Wal-Mart Mexico Case Study

INTRODUCTION

The present case discusses the success story of Wal-Mart in Mexico. Wal-Mart started its international operations in 1991. Its first venture was in Mexico, through a 50/50 joint venture with Cifra, Mexico's then leading retail store; to form Mexico's first Sam's Club, a subsidiary of Wal-Mart, which was later renamed to Wal-Mart de Mexico, when Wal-Mart purchased enough shares to have a controlling interest in Cifra by 1997. Once Wal-Mart started growing in Mexico, the management created the Wal-Mart International Division in 1993. Wal-Mart has expanded internationally to nine countries through new-store constructions and acquisitions. Wal-Mart's formula for success is its 'Every Day Low Pricing'. Wal-Mart's unique distribution system, centrally located warehouses, self-owned fleet or logistics partner were other reasons why Wal-Mart dominated the retail market in Mexico in a short span. Wal-Mart uses an advanced information system that informs suppliers when purchases have been made and when Wal-Mart will be ordering more merchandise.

In 2001, Wal-Mart became the largest company in the world, with sales of $217.8 million and a work-force of 1.3 million people in 3,300 facilities throughout the world. Few challenges that Wal-Mart faced in Mexico were import charges on the goods sold, logistic problems due to poor road conditions and scarcity of delivery trucks and cultural clashes between the Arkansas and the local Mexican managers. Some of these problems were solved by trial and error, while some by NAFTA's reduced tariff policy, which ensured that Wal-Mart would compete with the top retailers in Mexico. Due to decreasing market share, Comerci - a leading retail store in Mexico, formed Sinergia - a purchasing consortium with Soriana & Gigante. Sinergia initially faced rejection from CoFeCo (Mexico Federal Competition Commission) but later on the consortium was approved. Sinergia is a representative body with no assets, and its purchases are only limited to local suppliers, hence its future is uncertain. Now Comerci is faced with the question of what will its strategy, to compete with Wal-Mart, be.

PROBLEM DEFINITION

Comerci is faced with possible extinction, due to Wal-Mart's aggressive entry into the Mexican retail market. In 2004, Comerci's market share dropped by 15%. Comerci's management must decide if Comerci's participation with the purchasing consortium Sinergia will be sufficient to compete with Wal-Mart and if it will be able to withstand the rising pressure from its rival and negotiate better bulk prices from suppliers. Sinergia's current purchases are limited to only the local suppliers and they haven't been able to spread their ground yet.

ANALYSIS

Comerci got into collaboration