External and Internal Environmental Analysis Assignment Instructions
Complete the external environmental scan for your organization- (Walmart) and perform an internal competitive environmental scan Write a summary of no more than 1,400 words that does the following:
- Identifies and analyzes the most important external environmental factor in the remote, industry, and external operating environments
- Identifies and analyzes the most important internal strengths and weaknesses of your organization: include an assessment of the organization’s resources
- Assesses the organization’s competitive position and possibilities
- Analyzes the structure of the organization and how this affects organizational performance
Walmart External and Internal Environmental Analysis – Sample Answer
The External and Internal Environments
According to (Kemp, Schotter, & Witzel, 2012) political, social, economic and legal factors have some effect on every player in an industry. These elements of the general environment allow the organization to develop business strategies that will align its business. Similarly, an analysis of the internal and external environments is pertinent to an organization that wishes to establish lucrative business strategies. The general, internal and external business environments are separate yet integrated. This paper will discuss the elements of general environment, and analyze the external threats, weaknesses, threats of Wal-Mart Inc.
Wal-Mart stores are renowned American retail stores, which were founded in 1962 by Sam Walton (Brea-Solís, Casadesus-Masanell, & Grifell-Tatjé, 2014). The company is among the largest employer, with over two million employees and many discount and departmental stores. The company was incorporated in 1969 and was listed in the New York Stock exchange in 1972. Wal-Mart has its head quarters in the Bentonville in Arkansas State. The company has witnessed rapid expansion over the years and currently operates 8,416 stores in over 15 countries in the world. In order to have a good understanding of the company’s general environment, it is important a good knowledge about its major strengths and weaknesses be developed.
Elements of the General Environment
In order for Wal-Mart to develop effective strategies that contributes towards its bottom line, it is imperative that the company develops an understanding of the general environment in the industry it operates. Wal-Mart is not only a big retail and discount store, but its operations stretches beyond the United States. The company operations are influenced by political, technological, legal, sociocultural and economic factors. While technological factors are largely insignificant in many countries owing to globalization, there remain significantly huge differences in social, political and legal aspects in the various countries that the company operates.
A company that goes global faces legal challenges related to employee recruitment, remuneration, licenses and taxation (Yüksel, 2012). Similarly, political aspects such as political stability and cultural differences are of great significance. However, the most important elements of general environment to Wal-Mart are legal and economic factors.
The Legal Factors
There are various ways in which the legal factors exert an influence on the retail industry. Some of the ways include the employment practices of the retail companies. Being a multinational company, Wal-Mart must comply with the recruitment and selection criterion of the countries that the company operates. For example, employee selection must be based on a criterion that offers an opportunity to the employees from divergent cultural, ethnic and religious groups. Similarly, sex, age and gender should not be employed a employee selection criterion as this could lead to legal problems for the company.
Wal-Mart has been at the centre of legal disputes arising out of the failure of the management to follow equal and fair employment procedures and fair treatment of personnel. Wal-Mart is also subjected to other requirements of laws and regulations. These include food safety regulations and tax law reforms. The company must meet these components of the legal framework as they influence directly their operations. Tax reforms offer potential threats to the company operations especially if they lead to higher tax rates. Conversely, food safety regulations can be taken by the company as an opportunity to improve its quality standards.
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The Economic Factors
Economic changes place significant pressures on the operations in the retail industry including those of Wal-Mart. Economic changes have direct influence on the net revenues and the company bottom line. According to (Miles, 2003), economic factors play a significant role in business stability and success, affecting the potential of a company to make investments. Favorable economic conditions attract organization to make investments as it provides opportunities for both local and foreign companies. Although Wal-Mart has been able to use economic down turn as an opportunity, it has created negative impacts on profitability and sales of different retail companies.
As outlined in (Brea-Solís, Casadesus-Masanell, & Grifell-Tatjé, 2014) has offered discounted prices to its customers who seek favorable prices during economic down turns. Economic changes affect the consumer disposable income, which ultimately influence the retail companies. Retail companies, such as Wal-Mart must have a clear understanding of the impact of changes in economy to enable them to develop effective sales strategies to transcend in such circumstances. Wal-Mart has been able to counter changes in economy through its sales discounts.
Forces of Competition
According to Porter, the essence of completion is for a firm to cope with the industry completion (David, 2010). In the fight to gain market share, competition is not only viewed in form of the other players in the industry. Competition stretches to include company economics, customers, suppliers, potential entrants and substitute products. Porter identified the five forces of competition that apply to all industries. These forces of competition that shape company strategy are:
- Competitive rivalry
- Bargaining power of customers
- Bargaining power of suppliers
- Threat of substitute products/services
- Potential entry of new players in the market
The strategic direction of Wal-Mart is based on its response to the Five Forces in the industry (Stankevičiūtė, Grunda, & Bartkus, 2012). The competitive environment in which Wal-Mart operates is unique. The company major competitors are the general merchandise retailers. However, the other competitors of Wal-Mart include supermarket retailers, and warehouse clubs.
A five force analysis of Wal-Mart Inc. in its industry external environment based on the model outlined by Porter reveals the implications of competitive rivalry, bargaining power of suppliers/buyers, threat of new entrants/substitutes and threat of substitutes. All these elements have an impact on the success of the company. However, the intensity of competition and threat of new entrants are the most significant for the company’s growth.
Wal-Mart faces stiff competition within and without the United States (Stankevičiūtė, Grunda, & Bartkus, 2012). In the U.S target market, the major competitors include Macy’s, Best Buys, Kmart, and Sareways stores. The company’s Sam’s Club faces stiff competition from BJ’s Wholesale club and Costco. Regionally, in North America, the company faces competition from Target and ShopKo. In Canada, it major competitors include Giant Tiger, Hart and Canadian Superstore. In South Korea, the company was not able to withstand the competition and had to withdraw from the market. In Germany, the company withdrew from stiff competition and sold its outlets to Metro, a local retail company.
Wal-Mart has been able to overcome the threat of competition owing to its competitive prices (Burton, 2011). The company enjoys bulk purchase and thus receives huge discounts from its suppliers, allowing it to offer lower prices, which are passed to its customers. In addition, the company’s large size and competent executive has allowed the company to manufacture its own brands and makes purchases from local suppliers in bulk, which its supplies in retain.
The other force of competition that is of high significance to Wal-Mart is the threat of new entrants. The company deals in a variety of consumer goods that include groceries, home furnishings, hardware, hardliners, entertainment, apparel and pharmaceuticals. These ranges of product portfolio are in market segment that is easy to penetrate. The groceries market segment possesses little barriers to entry and thus exposes the company to the risk of competition.
However, the company has shielded itself against potential entrance to new players in the industry through its competitive prices. The lower prices that the company offers makes it hard for new entrant to gain significant market share. Moreover, the bulk purchases places the company at a significant advantage over new entrants as the company can attain outrageous discounts thus allowing it to offer lower prices. Finally, the ability of the company to diversify its product portfolio offers an edge over new entrants. The large product portfolio creates product differentiation which makes it difficult for new entrants to compete with the company in the market.
External Threats and Opportunities
The most prominent external threat facing Wal-Mart is competition, from local and international companies (Stankevičiūtė, Grunda, & Bartkus, 2012). In addition, the company has been faced with attacks regarding unethical practices. The company has been accused of providing low pay and poor working conditions to its employees. The other sources of external threat are the environmental issues, hidden legal barriers in countries such as France, and political instabilities in countries such as Kosovo and political turbulence in France have been major causes of external threats to the company.
External sources of opportunities for Wal-Mart come from its expansions to other countries, which creates an opportunity for partnerships (Stankevičiūtė, Grunda, & Bartkus, 2012). The acquisition of ASDA, a United Kingdom based company offer opportunities for new markets and an expansion into the market already established by acquired company. The creation of convenience stores and the rise in internet shopping provides an opportunity of reducing costs and increasing the customer base.
The company can deal with the serious threat of completion through the creation of convenient stores. This will ensure the availability of goods and services at the places that customers need them most. The company can exploit the opportunity of growth in internet by developing an online shopping platform with 24 hours customer support presence, which will receive orders and ensure customer product delivery. Moreover, it the company should partner with leading online payment platforms to ensure their accessibility of the service to many customers. This will reduce operational costs related to warehousing and help in increasing market share and company revenues.
Wal-Mart has more strengths than weaknesses and the company must exploit those strengths while minimizing the weaknesses. The large market share, low cost and differentiated product portfolio provides strengths that must be maximized to gain growth and profitability. The company should increase the product availability as it already enjoys price advantage in the market. The adoption of convenient stores, online shopping and product catalogues can substantially increase sales.
The company major weaknesses are poor remuneration and living conditions for its employees and poor product quality. The company should develop partnerships with suppliers to enhance quality of its product, a major weakness that the company faces. In addition, the human resources department must be designed in line with government employment policies to prevent the violation of employee rights and thus ensure competitive wages and good living conditions are provided.
Wal-Mart’s Resources, Capabilities and Core Competencies
Wal-Mart’s has the tangible and intangible which has propelled the company to the level of success it enjoy today. The company’s tangible resources include the buildings and store fronts. Wal-Mart all of its buildings and storefronts in the surrounding, a fact that is different from what most retailers do, hire. The company continues to purchase and develop new locations, refurbishing old ones and reselling unused ones. The company intangible resources include the long held change culture and experience in handling of retail business.
Capabilities are defined as the narrow set of tasks that company excels (Greitemann, Christ, Matzat, & Reinhart, 2014). The Wal-Mart capabilities include supply chain management, buying power and logistical superiority.
A firm’s core competency is what the company does best (Greitemann, Christ, Matzat, & Reinhart, 2014). Wal-Mart’s core competencies are its low cost strategies. This has been achieved by the company’s ability to generate large sales volumes owing to its core capabilities.
Wal-Mart’s Value Chain
The success of Wal-Mart has been attributed to its efficient value chain which is focused on cost reduction and customer needs. Through the hub-and-spoke system, the company employs a central distribution system where goods are ordered, assembled (at hub) and distributed to its retail stores (spoke). The centralization of purchases of goods in large quantities has enabled Wal-Mart to attain cost advantages. The goods are distributed along the company owned logistics infrastructure. Moreover, the company procures using the EDI system, directly from the manufacturers, surpassing all the intermediaries. However, the company faces inventory management problems.
Wal-Mart can improve its supply chain management the company must use its resources effectively. The company should store varieties of goods in its distribution stores rather than in its backrooms. This will allow the company to be more flexible and meet customer demands.
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