Global Business Strategies for Wal-Mart in Mexico

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Global Business Strategies for Wal-Mart in Mexico

1. Why did Mexico make such a good proving ground for Wal-Mart's foreign expansion strategy?
Mexico was a good choice because of Wal-Mart's strong and established operating competencies and the low prices it was able to offer since NAFTA's lifting of tariffs.
Mexico's retail sector had benefited greatly from the increasing trade liberalizing the Mexican government was advocating at the time. After decades of protectionism, Mexico had joined GATT in 1985 to help open its economy to new markets. In 1991, with Mexico's economy on the upswing and additional free trade negotiations with United States and Canada taking place, Wal-Mart, entered a joint venture with Aurrera, part of the Mexican commercial group Cifra. 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 (Javorcik, Keller, & Tybout, 2006).
2. What is the source of Wal-Mart's competitive advantage? What barriers did Wal-Mart have to overcome in transferring its competencies to Mexico?
Much of Wal-Mart's international success comes from the tested supply chain and distribution practices the company developed and implemented successfully for the US market. 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 eventually the customer (Javorcik, et al, 2006).
Wal-Mart also has a unique distribution system that reduces expenses. It builds super warehouses in central locations that receive the majority of the merchandise sold in Wal-Mart stores. It then transports the merchandise to the various stores, using its company-owned fleet or a partner. The central ...