WAL$-$MART STORES $$CASE STUDY

Read the case below and answer all the questions presented at the end of the case.

Founded in $1962$ in Bentonville, Arkansas by Sam Walton, Wal$-$Mart became the top$-$ranked retail company in the United States in $1990.$ By $2004,$ Wal$-$Mart was the world$$s largest company with $1\mathrm{.}5$ million employees and annual sales totaling US$$256$ billion. Wal$-$Mart operated discount stores, neighborhood stores, hypermarkets $($Wal$-$Mart supercenters$)$ and membership warehouses $($Sam$$s Club$).$ Wal$-$Mart$$s astonishing success in the United States came from several competitive dimensions in which it differed from its many competitors: its everyday low price $($EDLP$)$ approach to merchandising and marketing and its management of internal operations and supply chain operations. Wal$-$Mart invested over half a billion dollars in IT and satellite facilities to connect its worldwide stores to headquarters. Headquarters could complete stock$-$taking of each item for more than $4,000$ stores worldwide within an hour. Moreover, Wal$-$Mart$$s top executives spent up to four days per week physically visiting stores to observe local conditions and speak with store managers. At headquarters, the massive amounts of data that had been collected by store and by item were analyzed by advanced data mining systems to identify patterns and trends that could help increase sales. Some observers emphasized Wal$-$Mart$$s reputation for hard bargaining. It famously made suppliers pay for their own phone calls and forced negotiations to take place in small rooms fitted with uncomfortable chairs. Even top executives were expected to be frugal and share hotel rooms. However, Wal$-$Mart did not simply rely on its ability to negotiate low prices and source from low wage countries. It also tried to create competitive advantages by managing its suppliers: it devoted considerable attention to choosing the best suppliers and it concentrated volumes in the latter to help them achieve economies of scale. It also set specific targets for response time and quality. Moreover, it tended to force suppliers to invest in new systems and technology that could lower overall system costs and increase delivery speed and order accuracy, thus reducing costly stock$-$outs. To do this, Wal$-$Mart developed a surprising openness with its suppliers: it shared its daily sales data as well as forecasts and strategic plans. Wal$-$Mart was an early adopter of technologies to allow such an exchange $($such as EDI$).$ Above all, Wal$-$Mart is famed for its distinctive culture inherited from Sam Walton $($Exhibit $1).$ In the $1990$s$,$ Wal$-$Mart started to expand abroad. In $1991$ it opened its first store in Mexico, and in $1994$ it began operations in Canada. Further overseas expansion included Argentina and Brazil in $1995,$ China in $1996,$ Germany in $1997,$ South Korea in $1998,$ the UK in $1999,$ and Japan in $2002.$ By $2003,$ Wal$-$Mart operated more than $2,740$ discount stores and supercenters and $500$ membership warehouses in the United States, as well as more than $1,170$ stores of different formats in international markets.

Although the company derived the bulk of its revenue from the United States, international expansion would continue, particularly in Asia. WalMart experienced some disappointments in Asia. In Indonesia it was forced to dissolve its joint venture in $1997$ and it pulled out of Hong Kong in the $1990$s$,$ having failed to crack the local market. Consumers seemed to prefer neighborhood chain stores that were familiar to them. However, Wal$-$Mart continued to expand into larger and more stable markets. Wal$-$Mart had a significant presence in only a few countries in Asia. One of its key challenges was to persuade Asian customers to embrace the hypermarket and warehouse concept. They tended to take public transport or walk to shops near their homes, and they preferred fresh produce rather than refrigerated foods. The result was that Asian customers tended to make smaller, more frequent purchases than Wal$-$Mart$$s typical customers. In Indonesia, Wal$-$Mart was forced to dissolve its joint venture in $1997.$ The Indonesian partner sued, seeking nearly US$$200$ million in damages for mismanagement from the retailer. Wal$-$Mart entered South Korea through acquisitions. In $1997$ the retailer had $11$ stores, but sales were below expectations $($US$$160$ million$).$ Like its rival Carrefour, Wal$-$Mart pulled out of Hong Kong in the $1990$s$,$ having failed to crack the

Hong Kong market. Consumers seemed to prefer familiar neighborhood chain stores. In $2003$ Wal$-$Mart closed down its Taiwan branch and moved the branch$$s purchasing business to the parent company$$s Asia$-$Pacific purchasing headquarters in Shenzhen. Since Taiwan$$s manufacturing sector had been losing competitiveness in recent years, Wal$-$Mart relocated its employees from the Taiwan branch to Mainland China. The branch$$s staff shrank from $150$ at the peak to $30.$ Wal$-$Mart made major efforts in both China and Japan. Wal$-$Mart entered China, Asia$$s second$-$largest retail market behind