Case Study: Walmart Goes South
This case study is based on the benefits that Walmart gained from the implementation of NAFTA or the North American Free Trade Agreement. This agreement is between three countries i.e. Unite States, Mexico and Canada. According to this agreement each of the country is to allow each other free trade which would benefit the businesses across their borders. The implementation of the agreement has affected different businesses differently. Walmart seem to benefit from it but on the other hand local companies in Mexico seem to suffer from it as they find it hard to compete with Walmart which is a retailing giant. In the following discussion I would like to answer the questions posed at the end of the case study.
- How has the implementation of NAFTA affected Wal-Mart’s success in Mexico?
NAFTA has reduced the tariff for goods to be imported to Mexico from the US from 10% to 3% (Daniels & Radebaugh, 2015). This is cashed as an opportunity by Walmart who has decreased their product prices to an extent that it is attracting Mexican consumers in larger numbers. This is tern is also benefiting the Mexican economy as international investments are being drawn to Mexico. Walmart’s suppliers are taking advantage of this as well as they are able to reduce their prices for their supplies to Walmart as they do not have to pay a huge import tariff anymore. Walmart is purchasing in bulks that also gives it a competitive advantage over its competitors in Mexico who cannot beat their prices. NAFTA has proved to be a positive factor for the expansion of Walmart. But this is not the only factor that has been utilized by Walmart. The remaining factors will be discussed in answer to the coming question.
- How much of Wal-Mart’s success is due to NAFTA, and how much is due to Wal-Mart’s inherent competitive strategy? In other words, could any other U.S. retailer have the same success in Mexico post-NAFTA, or is Wal-Mart a special case?
Walmart has definitely benefited from NAFTA. It has taken full advantage of the tariff decrease. But this is not the only factor that has helped them. To understand this we have to look at the historical background of Walmart. Walmart has been termed as a contributor to the postindustrial society in the US (Adams, 2011). Walmart has a great asset of experience in the field of retailing. They have the luxury of applying their experience to their new stores anywhere in the world. For example they have the power to get their suppliers give them the lowest price possible for making them product supplies. This is possible because Walmart makes purchases in bulk. The suppliers therefore focus on benefiting by selling Walmart more items to earn more profits.
Walmart has a really effective inventory system. This is called real time inventory. Due to this system Walmart is able to let its suppliers know of their needs on time, as soon as they reach a limit of the number of items left on their shelves. This system has made it possible for their suppliers to supply them merchandize on time and hence the customers do not find gaps in getting the items they expect Walmart to deliver to them.
For their competitors to survive besides Walmart in the consumer market, they have to make arrangement that would let them decrease their prices to a level that can compete with the prices of Walmart. This cannot be done on a short term basis but a long term business strategy can prove effective but patience and financial resource would be playing a great role in this regard.
- What has Comerci done in its attempt to remain competitive? What are the advantages and challenges of such a strategy, and how effective do you think it will be?
To remain in business in the same market as Walmart is a challenging task. Comerci has joined hands with two other local Mexican chains Soria and Gigante to form a consortium called Sinergia. Sinergia has posed a challenge to Walmart as it has been able to reduce their prices. But they still need to go a long way as the reduction of the prices below a certain limit is both not practical and affordable for Comeric. The main challenge that Comerci is facing is the reduction of prices. They need to find suppliers who can get their supplies on competitive prices so that they can compete with Walmart by offering their customers products on low prices. In my opinion Comerci should also take advantage of NAFTA. I mean they can seek out a supplier in the US market and make a supply chain with them. They could even seek out to the Walmart suppliers and offer competitive purchasing prices. At the beginning it may not look that profitable for Comerci but with time, as they increase their purchasing power they can renegotiate the prices with their suppliers. But again, this would need long term thinking.
- What else do you think Comercial Mexicana S.A. should do, given the competitive position of Wal-Mart?
Research has indicated that NAFTA has not always been beneficial to the local economy in Mexico (Audley, Papademitriou, Polaski & Vaugham, 2003). It has definitely put pressure on the local businesses as they struggle to compete with Walmart type of US retailers and other brands due to quality and price differences.
To remain Comercial Mexica S.A should revise their marketing strategies. They can present themselves as the locals in their marketing campaigns and tell their consumers that they have a traditional touch that enables them to understand the needs of the locals. To reach out to local consumers and promote ownership selling would also be a good step to compete with Walmart.