Wal-Mart is a US-based multinational corporation. Critically discuss the likely costs and benefits of its takeover of Asda, a UK-based company
Wal-Mart is the world’s largest retailer with over 8400 stores worldwide employing 2 million people. It serves more than 200 million people with global sales exceeding £291 billion. (Basker, 2007) Wal-Mart is globally organised so that it can respond quickly to changing markets and cost conditions in its international locations. The UK is one of these locations. This essay will firstly explore features that are of benefit before considering features that are of detriment to Wal-Mart and the UK in the aftermath of its take-over of Asda.
Wal-Mart benefited from the acquisition of Asda because Asda had a skilled, trained work force with low wages and labour costs. This meant it took over an already successful retail business, and so expanding its global foot print while making savings due to avoidance of tariffs for being based in the UK. Wal-Mart can make further savings by exploiting its economies of scale related to advertising, procurement and transportation that its global network gives it.
In addition the UK government created an attractive environment for Multi National Companies like Wal-Mart to invest in. This environment was created by offering a number of cost reducing and financial incentives. The effect of these incentives was designed to reduce investment risk and so encourage investment and create jobs. But consequentially, Asda’s acquisition by Wal-Mart signalled a change in food retailing in the UK. In response its competitors intensified the price and cost pressures they exerted on their suppliers. Responses from a Competition Commission survey indicated that since the Wal-Mart take over relationships between suppliers and supermarkets had largely worsened. (Competition Commission).
A benefit to the UK population is Wal-Mart/Asda’s stated value proposition based on offering “Everyday Low Prices”. Wal-Mart Mission statement says; “We save people money so they can live better”. Everything Wal-Mart/Asda does is designed to keep the everyday price low. This implies that customers do not need to wait for sales to get the best deals (Manning et al 1998). Not only are stores conveniently positioned around the UK providing a wide range of products, but Wal-Mart/Asda is becoming a one stop shop for the purchasing of groceries, pharmaceuticals, holidays, and a raft of other goods and services.
An incidental benefit to the UK shopper is Wal-Marts appeal, as a 2007 Customer Relations report described. Wal-Mart/Asda is attractive to three types of customer: “brand aspirations”, people with low incomes who are obsessed with brand; “price-sensitive effluents”, wealthier shoppers who love deals; and “value price shoppers” who like low prices and cannot afford much more. (Barbaro, 2007)
Wal-Mart is known as a company that does not waste money. Its aim always has been to drive down costs, this does not mean it will not take risks and invest in new infrastructure and technology. Wal-Mart/Asda has a technological edge over its competitors with its inventory control, logistics, distribution and consumer data software. Moving goods quickly and efficiently keeps costs down, which is ultimately what the consumer wants. An example of how this investment was put to use came in 2005. The company’s consumer data analysis software highlighted during the run up to Ramadan the stores that were located in areas with significant Muslim populations. This allowed Wal-Mart/Asda to prepare for Ramadan in a culturally appropriate manner. Wal-Mart acquired Asda for sound business reasons which have brought benefit to the UK but it may face problems from this expansion.
Being a US company Wal-Mart may find strategies that work in the USA will fail in the UK due to cultural and social differences. This could foster a belief locally that Wal-Mart is trying to impose US...
Please join StudyMode to read the full document