What Factors Explain the Different Country Operating Margins for Wal-Mart

Practicum Report

What factors explain the different country operating margins for Wal-Mart?

Wal-Mart has various levels of success when operating in countries outside the United States. Wal-Mart’s country operating margin is highly correlated to Wal-Mart’s ability to achieve a dominant position within the country. This is represented by dividing Wal-Mart’s country sales by the total retail sales within the country. (Exhibit 3 & 5) Wal-Mart’s Low Cost business model is dependent on the company’s ability to realize economies of scale within its operations while lowering their process costs to further facilitate low cost practices. For Wal-Mart to become the dominant retailing company in a foreign country, a large scale acquisition strategy may serve as the best means of international expansion. The UK acquisition illustrates this strategy well.

Wal-Mart’s operating margin is also strongly correlated to its ability to grow its store base close to its home base in Bentonville, Arkansas. As the company grows further away from Bentonville, the company’s operating margin decreases (Exhibit 4 & 6). Wal-Mart is unsuccessful at leveraging its EOScale and EOScope in many international countries because of its highly centralized operations.

Wal-Mart’s operating margin is determined by the company’s ability to drive their Low Cost operating model. The company’s distinct competitive advantage is maintained from its ability to sustain and integrate the company’s core competencies (Exhibit 1). The company’s inability to succeed in certain international markets is because of the missing “FIT”. For example, Wal-Mart Germany was unable to keep wages down and price merchandise consistently with EDLP tactics.

Wal-Mart’ international strategy should consider the local challenges and its ability to maintain its corporate “FIT”. Furthermore, the absence of one or more core competencies will compromise Wal-Mart’s distinct low cost competitive advantage and...