Question

How will increasing the horizontal scope of Walmart through acquisitions strengthen its competitive position and profitability?

Answer 1

SOLUTION

WAL-MART- IN STRENGTHENING ITS COMPETITIVE POSITION AND PROFITABILITY

Becoming global is never exclusively the result of a grand design, though certainly it cannot be the result of incremental, and hoc, oppurtunistic and random moves. The widest approach would be one of " directed opportunism"- an approach that maintains opportunism and flexibility within a broad direction set by a systematic frame-work. Walmart company, which opened its first international store in Mexico city in 1991, now operates in all 50 states Puerto Rico, Canada, China, Mexico, Brazil, Germany, Britain, Argentina and South Korea. Of a workforce of more than 950,000, it had more than130,000 employees working in 729 facilities outside the United States by July 1999.

Wal-Mart has pursued globilization aggressively since its first move across the border in 1991. In 1993, just 1 percent of all Wal-Mart stores were located outside the United states. By 1998, that had grown to 18 percent of the company's growth in sales and 4 percent of its growth in profits came from international operations.

The European market had certain characterstics that made it less attractive to Wal-martasa first point of entry. The European retail industry is mature, implying that a new entrant would have to take market share away from an existing player- a very difficult task. Additionally there were well-entrenched competitors on the scene that would be like to retaliate vigorously against any new player. And European retailers have formats relative to Wal-mart, neutralizing the competitive advantage Wal-mart might have expected had its business model been entirely new to the market.

Walmart might have overcome these difficulties by entering Europe through acquisition, but the higher growth rates of Latin America and Asian markets would have made a delayed entry into those markets extremely costly in terms of lost opportunities. In contrast, the opportunity cost of delaying acquisition- based entries into European markets appeared to be relatively small.