overworking of staff and often leads to poor customer service. Besides, there
are more part-time workers than full-time workers, such that commitment to work may be
limited. This may be detrimental to the company’s performance in the long-run and impact on its
profitability.
Walmart has a history of high staff turnover. This means that the company is constantly
hiring and training, which may greatly affect its operations. It also means that the quality of
service may be affected because there are new employees at any given time.
Due to its strategy of low pricing, Walmart has in various instances encountered
community hostility. Wal-Mart’s strategy is seen as a threat to local businesses, which are unable
to make profits due to lack of customers, and the fact that they may be forced to accept lower
profit margins in order to compete effectively.
Wal-Mart’s low price strategy is to a great extent achieved through the sale of cheap and
poor quality products (Mitchell, 2011). As the company offer low prices, quality is also
compromised to a great extent.
The large size of the company makes it difficult to keep up with employee and manager
performance and makes decision making difficult. It also leads to inconsistency in service
delivery and poor customer care.
Strategy to maximize strengths and minimize weaknesses
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To maximize the company’s strengths, Walmart must invest more on developing the
brand through marketing and provision of quality products. In order to minimize weaknesses, it
is imperative that Walmart addresses the challenges being faced by the company including staff
welfare issues and customer service in order to maintain a good reputation, hence increase
customer trust.
- Resources, Capabilities and Core Competencies
A superior logistics system is considered Walmart’s major resource and capability. The
company has invested highly in its logistics system which ensures that the organization is able to
identify the pace at which products are moving, the best suppliers, best bargains for products,
best transport routes to ensure products are delivered in good time and that its stores never run
out of stock. The system also allows the company to divert goods on transit in case there is
urgent need to supply a particular store or region. This plays an imperative role in enhancing
distribution and supply management.
Walmart has a well-established management information system to ensure overall
efficiency in operations. This ensures that the company can manage its expansive network
including store operations, finances and human resource management.
Cost leadership is a core competency for Walmart. This has helped the company compete
effectively against major players in the economy. Due to the bulky purchases which allow the
company to gain discounts and a well-managed logistics system which promotes efficiency and
reduces costs, Walmart has achieved cost leadership.
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Walmart makes high volume of sales across its stores and one of the major resources the
company boasts of is financial resources. The company is capable of maintaining its operations,
handle expenditure, pay suppliers, purchase stock, provide returns to investors and invest in more
stores. This means that the company’s financial stability is strong and it can easily expand its
activities to grow the business further.
Walmart has a strong distribution network consisting of over 42 distribution centers
(Walmart website). This increases efficiency and reduces delivery time. It also ensures that
customers always find products in the stores.
Store brand variety ensures that the company can serve different market needs. Walmart
operates different store brands including Walmart U. S., Walmart International and Sam’s Club,
with an aim of serving different needs of customers. This is imperative in enhancing profitability.
Managerial skills and competencies ensure that Walmart is capable of operating the
expansive business empire. This is achieved through strategic decisions and improved efficiency,
ensuring that the company continues to make profits and that customers are satisfied.
- Company Value Chain and How Walmart Can Derive Value From Its Resources,
Capabilities And Core Competencies
Based on Porter’s value chain analysis, an analysis of Walmart’s value chain can be
summarized as follows:
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Walmart Value Chain
FIRM INFRASTRUCTURE
- 11,534 retail outlets – Strong brand and concept
- Information management systems – Warehouses
-High store volume – Central management (no regional HQs)
HUMAN RESOURCE MANAGEMENT - 2.3 million associates (employees) – Efficient training program
- Focus on individual associates as partners – Competitive benefits and salary
- Low wage bill – High management skills and capabilities (including IT)
TECHNOLOGY DEVELOPMENT - High level MIS – Automated distribution
-Sophisticated logistics system – Real-time access to sales data from stores - Competitor benchmark
PROCUREMENT - Real-time inventory management – Supplier trust as best retailer to deal with
- Connection and direct contact with suppliers – Economies of scale
- Relations with manufacturers for direct production – High bargaining power
- Long account payable period
INBOUND
LOGISTICS
-Electronic Data
Interchange (EDI) - Data automation
- Goods pass
through distribution
centers - Convenient
location of
distribution facilities - Own truck fleet
-Bargaining power
OPERATIONS
- Flexible floor plan
- Standard products
across stores
Unique operations
in each store - Effective in-store
execution
-High volume of
sales - Real-time sales
and inventory
tracking
OUTBOUND
LOGISTICS
- Own truck fleet
- Automated
supplies and
logistics
-Strategic location of
distribution centers - High inventory
turnover - Low distribution
costs
MARKETING &
SALES
- Low prices
- Involvement in
community activities - Product tailoring to
community - Product assortment
- Convenient
location stores - Relies on word of
mouth and customer
experience
SERVICE
-People greeters
- Focus on
customer
service - Online
shopping
SUPPORT
ACTIVITIES
PRIMARY
ACTIVITIES
Secondary Objectives
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In reference to the value chain illustrated above, Walmart could create additional value
through utilizing its resources, capabilities and key competencies as discussed below.
Walmart’s customer service is in dire need of improvement and this can be achieved
through utilizing the high financial resources available at the business.
Consideration of the expansive network of stores suggests that there is need to address
the question of low staffing and low salaries. Walmart should use its financial resources
and its highly qualified management team to restructure the human resources function.
Walmart should recognize that competition is high in the retail sector and that there is
need for high level marketing to maintain its customers and attract new ones. By
leveraging on the brand popularity, its low cost strategy and strong financial position, the
company can undertake marketing strategies to promote demand for its products.
Taking advantage of the expansive market that it already has, Walmart could derive more
value by expanding the store globally as well as increasing the number of stores locally.
Bases on its sophisticated logistics system, Walmart can effectively manage the new
stores by ensuring timely delivery of supplies.
The high volume stores and distribution centers represent untapped potential which could
be utilized through increasing product variety. The spacious stores and distribution
centers can still take in additional products and further satisfy their customers.
Online shopping has gained high popularity due to the availability of internet and digital
devices. Customers are also preferring online purchasing because of its convenience.
Walmart which already has an online store should focus on online selling to capture the
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growing market by investing its financial resources in developing a detailed and
interactive website where customers can obtain a majority of products.
Walmart could create additional value through production of custom products. Taking
advantage of its connections with manufactures, the company could develop customized
products for its customers, thus increasing sales.
The community plays a major role in adding value to the company, hence the reason why
Walmart must increase its involvement in community social responsibility (CSR). This
can be done through dedicating a considerable portion of some of its profits towards
improving community health.
Walmart must utilize its managerial and expert skills to further enhance its systems,
inbound and outbound logistics. It is notable that competition continues to escalate and
failure to keep upgrading to better mechanisms could cost the company greatly.
- Conclusion
Walmart remains one of the most influential businesses in America based on its service to
the retail market and as an employer. The company has not only expanded to most major towns
in the U.S. but it also supplies a majority of consumer products in its expansive stores. However,
the retailer faces considerable issues in its international and external environments. To overcome
negative influences in the internal and external environment, Walmart must take strategies aimed
at improving its resilience and gaining competitive advantage. In order to deal with its
weaknesses and threats, Walmart must seek to maximize on its strengths and opportunities.
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Further, based on its resources, capabilities and key competencies, the company can improve its
performance through creating value in its processes.
- References
Johnson et al. (2014). Exploring Strategy: text and cases. 10th edn, London, Pearson.
Lamb, CW., Hair, JF., & McDaniel, C. (2011). Essentials of Marketing. Cengage Learning,
Lynch, R. (2012). Strategic Management, 6th Ed, London: Prentice Hall
Mitchell, S. (2011). How Walmart Drives Down Product Quality and Durability
Wheeler, L. (2016). Supreme Court rejects Wal-Mart appeal in employee wage case
