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 fo...
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6. Canada, N. (2011). Walmart canada completes acquisition of leases for 39 stores. Canada Newswire.
7. Bromiley P, Fleming L. The resource based view of strategy: an evolutionist’s critique. In The Economics of Choice, Change, and Organizations: Essays in Memory of Richard M. Cyert, Auger M, March JG (eds). Edward Elgar: Cheltenham; 319–336
8. Christensen, C. R., Andrews, K. R., Bower, J. L., Hamermesh, R. G., & Porter, M. E. (1982). Business policy: Text and cases. Homewood, IL: Irwi
9. Peteraf, M. A. (1993), "The cornerstones of competitive advantage: a resource-based view". Strategic Management Journal, Vol. 14, No. 3, pp. 179–191
10. Porter, M. E. (1980), "Competitive Strategy: Techniques for Analyzing Industries and Competitors", New York, NY: Free Press
Porter, Michael E. "From competitive advantage to corporate strategy." Harvard Business Review (1987): 43-59. Print. May 2014.
S, Tywoniak 2007, Making sense of resource based view, Academy of Management Conference, University of Technology, Australia.
Wal-Mart’s competitive environment is quite unique. Although Wal-Mart’s primary competition comes from general merchandise retailers, warehouse clubs and supermarket retailers also present competitive pressure. The discount retail industry is substantial in size and is constantly experiencing growth and change. The top competitors compete both nationally and internationally. There is extensive competition on pricing, location, store size, layout and environment, merchandise mix, technology and innovation, and overall image. The market is definitely characterized by economies of scale. Top retailers vertically integrate many functions, such as purchasing, manufacturing, advertising, and shipping. Large scale functions such as these give the top competitors a significant cost advantage over small-scale competition.
· The market is dominated by a few large suppliers rather than a fragmented source of supply,
Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard business review, 86(1), 25-40.
Porter, M.E. (1980), "Competitive Strategy: Techniques for analyzing industries and competitors" New York: The Free Press
Wal-Mart is known to beone of the best supply chain companies in the world. Throughout the years Wal-Mart has adapted strategies that keep up to their name. Unlike many retailers, Wal-Mart purchases goods directly from manufacturers, skipping a few steps of the supply chain cycle. Buyers use advanced negotiation skills to make sure they are receiving the best price on purchases. Wal-Mart also has their own trucks picking up from warehouses, reducing the price significantly on transportation. Long term relationships with vendors are extremely emphasized to understand prices and cost structure. These practices build Wal-Mart to its name and keeps low prices for retail customers all over the world. Supply Chain studies have shown that in 1998, Wal-Mart would fill up stock in 2 days compared to their competitors which would complete it in 5. Part of the reason Wal-Mart would replenish so
The gross profit during the year 2015 was actually a $10 billion increase from their fiscal year 2014 (University of San Francisco, 2015). Over the past six years, Walmart continues to generate these types of numbers, representing increases in growth, time and time again. The company’s income was generated by more than 4,500 stores in the United States alone which is supported by a supply chain that moved from number 14 to number 13 on research and analyst company Gartner’s annual ranking (University of San Francisco, 2015). Many business professionals have analyzed and interpreted Walmart’s supply chain management approaches, making it apparent which elements of their strategy have proven effective. These major supply chain components that have shaped Walmart’s success over recent years are their buyer bargaining power (one of Porter’s Five Forces), focus on the overall customer experience, and investments in emerging technologies along with the implementation of these technologies in their business
Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard business review, 25-40.
Hendersern and Stern 2000, ‘Untangling the origins of competitive advantage’,Strategic Management Journal, Vol. 21, pp. 1123-1145.
PORTER, M. E. (1980). Competitive strategy: techniques for analyzing industries and competitors. New York, Free Press.
At the first, Wal-Mart only operates its business in home country. However, Wal-Mart became more integrated and independent by expanding internationally. In 1991, Wal-Mart start expands the business at international level which includes 26 countries outside of the United State such as Mexico, China and Canada. Now, Wal-Mart totally has more than 6100 stores in foreign country. The step taken by Wal-Mart is to improve and maintain their achievement outside of the home country. Wal-Mart’s strategy which expands their market at international level gains a lot of benefit to their business.
Porter, M. E., 1999. The Five Forces that Shape Competitive Strategy. Harvard business review, p. 80.
The forces driving the competition and the intensity of the competition in an industry, are due to its principal economic structure and the behavior of the competitors (Porter, 1998). Therefore, the state of competition as shown in Figure 1 depends on five competitive factors such as industry competitors - rivalry, potential entrants, buyers, suppliers, and substitutes. As Porter(1998) states “ the collective strength of these forces determines the ultimate profit potential in the industry, where profit potential is measured in terms of long terms of long run return on invested capital.”
Michael Porter has postulated that the intensity of competition in an industry is determined by its underlying economic structure1. And he further contends as we saw above, that the industry structure is shaped by five basic competitive forces: the threat of new entrances into the industry, the bargaining power of suppliers to the industry, the threat of substitute products or services, the bargaining power of customers or buyers, and the Rivalry among Existing Firms. The figure shows these competitive forces.