Walmart Globalization Strategy and Organizational Theory

Introduction: Walmart and Globalization

Walmart is the world's largest retailer, and it has been significantly affected by the forces of globalization. This paper considers those forces in the context of both the company's vision and in terms of organizational theory.

Walmart has been opportunistic in its approach to globalization. The company has become the subject of studies on globalization not just for its retail reach but for its supply chain management. Walmart's vision and mission relate to delivering low prices to the consumer. The company believes that the promise of low prices will attract consumers to its stores, and it follows through with its "everyday low prices" mantra by sourcing goods from the lowest-cost producers it can find. While for its first few decades this meant sourcing goods from American suppliers, Walmart has seen a significant shift in the past two decades toward overseas production. All of this is done through second-party suppliers, but Walmart exerts a high level of influence throughout its supply chain — to the point where it can guide the actions of its suppliers, effectively leading them overseas. The globalization of Walmart's supply chain has therefore become integral to its strategy, as its moves overseas combined with other elements of supply chain management have allowed Walmart to deliver, more or less, on its promise of lower prices.

Supply Chain Management and Cost Leadership

Walmart has also grown into a significant player in a number of markets around the world. Rugman and Girod (2003) argue that Walmart is essentially a regional retailer within NAFTA, but this characterization ignores the company's substantial presence in the Chinese market. In addition, Walmart operates under other brand names in Europe, although it has been less successful on that continent. That said, the company does derive a significant share of its sales from Mexico and Canada, which along with China account for close to a quarter of systemwide sales.

Driving down costs is something Walmart can do by leveraging its economies of scale. However, scale alone does not push it into global markets. There are other ways to drive down costs as well, including through the use of information. The more information the buyer has, the easier it is to drive down costs. This is the strategy Walmart has utilized. With its deep knowledge of its suppliers' supply chains, it pressures them to find solutions that reduce costs further. Often, this leads overseas, and Walmart is well aware of this dynamic. The company has fostered a special relationship with China in order to facilitate better access to low-cost Chinese goods, and it pursues similar arrangements with other countries when needed. Walmart's push for globalization therefore relates to its pursuit of information and its use of that information to drive down the prices it pays to suppliers.

Industrial Organizational View of Walmart

Given Walmart's business model, the company is not seeking above-average returns in the traditional sense. The model clearly represents a tradeoff between margins and volume, with Walmart prioritizing high volumes. It will not return substantially to shareholders even compared with other retailers. Success for Walmart continues to be defined as growth. There is significant room for growth, something that drives Walmart to continually leverage its capabilities. Walmart's core resources are its supply chain management and its marketing. The company has sold its vision to consumers and successfully associated it with the brand. The result is that Walmart has become one of the world's largest companies.

The industrial organizational view holds that a firm is an industrial organization that seeks to organize itself in such a way as to extract economic value for shareholders (Tirole, 1993). This view makes considerable sense when applied to Walmart. Most of its moves to globalize have been driven strictly by economic considerations. The company's mission and vision center on a high-volume, low-cost business model. To succeed, Walmart must do two things: drive down costs and extract some temporary monopoly rents typical of a firm operating under monopolistic competition.

Conclusion

Overall, Walmart has succeeded because just about everything it does is based on its mission and vision, with high-level buy-in from all stakeholders. Even its globalization efforts reflect this coherence, fitting neatly within the company's grand strategy and philosophy. Walmart is a company that uses its resources wisely in order to improve its market position — something that helps it earn a strong return for shareholders through its consistent growth trajectory.