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WALMART OPERATING IN ASIA: IN THE CONTEXT OF CHINA, INDIA AND JAPAN

INTRODUCTION

Walmart is the leading grocery retailer in the World. The success of company results from not only domestic market dominance but also the efforts in global expanding aggressively. The company had wide and deep vision when considered East Asia as an integral component of the global production network. In addition, the liberalisation in trade barriers and investment incentives in Asia have shown a positive signal for foreign MNCs. Therefore, Asian expansion became the strategic choice.

The aim of this essay was to illustrate the Walmart success in overall and to discuss the prospects of China, India, and Japan in detail. The essay was divided into 3 parts. The first part represented a brief introduction to the Walmart’s business as a whole; the next part focused on analysing the strategy in Asian operations and the final one emphasised on potential threats and responsiveness to those threats.

DISCUSSIONS

The first sessions gave Insights to Walmart’s business. As Walmart is the largest international retailer in the World (Global Powers Report, 2013) and also ranked 1 st place in the 500 Fortunes Company List (Fortune Magazine, 2013) with approximate Total Revenue of US$ 470 billion. The company was founded in 1962 by Sam Walton and has developed amazingly over the past 5 decades. One of the reasons that lead to the company’s success is the concept “Every Day Low Prices” slogan that has been kept solidly from the very beginning, which attracts consumers, especially in these economically difficult times.

Since the mid-1980s, Walmart’s prosperity had begun, the number of stores had escalated to 882 and the company became the US retail market leader in 1990; however, abroad expansion was only started until 1991. The first expansion of this Multinational Corporation came to Central and South America, then into Europe and Asia. Nowadays, it is estimated to have 11,000 stores in 27 countries under 55 names, in Asia, the total stores takes up to 851 stores in 3 countries, which are China, India and Japan (Figure 1, Walmart Annual Report,

2013).

The company has different store setups Walmart US, Sam’s Club and Walmart International. The formats of these portions are discount department stores, neighbourhood supermarkets, superstores or the neighbourhood supermarkets (Sam’s Club) (Euromonitor, 2013).

Walmart not only provides products with comparatively low and reasonable price, it also brings a seamless experience to customers, they are either enormous variety of product ranges from creatively effective production network or innovations like online shopping or mobile check-out through the efforts of investments in technology. The aim of business is to bring the customer satisfaction in terms of pricing, convenience and joyful since Walmart has full awareness that it customers are people from middle-class income society, who have high burdens on budget and tense considerations on product choices.

Although profits generating heavily on US market, Asian business still has certain contributions to the company development. The aggressive new stores establishing in markets like emerging China’s, developed Japan’s and new and potential India’s shows the ambition of being dominant and firmly sustainable in the long-run. The Figure 2 shows a upward trend of Walmart International sectors in 10 years.

The second session analysed Strategy of Walmart in 3 Asian countries including China, Japan and India.
The second session analysed Strategy of Walmart in 3 Asian countries including China, Japan and India.

The second session analysed Strategy of Walmart in 3 Asian countries including China, Japan and India. This session covered up the motives of internationalisation, how Walmart entered the markets, reasons of choosing these countries and the organization of production network as well as other business activities.

  • - Motives of internationalisation

Pull Factors and Push Factors contributed to the decision of expanding abroad to Asian countries of Walmart (Johnson and Turner, 2003 and Treadgold and Davies, 1988). According to the authors, the push factors or reactive reason are the drives happening within the home country, which result in finding for international opportunities. Pull factors or proactive reasons are appealing conditions in foreign countries that attract firms to do cross-border business.

One of the push factors that made Walmart went abroad was the implicit risks caused from highly depending on domestic market. Economic downturn, political issues, and uncertainty in external environment may affect the consumption and create profit decrease. Furthermore, Whitehead (1992) and Alexander (1990) indicated the effects of market saturation. Since US grocery retail industry has been very saturated, high competitive, uncertain and sophisticated; Walmart’s responded by doing foreign business in other to sustain in the long-run.

In terms of pull factors, Dunning (1994) pointed out 4 factors to explain the cross-border business action. Firstly, as mentioned, the high dependence on domestic market can cause risks. Therefore, Walmart needed to look for efficiency through diversifying business globally both to reduce risks and to be beneficial from economy of scale. Secondly, in terms of global expansion context, Carrefour, Walmart‘s largest rival, was the faster mover experienced since 1973 (Carrefour History, 2013). As a result, Walmart concerned market related factors and executed internationalisation to emerging or large markets to avoid left behind. Griffin and Pustay (2007) also highlighted the impacts of competitive forces on internationalisation. Thirdly, Walmart competes on price, cost reduction is vital; seeking for countries having cheaper resources of labour force, supplies, etc. is advantageous for business. Fourthly, Global Expansion helps build global branding awareness, which creates foothold in customer’s minds. Moreover, the argument of higher expected profitability was also given by Williams (1992). From the above discussions, the outstanding markets to be most attractive and proper with Walmart’s motives were Japan, China and India.

This part explained how Walmart entered China, India and Japan through chosen strategies and entry mode.

  • - Chosen strategies to compete in Asian economy

Expanding to unfamiliar markets with cultural distances, different political, economic and social themes caused difficulties. By scanning the industry and analysing by Porter’s 5 Forces, Walmart could construct critical adaptions for doing business. When expanded to Asia, the company was fully aware of fierce competition within the industry, the competitors Walmart have faced not only strong MNCs like Carrefour, Tesco, etc but also local rivals like local retailers, traditional markets, and small household businesses. In India, 90% of US$500 billion of retail market was captured by business so-called “mom and pop stores” (Reuters, 2013). In addition, customer’s switching cost is 0, any provider have lower price would result in lack of customer’s loyalty. Furthermore, emerging markets like China and India have had high value in retailing sector that indicates potential exploitation for new entrants. Maintaining knit and tight relationships with suppliers was momentous because of pricing factors, the power of Walmart’s suppliers have always been strong. However, substitution seemed unclear since buying grocery is obviously significant.

From the above discussion, wise strategic decisions were necessary for long-term sustainability of Walmart. In terms of global expansion, Walmart adapted localization strategy. In details, due to the industry characteristic selling commodity products to satisfy universal needs, Walmart always uses price as a competitive weapon. Therefore, the cost reduction is too vital to sustain, which means high cost reduction pressure is considerable. Moreover, as different countries have variety of preferences; as a result, high local responsiveness in terms of the in house R&D, marketing, production, products serving and distributions shall be implemented to adapt the local people’s needs.

Walmart also applied the best cost leadership strategy, which provided products with comparatively low price and best customer values as it had made the reputation for the company. However, Walmart did have certain extent of differentiation (George, 2007).

  • - Entry mode

In general, the entrant of Walmart in Asian markets was quite similar in different countries. In early stage, China and India’s governments had applied restriction to foreign operations, which required carrying out joint-venture with a company (Ball et all, 2007). However, in the later liberalization, these countries lessened the barriers, and Walmart did not hesitate to employ acquisition to take over the ownership and control of a local retailer over time, Walmart possessed wholly-owned company with less time consuming, immediately grabbing market share, lowering risks and reducing competition within the industry.

In 1996, Walmart entered China through a joint-venture agreement and opened its first supercentre and Sam’s Club in Shenzhen, a special economic zone, an area had preferential tax treatments and proposed special policies to attract FDI (Tseng and Zebregs, 2002). From 2007 to 2012, the acquisition of local retailer Trust-Mart was completed, which pushed Walmart to be the leader in retailing market (Gerreffi and Ong, 2007). Walmart’s establishment e-commerce headquarters in Shanghai in 2011 and 51% stake ownership of Yihaodian (an e-commerce business) showed its ambition to occupy the online commercial market.

The entrant of Walmart in was quite similar to China; in 2002, the company purchased 37% stake of Seiyu, a successful Japanese retailer, to start the business in this nation. In 2008, Seiyu were listed as wholly-owned subsidiary of Walmart even though the business brand name was retained.

Much the same to China, India operations was established in 2007 through a joint venture agreement with Bharti Enterprises, which was considered as a forced partnership as Walmart

had to transfer its expertise and technology under the pressure of policymaker’s constraint in retail sector (ABC News, 2007). However, the 2012’s new regulations allowed Walmart purchasing all the stake of Bharti so that it could build greater presence and inaugurate solely in this Asia’s third largest economy (Forbes, 2013).

The next part illustrated the attractiveness of given Asian countries to explain the Walmart’s selection. While China and India showed potential appeals in terms of market size, economic and population. The matured retail industry in Japan was somewhat attractive to Walmart’s expansion.

  • - China and India

Both China and India have had significant growth in economies in recent years. Figure 3 illustrated the sharp increase in GDP of those countries. In addition China and India were ranked at first and second place in the World’s Population with 1,384,694,199 and 1,255,720 people respectively (WPR, 2013). These factors proposed huge potential to gain greater profit returns; thus, these nations became Walmart’s choices.

Moreover, both countries applied liberalized economic reforms that started since 1970s in China and later India followed in 1990s; these programmes transformed the economies dramatically. In China, retail sector competitiveness, economies of scale in not only state enterprises but also the private sector escalated progressively. The transitions from state- owned stores to new shopping centres, hypermarkets demonstrated optimistic signals to retailers like Walmart (Farhoodmand, 2006). India’s and China’s participation to WTO in 1995 and 2001 opened new opportunities for company in term of reduction of quotas, tariffs, and corporate tax; repatriation of revenue to home country (WTO, 2013).

  • - Japan

A high income-level country with developed infrastructures like Japan was also brought higher expectation of consumer purchasing power and larger sales

The second session’s latest illustration was ability to organizing production network and business activities of Walmart

The second session’s latest illustration was ability to organizing production network and business activities of Walmart in Asian economies. Walmart built its production network through variety of operational and business activities in Asian market. In China, Walmart utilized offshore sourcing approach in its host country, which performed manufacturing and assembling to export products back to United States.

Moreover, production network organizing was carried out through localizing sourcing activities help slash out the delivery cost (Gereffi and ng, 2007). A simultaneous application of cross-docking technique and global procurement centres centralizing sourcing working contributed to higher efficiency and boosted economies of scale (Lin and Liang, 2007, Chuang et al, 2011). Marketing practices were promoting message of serving lowest price but highest customer-value added, Human Resource activities included not only caring to customers with open atmosphere but also employee’s career concerns like training and profit- sharing. Technology was strongly invested to emphasize the e-commerce and data gathering, which helped accelerating stock-turnover. By implementing those business practices, Walmart have succeeded significantly and had foothold in the home countries’ market.

The final session of this essay clarified the threats that Walmart have faced during its operations. Both China’s and India’s business shared similar risks, which were income

disparity in rural and urban areas, too burdened protectionism for local company, lack of developed infrastructure (Lin and Liang, 2007). Bureaucratic red tape, approval processes were difficult in China, a lot of cost-requiring and inefficiency caused from sophisticated procedures also involved. Unfamiliar store format like hypermarket and conceptual Walmart’s tradition “Everyday Low Prices” seemed unattractive and insufficient since cultural platforms of Chinese were instinctive saving and frequent purchasing (The City Wire, 2013). In India, too many manor languages and energy related issues like power and cold-storage system were complexities to deal. To overcome these hardships and dilemmas, Walmart had to put large efforts on adapting consumers’ preferences, which are sourcing local but American base brands to ensure the product quality, practising Corporate Social Responsibility locally. Conduct and prolonging relationships with local suppliers and authorities were critical to maintain business sustainability (Ball et all, 2007).

Besides, Walmart’s problematic constraints in Japan were personal interaction influencing on business, high labour cost, multi-layer distribution system, and its partner Seiyu’s debts before joining with Walmart. However, Walmart’s efforts adapting to Cultural differences, applying past-time hiring regime and early retire encouragement as long as the strong capital base helped to some extent reduced the problems

CONCLUSION

In conclusion, Walmart has always been the largest retailer in the World with outstanding success not only in United States but also outside the nation’s barrier. In Asia, Walmart has gained substantial achievements in terms of global expansion thanks to the rational market selection, proper strategy appliance and flexibility in organizing production network. Although Walmart’s operations in China, India, and Japan have faced threats to be harmful to the business, Walmart’s wise strategic application and experiences generated from others countries may help overcome the obstacles.

In recommendation for Walmart, the company should not eager to expand aggressively but constitute adequate and competent structures as solid premises for future. Furthermore, absolutely solving the present matters will help avoid unexpected consequences and intricate circumstances.

(2299 words)