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Running head: EXTERNAL ENVIRONMENTAL ANALYSIS
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Executive summary
The paper starts by introducing the topic and explaining how it affects businesses. It proceeds
with a highlight about the company’s background. It highlights issues of economic, political,
regulatory and legal, societal, technological, and environmental factors and trends. The paper
further addresses the issues of current external environment and uses five forces analysis by
EXTERNAL ENVIRONMENTAL ANALYSIS-WAL-MART CORPORATION
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Porter (2008) on the same. The five forces highlighted include supplier power, buyer power,
threats of new entrants, competitive rivalry, and threats of substitution.
Introduction
External environmental environment analysis highlights information regarding a
business's political, industry, competition, and social settings. These factors influence the
business although they are out of its control. For example, when a new political party takes
power and amends regulations, which may in turn require the company to spend in new assets or
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modify its products. Another example is the change of customer’s base due to changing
demographics, trends and needs such as an aging population. Managers of businesses need to be
conscious of these situations in order to take full advantage of opportunities and reduce the
impact of threats.
Information gathering can be done through scanning and general surveillance to identify
early signs of changes; monitoring and close consideration to particular developments; and
follow actions of rivals through competitive Intelligence. There are two areas of analysis namely,
general and competitive environment. General environment comprise as economic, political,
regulatory and legal, societal, technological, and environmental factors and trends (Becher,
2005). On the other hand, competitive environment include Porter Five-Forces concept to
determine the attractiveness of an industry, business key success factors, competitive changes in
times of industrial evolution, strategic groups and national competitive advantage.
Wal-Mart Corporation is a retail store chain that is headquartered in the US and with
many domestic and international stores. Its mission is to help its targeted audience to save money
so they can live better. Its goal is to be an international brand while the vision entails working
together to lower costs. Wal-Mart corporation target customer includes persons with modest
incomes and shoppers sensitive in prices although the target base is continually changing as the
environment dictates. Its main competitors include Target, Amazon, Costco, Home depot,
Kroger, Staples, and Office depot among others. The company’s focus is to offer the best value
to customers for the lowest price.
External environmental scan/five forces analysis
Assessment of external factors applying five forces
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Michael Porter (2008), five forces tool is a primary yet dominant tool to understand
where power lies in a business situation. It assists to understand existing competitive strength
and possible strength of the envisioned position (Porter, 1996). Knowledge and clarity of
strength in a competitive situation will help Wal-Mart to take advantage of its strength and
modify weak areas.
Supplier power
This assesses the ability of Wal-Mart suppliers to drive up price. Abilities of these
suppliers to influence Wal-Mart will be influenced by the number of providers on key inputs,
distinctiveness of their products, and the sunk cost. The few the supplier alternatives for WalMart the more the balance of power incline in favor of suppliers. The number and size of
suppliers for Wal-Mart is large both domestic and internationally and provide goods for mass
market. Wal-Mart has the agility and flexibility, and it can easily move from one supplier or
brand to another. Its turnover is big and enjoys huge economies of scale which can easily attract
any potential supplier. Its many stores provide it with an advantage in regard to appeal for
potential business partners. Wal-Mart has continued to enhance introduction of private label, and
this pushes power in its favor.
Buyer power
It refers to the ease for purchasers to force prices down. Factors persuading this include
number of buyers, value of individual buyers, and cost to switch to others. Wal-Mart transacts
with many buyers and it has a distinct value proposition. Although the price is a key factor for
most Wal-Mart customers, it is attracting customers who are not entirely price sensitive but are
seeking convenience and quality. Buyers are located within proximity, and who runs into
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millions hence their individual acts may not drastically influence the power. It is therefore clear
that the balance of power lies with Wal-Mart.
Competitive rivalry
This aspect revolves around the numbers and capabilities of rivals. Target, Amazon,
Costco, Home depot, Kroger, Staples, and Office depot are some of the principal competitors for
Wal-Mart Corporation. These competitors offer equally attractive products and even at
competitive prices. This scenario implies that customers can easily change allegiance if they do
not get expected value from Wal-Mart. The move to global markets is mainly influenced by
domestic competition. Wal-Mart has been received well in international markets especially
Canada, and this sounds well for the company. Wal-Mart has a strong customer loyalty base in
spite of the low degree of product differentiation in the industry. This in essence reduces the
intensity in competition. Wal-Mart has sustained its competitiveness through innovation in
products and systems as a means of reducing prices and increasing efficiency.
Threats of substitution
Online platforms, neighborhood retail shops, mom and dad stores provide alternatives
options for Wal-Mart customers. Most buyers are flexible and can move to other options easily
without adjustment cost or significant inconvenience. Its products are not vastly differentiated
and switching information is readily available. This setting gives the balance of power skewed in
favor of consumers and the industry.
Threats of new entrants
Generally, new entrants change the industry environment. High returns in an industry
attract new players and accordingly affect the profitability. Existing players and industry
formation can obstruct new player’s entry through patents, rights, and resource requirements.
The retail industry is a high obstacle and low exit sector making it good for existing players but a
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challenge for new players. Wal-Mart has a strong brand name and has considerable economies of
scale. New entrants will face significant challenges of access to the distribution network, sunk
costs, resource requirements, faithful existing customers, small profit margins, cost
disadvantages, and government policies. The current environment favors Wal-Mart.
Political factors
Refer to how and to what level an administration intervenes in the economy. This may
include tax guidelines, labor regulations, tariffs, environmental law, trade restrictions, and
political stability (Thompson et al, 2011). They may also entail goods and services which the
administration needs or does not need. The government ensures competitive tax regimes for
enterprises. There are several trade restrictions and tariffs to protect local industries. Wal-Mart
imports many items from cheaper and competitive production destinations. There are strong
workers unions and consumer organizations that consistently protect workers and consumers
respectively. Recently trends show a move towards a sensitive population in regard to the
environment. Many laws are legislated to protect the environment from landfills and other
environmental hazards.
Economic factors
Comprise economic growth, exchange rates, interest rates, and the inflation rate. For
example, interest rates influence a company’s cost of capital and hence growth and expansion of
business. Foreign exchange rates influence the costs of exports goods and price of imported
goods in an economy. Wal-Mart operations depend heavily on imports from competitive sources.
Social factors
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Embrace the cultural aspects that include health awareness, population growth, age range,
and emphasis on safety. Trends in social aspects shape the demand for a company's products and
services. For instance, an ageing American population may imply a smaller labor force hence
increasing the cost of labor. In addition, Wal-Mart may adjust strategies in marketing to adapt to
these social trends.
Technological factors
Entail environmental aspects, such as R&D functions, computerization, and technology
inducements. They can influence, minimum efficient production level, systems competitiveness
and persuade outsourcing decisions (Barney, 1991). Further, its changes can affect expenditures,
quality, and innovation. Logistical functions at Wal-Mart heavily rely on technology.
Classification
Opportunities
 Huge potential market in Asia and
other emerging economies.
 One stop shopping preference by
shoppers
 Increase in liberalized economies and
investment friendly destinations
 Adaption and embrace of strategic
alliances such as acquisitions and
integration
 Internalization of markets
 Enhancement of e-commerce
Threats
 Emerging new retail shopping concepts
 Exposed to competitions
 political challenges, cultural and
practice divergences
 Intense price rivalries
 Large international competitors in
global scale
 Slow economic growth
 Instabilities in some strategic markets
such as in the middle East
References
Barney, J.B., (1991), Firm Resources and Sustained Competitive Advantage. Journal of
Management; 17, (1), pp.99–120
Becher, J. D. (2005). Operational alignment: Bridging the gap between strategy and
EXTERNAL ENVIRONMENTAL ANALYSIS-WAL-MART CORPORATION
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execution. Business Performance Management Magazine, 3(1), 11.
Michael E. Porter. (2008). "The Five Competitive Forces that Shape Strategy", Harvard Business
Review, January 2008, p. 86-104
Porter, M. (1996). What is strategy? Harvard Business Review 74(6), 61–78.
Thompson, A., Peteraf, M., Gamble, J., & Strickland, A.J. (2011). Crafting and executing
strategy: The quest for competitive advantage: Concepts and cases. (18th ed.) New
York: McGraw-Hill.