By students, for students.

Wal-Mart’s World: Porter’s determinants in international business

In Management, Marketing on January 18, 2013 at 11:53 am

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Porter’s six determinants of national competitiveness can be used to analyse the availability of resources and skills and the pressures  on companies to compete based on country specific advantages (CSAs). Rugman’s double diamond places business in the context of the region. However, for MNEs involved in all the triad regions Porter’s determinants are just as important.

Example

Wal-Mart

Wal-Mart developed its firm specific advantages (FSAs) to complement the CSAs of the United States. The firm’s scale strategy is enabled by the country’s inexpensive land and wealthy suburbs. Further, the US’s entrepreneurial culture has encouraged decentralised control and a consumer emphasis on “Everyday Low Prices” smothers concern over Wal-Mart’s dependence on imports from low-cost countries, such as China. Government policy supports the MNE by legislating for a low minimum wage.

Wal-Mart began its international expansion in 1991, entering Mexico with a joint venture. Wal-Mart’s international division has frequently struggled to approach the profitability of its domestic operations. The MNE has found it difficult to adapt to local markets, maintain customer service and keep its prices low. In other words its strategy was disrupted by location-bound differences.

Factor conditions:

  • Distribution in Mexico was disrupted by poor infrastructure, resulting in stocking problems and raised costs and prices.
  • Undeveloped markets: stocking ice skates, riding lawn mowers, leaf blowers and fishing tackle in Mexico was not suitable.
  • Japanese cultural resistance to the discount model.
  • Local culture has to be understood for Wal-Mart to make good its promise of excellent customer service.

Supporting industries:

  • European retailers are dependent on local suppliers. This environment favours firms which have been long-established. The importance of relationships with supporting industries means Wal-Mart has competed by merging with established European firms, such as Asda in the UK.
  • Wal-Mart originally lacked leverage with local suppliers in Mexico, many of which would not deliver directly to stores and distribution centre. This was improved by a partnership with a leading local trucking company.

Physical and human resources:

  • Europe is marked by relatively expensive land and high wages. Most European cities lack the expansive suburbs and open spaces required for Wal-Mart’s warehouse-style outlets.

Rivalry:

  • Wal-Mart must compete with established retail firms as they expand internationally.
  • India: the leaders of the retail market are 12-40 million tiny retail shops which are predominantly run by small family businesses. Since the announcement of the Wal-Mart/Bharti joint venture, ‘India FDI Watch’ has emerged to represent the in­terests of the small stores. They have held large rallies and demonstrations against Bharti, Wal-Mart, and other big-box retailers.

Government:

  • Previous barriers to international business in China.
  • The MNE got bad press in Germany for not abiding by some important laws and regulations.
  • In India, restrictions on foreign ownership have forced the company to team up with Bharti.
  • Russia: Anti-corruption group Transparency International ranked Russia 147th out of 180 countries on its most recent corruption perception index. In June, Swedish furniture retailer IKEA said it would halt further investment in Russia, citing the “unpredictability of administrative processes.”
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