2. What are Wal-Mart’s Competitive Advantages?
Wal-Mart’s strategy is based on ensuring customer satisfaction and high-volume sales by offering a diverse range of products at low price and with relatively good service. A key factor underpinning the phenomenal growth and success of Wal-Mart has been the way in which it has matched its internal resources and capabilities (what it does well) with its external environment (what the market demands and what the competitors offer) to satisfy customer needs, maximise revenues for shareholders and innovate and diversify ahead of the competition. Stalk, Evans & Shulman (1992: 57) maintain that Wal-Mart epitomises “capabilities-based competition”. Competencies are the collective learning, technologies and culture in an organisation which arise through the integration of diverse production skills, harmonisation of technologies, and open communication and commitment across organisational boundaries. Core competencies enable access to wide variety of markets, add customer value, and are difficult to imitate and thus constitute a source of competitive advantage (Prahalad & Hamel, 1990). Wal-Mart’s competitive advantages include:
• Sophisticated logistics system – Wal-Mart’s internal capabilities in inventory management and distribution have played a key role in maintaining its ability to continuously deliver on its CVP of ensuring the maximum availability and accessibility of goods, being trustworthy, and ensuring ‘everyday low prices’. Supply chain management is driven by the practice of ‘cross-docking’, which eliminates inventory holding, minimises stock-outs and permits more accurate and stable pricing. Strategic investments in various interlocking support systems (IT, satellite communications system) ensure all participants in the supply chain are connected and in constant communication with each other. These capabilities together with in-house trucking fleets provide the economies of scale needed to deliver on a volume-based corporate strategy. The combination of tangible and intangible logistics assets thus present a significant barrier to entry to potential new retailers.
• Supplier relationships – Wal-Mart has been able to leverage its experience in the market (49 years in 2011) and significant customer base (200 million) to control the bargaining power of suppliers and ensure the lowest possible prices negotiated are passed onto consumers. Regulating the distribution process and eliminating wastage (e.g. such as display fees, rebates, handling charges, damage allowances) at each stage in the supply chain engenders a virtuous cycle of profitability for all stakeholders – low prices attract more customers, which generates higher profit margins for Wal-Mart and greater bargaining power over suppliers. Suppliers, attracted by the larger market and economies of scale, adapt their products, processes and prices to meet Wal-Mart’s specification according. This elevates the costs of switching to another retailer and effectively raises the barriers to entry to other entrants and strengthens Wal-Mart’s competitive position in the market.
• Customer insights – Wal-Mart’s ability to consistently outperform its competitors can also be attributed to its ability to respond rapidly to changing customer purchasing behaviour and external demand conditions. Wal-Mart’s integrated IT system has not only improved operational efficiencies by linking all stores, distribution centres and suppliers together, but more importantly has provided sales and marketing staff with a large database of inventory and sales data that can mined to accurately determine purchasing and display requirements. Such capabilities translate into higher customer throughput in stores and hence larger profits.
• Organisational structure and culture – At Wal-Mart, the emphasis is on customers ‘pulling’ products where and when they need them. In order to facilitate this, a decentralised management approach is adopted with managers of stores, distribution centres and suppliers engaged in frequent, informal communication with each other. Considerable investment in tangible assets such as video conferencing and airplane fleets has been critical to this process. Organisational capabilities are further enhanced through stock ownership and profit-sharing initiatives and focused training programmes. A culture of service excellence is reinforced by the CEO who champions the need for speed, consistency, acuity, agility and innovativeness (Stalk et al., 1995).

3. How Sustainable are these Competitive Advantages?
The sustainability of the competitive advantages identified above depends on their inimitability, durability, appropriability, substitutability, and competitive superiority (Collins & Montgomery, 1995).
• Logistics and IT capabilities – Wal-Mart’s CVP of offering everyday low prices is dependent the ongoing efficiency of its logistic system and IT (data mining) capabilities. Wal-Mart’s distribution system is already in place and given its scale and the scope of investment required to make it operational, it will be difficult to replicate by competitors. However, the substitutability of such an advantage will be challenged as online purchasing increases. Wal-Mart’s data-mining capabilities have enabled it to continuously adapt to external environmental changes both in the short-term (tailoring in-store offerings) and long-term (diversifying into other business areas such as e-commerce, online classified services, auto and tire maintenance etc). While such IT capabilities have provided a source of competitive advantage in the past, the durability and inimitability of such an advantage will dissipate as competitors improve their IT capabilities, outsource data mining services to marketing firms, and customers control their own choices via online purchasing.
• Supplier partnerships – These can be considered a fairly superior, durable and inimitable source of competitive advantage for Wal-Mart as they have evolved and become more integrated over time. Other competitors lack the volume of purchases that Wal-Mart requires and the higher margins that can be achieved through the elimination of wastage across the value chain.
• Organisational structure and culture – Wal-Mart’s workforce culture is built over time and has demonstrated durability over time. However, its sustainability depends on the leadership approach adopted by the CEO as well as the ability to appropriate and replicate in international environments. 4. How Transferable are those Advantages as Wal-Mart Moves into New Formats and Especially into New International Locations?
• Distribution capabilities – In general, distribution capabilities are relatively easily transferable across new formats within the US. The only challenges encountered so far pertain to the scale of the new formats and the associated costs incurred in remodelling to attract new customers. While the just-in-time model can be replicated internationally, its success is ultimately dependent on understanding local customs, needs and requirements and the existing logistics structure and systems in place to achieve the similar economies of scale and efficiencies needed to maintain “everyday low prices”, high profit margins and overall competitiveness relative to local rivals.
• Customer insights – Wal-Mart’s IT capabilities can be easily adapted to all formats and provides it with the necessary foundation for entering the e-commerce market. Again, the ability to be leveraged internationally depends on the available ICT infrastructure.
• Supplier relationships – Existing supplier engagement model can be transferred to other contexts, although challenges may be encountered with regard to meeting local procurement requirements and the existence of unethical business practices (corruption and bribery).
• Workforce culture – The corporate culture can be easily transferred within the US, however, it is likely to encounter transferability challenges in the international market largely from unions.

5. How Should Local Retailers Respond to Wal-Mart After it Acquired Massmart?
There was considerable media debate regarding the potential price undercutting that would arise as a consequence of Wal-Mart entering the local retail space (IOL, 2011; Moneyweb, 2011; Smith, 2011). However, as Prahalad & Hamel (1990) point out, price/performance attributes of products only influence competitive advantage over the short-term. Long-term competitive depends on the ability to build, at lower cost and more speedily than competitors, the core competencies that spawn unanticipated products. Local retailers like Pick n’ Pay, Spar, Woolworths and Shoprite already enjoyed a favourable market position prior to the merger. Success in the new competitive environment will require each retailer re-examining their customer value proposition, profit formula and the key resources and processes required to achieve them. Specifically, local retailers should endeavour to not compete on price, but should rather streamline operations, establish credibility in food ranges, offer exclusive more quality-driven lines, invest in shopper loyalty, expand into Africa, and shift to online purchasing.

6. How Should Wal-Mart Respond to Dollar Stores and Amazon.com’s Superior Performance in Recent Years?
Family Dollar, Dollar General and Dollar Tree compete with Wal-Mart in the ultra low cost goods segment. Such stores focus on one entry-level price point, which is secured largely through direct import from manufacturers in cheap locations (e.g. China), and much larger warehouses to enable distribution. In order to ensure that its existing customer base does not shift over to their low cost goods and convenient locations, Wal-Mart should consider opening up a lot of smaller retail outlets in highly populated urban centres offering fresh food and over-the-counter medicines in addition to general merchandise. At the same time, Wal-Mart is increasing facing competition for quick delivery of physical goods from online retailers like Amazon.com. Wal-Mart needs to leverage off its established IT base and data mining capabilities to intensify its e-commerce activities. This could encompass in-store Internet access, providing cash or EFT payments, customising monthly grocery lists of customers, and facilitating rapid inter-country purchasing. At the same time, it needs to diversify its logistics capabilities to facilitate same-day distribution.