Wall-Mart Goes South

February 21, 2019

Golden Papers

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“Save money. Live better” is the slogan of the 1962 founded American multinational retailer corporation that runs chains of large discount department stores and warehouse stores around the world. Wal-Mart today is the world’s 18th largest public corporation according to Forbes Global 2011 list. In 1991 Wal-Mart opened its first stores in Mexico and the competition between the store and local supermarkets began. Wal-Mart being so large and worldwide gave the company an advantage in negotiating low prices with many suppliers.

Nevertheless, other local supermarkets such as Comerci, Soriana, and Gigante, didn’t give up the market to Wal-Mart so easily. They took action and started to think about ways and methods in order to fight a retail war against Wal-Mart. How has the implementation of NAFTA affected Wal-Mart’s success in Mexico? The implementation of NAFTA has affected Wal-Mart’s success in Mexico. For example, “NAFTA reduced tariffs on American goods sold to Mexico from 10 to 3 percent” (Daniels, Radebaugh, & Sullivan, 2011, p. 15).

Also, Wal-Mart encountered logistics problems caused by poor roads and the scarcity of delivery trucks (Daniels, Radebaugh, & Sullivan, 2011). “NAFTA encouraged Mexico to improve its transportation infrastructure,” (Daniels, Radebaugh, & Sullivan, 2011, p. 315). NAFTA helped solve Wal-Mart’s logistics problems (Daniels, Radebaugh, & Sullivan, 2011). In addition, NAFTA “opened the gates wider to foreign investment in Mexico,” (Daniels, Radebaugh, & Sullivan, 2011, p. 315).

For example, Wal-Mart’s foreign suppliers such as Sony began to build manufacturing plants in Mexico. As a result, Wal-Mart could now buy these products such as Sony’s Wega TVs without having to pay the high import tariffs (Daniels, Radebaugh, & Sullivan, 2011). 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? NAFTA has helped Wal-Mart to be successful.

However, Wal-Mart’s inherent competitive strategy has greatly contributed to its success. For example, Wal-Mart can negotiate with suppliers to drop prices “because of its sheer size and volume of purchases” (Daniels, Radebaugh, & Sullivan, 2011, p. 314) Smaller retailers can’t negotiate with suppliers to drop prices as low as Wal-Mart can. Also, Wal-Mart “works closely with suppliers on inventory levels using an advanced information system that informs suppliers when purchases have been made and when Wal-Mart will be ordering more merchandise.

Suppliers can then plan production runs more accurately , thus reducing production costs, resulting in cost savings for Wal-Mart, which then can pass on the savings to the consumer as lower prices” (Daniels, Radebaugh, & Sullivan, 2011, p. 314). NAFTA can help other U. S. retailers be successful in Mexico too. However, I think in order for other U. S. retailers to have the same success in Mexico post-NAFTA as Wal-Mart, other U. S. retailers would have to match Wal-Mart’s prices. 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 has attempted to remain competitive by lowering its prices. However, on many items they can’t get the prices as low as Wal-Mart can. Also, Comerci has banded “with two other struggling homegrown supermarket chains, Soriana and Gigante, to form a purchasing consortium that would allow them to negotiate better bulk prices from suppliers” (Daniels, Radebaugh, & Sullivan, 2011, p. 315). An advantage of such a strategy is lowering prices will help Comerci compete with Wal-Mart.

A challenge of this strategy is Comerci can’t get their prices as low as Wal-Mart’s prices for many items. An advantage of the purchasing consortium known as Sinergia is they can negotiate better bulk prices from suppliers. A challenge of this strategy is “As a representative body with no assets, Sinergia’s purchases are currently limited to only local suppliers, and its future is still uncertain” (Daniels, Radebaugh, & Sullivan, 2011, p. 316). I don’t think Comerci’s strategy will be very effective. I don’t think that Comerci’s participation with the purchasing consortium Sinergia will be sufficicient to compete against Walmart.

In addition, I think that Comerci needs to focus on more than just lowering their prices in order to compete with Wal-Mart. I think that in addition to Comerci lowering its prices Comerci should try and compete with Wal-Mart by differentiating their products and store from Wal-Mart. For example, I think Comerci should “differentiate itself from Wal-Mart by offering products and a store atmosphere that appeal more to Mexicans’ middle-class aspirations” (Daniels, Radebaugh, & Sullivan, 2011, p. 316).

What else do you think Comercial Mexicana S. A. hould do, given the competitive position of Wal-Mart? Given the competitive position of Wal-Mart, I think Comercial Mexicana S. A. should conduct some market research and try to figure out some good ways to differentiate itself from Wal-Mart. Also, I think Comercial Mexicana S. A. needs to assess its financial situation and determine whether or not it can survive in the current Mexican retail market. Then, I think Comercial Mexicana S. A. needs to decide if they should continue to be independent or if they should merge with a local or foreign retail chain.