Walmart: Internal and External Business Environments
In terms of size and brand reputation, Walmart is among the market leaders in the United States and internationally. Walmart uses unique strategic approaches to ensure that its customers have the best product in the market at a reasonable price. The current analysis focuses on the internal and external environments of the company as they affect its operations and market success. The first section addresses two external segments, using elements of the PESTEL (socio-cultural and technological). The second section focuses on two of the five forces of competition, with the strength of completion and the bargaining power of consumers being the most critical factors. Other areas of the paper include future improvements, greatest external threat, most significant opportunity, strengths and weaknesses, strategy or tactic, resources, capabilities, and core competencies.
Walmart operates in the highly competitive retail sector, suggesting its need to develop an effective strategy to succeed. The remote or macro-environment contains numerous factors that determine the company’s operations and strategic direction. The PESTEL (political, economic, socio-cultural, environmental, and legal aspects) shows how the various forces affect the firm and its operations. While all the segments of the external environment are essential to the firm’s success, the most impactful are socio-cultural and technological.
The socio-cultural environment within which Walmart operates is essential since it affects its market success. The environment relates to consumer perception and preferences, which affects how the company meets its needs. The factor is significant for Walmart since consumer perceptions and buying behaviors have changed in recent years. According to He et al. (2021), the consumer goods industry has experienced lifestyle changes, such as the demand for healthier options and cultural diversity. For example, the company witnesses an increase in the demand for sustainability within its supply chain and the need to supply healthier foods. Depending on how the management reacts to the change, they could present an important opportunity for Walmart. The company can increase its diversity and array of products to meet new needs and customer preferences.
Technology is another segment of the external environment with significant implications on Walmart’s success in the retail sector, which the management should address, including its modern trends and new media, to become competitive. Technology is one of the factors with an impact on the competitive landscape of the industry. The company needs to increase its innovation and automation to improve its customer service. Another critical area for Walmart is capitalizing on business analytics or big data and expanding the use of mobile devices and social media for customers (He et al., 2021). Many consumers have embraced the e-commerce model for convenient shopping, creating the demand for the company to embrace the change to remain competitive. The company has an online presence but should continue innovating to stay relevant in the highly competitive retail sector. Besides, online presence and increased use of technology will boost its revenue.
Michael E. Porter’s Five Forces of Competition
Walmart competes against leading companies in the retail market within and outside the United States. Among the leading rivals in the retail market are Amazon.com Inc., Target, and Home Depot. The strength of the competition makes Walmart’s management proactive in creating strategies to protect its operations and market size. Michael E. Porter’s Five Forces analysis model provides valuable tools for analyzing the company’s competitive position (Phillips & Rozworski, 2019). The external factors (five forces) are consumers’ bargaining power, suppliers’ bargaining power, new entrants’ threat, substitution threat, threats of suppliers, and competition. The most important forces for the company are competitive rivalry and the bargaining power of consumers.
The company operates in a market environment with the intense competition since many companies with different sizes and strengths compete in retail. Large numbers of companies, a huge variety of operators, and the aggressiveness of rivals characterize the market. The increasing competition in the retail market creates a problem for Walmart and a demand for a new competitive advantage to remain successful (Chen, 2021). Thus, the company has increased its aggressiveness in the market to counter the increasing rivalry. The company strives to grow its local and global market position to become more competitive and maintain its market share. Market expansion is one of the ways the company seeks to make the competition irrelevant.
Consumers’ Bargaining Power
The company faces a weak intensity of this force due to the massive population of buyers demanding goods from various firms in the sector. Porter’s Five Forces analysis indicates that a high customer population makes it challenging to make a demand on a business. Walmart operates in an environment characterized by a large population of buyers and high diversity. Regardless of the low bargaining power of consumers on companies operating in the ritual sector, the increased competition counterbalances and weakens this force. When consumers have a variety to select from, they can choose any other firm. Thus, Walmart counters this force by selling variety at an affordable price to attract more customers.
Walmart should continually improve to remain competitive and retain its market share in the United States and other countries in which it operates. The firm’s strategic planning should focus on improving its competitiveness and attracting more customers for higher revenue. The company’s generic strategy and intensive growth will help the firm to continue improving, but with additional enhancements. The firm should enhance its investment in innovation and automate its internal business processes, such as the supply chain. Greater use of technology will improve its efficiency and cost-effectiveness. The company should also improve its human resource management, including training and developing its staff to meet the changing demands and operate more effectively in the digitized environment. The firm should enhance its convenience in meeting customer needs to counter competition.
Greatest External Threat
The main threat facing the company is competition and the threat of new entrants. Technology has eased the entrance of new companies into the retail market at relatively low capital investment. Thus, the current and emerging competition creates a severe threat to Walmart that the management should counter. Online powerhouse such as Amazon takes up a considerable share of the online market, making it hard for others to compete. Other firms, such as Target, have positioned their brands as alternatives to Walmart in the low-cost market (Chen, 2021). As a result, the company faces a high demand to innovate to remain relevant in the retail market.
One of the most excellent opportunities for the company emanates from improving one of its weaknesses. One of the firm’s leading weaknesses is its poor human resource practices. Even with advanced technology and international expansion, the company cannot succeed amid poor human resource management practices. Thus, while the company seeks other strategic changes, it has the opportunity to improve its human resource management practices (He et al., 2021). The management should train and develop its human resource team to meet the changing needs and demands in the market. They should also implement other human resource changes, such as creating an adequate compensation and benefits strategy to improve their health care coverage. The changes will motivate employees to improve their service to consumers and the company.
Strengths and Weaknesses
Walmart has numerous strengths that it should improve to remain successful and weaknesses to address for future success. The company’s leading strength is price leadership and a focus on affordable everyday products. The company also adopted an aggressive expansion strategy, which has created a strong global presence and an internationally known brand. The company also offers a variety of goods at economies of a scale model. While the strengths make the company competitive, some weaknesses should be addressed to remain competitive and successful. Some of its weaknesses include operating at a relatively low-profit margin, an easily duplicable business model, and poor human resource management practices (He et al., 2021). Addressing the weaknesses will earn the company success in the future.
Strategy or Tactic
To capitalize on the strengths, the company should focus on global expansion, which will open up a new market for low-cost products. The company could merge or acquire companies in the target market to expand its reach (Martínez et al., 2017). Besides, the strategy will help Walmart increase its product portfolio by targeting new markets with diverse preferences and demands. For instance, expansion to developing countries could help the firm produce new goods to target local consumers. To address the weaknesses, the company should create an effective human resource management program to motivate employees. Motivated employees will improve customer service, retain current and attract new customers to improve revenue and the profit margin.
Resources, Capabilities, and Core Competencies
The company prides itself in expertise in global supply chain and operations management, its primary strategic resources. The company’s value chain relates to evaluating its core competencies, including the everyday low-pricing strategy. The company’s core competence is directed toward its main competitors, especially the online giants. Using the low-cost strategy in the online environment gives the company a competitive advantage for optimal value chain and operational effectiveness. Other competencies and capabilities include buying power and logistical superiority. Capitalizing on these areas has provided competitiveness and maintained productivity in the global retail market.
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Martínez, A. B., Galván, R. S., & Alam, S. (2017). Financial Analysis of Retail Business Organization: A Case of Wal-Mart Stores, Inc. Nile Journal of Business and Economics, 3(5), 67-89.
Phillips, L., & Rozworski, M. (2019). The People’s Republic of Wal-Mart: How the World’s Biggest Corporations Are Laying the Foundation for Socialism. Verso.
He, Z., Ding, Y., & Liu, W. (2021, September). The States Quo of Walmart and Challenges and Opportunities of Their Online Transformation in China Based on SWOT Analysis. In 2021 International Conference on Financial Management and Economic Transition (FMET 2021) (pp. 353-359). Atlantis Press.