You are on page 1of 30

WALMART IN CHINA

Strategic Business Analysis
GB580-02N: Strategic Management
Team D: Yvonne Blankenship, Cindy Sterrett, Catherine Tedrick, Lisa Whaley and John Wheeler
Kaplan University
August 23, 2011

Introduction
Sam Walton’s U.S. model didn’t fit well in China
due to issues with:
– Local Protectionism
– Infrastructure
– Technology
– Consumer habits and
Chinese culture
Walmart in China
Today, China has 223 Wal-Mart Super Stores and 5 Sam’s Clubs
throughout the country:
[5]
[4]
[8]
[1]
[7, 2]
[2]
[8]
[18]
[10]
[14]
[13, 1]
[4]
[4]
[5]
[12]
[12]
[13]
[10]
[9]
[6]
[10]
[3]
[38, 2]
[7]
[2]
Local Protectionism
Chinese government restricts expansion
of foreign retailers
– Limit cities that can have retail stores
– Limit number of stores in a city
Taxes and fees
– Local government keeps
percentage of tax revenue
– Unregulated toll charges cities’ roads
– Inconsistent enforcement of laws
Infrastructure
Transportation challenges
– Infrastructure protects local interests
– Difficulty with customs
Regional consumption
– Regulatory control of retail and
agricultural products.
Geographical expansion
– Initial government restrictions caused
Walmart to stay within south China
– China’s entry into the WTO in 2001 changes this; however
the lift of regulations were not always enforced.

Technology
Lack of infrastructure support to:
– Utilize Walmart’s high-tech merchandise tracking
– Have distribution centers within one day drive of stores
Walmart stores sprawled
across the country
– Difficult to
communicate with
local suppliers
– Orders were placed
by fax


Chinese Culture
Chinese prefer to shop
daily for fresh foods.
– Live animals
– More trips with
smaller purchases
– Very poor use stores
as “destination”
Labor laws require unions
Shoplifting laws not enforced
– Consumers AND employees
Environmental Audit - Walmart’s Strengths
Strong Business Model
– Successfully duplicated in Canada, Britain and Mexico
Technological Capabilities
– Reduces supplier shrinkage and internal costs
– Stores order from distribution centers located within one days drive
Strong Supply Chain Experience
– Strong negotiations
– Purchasing in large quantities
– Localizing supply source
Strong Financials
– Averages $413/sf
store space in U.S.

Operating Information of Walmart Stores
1970 to 2005 (in Million US$)
Wang & Farhoomand (2006)
Walmart’s External Value Chain
Walmart
Stores
Walmart
online
Walmart
Corporate
Maximizing Strategic
Capabilities
Advertising
Agencies
Computers,
Systems,
Programs
Suppliers
Government
Regulation,
Relationships
Engineering,
Construction
Companies
Customers
Environmental Audit - Walmart’s Weaknesses
Political and legal challenges
Supply chain and distribution challenges/shrinkage
Unpredictable market patterns
Aversion to any kind of union


Environmental Audit - Walmart’s Opportunities
World’s Most Populous Consumer Market
Population of 1.3 Billion
Improvement in the General Business Atmosphere
Non-State Enterprises = 72.6% of Consumer Goods Sold
Retail Market Growth in China
1980 to 2003
Wang & Farhoomand (2006)
Environmental Audit - Walmart’s Threats
Vast Size in Land and
Population
Continually Operates in Red
Intensifying Competition
Local Protectionism
Income Disparity


Three Chinas – Regional Income Disparity


Wang & Farhoomand (2006)
Strategic Analysis - Competitive Rivalry
Walmart made many attempts to enter competition
in China during the 1990’s
Major Competitor’s
– Carrefour from France
– Lotus from Thailand
– Tesco from UK
– Metro from Germany
Local stores
– Regional allegiance
– Learn from foreign
stores
 Technology
 Distribution

Major Foreign Chain Stores in 2004

Wang & Farhoomand (2006)
Strategic Analysis - Power of Customers
American Shopper v. Chinese Shopper
– Arrive in cars
– Impulse shoppers
– Shop to shop
Severe income disparity
– Rural areas tend be low
income who only shop for
necessities
– Mid to upper income live
in more urban communities


– Arrive on foot or bikes
– Shop with plans
– Visit stores for leisure
Strategic Analysis - Power of Suppliers
Suppliers have regional allegiances and far
more bargaining power
Multiple suppliers are needed due to
regional buying patterns
Lack of IT network and developed roads
slowed the supply chain process
Government regulations don’t allow for
local distribution centers

Strategic Analysis - New Market Entrant
Barriers to entry that Walmart faced were:
– Strict Chinese government regulations on competition to protect
domestic companies.
– China’s strict limitations on where and how many stores could be
opened
– Local protectionism
– China’s underdeveloped
infrastructure – both through
roadways and technology
Product & Technology Development
Largest barrier for Walmart entering China was lack of
technology and an IT Network
– Regulatory ban on use of satellite
– No web-based system for contacting their 15,000 suppliers
EDLP
Level of Product Differentiation
Transportation

Global Analysis - Home Country
Walmart opened its first store in 1962
founded on the principle of discounting
Opened stores in small rural towns
Every Day Low Prices model
Three cardinal beliefs:
– Provide great customer service
– Show respect for the individual
– Strive for excellence


Global Analysis - Customer Country
Three Chinas
2002
1
population and GDP per capita in China by
autonomous region, municipality, and province



Income disparity and
regional divisions of wealth
Three Chinas
– Coastal Region has wealthiest
citizens; 482 M population
– Interior Region has nearly




Wang & Farhoomand (2006)
Carrefour and Walmart
China Store Map in 2005

Global Analysis - Competitor Country
Walmart biggest competitor in China is Carrefour
– Used target marketing – focus on urban areas
– Utilizing local suppliers
Walmart failed to duplicate
domestic model
Cultural differences
Difficult to fully assess
Chinese companies
– Walmart China Operating Strategy
 Local Sourcing
 Local Talent Development
 Corporate Responsibility
 Community Involvement

Global Analysis - Partner Country
Walmart has established itself as a good citizen in China
China has been trading partners with Walmart for years
Growing economy

Global Analysis - Supplier Country
In 2001, State Council prohibited local protectionism from
interfering in the fair and orderly market system
Foreign Constraints on retail operations in China
In 2005, Walmart opened up 2 more distribution centers

Obstacles to Global Strategy
Obstacles to
Overcome
Cultural
Influence
Obtaining
Market
Information
Strategic
Positioning
Company
Location
Role of Local
Partners
Foreign
Negotiation
Process
China’s
Policies
Recommendations
Culture
IT
Infrastructure
Corporate Responsibility


Recommendations
Do we want to use any of this language or should we toss this
slide?
Conclusion
Walmart was able to overcome the following challenges
– Government protectionism at the country, province and local level
– Chinese government had strict regulations on use of technology
Technology restrictions
– Satellite usage impaired
Walmart used alternative business model
Walmart’s Potential Capabilities
Potential
Capabilities
IT Management
Innovation
Inventory
Control
Understand Target
Market
Efficient
relationships
with suppliers
Walmart in China
In the future, China could have 377 Wal-Mart Super Stores and 15 Sam’s
Clubs throughout the country:
[9,1]
[7]
[11,1]
[4]
[11, 2]
[3]
[13,1]
[26,1]
[14]
[20,2]
[21, 1]
[10,1]
[11,1]
[15]
[20]
[22]
[13]
[17,1]
[16]
[10]
[15]
[5,1]
[47, 2]
[23]
[3]
[2]
[2]
[2]
[2]
[3]
References
Wang, I., & Farhoomand, A. (2006). Walmart Stores: "Every Day Low Prices" in China. Hong Kong, China: Asia Case Research
Centre, The University of Hong Kong.

Still need to add these in
References
I’m still working on sources all the photos:
S1. Walmart China Employees (2011). Retrieved from www.mingtiandi.com/real-estate/20110401/Walmart-joins-retailer-
migration-into-china-real-estate/
S2. Sam Walton (2004). Retrieved from www.businessweek.com/magazine/content/04_32/b3895024_mz072.htm
S3. City Walmart (2010). Retrieved from www.bnet.com/blog/retail-stores/walmarts-huge-overseas-expansion-distracts-from-its-
domestic-saturation-problem/402
8S4. Walmart Truck (2010). Retrieved from www.sixthsigma.com/2010/02/walmart-green-supply-chain-will-target.htm
S5. Map of China(2011). Retrieved from www.Walmartchina.com/english/walmart/wminchina_map.htm
S6. Frogs & Turtles. Retrieved from http://www.hollywoodgrind.com/walmart-items-only-sold-in-china/ on 8/22/11
S10. Chinese Associates Union (2010). Retrieved from http://chinadigitaltimes.net/china/labor-unions/
S16. Chinese Road, Photographer Andy Yleung. Retrieved from
www.flickr.com/photos/30010486@N06/sets/72157622361194363/ on 8/22/11
S17. Satellite (2010). Retrieved from http://www.psfk.com/2010/11/monocolumn-china-versus-usa-in-the-satellite-wars.html
S20. Walmart Stores Retrieved from www.walmart.com on 8/22/11

S__. Distribution Center(2002). Retrieved from http://carsdiecasttoys.blogspot.com/2009_02_12_archive.html