Businesses operate in two types of environment. The internal environment contains factors that an organization has control of. The external environment contain factors that an organization has no control, and it only needs to make strategic decisions to deal with such forces. This paper explores Walmart internal and external environments and how they impact the success of the corporation, the competitive forces and how Walmart has addressed these forces in the recent past, as well as the corporation’s resources, core competencies and capabilities.
General Environment
There general external environment is comprised of six main elements that are identified with the acronym PESTEL. These are; political/legal, environmental, sociocultural, technological and economic factors. Hitt, Ireland, & Hoskisson (1) go ahead and include demographic and global components to the general environment. These forces have varying impacts depending on the industry. Amazon Corporation operates in the retail industry and the demographic and technological segments have the greatest impact on the corporation.
Source: Hitt, Ireland & Hoskisson (1)
Technological Segment
The world is experiencing rapid growth and transition as a result of technology. The development of computers and related technology related to information have brought about the fourth industrial revolution. Technology has altered the way people live and shop. Being a key player in the retail industry, Walmart is impacted by technology in a great deal. For instance, technology has changed how people shop. The internet technology has brought about a new phenomenon known as e-commerce whereby customers can order goods online and at the convenient of their homes. Walmart has to constantly keep up with such changes brought about by technology to ensure that it offers nothing but the best of service. The development of mobile application has also affected the retail industry in a big way and Walmart Corporation has not been left behind. For instance, Walmart has developed Walmart Pay as a means of cashless but a digital payment as opposed to using third party apps such as Apple Pay. The use of robotics and artificial intelligence cannot be underestimated in the modern technological age. Walmart has installed GPS enabled buttons to call associates as a means of improving customer service.
Demographic Segment
Hitt, Ireland & Hoskisson (1) define the demographic segment as those factors that are characteristic of the population. The demographic segment characterizes the characteristics of the varying customer segment. Walmart uses a cost leadership business strategy whereby it sells its products at the lowest prices to appeal to the price sensitive consumers. As such, most of Walmart strategies in relation to the demographic segment is offering customers the lowest prices possible as highlighted in Walmart’s philosophy of everyday low prices. The low prices have helped Walmart to maintain a leadership position in the retail industry whereby it commands a huge market share by ensuring that customers cannot get better deals elsewhere.
Five Forces of Competition
Five forces of competition refers to the bargaining power of buyers, threat of new entrants, threats of substitute products, rivalry among existing players in the industry, and the bargaining power of suppliers as advanced by Michael porter. The two forces that are most significant for Walmart are the bargaining power of customers and the threat of substitutes.
Source: Hitt, Ireland & Hoskisson (1)
Bargaining Power of Customers
Customers are central to any business, and they are the reason why Walmart exists as highlighted in the corporation’s mission statement. Walmart seeks to save people money so that they can live better. This statement reflects the reality that Walmart understands the bargaining power of consumers and is willing to bend all it can to save them money so they can live better. Walmart strategies are aimed at ensuring that customers are satisfied as much as possible such as the Endless Aisles technology whereby if a customer’s orders a product and is not available at the outlet, Walmart allows the customer to pay for the product and orders the product and later have the product delivered to the customer. Also, technologies like the next-Gen buttons that are GPS enabled allow customers to call for help by the press of a button rather strolling all over looking or associates. Walmart has gone to such extent to ensure that buyers get the maximum customer care as possible.
The Threat of Substitutes
Walmart Corporation operates in the monopolistic competition market structure where there are large number of buyers and sellers, perfect low of information, low entry and exit barriers, as well as similar but differentiated goods. In the retail industry where Walmart operates, sellers sell similar goods with little or no differentiating feature at all. That means that retailers sell substitute goods. As such, customers will be willing to buy from the retailer who makes a small twist to differentiate the product. Or instance, Walmart sells many products at low prices, but still there are customers who cannot buy from the retailer. Walmart was associated with long queue, which made retailers to buy from other competitors like Target, Costco and Kroger who sells substitute products but with minimal queues.
Future Improvements
Threat of substitute products and bargaining power of customers have been a thorn in the flesh for Walmart, but the giant retailer is not leaving anything to chance. Walmart has embraced technology to ensure that it neutralizes these forces. For instance, Walmart has installed the Scan & Go technology whereby customers scan products from the shelves into the basket to ease out the checking out process. To address the threat of substitutes, Walmart has adopted the Endless Aisles to shield customers from purchasing substitute products whereby customers pay or a product even if it is out of stock, and Walmart makes arrangements to have the product delivered to the customer once the product is shipped to the branch.
To address buyer bargaining power and threat of substitute, Walmart should continue using technology to ensure seamless services like it has done with the Scan & Go technology. Since technology holds the future, strategies to deal with customer service should involve innovations about technology.
Greatest External Threat
The greatest threat facing Walmart is cutthroat competition. Competition is a major threat because of its capability to water down the corporation’s profit. There in intense competition in the retail industry as each firms seeks to obtain the market share of the other. Since Walmart has the largest market share, competitors like ALDI are expanding exponentially and strategically setting shop in locations where
Greatest Opportunity
Walmart business is mostly concentrated in North American markets and Mexico, but the corporation has an opportunity to expand its business to areas where it has little presence such as in Latin America, African markets and Middle East.
Strengths and Weaknesses
Walmart greatest strength lies in its extensive presence in many countries and having many retail outlets that gives it a commanding market share. According to Walmart corporate report (2), the retailer serves more than 265 million customers per week, both in the physical stores and the ecommerce websites. Such a huge market share is too big to ignore, which is a source of strength as sales are guaranteed.
Although Walmart takes pride in having many branches spread across 27 countries, they have not come without a price. Walmart has been accused of unfair business practices such as violating the United States foreign corrupt practices Act by bribing officials in countries like Mexico, India, Brazil and china. The Securities and Exchange Commission (3) notes that Walmart failed to adequately mitigate certain anti-corruption perils and permitted affiliates to pay foreign government officers without judicious assurances that they observed with the FCPA. As such, Walmart agreed to pay more than $282 million. Such news present the corporation in negative light as engaging in unfair dealings to have a foot foreign markets.
Strategy or Tactic
Walmart should consider forming strategic alliances with retailers in various countries where it seeks to venture in to avoid issues of bribery and corruption. To deal with its strength, Walmart should consider carrying out spontaneous rewarding of customers in different locations as a means of thanking them for their unwavering loyalty.
Resources, Capabilities, and Core Competencies Walmart has unique and valuable resources that are rare and non-imitable. One of the capabilities of the retailer is the huge size that allows the corporation to have a strong bargaining power over suppliers and obtain products at low cost. Also, the huge size enables Walmart to purchase in large scale and enjoy the economies of scale. The huge market share is Walmart core competency as the retailer sells to more than 265 million customers per week. The customer numbers is beneficial to the retailer for various reasons such as analyzing shopping trends, income levels, shopping trends, as well as help in the design of promotional activities.
