IBM Wal-Mart Discussion
How has the implementation of NAFTA affected Wal-Mart’s success in Mexico?
Free trade zone: Wal-Mart encountered a problem that its imports charges on many of the goods from America. Thus prevent Wal-Mart from being able to offer its “Every Day Low Prices”. After the implementation of NAFTA, Mexico, U.S and Canada become free trade zone. Wal-Mart can reduce the tariffs on American goods sold to Mexico from 10 percent to 3percent. That can decrease their cost for the products. Solve logistical problem: The transportation of Mexico is really poor. The poor road and scarcity of delivery trucks contribute to the high logistics cost. However, the implementation of NAFTA solves the problem. Because NAFTA encourages Mexico to improve its transportation infrastructure, the logistical cost becomes lower. Reduce the human cost: The signing of NAFTA opens the gates wider to foreign investment in Mexico. Wal-Mart builds manufacturing plants in Mexico because of the cheap labors. As companies began to build manufacturing plants in Mexico, Wal-Mart can buy these products without paying the high import tariffs. To sum up, lower human cost makes lower import tariffs and thus leads to cheaper products. Therefore, Wal-Mart is really success in Mexico.
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 North American retailer have the same success in Mexico post-NAFTA, or is Wal-Mart a special case?
The reasons lead to the success is not only the implementation of NAFTA, but also the competitive strategy. NAFTA can solve the difficulties Wal-Mart facing, but Wal-Mart has its own superiority. It can keep every day low price. The following points result in its lower price. Larger negotiating power: Wal-Mart can lower its cost by negotiating with suppliers to drop prices, because it can buy the sheer size and... [continues]
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