Walmart's Success in Mexico

1. How has the implementation of NAFTA affected Walmart’s success in Mexico?

Walmart’s marketing campaign has been “everyday low prices”. This was not the case in

Mexico prior to NAFTA. Walmart was paying higher tariffs to import American goods.

Once NAFTA was implemented, Mexico became a free trade zone. This made it possible

for Walmart to reduce its tariffs from 10% to 3% creating a level playing field with its

competitors. With the signing of NAFTA, it also opened up the doors to foreign investment

in Mexico. Walmart was also paying huge fees for goods to be shipped from Europe and

Asia into Mexico. Once these companies knew that building manufacturing plants in

Mexico they could keep the costs low by using Mexican labor, they facilitated it. This

allowed Walmart to purchase these products without paying high import tariffs. “NAFTA

resulted in better suppliers due to an increase in competition, competitiveness and efficiency

among the companies in order to gain the trust of their clients. Better supplies also increased

the variety of products available to consumer with wider price ranges, which allowed

Walmart to offer customers better savings and thus increase their purchasing power.

NAFTA also helped Mexico achieve greater economic growth at a lower rate of inflation,

which also added to the purchasing power of consumers.”(Daniel & Radenbaugh, pg. 321)

2. How much of Walmart’s success is due to NAFTA, and how much is due to Walmart’s inherent competitive strategy? In other words, could any other U.S. retailer have the same success in Mexico post-NAFTA, or is Walmart a special case?

Because of the size of Walmart and its buying power, Walmart is able to negotiate pricing

from their suppliers. They work closely on inventory levels using a advance information

system to inform their suppliers when purchases are made and when the next order will be

purchased. This allows their suppliers to plan their production more accurately resulting in

lower production costs, which result in saving costs for Walmart, which is then past down to

the consumer. Their distribution system also helps to reduce expenses.