Brian Cash
Wal-Mart Case Study
International Business

How has the implementation of NAFTA affected Wal-Mart’s success in Mexico? When NAFTA was implemented in Mexico, it was an almost immediate success for Wal-Mart. This was because they lowered and abolished the tariffs that Wal-Mart was required to pay prior to the implementation of NAFTA. With the lack of tariff fees, all of the Wal-Marts' in Mexico have been able to offer the “Every Day Low Prices” that we Americans are used to. The Mexican population has other retail options, but none offer the variety of products at the prices that Wal-Mart can offer them. Prior to NAFTA, Wal-Mart was having strong levels of success all over Mexico, but was taking a huge hit as it struggled to incorporate the import costs on the products it sold in the stores. In 1994, NAFTA was implemented in Mexico they were able to do a multitude of things. Firstly, they lowered tariffs from 10 to 3 percent on all American goods travelling from the United States into Mexico. (Daniels, Radebaugh, & Sullivan, 2013) At the same time they were also helping the government by encouraging them to improve its infrastructure. The improvements to subpar roads and the various routes delivery trucks utilized helped connect the logistical issues that plagued Wal-Mart and kept them from branching out into further enterprises within Mexico. The strategy worked and allowed Wal-Mart the ability to transport goods directly to the warehouse and skip the middle man it previously needed. It also created the opportunity for Wal-Mart to create new jobs by building new manufacturing plants for various producers of goods that Wal-Mart carried thus eliminating import costs thus creating higher purchasing power. (Daniels, Radebaugh, & Sullivan, 2013) One of these companies was Sony. Sony sells millions of dollars worth of products to Wal-Mart in order for them to be able to sell them at a low price.

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?

The sheer size of Walmart and its buying power allows 0Walmart to negotiate pricing from their suppliers. The advanced information flow that Walmart is known for enables them to closely monitor the inventory levels. This creates a system in which suppliers know when the purchases are made and when the next order will be purchased. This gives the suppliers transparency thus creating more accurate and lower production costs. This translates to the Every Day Low Prices that the consumer is afforded in the store. The way Wal-Mart handles the distribution of goods is also ingenious. They have built distribution centers in which all goods being sold in the store are delivered, sorted and tracked, both before and after sale. Then Wal-Mart delivers these goods via their privately owned fleet of trucks. This allows them to save money on transporting the goods by again cutting out the middle man and doing the work themselves. The centralized distribution center concept is not only a better organizational method it also helps with the negotiation of product cost. Wal-Mart orders goods in massive quantities in order to keep up with increasing demand throughout the world. Not to mention the advent of on-line shopping; Wal-Mart has to be constantly stocked on all sorts of products.
As discussed in the previous question, NAFTA helped Wal-Mart in Mexico by lowering the tariffs to bring their pricing structure down. Without the tariffs being lowered, Wal-Mart would have continued to struggle due to the import charges on all goods. This made the company less competitive in an economy where prices on everything matter. Once NAFTA came in they took Wal-Mart back to where it is used to being, on top of the one stop shop consumer market. The fact that NAFTA being in Mexico and other markets makes it easier for other companies to get a piece of the pie, but ultimately it will come down to attrition. Wal-Mart is still successful but the due to NAFTA and is a successful business model for other companies to follow. If other companies such as Target or K-Mart tried to venture into that market they could be just as successful, but would still be competing against Wal-Mart’s enormous scale.

3. What have Comerci and Soriana done to remain competitive? What else do you think they need to do to remain competitive in the future?

Comerci and Soriana were once the staple consumers flocked too. This was of course due to the lack of many other options available to them in the market. Wal-Mart of course came in with their “Every Day Low Price” guarantee and that changed everything in Mexico’s consumer market. Both companies reacted by trying to lower their prices in order to compete with Wal-Mart, but the mega-business that is Wal-Mart has a much deeper wallet and was able to firmly grip the market with its buying power. Mexico retailers use a different pricing structure known as “high and low”, rather than lowering the prices they offer sales or deep discounts but still cannot compete with Wal-Mart’s pricing. (Daniels, Radebaugh, & Sullivan, 2013) So Comerci, Soriana and Gigante formed a purchasing consortium that allows them to negotiate better pricing from suppliers. This collaboration known as Sinergia, ran into problems with Mexican regulators and the consumer product council. These agencies feared that Sinergia would use its purchasing power to force unreasonable low prices on its suppliers. The merger was finally approved but Wal-Mart had continued to expand forcing other drastic actions. “In 2011, it announced that it was ready to expand by opening new stores. Comerci also entered into several alliances, including one with U.S. brand based-Costco, a major competitor of Wal-Mart, where Comerci owns 50% of Costco Mexico. In 2007, Gigante sold its supermarket chain to Soriana allowing Soriana to expand by acquisition and gain greater purchasing efficiencies for its larger network of supermarkets (Daniels, Radebaugh, & Sullivan, 2013) Wal-Mart is a giant in almost every market they inhabit. They continue to remain at the top for many reasons. The primary reason is they continuously are looking for ways to help the consumer and not just help themselves. Ultimately the consumer purchasing power determines the success of the company. Without catering to that single mother or family of seven they will fail. Fortunately for Wal-Mart they achieve amazing results due to the marketing and consumer analysis they attain. Rebranding and special discounts are great, but consistently low prices are Wal-Mart’s pledge. That’s what sets them apart from Comerci and Soriana. Their efforts are super, but will not be able to compete with the buying power of Wal-Mart. Both Mexican based companies would have to team up and build a consumer base that is loyal to them. Better quality or lower prices is the only way to get over Wal-Mart. In the US Target is still a successful brand and they are competing with Wal-Mart everyday in almost every major market. So it is possible. It just takes a ton of money, patience and the will to stay the course. (Kerry, 2013)

4. What do you think of Wal-Mart’s strategy in Mexico and Central America, and how have bilateral agreements and geographic proximity played a role in their success? What challenges do you think Wal-Mart de Mexico e Central America will face as it continues to expand in Mexico and Central America?

Wal-Mart’s strategy into Mexico and Central America is hands down sheer genius. They were able to take an already impressive and successful business model in the US and make it the biggest retailer in Mexico and Central America. They were able to diligently utilize the North American Free Trade Agreement (NAFTA) within Mexico and Central America in order to bring products into the country at low cost thus giving the products to consumers at low cost. This is the epitome of a business model. Catering to the consumer’s wallet will always make you a neighborhood favorite. This of course hurt other local companies such as Comerci and Soriana, but this is business, and just like Wal-Mart had to adapt to become successful in the market. They will have to adapt in order to survive with Wal-Mart in the game. Wal-Mart’s unmatched strategy of using central distribution centers, having exceptional relationships with suppliers, and being able to forecast what the consumer will want by targeting them through different store strategies has made them a success in Central America. As for challenges they might experience in the future, there are a few. One could be a stronger emergence of the Sinergia. If the concept takes off and Comerci/Soriana figure out a cost effective strategy to compete in the market, Wal-Mart may have to change gears and develop a different path moving forward. Another could be the joining of Costco in the region. Since Wal-Mart doesn’t sell in bulk they could lose customers with Costco now present.

Works Cited
Daniels, J. D., Radebaugh, L. H., & Sullivan, D. P. (2013). International Business: Environments and Operations, Fourteenth Edition. Prentice Hall.
Kerry. (2013, June). http://www.squawkfox.com/2013/06/03/target-walmart/. Retrieved from Squawkfox: www.squawkfox.com