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 capabil...
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...velopment, supply chain and consumer experiences. Any internal alliances/ partnership should be sustainable, acceptable and feasible.
Strategic alliances, Joint ventures and foreign acquisitions should be the internal expansion vehicles to be used by Wal-Mart.
6. Wal-Mart should focus on ethical sourcing and CSR initiatives including focus on environmental sustainability to successfully defend increasing pressure from environmental groups and anti-globalization campaigns .Wal-Mart should focus to attain zero waste and reach 100% renewable energy. Wal-Mart should built transparency in its communication and built credibility by taking accountability of negative business practices and policies and building strong measures to improve its relationship with external parties. This could be done by projecting a community friendly and environment friendly image of Wal-Mart.
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