Walmart’s Success with Nafta

According to Porter’s National competitiveness theory, there are four determinants of national competitive advantage. These include; factor conditions, demand conditions, supporting industries and firm strategy.

Factor Conditions  

Walmart’s success with NAFTA partners, Canada and Mexico can be firstly examined through its factor conditions. Entering both countries through joint ventures, Walmart was able to take advantage of cheap land. Likewise, in both Canada and Mexico, Walmart was also able to obtain low-cost laborers and therefore allowing it’s firm’s strategy to carry on

However, when Walmart expanded to Germany and Japan through joint ventures again, it was no longer able to take advantage of low-cost labourer because wages were higher and all real estate development was costlier than North America.

Demand Conditions

Walmart’s success with NAFTA partners was done through successful joint ventures with existing companies within each country that already had a base of customers that matched the type of customers Walmart was looking for. Unfortunately, when it expanded to Europe and Japan,

Supporting Industries

Walmart’s success with NAFTA partners can be explained by Porter’s double diamond, which suggest that firms don’t have to go far to get needed resources because they can rely on neighbouring countries. Walmart relied on its USA suppliers to deliver products for the Canadian and Mexican market in the same efficient way it was doing in America.

Unfortunately, when Walmart expanded to Europe and Japan it had to compete with already established local firms that already offered low prices and Walmart wasn’t able to achieve local economies of scale. Walmart’s supply chain and value-added chain were not strong enough to compete with local competitors.

Firm strategy

Walmart’s scale strategy is based on reduction of costs, physical growth and market coverage. This strategy was successful in Canada and Mexico because it was able to buy cheap land and expand. It was also successful because it was able to rely on existing US suppliers to supply products to neighbouring countries at similar prices, which allowed it to continue offering low prices.

This strategy was not successful in Europe or Japan because expansion was more expensive, labor was more expensive, and there were local competitors that were already able to provide high quality products at low prices, therefore Walmart no longer had its competitive advantage.

FSA/CSA

Moreover, in North America, Walmart had both firm-specific-advantage(FSA) and country-specific-advantage (CSA). Walmart’s FSA is their supply chain and ability to reduce cost, which allows them to offer high quality products at low prices while their CSA is being able to take advantage of low-cost areas with cheaper real estate and low-cost labor. However, by expanding to Europe and Japan, it loses its country specific advantage because of the different cost-structure in these areas that I’ve mention above.