Wal-Mart Low Cost Leader

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Category: Business and Industry

Date Submitted: 03/07/2011 08:20 AM

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Recently Wal-Mart made an aggressive and expensive bid to expand into South Africa. They offered to buy South African retailer Massmart Holdings Inc. for $4.6 Billion. Wal-Mart’s proposed offer is the company’s biggest acquisition in more than a decade. Massmart, headquartered in Johannesburg, is one of the largest distributors and retailers of low cost consumer goods and general merchandise in South Africa. Massmart operates 290 stores in 13 countries and manages 8 wholesale and retail chains operating under a variety of different brand names. Like Wal-Mart, Massmart operates low-cost, high volume stores with a strong general retail business backed by low-cost distribution systems.

Wal-Mart has been able to dominate in the U.S market by maintaining their low cost leadership strategy. The company has achieved this by keeping their cost structures much lower than those of their traditional competitors. Massmart’s low cost strategy, which appeals to Wal-Mart, centers on a highly developed low cost distribution channel throughout the local South African market. Acquiring Massmart will allow Wal-Mart to maintain its current strategy while also gaining local knowledge and already established suppliers. Wal-Mart’s strategy to expand into emerging markets has not always been successful. The company recently failed to enter the German and South Korean markets. From these experiences, Wal-Mart learned that being the first mover and adjusting to meet local market needs are important advantages to have in international retailing.

There is speculation on the strategy Wal-Mart will use if they acquire Massmart. However, it is in their best interest to use a think global, act local strategy. This means that Wal-Mart will expand into foreign markets while tailoring their products to the specific needs of the customers in that region. Wal-Mart’s recent failure in South Korea is a great example the company not meeting the needs of a local community. The...