Walmart Goes South: Case Questions Answers
- How has the implementation of NAFTA affected Wal-Mart’s success in Mexico?
Before I answer this question I would like to explain what NAFTA actually is. The word is abbreviated from North American Free Trade Agreement. This is a free trade agreement between Canada, Mexico and USA. This agreement is active since 1994 which gives each country a free access to each other’s markets. There are many companies from the three countries taking advantages of this agreement. NAFTA has been seen as an opportunity to create and increase trade among the three member countries (Krueger, 1999).
Walmart is one of the retailing company taking full advantage of this agreement by opening several superstores in Mexico. Walmart did not find it feasible pre-NAFTA to open these superstores (there were Walmart superstores in Mexico pre-NAFTA) but now the tariff is reduced to 3% instead of 10%. This gave Walmart an opportunity to
Walmart to sell products at lower prices than what is offered in the local markets. Many believe that the presence of Walmart has been in the great interest of Walmart but in the worst interest in the local smaller businesses as they could not compete with the bulk prices of Walmart and had to parish. Walmart had the opportunity to introduce prices to the local consumers that was not possible for the local stores. But others argue that the prices of Walmart has enabled many people to buy the products of their choice and have at least something to cheer about. Walmart is growing rapidly in Mexico, thanks to NAFTA and enjoying the free trade opportunity resulted from the agreement.
- 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?
In my opinion Walmart success is due to its strong inherent competitive strategy and not just NAFTA. The free trade opportunity that became possible due to NAFTA is not just for Walmart but everyone there in the market. Walmart has a great previous history of being in the retail market. They have suppliers whom they can negotiate purchase prices well compared to the suppliers of other companies. Walmart has a time inventory system which enables Walmart about their timely needs. They can then present these needs to their suppliers for a timely delivery. For Walmart, the main competitive advantage has always been its prices. For any other competitor to compete with them, they have to find a way to beat their prices which does not seem easy.
We can conclude here that Walmart had some issues with setting lower prices which were resolved by NAFTA. So the success story of Walmart is not due to one or another factor i.e. inherent competitive strategy or NAFTA. Both had to play their role. Unfortunately other companies had NAFTA but not the level of inherent competitive strategy that Walmart possessed. The inherent competitive strategy cannot be acquired with any short cut but a long term planning is required. Other companies can set long term goals if they want to compete with Walmart in the Mexican market.
- 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?
It was not hard to realize for Comerci that they can only compete with Walmart if they lower their prices. One of the great advantage that Walmart enjoys is their prices among consumers. The reason behind lowering the pricing is the bulk prices. Walmart buys a large amount of quantity from their supplier that makes the suppliers to decrease their profit margin per item. Lowering prices has proved to be an effective strategy to gain customer loyalty and confidence (Anderson, Fornell & Lehmann, 1994). Comerci has made a consortium with two local companies in order to be able to negotiate bulk prices and lower prices for their customers as a result. There are many challenges that Comerci has to face. First is that CofeCo and Product Council of Mexico though that the prices are lowered unreasonably. So Comerci wants to lower prices that is not considered as reasonable by their consortium members.
I think that Comerci should look for long term benefits from partnering with other companies. Unless they are able to increase their purchasing power tremendously, they cannot afford to lower their prices beyond a limit. They also need to attract investment from local and international investors to help them out with their finances.
- What else do you think Comercial Mexicana S.A. should do, given the competitive position of Wal-Mart?
Comercial Mexicana S.A has an imminent issue to face due to the rapid growth of Walmart. Walmart poses an existential threat to them. Comercial Mexican need to have a comprehensive strategy to deal with this threat. They need to reach out to the international market and find partner that can help them with their business issues by sharing their international experience and expertise. This way they can also benefit from NAFTA. Comercial Mexican need to identify their assets that are in Mexico and use them as their strength. They can also utilize the fact that they are locals and can reach out to local community with more power than Walmart can. Being local is one of the main competitive advantage in the businesses (Maskell & Malmberg, 1999). In all, they need to make calculated operational strategies and decisions.