QUESTION THREE [30] Read the following extract and answer the questions that follow Wal-Mart Stores Walmart is a discount retailer that sells a broad range of general merchandise covering everything from groceries to electronic gadgets. The parent company, Wal-Mart Stores Inc. operates retail stores in various formats under 69 different banners around the world. In 2013, it generated a total revenue of $469.2 billion, made a profit of approximately $17 billion and employed around 2.2 million people. The company operates retail stores through wholly owned subsidiaries in Argentina, Brazil, Canada, China, Japan and the United Kingdom, majority owned subsidiaries in Africa, Central America, Chile, China and Mexico and joint ventures in India and China, but the US remains its central base, accounting for just under 60% of net sales revenue. Sam Walton opened his first discount retail store in Rogers, Arkansas in 1962 with the aim of bringing the kinds of discounts and low prices found in big city stores to his part of America. He sold brandname products to rural consumers at rock-bottom prices with the declared aim of saving people money so that they can live better. The quest for low prices was something of an obsession for Walton. Walmarts ability to outperform its rival rests on more than just the legacy it inherited from its founder. The companys strategy is based on an ecosystem of complex links between different parts of its operations embedded in relationships, practices and organisational routines. Key elements include: Technology Walmart has long been a pioneer in the use of information and communication technology to improve its efficiency. In the 1980s, the company introduced bar coding and electronic data interchange (EDI) tools to interact with suppliers and manage the flow of merchandise to its stores. It invested large sums in sophisticated communications platforms like RetailLink, which gave its managers access to point-of-sale and inventory data on a store-by-store basis and has required all its suppliers to adopt this system. Walmart also introduced Radio Frequency Identification (RFID) to track pallets of merchandise moving along its supply chain. All of these technologies have helped Walmart to minimise inventory, reduce shrinkage and out-of-stock occurrences and cut merchandise-handling costs significantly. Store formats initially, Walmart focused on serving customers in rural America and its stores were relatively small. Walmart then introduced much larger supercentres to meet the growing demand. Many of these superstores contain hair salons, opticians, cafes and restaurants and other speciality stores within their premises. Superstores have extended opening hours, offer a wide range of products and generate higher sales volumes than smaller outlets. This allows fixed costs to be spread over larger sales volume. Walmart also operates around 286 members-only warehouse stores under the label Sams Club and a chain of around 600 smaller stores located in urban areas. Supply and distribution the scale of Walmarts operations means that it deals with tens of thousands of suppliers and it has developed sophisticated systems for managing its supply chain relationships. The company likes to view its suppliers as partners; it provides them with advice and support including access to online training and a 46 page manual that outlines key policies and procedures. Walmart requires suppliers to align their systems and processes with those of Walmart. Walmarts immense bargaining power and emphasis on everyday low prices means that suppliers are under considerable pressure not only to reduce their prices but also to improve quality, delivery schedules and packaging. Generally, suppliers deliver their products to Walmart distribution centres, form where merchandise is transported to stores. People and public relations Walmart still espouses the values and beliefs of its founder: service to customers, respect for the individual, acting with integrity and striving for excellence. Unfortunately, the companys image has been tarnished over time by a number of negative reports that have questioned the ethics of its low-cost approach. Critics have accused the company of paying low wages, setting its managers unrealistic performance targets, paying insufficient attention to the working conditions of those employed by its overseas suppliers and forcing small, local retailers out of business. Walmart has mounted vigorous public relations and advertising campaigns that have included public pronouncements about its promotion of 250 00 US store employees and its move to change a significant number of store workers from temporary to part-time status. International expansion Walmart started to expand outside the US in 1991, when it moved into Mexico. The global presence has increased and there are more than 6000 retail outlets in 26 countries outside the US. Overseas expansion has taken place through a combination of acquisitions (e.g. Asda in the UK and Bompreco in Brazil), partnerships (e.g. Bharti in India and Trust-Mart in Taiwan) and stand-alone ventures (e.g. Walmart Argentina and Walmart Canada). In 2014, Doug McMillon , formerly the head of Walmarts international business, succeeded Mike Duke as chief executive. He faced a number of challenges, in particular with regard to public relations, international expansion and competition. While Walmarts obsessive focus on keeping costs down has been central to its success, this has also eroded trust in the company. International expansion has come at a cost and many commentators argue that Walmart has expanded overseas too rapidly. Perhaps the most worrying issue for Walmart is the rise in competition. Rivals such as CostCo, Target and Dollar General and online companies like Amazon have been successful in drawing sales away from Walmart. Walmart has strengthened its online channel, Walmart.com that retails Walmart products and also acts as a marketplace for products supplied by independent retailers. Nonetheless, if Walmart is able to flex its ecosystem of shops, warehouses, delivery fleets and technology to match changes in the marketplace, it will remain very difficult for others to match. Adapted from Grant RM and Jordan J (2015) Foundations of Strategy Second edition. Wiley 3.1 Identify Walmarts principal resources and capabilities from the information supplied in the extract. (10) 3.2 Explain what is meant by a sustainable competitive advantage and express an opinion on whether Walmart has a sustainable competitive advantage. Justify your answer. (10) 3.3 On the basis of your answer to 2, provide, with reasons, strategy recommendations to Walmart. (10)