Table of Contents
Economies of scale: With 5000 stores spread over 10 countries, Wal-Mart is a large firm. This enables the firm to take advantage of economies of scale which enables the firm to keep costs down. The large size also gives high bargaining power over suppliers thereby enabling it to purchase products at discounted prices. These two factors enable the firm to offer constant low prices compared to the competitors giving the firm a competitive edge.
Cutting edge technology: Wal-Mart has been a leader in use of technology in the retail sector. The firm's inventory system gives it a competitive advantage on the competition by enabling it to maintain very low inventory costs. The firm through electronic data interchange system has connected the suppliers and the distribution centers thereby ensuring timely delivery of goods, strict control and ability to track the goods along the distribution line.
Superstore model: The launch of superstores was another differentiating characteristic for Wal-Mart. This has enabled the firm to provide a shopping environment that is unrivalled. The expanded space gave the company room for increasing the variety of products offered and more so groceries that account for 30,000 out of the 100,000 products offered. Groceries in themselves form a differentiating factor for the firm. The neighborhood markets are also another differentiating factor for the firm.
Low labor costs: Wal-Mart employment model ensures the company does not incur a lot of labor related costs. The firm utilizes temporary employees while those that are employed on long term basis are not allowed to join trade unions. This removes the obligation of taking care of the employees' healthcare costs and pension related costs. Ability to maintain low labor costs enables the company to maintain low operating costs and thereby offer products at discounted prices.
How sustainable are those advantages?
The advantages enjoyed by the company can be said to be sustainable judging by the fact that they are advantages the company has enjoyed for a long time. The firm's market dominance is not likely to come under significant threat in the near future it had sales worth $260 billion while the closest challenger Home Depots sales were $65 billion in 2005. The superstore model is not likely to come under threat as the other competitors do not have sufficient space for expansion.
The technology advantage is likely to be copied by the competitors hence the need for the company to keep investing in technology. The labor advantage may also not be sustainable in the long run. The small murmurs about the company's employment policies may grow into loud cries that will force the company to rethink about it.
How transferrable are those advantages as Wal-Mart moves into new formats and especially into new international locations?
Ability to transfer these advantages will be country specific. This is evident from the many operations the firm has in the ten international locations it operates. While the labor advantage was easily transferable in Japan where the company employs over 80% of the workers as casuals the same cannot be said of China where the company was pressurized by the government to let the employees join trade unions.
The company seems to integrate the local advantages into the business in some countries like Japan where even the name of the subsidiary was not changed while in other places like Germany and Indonesia, it carries the American model intact. The advantages are therefore transferable but have to be suited to the realities in a country.