Wal-Mart, Mexico, and NAFTA Was NAFTA the Essay

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Wal-Mart, Mexico, and NAFTA

Was NAFTA the reason for Wal-Mart's success in Mexico or was it Wal-Mart's new competitive strategy? Wal-Mart's generic competitive strategy is clearly that of a 'low price' model in all nations where the retailer is located. It sells a seemingly infinite amount of goods and services in an undifferentiated fashion. The main reason that consumers go to Wal-Mart is because of its prices. Wal-Mart claims to offer one-stop shopping with the lowest prices a consumer can find in the area. Without offering such low prices, the store has little traction in the market, given that other retailers offer a more expansive product line of specific items, offer specific special deals, and offer greater prestige to the customer in terms of store name. NAFTA (The North American Free Trade Agreement) marked a watershed in Wal-Mart's relationship with Mexico. Today, Wal-Mart is the largest private employer in Mexico and claims 55% of that nation's retail market.

It is true that Wal-Mart has undeniably created certain advantages for itself not directly bestowed by NAFTA. It has taken advantage of Mexico's lower labor and operational costs by basing its operations within that nation, transplanted its use of close supplier relationships to keep inventories in line with customer needs to Mexico, and made effective use of its distribution center model in Mexico.

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The latter is linked to Mexican participation in GATT rather than NAFTA.

However, the critical aspect of Wal-Mart's success is still linked to the fact that after the passage of NAFTA and subsequent tariff reductions, Mexican retailers could offer more American consumer imports at a cheaper price to Mexican consumers. Greater bargaining between suppliers drove down costs, and because of its ability to operate on an economy of scale, Wal-Mart, unlike smaller Mexican retailers, could pass these savings on to the consumer.

Cost is often king when it comes to selling virtually any and every item to consumers, other than specifically 'luxury'-branded goods or highly specialized items (such as gluten-free bread for consumers with celiac disease, or specially designed shoes for serious athletes). Wal-Mart was, because of NAFTA's impact on the competition between suppliers and its sheer size, was finally….....

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