STRAT 2012 semester 2 Dayne Gillham

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Strategic Management G79078 Dayne Gillham

Question 1

There are 4 building blocks of competitive advantage; Superior efficiency, quality as excellence and reliability, superior innovation and superior customer responsiveness. These competencies allow a company to differentiate its product offering and offer more utility to its customers and lower its cost structure so that they can build and sustain a competitive edge.

Superior efficiency as it applies to WalMart in South Africa (SA):

The simplest measure of efficiency is the quantity of inputs that it takes to produce a given output, that is, efficiency=outputs/inputs.

Walmart pledged to “honour labour agreements for 3years” too not cut jobs in South Africa; this will help with employee productivity as workers will have job security thus increasing productivity. Walmart will fund “$14.6million towards developing local suppliers” taking advantage of South Africa s

agriculture and helping to gain maximum capital productivity through better supplier channels and no import costs. “Walmart has significantly focused on climate change issues by implementing zero waste corporate incentives”, “including supporting farmers and their communities, producing food that consumes fewer resources and creates less waste”, thus making themselves more efficient. The more efficient a company is, the fewer the inputs required to produce a given output.

Innovation as it applies to Walmart SA:

Walmart “could help ‘raise the bar’ in terms of productivity, service delivery, transparency and price efficiency (prices are expected to go down) within the industry, forcing local players and

manufacturers to become more competitive and creative in order to survive in an open and free market”. “Walmart will also give producers incentives to engage in process and product innovation’. Walmart will therefore benefit from a higher standard of product giving them a competitive advantage by better process innovation, Walmart will invest in local suppliers. This will give Walmart better distribution channels with reduced costs as there are no import fees and have some control on process innovation (tailoring them to Walmart’s needs).

Customer Responsiveness at it applies to Walmart SA:

Walmart has “3 Basic beliefs or core philosophies- Sam Walton built the company on these beliefs which are (1) respect of the individual, (2) service to our customers, and (3) to strive for excellence”. Walmart’s focus on developing suppliers helps them to maintain a good quality whilst having low prices which give customers greater value or utility from owning the product. “Achieving superior quality and innovation is integral to achieving superior responsiveness to customers”. Therefor Walmart SA are building competitive advantage and striving for excellence in their supply chain. Walmart have built a strong response system by giving manufacturers incentives for product development thus helping to deal with all customer needs and less complaints as the product gets better.

Steps Walmart can follow to avoid failure:

 Focus on building competitive advantage through the development of local suppliers  Product and process innovation by raising local manufacturers standards so there is more

price efficiency ,service delivery and transparency

 Overcome inertia by continual growth E.G. open more stores in other parts of Africa, grow distribution channels allowing for better pricing (continual low prices)

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Question 2

Walmart may apply competitive positioning and the value creation frontier as possible strategies at the business level in South Africa’s retail industry and following a cost leadership strategy helps to align these strategies. The cost leadership strategy fits into the rest of Walmarts business strategies that they follow in different product markets.

Walmart can chose between differentiation strategy and cost leadership strategy, however the differentiation strategy does not fit into Walmart’s trademark ‘everyday low prices’. Differentiation allows for companies to use premium pricing as their products are of a higher quality in some feature/s.

Walmart can follow the cost leadership strategy by investing money that will be “orientated towards creating a fund to develop local suppliers” and maintain lower prices so they do not need to differentiate products vastly to obtain profit margins. Walmart spend little money on store design and more money on developing processes to reduce cost, they spend a ‘sufficient’ amount to differentiate products at low cost. Walmart may also use their huge international experience and size to reduce costs with cheap imports if local retail stores try to reduce their cost structure and combat Walmart in that way, this all will lead to Walmarts’ cost leadership strategy been used to competitively position them in the South African retail industry.

To reach the Value Creation Frontier for Walmart in the context of South Africa retail industry should follow innovation, particularly process innovation to reach the value creation frontier. With strengthened local suppliers as well as Walmart giving producers “incentives to engage in process or product innovation”, the increased competition will create better products and processes allowing Walmart to retain its trademark ‘everyday low prices’, creating value for its customers and being able to compete in the South African retail industry.

Question 3

Horizontal integration in a single industry increases profitability of a company, the benefits of single industry horizontal integration are listed;

 Lower Cost Structure- horizontal integration can lower a company’s cost structure because it creates increasing economies of scale. E.g. Walmart known as Walmex in Mexico lowered cost structure by buying out “62% of Cifra, the biggest retailer in Mexico”, thus allowing them to have better economies of scale as they could now negotiate prices at a better scale as well as increase production at one reduced manufacturing cost.

 Increased Product Differentiation- Increased product differentiation allows companies to increase profits by charging premium prices. E.g. Walmex (Walmart in Mexico) by purchasing Cifra would be able to take products previously exclusive to Cifra and benefit them with Walmex products to give customers enough utility to charge higher prices.

 Replicating The Business Model- This allows a company to increase profits by replicating a successful business model in new markets. E.g. Walmart replicated there business model in South Africa by purchasing the supermarket chain Massmart, where they used efficient global materials-management practices to pursue their cost-leadership strategy.

 Reduced Industry Rivalry- With the reduction of rivalry in an industry the acquiring or merger with a competitor helps to eliminate excess capacity in an industry and makes it easier to implement ‘tacit price co-ordination’. E.g. Walmaex acquired 62% of Cifra in Mexico, making it easier to control tacit pricing as they then owned majority of the market, making it an oligopoly.

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Bibliography:

Jones, G.R. & Hill, C.W.L., 2010. Theory Of Strategic Management With Cases. 9th_{ed. USA:}