Case Study of Walmart Goes South Analysis
How has the implementation of NAFTA affected Walmart’s success in Mexico?
The North American Free Trade created in 1994 affected Wal -Mart`s success in Mexico in three specific ways. Wal-Mart had a marketing campaign where it offered “Every Day Low Prices”, but this was not quite true in Mexico because it had significant import charges on many of the products brought from the U.S. After the implementation of NAFTA, Mexico became a free trade zone. This made it possible for Wal- Mart to reduce its tariff from 10% to 3 %. This led the government to solve the logistical problem due to the fact that Mexico`s transportation system was below average.
NAFTA encourages Mexico to improve the transportation system, which lowers the logistical cost. Additionally, NAFTA allows foreign investment in Mexico. As a result, Wal-Mart was able to build manufacturing plants in Mexico because of the cheap labor. In this particular case we can observe how low labor cost contributes to obtain low import tariffs therefore leads to cheaper products. Wal-Mart`s success in Mexico was definitely possible because of the NAFTA implementation.
How much of Walmart’s success is due to NAFTA, and how much is due to Walmart,s inherent competitive strategy? In other words, could any other U.S retailer have the same success in Mexico post-NAFTE, or is Walmart a special case?
NAFTA benefits every company that is willing to operate abroad. This agreement solved some difficulties but Wal-Mart`s inherent competitive strategy was effective in the Mexican Market. As we all know Wal-Mart`s strategy to win against its competitors is its offered prices. The company is considered leader in the market because it has the capability to offer the lowest prices for this reason Wal-Mart is considered to have a large negotiating power.
They can negotiate with suppliers to drop prices and consequently lower prices. In my opinion NAFTA benefits plus Wal-Mart`s purchasing power was the combination that allowed the company to be successful. Wal-Mart uses time inventory system which allows them to keep track of what they need and communicate this to their suppliers. Wal- Mart`s purchasing power is not available in other companies therefore if competitors any to survive they should compete against the companies prices or change the type of business.
What Have Comerci and Sorina done to remain competitive?
What else do you thinks they need to do remain competitive in the future?
Comerci and Soriana form a purchasing consortium that would allow them to negotiate better bulk price from suppliers. Comerci expand by opening new stores. Enter into several strategic alliances including with Wallmart’s major competitor in US. Soriana bought Gigante supermarket chain and gain greater purchasing efficiencies for its larger network of supermarkets.
Upgrading the supply chain and distribution channel system, reducing the using of warehouse that can cut cost of operation and logistic. Developing a strong relationship with supplier could make a comerci and soriana get a exclusive right of supplier , such as extra tenure on short term credit, lower rate on short term credit, lower price of product and so on. Create customer loyalty benefit, such privilege card or coupon, this action could make the customer loyal to comerci or soriana. Multiple source advantage, by doing this comerci and soriana could get more choice in choosing the supplier, which one could give a better rate and good service. Lobby for government intervention in avoiding a monopoly player in the market, such as impose a regulation on floor price.
What do you think of Walmart’s strategy in Mexico and Central America, and how have bilateral agreements and geographic proximity played a role in their success?
What challenges do you think Walmart de Mexico e Centrameca will face as it continues to expand in Mexico and Central America?
Walmart in Mexico penetrated the market with a joint venture with its local player. This joint venture helped Walmart gain better knowledge of the Mexican market and supplied Walmart with supplier connections, knowledge about the local culture as well as helping Walmart to work with local authorities. This ensured successful expansion of Walmart’s power in the Mexican markets, gaining the greatest influence in the shortest time period.
Bilateral agreement and geographic proximity played a roled in wallmart success interm of gain and access into more product and suppliers. Also have a better coordinate the network of 14 distribution centers in mexico and 11 central America, locating Wallmart’s strategically throughout the region.
Apart from it, Wallmart also established multiformat operations approach in the region to address different consumer segment. In future, the challenges that may faces by Wallmart in expanding their market in Mexico and Central market is, maybe the changes or a new policy on tariff that maybe impose to certain core product of wallmart that could affect the price of wallmart product. Labour cost increase also could be one of the major problem that could affect on wallmart operation cost. The growth of the competitor can made a sale on wallmart affect due to market share penetration by competitor.