Wal-Mart is one of the largest corporations in the world. It has a workforce of over 2 million people all over the world. It is the biggest private sector employer in the United States. Its corporate strategy involves selling products of high quality at the lowest prices possible (Vance & Scott, 1994). This paper seeks to discuss the challenges facing Wal-Mart currently as well as the strategic initiatives the company is undertaking in order to combat these challenges. These risks that include labor unions, government policies, and customer complaints are negatively impacting a bottom line of the global franchise. The initiatives were announced by the CEO of the company but were met with a lot of criticism from different partners of the organization. This paper will outline the challenges that the company faces and the initiatives that the company has set up. It also explains the criticism that the organization continuously faces especially after the memorandum of the initiatives was leaked to the press.
The high quality and low prices of brand name products are made possible with the use of superior technology, dealing directly with a manufacturer so as to do away with the middleman and the use of warehousing (Vance & Scott, 1994). The management strategy is also appealing to most as it is both employee and customer oriented. Employees are known as associates. They have an access to stock purchasing plans as well as training from the company.
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Threats and Challenges Wal-Mart Is Currently Facing
Due to its size, the multinational corporation engages on a daily basis with a multitude of stakeholders. It can result in a lot of friction especially if the faction’s interests are not met. Most of Wal-Mart’s critics fall into the following categories: environmentalist groups, religious advocates, political fundamentalists, labor unions as well as members of the communities where the stores are established.
The criticism is based on Wal-Mart’s current business practices which many of these factions believe diminish the welfare of employees, customers, and communities, as a whole. Numerous lawsuits have been filed against the corporation and its public image severely dented as a result. It is estimated that in 2000 alone, the corporation had over 5000 lawsuits against it.
One major challenge that the global corporation continues to face is the wages of its employees. Most of these associates only work part time. As such, they are only paid a minimum wage. In most cases, these employees are living in a way below the poverty line in their respective countries (Quinn, 2000). In addition to this, these workers are only eligible for the benefits such as profit sharing after five years. With a high turnover rate that the company is currently experiencing, it is no surprise that most of these employees never get to receive these benefits.
Another challenge is labor unions. Wal-Mart is very opposed to allowing its employees to join them such as the United Food and Commercial Workers. All its other competitors are unionized. The labor groups have also cited workers’ abuses of rights and wage issues leading to many court battles. These problems are obviously against the core foundations that the company vehemently says it upholds (Quinn, 2000). Other labor union complaints some range from gender and race inequality when it comes to provision of employment opportunities to lack the comprehensive health insurance (Bendick, 2003). Women employees are not promoted to managerial or executive positions.
Communities that surround the Wal-Mart stores have also raised issues with the corporation. Mostly, the complaints are that the corporation is destroying the local markets by pushing out small competitors from the market. Many locals end up without a source of income due to Wal-Mart’s dominant and aggressive strategy. Many have criticized the corporation for being monopolistic (Quinn, 2000).
Similar companies to Wal-Mart have also criticized the organization for zoning violations and also the company’s use of its immense power and wealth. It concerns, e.g., censorship whereby it does not sell movies or music that are of the mature content.
Wal-Mart’s bottom line is also been threatened by competitors both regionally and internationally. Target is the main competition to the corporation in America. The store offers discounted prices on its high quality goods. The store attracts many high income earners. It means that it receives higher revenues than Wal-Mart. Other competitors eating away at Wal-Mart’s market share include Costco and Kmart.
Priorities Set by Lee Scott in the 21st Century Leadership Address
Lee Scott set out a list of priorities for the company in his 21st century leadership address in October 2005. In his speech, he announced that Wal-Mart was implementing a business sustainability strategy. It is in light of a drop in sales in recent years. It is estimated that about 8% of customers stopped shopping at Wal-Mart because of its business practices (Gogoi, 2006).
The main priority for Wal-Mart is to reduce its carbon footprint through three main initiatives: 1) All energy used in the company will be 100% renewable; 2) to reduce its waste to zero percent and 3) Selling products that are environmentally safe and sustainable.
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Product sourcing is another priority that the CEO announced in the speech. Wal-Mart aims to improve the lives of its suppliers’ workers. The company has since stopped dealing with suppliers that do not meet the standards of the corporation. In a bid to improve the transparency of its product sourcing, Wal-Mart has set up a program that works independently to monitor the business practices of its suppliers. The program also goes to further prove the credibility of its FCP, i.e. a factory certification program.
Wal-Mart is committed to making health care more affordable and accessible to its associates and the community. In order to achieve this, the company brought down health insurance premiums for its employees as of January 2006 as well as training these employees on healthy lifestyles. The organization is also committed to establishing clinics in the communities in order to make health care more accessible.
The company is dedicated to providing competitive wages to its employees. It also established a People group which is working on standardizing wages for employees; both part time and full time members of the staff. The corporation is also lobbying in the Congress to increase the minimum wage in order to ease the financial pressures on employees, their families, and customers.
Another important priority for the Wal-Mart Corporation is the communities where its stores are based. The corporation has established Corporate Affairs’ offices in many major markets in order to address community issues. There is also a constant dialogue between the corporation and the local communities on matters of local business partnerships. The corporation is also building stores in markets that correspond to the architectural design of the local market.
The last priority discussed by Lee Scott in his address was diversity. The corporation aims to be a global benchmark when it comes to diversifying in terms of products, markets, employees, and business partners. The corporation aims to increase the number of women employees as well as minorities in its stores.
Wal-Mart also aims at establishing a precedent by engaging in partnerships with minority businesses in order to increase their bottom line as well as expand their businesses further. He further pledged to promote transparency of its hiring policies by providing some information on genders and races of its employees to the public on a regular purpose.
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Initiatives Outlined in the Supplemental Benefits Documentation
The Board of Directors of Wal-Mart received the Supplemental Benefits Documentation at the retreat in 2005. The initiatives outlined in a document were in an effort to show the board that the corporation’s efforts to revise its benefits strategy. These initiatives have been developed using these three points in mind:
- trends in cost;
- how the public views the company, and
- employee satisfaction (Davis et al, 2009).
The initiatives are deemed as limited risk initiatives meant to increase the associate satisfaction as well as reducing costs for the corporation. They include:
- reassess and restructure the requirements for health insurance eligibility for associates;
- equip associates with the information about how to use health insurance;
- provide a variety of benefits for the associates;
- utilize diverse care management protocols;
- subsidization of the employees’ spouses should be significantly decreased;
- increasing the number of health clinics in the stores;
- the savings accrued from these and other such initiatives will be used to increase the productivity of labor;
- put more efforts into improving provider networks.
Recent Wal-Mart Initiatives from Standpoint of Strategy and PR
There are various strategic initiatives that Wal-Mart is currently implementing in order to retain its global market share. One initiative is by partnering with companies that are already recognized globally. For instance, Wal-Mart has partnered with McDonalds, a global restaurant franchise, with many Wal-Mart stores having a McDonald’s restaurant inside. The company has also engaged partnerships with movie and music corporations in order to promote its brand. A customer can get exclusive promotions on movie and music premiers (Quinn, 2000).
Another strategy that the company is implementing is branching out into new retail sectors. The corporation has branched out into automotive repairs, grocery and pharmaceutical retailing. It is in accordance with the founder’s, Sam Walton, philosophy. Once the organization has been able to expand geographically then it should start branching out to new products to sell.
Once Wal-Mart establishes a new store in a new area, its main goal is to compete with the incumbent firms. Its aggressive product promotion in these new markets literally pushes out the competitors from the market. Once the corporation dominates the market, it sets out to diversify its products to meet the needs of that particular market.
The company aims to improve its reputation with its customers by positive rebranding of its corporate image. It has invested heavily in advertisements on newspapers, cable networks, and the Internet. Most of these advertisements have Wal-Mart employees emphasizing that the corporation is built on family values. It means that Wal-Mart views its employees as a part of the family. It goes to reassure the customers that they are dealing with a reputable company. Another key feature of these advertisements is the theme “Low Prices Always”.
Another PR initiative by the company is funding several charities that include the Children’s Miracle Network and the United Way. It is in a bid to show customers that the organization cares for the welfare of the community.
Aggressive hospitality is a common term used in relation with the Wal-Mart Corporation. All stores have door greeters that greet each and every customer that walks into the store. Sundown rule is where every member of staff of the corporation is mandated to answer any queries from suppliers and customers within 24 hours. The Ten Foot Rule stipulates that store associates need to greet and address a customer who is within ten feet of them.
The document was leaked to the public by the press. It has caused a considerable damage to the company’s reputation. The initiatives were viewed by the public as a way to reign in health care expenses. It is actually reported that Susan Chambers recommended that the company reduces its 401(k) contributions.
The public also got to learn the company is targeting younger employees being perceived to be healthier. The executive vice president noted in the memo submitted to the Board that older employees are paid more even though their productivity is lower than part time workers or those who have recently joined the corporation. It was seen as a ploy by the corporation to push out senior workers from its workforce.
In addition to this, Chambers also suggested that all interviews include some physical activity in order to determine if an applicant is healthy. She also pointed out that most of Wal-Mart employees have obesity related issues and tend to overuse emergency medical services which is costly for the company. She also made an observation that these associates are the least productive and that they are interested in having longer careers at Wal-Mart which will further diminish the bottom line of the company.
Wal-Mart’s reputation suffered severely with the leaking of the memo. Chambers’ statements revealed a lack of morale and integrity when dealing with its employees. The lackluster handling of the health care of its employees tainted the corporation’s image (Wal-Mart Press Release, 2007).
Strategic Social Challenges Facing Wal-Mart
There are certain social challenges that can break or make the company in terms of reputation. These issues include off shoring, safety of products, obesity, race, and privacy. The repercussions of mishandling such sensitive issues can be extensive even for such global corporations such as Wal-Mart. However, if handled correctly, the company can carve out new markets and generate more revenues (Bonini, Mendonca, & Oppenheim, 2006).
Most of these corporations including Wal-Mart are unable to deal with these challenges effectively. There are several reasons attributed to this current situation. They include: the lack of in-depth knowledge of the issues; prioritizing short term financial goals over long term sustainability, and delegating the issues to public affairs departments.
There are various strategic social challenges that the company is constantly battling with. One social challenge that Wal-Mart is facing is obesity. Being the largest retailer in the U.S., the company has come under a lot of pressure in what it is doing to fight obesity. For strategic purposes, the organization decided to sell foods that have less fats and less sugar.
Another way that the company is helping to reduce obesity in the country is by using the Great for You logo. This label is meant to assist customers in selecting the right and healthy products for them. The label was released in 2011. It is a great strategy especially in low income neighborhoods where people cannot afford fresh food every single day.
Another social challenge that Wal-Mart is currently facing is off-shoring. In order to provide discounted prices for its products and still maintain accruing profits, Wal-Mart has shifted its sourcing from America to overseas where the cost of production is lower. It has led to many major companies doing the same. Off-shoring of this magnitude has triggered for many suppliers and producers in the U.S. to lose their jobs. It has led to a huge uproar from all sectors not excluding the government and other lobbyists about the soaring unemployment rates in America.
In order to curb the unrest, Wal-Mart unleashed a vigorous campaign on how to bring back jobs to America. The strategy is known as conscience capitalism; and it involves employing more than thousands of employees especially veterans. It will be achieved by reinvesting in the U.S. manufacturing sector. In 2013, the corporation promised to buy over $50 billion worth of the U.S. manufactured goods.
The company has also been constantly blamed for the lack of innovation in America. Wal-Mart is an enormous purchaser of goods and purchasing goods from abroad left many suppliers without enough resources to conduct a proper research into new products. The company is now also determined to foster the innovation in America by financing the research into new products.
Are Issues Facing Wal-Mart Now Evident in the 2003 Case Study?
According to Ghemawat, Bradley, and Mark (2003), Wal-Mart is number one in the Fortune 500 companies and generates one of the highest revenues of multinational corporations. However, the issues that the company was facing in 2003 when the case study was being undertaken still arise.
In February 2014, the company declared a 20% decline in gross profits. It is probably the biggest drop it experienced in the last decade; and the decline could not be attributed to the financial economic crisis of 2008.
The decrease was attributed to a number of issues. The expiration of a boost in food stamps on November 1 of the previous year has led to the decline in the disposable income of more than 43% of the corporation’s customers. Most of customers at Wal-Mart and its employees depend on these food stamps and the expiration of the boost meant that most of them could not afford to shop at Wal-Mart. It happens despite the reduced cost of products in the stores.
In addition to this, the company is still dealing with law suits lodged against it by union members about minimum wages. Wal-Mart employees live below the poverty line. They are among the lowest paid workers of any private company. In addition to this, the organization is still being criticized for its relentless efforts to stop the unionization of its employees. The competition for market shares continues to grow with expansion of grocers’ businesses as well as dollar stores. Other challenges that the organization faces include higher taxes as well as bad weather. They make it nearly impossible for customers to access the stores.
For several years now, Wal-Mart has been accused of being one of the biggest causes of unemployment in the U.S. It is because most of products it sells are made overseas due to the low costs of production in other countries such as China. Many suppliers in the U.S. have gone out of business. Meanwhile others have simply turned into sweatshops because suppliers have to find a way to meet the low cost demands of Wal-Mart.
Recently, the company came under attack due to its new uniform policy. The corporation requires all staff members to purchase new uniforms that match the company’s logo. This new directive has led thousands of employees to protest. Most of these workers survive on food stamps and live below the poverty line. Having to buy an outfit for $50 is just another financial burden that they are not able to deal with. The uproar continued when it was discovered that the corporation would rake in over $100 million from the sales of these uniforms to the associates. All of the company’s competitors do not require their employees to purchase uniforms. These are usually provided by the organization themselves. In addition to this, the associates do not see any need to wear these uniforms because customers automatically recognize that they are employees of Wal-Mart.