Walmart Goes South

Wal-Mart Goes South

Wal-Mart Goes South

Case Analysis

Introduction

"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 had a huge affect on Wal-Mart's success in Mexico because before they got involved Wal-Mart didn't do so well down there because the company deviated greatly from its successful business model in the States. Before NAFTA the tariffs were more expensive and once NAFTA got involved they went from originally 10% down to 3%. The infrastructure was not as advanced and caused logistic problems for Wal-Mart which got resolved with the help of NAFTA. Additionally, the restrictions of foreign direct investments got eased as well which resulted in many foreign suppliers building plants in Mexico from which Wal-Mart could purchase products for better prices and thus offer lower prices to its customers. For example, Sony was allowed to locate operations in Mexico thanks to NAFTA and Sony was then able to offer lower prices on products to Wal-Mart. Prices of TVs dropped from $1600 to as much as $600. Customers in Mexico, of course, could not resist low prices like these and they developed a huge customer base.

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?

Any company that is similar in size as Wal-Mart could have been or can be just as successful. I don't think they are a special case and without NAFTA I don't think they would have made it in Mexico. The company is huge and takes advantage of its size and volume to negotiate prices that smaller competitors can't achieve. However, I don't think that they have a secret competitive strategy that other companies don't know about and Wal-Mart is not free of making mistakes. During their first three years in Mexico they actually continuously stocked their stores with ice skates, fishing tackle, and riding lawnmowers which obviously didn't sell well in that region. Instead of notifying headquarters of these unnecessary items they were heavily discounted in the end and restocked again. In the end though Wal-Mart learned from these mistakes and became very successful in many other countries around the world. One important thing that differentiates Wal-Mart from its competitors is that