Understanding the business environment is central in the success of every business. The relevance of the business environment is that it provides an organisation’s top management insight on the most appropriate strategy that a firm can adopt (Ireland, Hoskisson & Hitt, 2008). However, businesses capacity to leverage on market intelligence inherent in the business environment is influenced by the extent to which the top management team adopts a holistic approach in undertaking environmental analysis. Therefore, business managers should focus on conducting an internal and external businesses analysis (Griffin, 2011). The external environment constitutes the issues outside a firm’s boundaries that might affect a firm either directly or indirectly. The external environment is categorised into two groups that include the general and the task environment whereby the general environment is comprised of the technological, economic, political-legal, international and socio-cultural dimensions (Griffin, 2011).
The task environment involves dimensions such as the firm’s competitors, strategic partners, customers, and suppliers and regulators. Alternatively, the internal environment entails the forces and conditions within a firm’s boundaries (Griffin, 2011). The internal environment is within a firm’s management team ability to control as opposed to the external environment. Irrespective of the ability to control, business managers are obliged to integrate effective approaches in managing the respective environmental dimensions. To illustrate this assertion, this paper involves a case study on external and internal business environments with reference to Walmart Incorporation.
Company background
Walmart Incorporation is one of the largest retail firms globally. The firm’s operations are based on three main segments that include Walmart International, Walmart US and Sam’s Club. Currently, the firm operates under 69 different retail banners, which improves its ability to provide customers a broad assortment of high quality services and merchandise at significantly low price (United States and Exchange Commission, 2015). This approach is in-line with Wal-Mart’s commitment on improving the consumers’ live by assisting people in saving money.
Analysis
General environment
Despite the fact that Walmart’s operation is affected by the six dimensions of the general environment, the two dimensions of general environment that greatly impacts the firm entails the economic and technological environment.
Economic dimension
Griffin (2011) identifies the economic dimension as ‘the overall health and vitality of the economic system in which the organisation operates’ (p. 66). In its operation, Walmart is influenced by different economic factors such as the rate of a country’s economic growth, interest rate and rate of inflation. High rates of interest and inflation constitute significant macroeconomic risk factors that are likely to affect a firm’s economic sustainability (United States Exchange Commission, 2015. These factors impact the firm’s ability to generate sustainable revenue stream. For example, a high rate of economic growth increases the consumers’ disposable income and hence their purchasing power whilst slow-down in the rate of economic growth, negatively impacts the consumers’ purchasing power. A slow economic growth reduces consumer confidence hence making consumers to prefer saving as opposed to consumption. Conversely, a high rate of inflation reduces the purchasing power of the consumers’ income hence reducing a firm’s sales revenue.
Despite the economic stimulus package implemented by the US government in the wake of the 2008 economic recession, the US is yet to achieve tangible economic growth as evidenced by the low rate of economic growth. During the last quarter of its 2015 fiscal year, the US economy grew by 0.7% due to reduction in consumer spending and business investment (Rushe 2016). This outcome has arisen from fears of economic slowdown due to falling oil prices, which has created loss of employment and reduction in the level of investment in the US hence reducing the consumer’s disposable income (Rushe, 2016). The effects of economic changes are not only limited to Walmart’s domestic operations but also in the international market.
Technological dimension
The past two decades have been characterised by considerable innovation with regard to information communication. The growth in the level of innovation has been necessitated by increase in the degree of competitiveness and turbulence within the modern business environment (Elmorshidy, 2013). Technological innovation has become a critical determinant in businesses’ pursuit for competitiveness. Elmorshidy (2013) emphasises that ‘businesses should have clear goals and employ information technology to achieve these goals’ (p. 819). The relevance of information communication technology as a component of the general environment in enhancing a firm’s financial sustainability is anchored on the fact that it enables a firm to leverage on the changing market environment. Moreover, information technology is critical in enhancing a firm’s interaction with different stakeholders such as customers and suppliers. In spite of its importance, businesses success in exploiting the benefits of information technology depends on a number of aspects that include a firm’s success in identifying its IT capabilities, which are aligned with its operations. Moreover, a firm must also develop a clear IT-strategy roadmap (Elmorshidy, 2013).
Consumers are progressively entrenching information technology in their purchasing process. Keith (2016) asserts that technologies have become a critical determinant of the success with which a firm attracts and retains customers. The emergence of diverse information communication technologies has led to a shift on how consumers assess the shopping experience. For example, consumers are assessing the ability of a firm to meet their expectations by evaluating the extent to which a firm provides them an opportunity for online shopping and interaction through diverse platforms (Keith, 2016). Therefore, integrating ICT will enable Walmart to succeed in exploiting big data in developing market intelligence.
Information technology is critical in Walmart’s quest to establish a seamless supply chain. Entrenching ICT in the firm’s supply chain processes will enable Walmart to effectively and efficiently meet the market demand (Ecklund, 2010). This will be achieved because of improved information sharing with the different supply chain participants. One of the issues that Walmart should take into account in employing information technology entails interoperability. This aspect will improve the firm’s effectiveness in leveraging on different information technologies. For example, interoperability will improve the firm’s interaction with different stakeholders through different mediums (Zhang, 2012). Walmart’s failure to integrate emerging information technologies might lead to loss of competitive advantage. For example, the firm might not be able to leverage on the advantages inherent in e-commerce technologies.
Forces of competition
The market structure within which a firm operates influences its ability to generate revenue. Walmart operates in a market characterised by monopolistic competition, in which there are many sellers competing for the same customer group (Boyes & Melvin, 2012). The ability of a firm to survive in its respective market structure is influenced by how well it manages the inherent market forces. The five forces model is one of the frameworks that a firm’s management team can integrate in evaluating a firm’s competitive edge. The forces include buyer and supplier bargaining power, degree of rivalry, threat of new entrant, and threat of substitute product (Mankiw, 2009). Amongst the five forces of competition that is most significant in Walmart’s operation include competition from existing firms or degree of rivalry and buyers’ bargaining power as analysed herein.
Rivalry
Luck (2008) is of the view that ‘businesses earn profit by being more successful than competitors in creating and delivering value to the customers over time’ (p.104). Thus, Walmart has to develop a considerably high competitive edge in order to be achieve future competitiveness. Walmart operates in an industry that is characterised by a high degree of rivalry. The firm faces competition from numerous wholesalers, retailers and club operators, who have adopted different operational formats such as digital and physical retail formats or both. The competition is not only limited to the domestic market but is also encountered from local, national, regional and global retailers operating in markets in which Walmart has established market presence. To deal with the risk posed by intense competition, Walmart has adopted low pricing point as its fundamental strategy, which is based under its ‘Every Day Low Prices’ (EDLP) philosophy. Through this philosophy, Walmart has been able to develop customer loyalty by assuring customers of low product prices irrespective of changing promotional activities. Thus, the firm has attained price leadership.
To deal with the risk posed by high degree of rivalry, Walmart should consider the most appropriate strategies to maintain its price leadership capabilities. One of the ways through which the firm can achieve this end entails improving its outsourcing capabilities to countries characterised by low cost of production. This move will enable the firm to maintain its competitive edge.
Buyer bargaining power
Walmart’s effectiveness in generating sales revenue is influenced by the buyers bargaining power. One of the elements of buyer bargaining power likely to have a significant impact on Walmart relates to growth in the rate at which consumers are demanding high quality products. Moreover, the presence of numerous retailers has significantly reduced the cost of switching to a competing industry. This highlights the importance of Walmart’s management team paying more emphasis on offering customers’ high quality products. To minimise the likelihood of switching, Walmart ensures that it offers customers high quality products through product differentiation. Moreover, the firm has significantly reduced the threat of customers switching to a competitor by offering customers a diversified product portfolio (Datamonitor, 2011).
To minimise the threat of a high buyer bargaining power, Walmart should consider offering customers a unique experience by differentiating its product and service offering. Moreover, the firms should consider improving its product and service delivery by improving collaboration with the various stakeholders in its supply chain. This move will make it difficult for customers to access similar services from competing firms.
External threats and opportunities facing Walmart
Threats
Walmart faces diverse opportunities and threats emanating from the external business environment as examined herein. One of the threats entail relate to rising volatility of commodity prices arising from increase in the rate of inflation. A study conducted by Datamonitor (2011) affirms that ‘the inflation for producers in the US market has been increasing at a faster pace than consumers’ inflation leading to higher costs for producers’ (p.11). The rising cost of inflation poses a threat to the firm’s low pricing strategy and hence its quest for profit maximisation. To deal with the threat, Walmart should focus on enhancing its low pricing strategy by improving its operational efficiency by minimising the cost of production.
Intense competition also poses a significant threat to Walmart’s sustainability. The intense competition has made product differentiation considerably challenging. The firm faces intense competition from other firms such as Target, Safeway, ASDA and Tesco (Datamonitor, 2011). To overcome the threat of competition, Walmart should consider improving its operational efficiency by leveraging on e-commerce technology. This move will enable the firm to enhance its operational efficiency and to limit the threat of losing customers to competitors.
The firm also faces resistance to expand from local authorities and organisations in its domestic market. For example, local authorities are hesitant in offering Walmart permits to establish new stores (Datamonitor, 2011). This might affect the firm’s quest to achieve competitiveness by establishing extensive market presence. To overcome this challenge, Walmart should consider leveraging on e-commerce technologies such as online shopping technologies.
Opportunities
Despite the threats faced, Walmart has an opportunity to enhance its competitiveness by venturing into emerging markets. Moreover, the firm should deploy effective e-commerce technologies in order to enhance its operational efficiency. This will enable the firm to maximise its sales revenue and profit. Moreover, Walmart should consider aligning its products with the changing customer tastes and preferences, for example by paying attention to health and wellness issues (Basker, 2007).
Strengths and weaknesses
Strengths
Large scale operation; Walmart has established an extensive network across the world, which has strengthened its market position. To leverage on this strength, Walmart should consider improving its supply chain strategy in order to achieve operational efficiency of its respective retail outlets.
One retail destination; the firm offers diversified product portfolio across its retail outlets. To leverage on this strength, the firm should progressively improve its product portfolio in order to cope with emerging competitors. This will enable the firm meets the customers’ diverse needs.
Strategic business program; the firm’s EDLP program has enabled the firm to gain considerable competitive advantage by attracting customers. To sustain the efficacy of this program, Walmart should consider enhancing its low cost strategy by minimising the cost of production (Basker, 2007).
Weaknesses
Legal issues; Walmart has encountered diverse legal issues such as legal complains from labour unions arising from deviation from state laws. For example, Walmart has on different occasions been accused of discriminating employees on different grounds such as job promotion, training and pay (Datamonitor, 2011). To deal with this challenge, Walmart should ensure that it understands and complies with the stipulated laws and regulations on different human resource management issues.
Product recall; Walmart has in the recent past been involved in product recall due to poor product quality. This issue might affect the firm’s reputation (Datamonitor, 2011). To overcome this problem, the firm should strengthen its approach to quality management.
Resources, capabilities and core competences
Walmart has developed adequate core competence with reference to integration of information technology, which enhances the firm’s international logistics systems. The firm has established an effective information system that enables the firm to adequately manage its store operations across the world. Thus, the firm is able to adequately stock its retail stores.
With reference to capabilities, Walmart has developed unique capabilities with reference to supply chain management, which enhances collaboration with different stakeholders and hence the firm’s operational efficiency. The firm’s capability with reference to supply chain enables the firm to efficiently replenish its stock. Moreover, the firm has developed adequate capability with reference to point-of-sale data analysis. This aspect enables the firm to not only manage its stock but also award loyal customers (Albright & Winston, 2016).
The firm has developed adequate resources with reference to human capital and financial resources. Its broad human capital enables the firm to succeed in its operational functions such as marketing. Conversely, Walmart has developed adequate financial strength which enables it to undertake market expansion.
Value chain
Walmart has integrated strategic partnership as one of its inbound components of its value chain. Thus, the firm has entrenched extensive regulations that govern collaboration with suppliers, for example outsourcing supplies from low cost suppliers in order to maintain its cost leadership. To enhance strategic partnership, the firm should leverage on its human capital resource to negotiate low product prices. This move will improve the firms’ competitiveness with reference to implementation of its EDLP program. Thus, the firm will be able to offer customers an assortment of products at a considerably low price. Conversely, the firm should leverage on its financial resources to strengthen its market presence for example by improving its market penetration to emerging countries. Moreover, the firm should use its financial capital in ensuring that employees are progressively trained and developed in order to improve their productivity. This move will contribute to strengthen the firm’s quest for innovation hence improving the efficiency with which diverse functional roles are undertaken. Moreover, Walmart should also consider leveraging on its human and financial capital in utilising emerging information technologies. Through this approach, Walmart will strength its competitive edge.
Conclusion
The above analysis underscores the fact that Walmart’s success is directly dependent on the prevailing internal and external environments dynamics, which underline the need for the firm to progressively evaluate the two environmental dimensions. Through this approach, the firm will be able to effectively manage the prevailing environmental issues hence strengthening its competitiveness.
References
Albright, S., & Winston, W. (2016). Business analytics; data analysis and decision making.
Brazil: Cengage Learning.
Basker, E. (2007). ‘The causes and consequences of Walmart’s growth’, Journal of Economic
Perspective, 21 (3), 177-198.
Boyes, W., & Melvin, M. (2012). Economics. Mason, OH: Cengage Learning.
Datamonitor: Walmart Stores Incorporation. (2011).
Ecklund, D. (2010). Warehousing and effectiveness in the supply chain processes.
Elmorshidy, A. (2013). ‘Applying the technology acceptance and service quality models to
live customer support chart for e-commerce websites’, The Journal of Applied Research, 29 (2).
Griffin, R. (2011). Management. Mason, OH: South-Western Cengage.
Ireland, D., Hoskisson, R., & Hitt, M. (2008). Understanding business strategy; concepts and
cases. Mason, OH: Cengage Learning.
Keith, S. (2016). The future of retail; perspective on emerging technology and store formats.
marketing environment. New York: Routledge.
Mankiw, G. (2009). Principles of economics. Mason, OH: Cengage Learning.
Rushe, D. (2016). US GDP slows sharply in fourth quarter on weak consumer spending.
United States and Exchange Commission: Walmart Stores Incorporation. (2015). Retrieved
Zhang, X. (2012). The role of ICT in supply chains.