Comercial Mexicana S.A. (Comerci), one of Mexico's largest retail chains, was faced with a serious dilemma. Since Wal-Mart's aggressive entry into the Mexican retail market, Comerci has found it increasingly difficult to remain competitive. Wal-Mart's strong operating presence and low prices since NAFTA's lifting of tariffs have put pressure on Comerci, and now management must decide if it can improve Comerci's competitive position by remaining independent or by merging with either a local or foreign retailer. Which raises one question that needs to be answered: What has caused this intense competitive pressure on Comerci, and what is likely to be its future?
Mexico's retail sector has benefited greatly from the increasing trade liberalizing the government has been pushing. After decades of protectionism, Mexico joined GATT in 1986 to help open its economy to new markets. In 1990, with Mexico's economy on the upswing and additional free trade negotiations with United States and Canada taking place, the founder of Wal-Mart, Sam Walton, met with the president of Cifra, Mexico's leading retail store. Their meeting resulted in a 50/50 joint venture in the opening of Mexico's first Sam's Clubs, a subsidiary of Wal-Mart, in 1991 in Mexico City. It only took a couple of months after the opening to prove the store's success. The Mexico City Sam's Club started to brake all of the U.S. records for Sam's Club. The joint venture evolved to incorporate all new stores, and by 1997, Wal-Mart purchased enough shares to have controlling interest in Cifra. In 2000, it changed the name to Wal-Mart de Mexico, S.A. de C.V. and the ticker symbol to WALMEX.
Prior to 1990, Wal-Mart had never made moves to enter Mexico or any country other than the United States. Once Wal-Mart started growing Mexico, management created the Wal-Mart international division in 1993. The company has expanded into internationally to nine countries through new-store construction and acquisitions. Today Wal-Mart International employs more than 330,000 associates in Argentina, Brazil, Canada, China, Germany, Korea, Mexico, Puerto Rico and the United Kingdom. Wal-Mart's operations in Canada, the United States and Mexico's partners in NAFTA, began in 1994 with acquisition of 122 Woolco stores. It now has 196 stores and has strong partnerships with Canadian suppliers.
With growth stalling in the United States Wal-Mart is looking to international expansion for growth> in fiscal 2002, the international division increased sales by 10.5 percent to $35.4 billion and operating profit increased 31.1 percent to $1.4 billion. The division accounts for 17 percent of sales and 11 percent of profits. Most forecaster believe Wal-Mart's growth outside the United States will grow by an average of 26 percent for the foreseeable future. Wal-Mart's success internationally has varied by country. Although successful in countries like Mexico and Canada, where it has become the largest retailer, it has yet to prove itself in Germany and Argentina. It is learning from its past mistakes, and it is now adapting much better to local cultures and learning from partnerships formed in each country.
Wal-Mart Competitive Advantage
Much of Wal-Mart's international success comes from the tested practices of the U.S. division bases its success on. Wal-Mart is known for the slogan "Every Day Low Prices." It has expanded that internally to "Every Day Low Costs" to inspire employees to spend company money wisely and work hard to lower costs. Due to its sheer size and volume of purchases, Wal-Mart can negotiate with suppliers to drop prices to agreeable levels. It also works closely with suppliers on inventory levels using advanced information system that informs suppliers when purchases have been made and when Wal-Mart will be ordering more merchandise. Suppliers can then plan production runs more accurately, thus reducing production costs, which are passed on to Wal-Mart and...