There will therefore be significant lessons to be

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: itioner point of view. Furthermore, the study provides an opportunity to do an almost just-in-time analysis and will therefore be an up-to-date study into the phenomenon of stakeholder management during retail entry into emerging markets. 1.4 Background to Wal-Mart Wal-Mart is an American multinational and the largest retailer in the world. Wal-Mart tops the 2011 Global Fortune 500 list for a second year in a row, making it indisputably the world’s largest corporation (Fortune Magazine, 2011). Its annual revenue at over $421 billion dwarfs the GDP of many countries in the world, including that of South Africa, the 28th largest economy in the world (World Bank, 2010). Its profits were over $16 billion, even as the global economy was battling the effects of the recession (WalMart, 2011). The second largest corporation in the world, Royal Dutch Shell, trails behind Wal-Mart with $378 billion revenue. From a retail perspective, no competitor comes close to Wal-Mart. The French retailer, Carrefour, is the world’s second largest, and ranks 32 in the list with revenue of $120.3 billion and profits of $574 million (Fortune Magazine, 2011). Employing 2.1 million staff members, Wal-Mart is the largest private sector employer in the world. 4 Table 1: Comparison of global retailers’ size Retailer Global Fortune Revenue Profit ($ millions) ($ millions) Staff component 500 Ranking Wal-Mart 1 421,849 16,389 2,100,000 Carrefour 32 120,297 574 471,755 Tesco 61 94,185 4,104 384,389 Metro 65 89,081 1,126 252,258 Source: Compiled from data retrieved from the Fortune Magazine sourced from the CNN Money website (2011) The story of Wal-Mart began in 1962 with the founder, Sam Walton, opening the WalMart store in Rogers, Benton County, Arkansas, United States (Wal-Mart, 2011). Walton defined Wal-Mart’s purpose as saving people money to help them live better (Wal-Mart, 2011). He aimed to achieve this through a new model of discount stores. Wal-Mart avoided competing with the bigger and established retailers by establishing stores in smaller towns and rural areas. Within five years of its opening, it had grown to 18 stores and revenues of $9 million (Neumark, Zhang, & Ciccarella, 2008). In 1972 it listed on the New York Stock Exchange; fuelling rapid growth that resulted in a staggering 276 stores in 11 states in the US by the end of that decade (Wal-Mart, 2011). The real success however came in the next decade (1980’s) with sales growing from $1 billion in 1980 to $26 billion in 1989. 5 Figure 1: Wal-Mart sales revenue from 1995 to 2010 Source: Compiled from annual financial statements on the Wal-Mart website Today Wal-Mart currently operates in 15 countries, both developed and developing. The growth strategy of Wal-Mart is aptly summed up by Sam Walton himself as, “… to saturate a market area by spreading out, then filling in. In the early growth years of discounting, a lot of companies had a distribution system already in place – K-Mart, for example – were growing by sticking stores all over the country. Obviously, we couldn’t support anything like that…We figured we had to build our stores so that our distribution centres, or warehouses, could take care of them, but also so that those stores could be controlled. We wanted them within reach of our district managers and of ourselves here in Bentonville, so we could get out there and look after them. Each store had to been within a day’s drive of a distribution centre. So we would go as far as we could from a warehouse and put in a store. Then we would fill in the map of that territory, state by 6 state, county seat by county seat, until we had saturated that market area. … So for the most part, we just started repeating what worked, stamping out stores cookie-cutter style” (Walton, 1992, p.110-111). The strategy was not just about control, the gradual expansion from one central location allowed Wal-Mart to take advantage of the word-of-mouth advertising emanating from its lower price reputation. Walton explains that “When you move from town to town like we did in these mostly rural areas word of mouth gets your message out to customers pretty quickly without advertising” (Walton, 1992, p.111). This strategy ensured constant gradual growth over a period of time. Although the expansion seems rapid, it happened quite gradually. Wal-Mart only entered California and became the largest retailer in the US in 1990 (Wal-Mart, 2011). It was not until 1995 that it had presence in all 50 states in the US. It started its international expansion in 1991 with entry into Mexico, before entering Canada in 1994, China in 1996, and Europe in the late 1990s. While domestic expansion occurred through organic growth, much of the global expansion took place via mergers and joint ventures (Wal-Mart, 2011; Arnold & Fernie, 2000). The sheer scale and resultant economic power of Wal-Mart makes it difficult, if not impossible, to find its equivalent. Consequently Wal-Mart is seen as an example of capitalism in its modern form, and its expansion as a test...
View Full Document

This document was uploaded on 01/24/2014.

Ask a homework question - tutors are online