1. MGMT3275 International Management
Dr. Victor Z. Chen (
UNC Charlotte
Course website:

2. Examining an MNE’s competitive advantages

3. A successful business model ?
Competitive advantages:
1. Everyday Low Prices (EDLP), through aggressive bargaining with suppliers (and non-unionized employees)
Acc UBS, 14% lower than its rivals
2. Zoning: efficient distribution system and inventory control
3% saving per item in purchasing costs due to logistics
Retail Link satellite/computer system, a $4 billion investment
Each store is within a day’s drive of a distribution centre, which supplies 85% of inventory (compared to 50%-60% for competitors)
Super-large market construction in suburban areas.
3. Unique culture (Walmart Cheer)
Sam Walton’s three key principles:
To respect the individual
To provide superior customer service (e.g., 24-hour service; free bags; helping bag/load purchases)
To strive for excellence
Sundown Rule: all concerns be addressed on the day of occurrence
Critics:
Low salaries of its employees: $18,000 per year in 2002 (<Porto Rico; <1/2 USA GDP per capita).
Highly publicized legal suits concerning its hiring practices
Charges of failing to pay overtime
Underpaying hourly workers
Sexual discrimination (women make up 70% of store workers but 10% of management)
Non-compliance with the Americans with Disabilities Act.
‘Locking in’ overnight workers
Conspiring with cleaning contractors to underpay immigrant workers

4. A successful business model?
Competitive advantages?
Everyday Low Prices (EDLP), through aggressive bargaining with suppliers (and non-unionized employees) (with critics)
Zoning: efficient distribution system and inventory control
3% saving per item in purchasing costs due to logistics
Retail Link satellite/computer system, a $4 billion investment
Each store is within a day’s drive of a distribution centre, which supplies 85% of inventory (compared to 50%-60% for competitors)
Super-large market construction in suburban areas.
Unique culture
Sam Walton’s three key principles:
To respect the individual
To provide superior customer service (e.g., 24-hour service; free bags; helping bag purchases)
To strive for excellence
Sundown Rule: all concerns be addressed on the day of occurrence
Stringent zoning requirements
Price regulations
Limited store hours; cultural differences, etc.
Labor relations

5. Decomposing an MNE’s competitive advantages
1. Country-specific or firm-specific advantages (CSA/FSA)?
2. For each CSA, is it bounded by particular market characteristics, e.g., geography, demography, cultures, economics, regulatory and political institutions?
3. For each FSA, is it bounded by particular market characteristics, e.g., geography, demography, cultures, economics, regulatory and political institutions?

6. CSA/FSA Matrix by Alan Rugman
Firm-specific advantages (FSAs): a unique capability proprietary to the organization
It may be built upon product- or process technology, marketing- or distributional skills.
Country-specific advantages (CSAs) – home countries: country factors, which are shared by all home competitors and thus not unique about an organization
Natural resource endowments (minerals, energy and forests), the labor force and associated cultural factors, etc.

7. From a home-country perspective: The FSA-CSA matrix

8. Restructuring

9. Decomposing an MNE’s competitive advantages
1. Country-specific or firm-specific advantages (CSA/FSA)?
2. For each CSA, is it bounded by particular market characteristics, e.g., geography, demography, cultures, economics, regulatory and political institutions?
3. For each FSA, is it bounded by particular market characteristics, e.g., geography, demography, cultures, economics, regulatory and political institutions?

10. A successful business model ?
Competitive advantages:
1. Everyday Low Prices (EDLP), through aggressive bargaining with suppliers (and non-unionized employees)
Acc UBS, 14% lower than its rivals
2. Zoning: efficient distribution system and inventory control
3% saving per item in purchasing costs due to logistics
Retail Link satellite/computer system, a $4 billion investment
Each store is within a day’s drive of a distribution centre, which supplies 85% of inventory (compared to 50%-60% for competitors)
Super-large market construction in suburban areas.
3. Unique culture (Walmart Cheer)
Sam Walton’s three key principles:
To respect the individual
To provide superior customer service (e.g., 24-hour service; free bags; helping bag/load purchases)
To strive for excellence
Sundown Rule: all concerns be addressed on the day of occurrence
Critics:
Low salaries of its employees: $18,000 per year in 2002 (<Porto Rico; <1/2 USA GDP per capita).
Highly publicized legal suits concerning its hiring practices
Charges of failing to pay overtime
Underpaying hourly workers
Sexual discrimination (women make up 70% of store workers but 10% of management)
Non-compliance with the Americans with Disabilities Act.
‘Locking in’ overnight workers
Conspiring with cleaning contractors to underpay immigrant workers

11. Decomposing these advantages into CSA/FSA table
Geographic boundedness
Demographic boundedness
Sociocultural boundedness
Financial/economic boundedness
Legal/political boundedness
Other boundedness
CSAs 1 2 3 …
FSAs

12. Wal-Mart in CSA/FSA Geographic boundedness Demographic boundedness
Geographic boundedness
Demographic boundedness
Sociocultural boundedness
Financial/economic boundedness
Legal/political boundedness
CSA
Suburban Living
Convenient driving
Large consumer demand of lower to middle class
Large space
Good roads
Large population
Car dependence
Cars are affordable
Purchasing power
Car friendly policies
Open trade
FSA
EDLP
Strong negotiation power over suppliers
Strong negotiation power over labor
Large zoning
Efficient distribution and warehousing centers
Satellite technology
Customer first culture
24-7
Free bags
Easy credit
Bagging purchases
Sundown rule
Large airport centers
Good roads & security
Large population of consumers
Large population of unskilled labor (70% without college degrees)
Skilled labor in SCM
Large population of unskilled labor
Price sensitivity
Impersonal competition
Large load shopping
Anti-shareholder
Working ethics
Service sensitivity
Reliance on credit
Free competition
Unionized labor supply
Cheap land
No price control
No local sourcing regulation
No unionization/low employee protection
Liberalized land-use
No work hour restrictions
No plastic regulations
Liberalized credit market
Low employee protection

13. Wal-Mart in CSA/FSA Geographic boundedness Demographic boundedness
Geographic boundedness
Demographic boundedness
Sociocultural boundedness
Financial/economic boundedness
Legal/political boundedness
CSA
Suburban Living
Convenient driving
Large consumer demand of lower to middle class
Large space
Good roads
Large population
Car dependence
Cars are affordable
Purchasing power
Car friendly policies
Open trade
FSA
EDLP
Strong negotiation power over suppliers
Strong negotiation power over labor
Large zoning
Efficient distribution and warehousing centers
Satellite technology
Customer first culture
24-7
Free bags
Easy credit
Bagging purchases
Sundown rule
Large airport centers
Good roads & security
Large population of consumers
Large population of unskilled labor (70% without college degrees)
Skilled labor in SCM
Large population of unskilled labor
Price sensitivity
Impersonal competition
Large load shopping
Anti-shareholder
Working ethics
Service sensitivity
Reliance on credit
Free competition
Unionized labor supply
Cheap land
No price control
No local sourcing regulation
No unionization/low employee protection
Liberalized land-use
No work hour restrictions
No plastic regulations
Liberalized credit market
Low employee protection

14. German market characteristics
Market concentration in big three (Metro, Aldi, Rewe)
Pricing regulations
Labor unions
Zoning regulations
Working hour regulations
Stigmatizing of US urban images
Customer loyalty to big three
(at the time) Stigmatizing of credit cardholders
No free bags
No touching of paid purchases

15. Discussion Will Wal-Mart succeed in these following countries?
Can Wal-Mart replicate its US advantages there?
What would be the best entry strategy? Wholly- owned acquisition, greenfield start-up, JV & alliance?

16. A few more countries Mexico:
NAFTA (since 1994) allows free competition on price wars.
$5 a day salary for locals
Few drove cars in low-income areas.
High corruption
Source: Alcacer, Agrawal, & Vaish (2017) HBS Case

17. A few more countries Canada:
FTA or later NAFTA (since 1994) allows free competition on price wars.
Plastic bag charges
Main rivals, Zellers (Canada) and Metro (Germany), both very similar in Wal-Mart’s supermarket format, but more expensive.
Target entered in 2011
Source: Alcacer, Agrawal, & Vaish (2017) HBS Case

18. A few more countries Brazil:
Pao de Acucar and Carrefour are active and established
118 Bompreco stores run by struggling Dutch retailer Royal Ahold, mostly in the Northeast
The country’s core economy is in southern markets, where Portuguese retailer Sonae SGPS SA was running 100+ stores but struggling.
Brazilians do not enjoy many popular American sports, such as golf, baseball or football.
Brazilian markets have periodic cycles of discounts and markups.
Driving not popular in low-income areas.
Source: Alcacer, Agrawal, & Vaish (2017) HBS Case

19. A few more countries Argentina:
Carrefour is active and established (since 1982)
Market was already relatively concentrated by large players
Market growth was slow
Source: Alcacer, Agrawal, & Vaish (2017) HBS Case

20. A few more countries Chile: D&S was Chile’s largest food retailer
Home Depot, Carrefour, and J.C. Penny tried and failed, all entered alone without a local partner
One of the freest market in the region
Established credit system, e.g., D&S operated a credit card business.
Source: Alcacer, Agrawal, & Vaish (2017) HBS Case

21. A few more countries China:
Local online shopping and distribution companies, e.g., Alibaba and JD.com, are dominant.
Markets are highly fragmented, with few people driving or communicating for long distance
Thousands of omnipresent mom-and-pop stores that run on thin margins and were willing to cut corners to avoid regulations and taxes.
Chinese in densely populated urban markets drove less and visited the grocery stores more frequently (almost daily), resulting in lower bills per visit but more regular trips.
Ban on free plastic shopping bags for environmental protection.
Stringent food standards and investigations, e.g., ordinary pork vs. organic pork.
Carrefour, Metro, Tesco all established, as well as several Japanese, Korean and Taiwanese retailers, plus hundreds of small family-owned stores, making a incredibly cut-throat competition.
Source: Alcacer, Agrawal, & Vaish (2017) HBS Case

22. A few more countries South Korea: Canadian Makro was struggling
Koreans value luxurious, service-oriented shopping more than low prices.
Koreans expect a great diversity in food and beverages, rather than dry food and general merchandise.
Strong competitive positioning of local players, e.g., Shinsegae, which has established long-term relations with key suppliers.
Source: Alcacer, Agrawal, & Vaish (2017) HBS Case

23. A few more countries Japan:
Even the largest two local retailers, Aeon and Ito-Yokado, were struggling to improve earnings.
Smaller chains like Seiyu were struggling.
Both Carrefour and Tesco tried and exited.
Japanese associate low prices with low quality.
Markets are highly fragmented.
Suppliers are, like in Korea, highly relationship-driven.
Source: Alcacer, Agrawal, & Vaish (2017) HBS Case

24. A few more countries Africa:
Opposition from trade unions for foreign investment.
Foreign investors are bounded by local sourcing and promise to avoid job cuts for two years.
South Africa’s market was concentrated into 3 players (90%), largely limiting local suppliers’ negotiation power.
Lack of proper local infrastructures and transport
High corruption.
Source: Alcacer, Agrawal, & Vaish (2017) HBS Case

25. Belk College of Business UNC Charlotte
Contact
Victor Z. Chen
Belk College of Business
UNC Charlotte
+1 (704)
Course website: