Wal-Mart Organization Strategy 1

Wal-Mart Organization Strategy

FIN/370

Wal-Mart Organization Strategy 2

Organization Strategy Paper
Affordable prices, quality products, and competitive prices is what makes Wal-Mart the
leading retailer industry in the country today. To achieve desired business goals the Walmart
organization practices strategic planning processes that defines advantages or developments
within the companys goals and expectations. Presently the Walmart organization has considered
expanding the company operations; however, the company has three options to consider before
the expansion takes place. These options include selling more stock, bonds, and merging with
another organization. Without growth, success cannot be achieved. Growth is the ultimate goal
of organizations. Growth benefits organizations in that it; funds new projects, increases market
share and consumer awareness, attracts bright new minds, enhances the ability to develop new
ideas and ultimately leads to financial success. Growth in an organization can occur naturally,
but most often is created.
The Wal-Mart Corporation must compare and contrast and make a recommendation
about which strategy the organization must choose in making the best decisions. By doing this
the organization must consider the following strengths and weaknesses, opportunities, threats,
and effects of globalization.
The Merger Option
In contrast to selling stock or issuing bonds to raise capital, merging with another
company enables firms to acquire less debt, and retain more equity. Investopedia (2012)
explains merger as The combining of two companies, generally by offering the stockholders of
one company securities in the acquiring company in exchange for surrender of their stock (Para.
A merger action can benefit both firms as one may be in a negative financial position, and the
other is working with positive financial data to support the effort. In this way a company, such
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as Wal-Mart, does not incur any added debt, does not relinquish any stock shares to outside
interest, and saves on interest expense. Therefore, the profitability of the firm is not
compromised translating to positive dividends for shareholders, and the capital structure of the
firm remains balanced and not over-burdened with debt. Wal-Marts debt ratio for 2012 is 61%
(Wal-Mart Annual Report, 2012). This is a high debt ratio and merging with another company
will allow growth without further debt.
A merger strategy for Wal-Mart at this time is beneficial in the short-term as well as the
long-run financially. In a similar initiative in 2011, Wal-Mart considered a growth strategy
through merger. When describing the advantages of Wal-Mart merging/acquiring the Rite-Aid
company, In the Markets (2011) stated, Buying the chain would boost Wal-Marts revenues
overnight. As for that New York strategy, Rite Aid has 62 stores in Queens, 57 in Brooklyn, 41
in the Bronx, 34 in Manhattan and four on Staten Island. Many of its 4,700 stores nationwide are
in dense urban areas that would fit with Wal-Marts growth hopes (Para. 9). With this angle,
the company may have reduced risk for increased debt, strengthened the current shareholders
position, and increases sales in the short term. This strategy would have enabled an immediate
increase in sales with an increase market share in certain areas. This merger did not transpire, but
the strategy is clear. A merger would produces immediate activity supporting future long-term
strategies without any new debt or interest rate risk. Though mergers are usually strengthen the
two companies, there are also a few weaknesses attributed with combining two companies.
Sometimes when organizations merge, the public views it as one strong company and one
fledgling company coming together. This is definitely not the case with Wal-Mart. Wal-Mart
must not lose its identity even through a merger. They must continue to do what made them
successful. Another weakness that exists in merging is communication. Both parties must be on
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the same page and ready to compromise if needed to best support both companies. If
communication is lacking, it is very hard for any partnership to experience success.
Bonds
A Bond by definition are A type of debt or a long-term promissory note, issued by the
borrower, promising to pay its holder a predetermined and fixed amount of interest each year
(Keown et al., 2011, p. 224). For Wal-Mart they need the bonds to sell or exchange. Without
bonds to sell or exchange, Wal-Mart would be forced to operate each store on their actual
individual liquid assets. Investors can keep a company, even the size of Wal-Mart, running
through the sale or trading of bonds for a longer period. The extended time period give the bond
holder a better payout in the end.
Selling more Stock
Wal-Mart can gain capital for their expansion by selling more stock. There are two kinds
of stock they can sell preferred stock and common stock. Common stock would be a good
choice for Wal-Mart because they are in good financial health. They can keep dividends low and
what they pay out could be cheaper than the interest rates on borrowed money from a bank. To
have low dividends on the common stock organizations must attract investors with profitability.
Once the stock gets to a certain price Walmart can split giving the investors more shares of the
organization (About.com, 2012).
Preferred stock will set the dividends paid out no matter the financial health of the
company. Selling preferred stock will raise capital but could cost more for the organization other
methods of raising capital. The dividends may be lower than common stock, however they are
guaranteed to that investor before any other stock dividends are paid.
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In conclusion, after comparing, and contrasting Wal-Marts options for success in
expansion selling more stock is the best option. Selling more stock will help Walmart to gain
capital for their expansion considering the companys strengths and weaknesses, opportunities,
threats, and effects of globalization. Walmarts initial public offering will allow the public to
purchase shares in a company permissible for the company to increase the companys revenue.
Walmarts previous IOP only allow investors, board members, executives, and employees.
Therefore, choosing to sell more stock to gain capital will help the Walmart Corporation to
increasing revenue need for a successful expansion (Newton 1999-2012).















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References:
Walmart stores, 2012 annual report retrieved August 13, 2012, from
http://www.walmartstores.com/sites/annual-report/2012/history.aspx
Newton, C 1999-2012, How to Sell Stock after the IPO, retrieved August 13.2012 from
http://www.ehow.com/how_12109150_sell-stock-after-ipo.html

Investopedia (2012), Merger, retrieved August 13, 2012
http://www.investopedia.com/terms/m/merger.asp#axzz23U2T4fJA