Case Study: WalMart Goes South
North American Free Trade Agreement or NAFTA is an agreement made between United States, Mexico and Canada to enhance mutual trade. Walmart has benefited from this trade agreement according to Daniels and Radebaugh (2015). The case study has provided an overview of the different benefits that NAFTA has offered to Walmart and the inherited advantages that Walmart had over other store chains in Mexico. From the case study, I was able to observe that though Walmart has benefited from NAFTA, the agreement may not have been so beneficial for some Mexican businesses who do not have the capability to beat the prices of Walmart. Questions at the end of the case study are related to the efforts made by Walmart to gain market in Mexico as well about the efforts made by local business to remain in competition and stay alive. I have provided answers to these questions one by one in the following.
- How has the implementation of NAFTA affected Wal-Mart’s success in Mexico?
The biggest positive impact that NAFTA has had on Walmart is that it has enabled Walmart to decrease the prices of its different products. This has been possible due to a reduction in tariff from 10% to 3% according to the case study. Walmart has reduced its prices accordingly and local consumers are attracted to these reduced prices. Walmart is a business that heavily depends on suppliers for different kinds of supplies. The reduction in tariff has therefore, benefited the suppliers as well. The fact that suppliers have the opportunity to pay less tariff is an opportunity for Walmart to get the supplies for less prices compared to past. Walmart is a huge organization with a lot of money to finance its operations. Walmart has been able to utilize its financial resources to make bulk purchases which could help in getting them even cheaper. This is a competitive edge as other companies may not have the financial and storage capabilities compared to Walmart to make bulk purchases. NAFTA has offered an opportunity to Walmart and other businesses to start and increase their operations in Mexico due the discussed tariff cuts as a result of the trade 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 is a special case to benefit so heavily from NAFTA. There are a number of reasons for this argument. It has been more than 50 years since Walmart has been in operation. This is a great deal; of experience to understand the retailing business and apply this understanding and practice in different other locations and countries. Walmart has been able to develop a supply chain that provides it an edge in reducing the prices of food items to a level where no other business can beat it. The food item prices are Walmart are so low that a research suggests that this might be one of the contributor to obesity in USA as it has enabled people to buys a lot more food than they could do post Walmart (Courtemanche & Carden, 2011).
Walmart has the capacity to create a monopoly in the supply chain market by influencing suppliers to not offer prices to other businesses the same they offer to Walmart. Walmart buys in bulk from these supplier. These suppliers are able to make quick profits from single purchases to Walmart therefore, they would not dare to offer the same prices for other businesses and in a way get Walmart against them.
Walmart’s inventory system, which they call real time inventory system is really effective and quick. They keep an up to date record of their inventory and as soon as a certain limit is reached for a product, the system identifies it straightway to the management at Walmart who make arrangements for the suppliers to make the supply without further delays.
Walmart has been able to benefit from NAFTA not only due to what NAFTA has to offer, but also to the inherit strengths that it possess that it gained over decades.
- 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?
Comerci is much smaller when compared to Walmart. It has been tough to challenge Walmart. To be able to stay in the same retailing market as Walmart, Comerci has realized that it needs to reduce their prices, especially food item prices. It has formed a consortium named Sinergia, with Sosia and Gigante, which are local Mexican retailers. This consortium has been able to confront Walmart but not greatly yet. This consortium might be able to pose threat to Walmart in the future if it has been able to find supplier who can provide them competitive supplies prices compared to Walmart. Comerci might find these suppliers abroad, in USA and make use of the reduced tariff due to NAFTA.
- What else do you think Comerci Mexicana S.A. should do, given the competitive position of Wal-Mart?
Without a doubt Walmart has posed a great danger to Comerci and other local businesses in the recent times. But Comerci might look into its supply chain and make changes such that they can find suppliers for themselves across the borders in USA and Canada who can provide items on competitive prices to be presented in the consumer market. Comerci can also utilize bulk purchase just like Walmart which would compel its suppliers to offer their products on reduced prices. Comerci can engage also develop effective marketing strategies to attract Mexican consumers.