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Human Resources Management

Global Management (Wal-Mart) Case Study

Prepared by Matthew Bennett

Presented to Professor Dr. Scoburg

MBA - Strategic Human Resources Management

July 11, 2011

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Brief Analysis

You can’t sustain the name as the largest retailer if you don’t become the dominant

retailer in a country that houses more than a quarter of the world’s people. For Wal-Mart success

in China is not an option and dedication to the matter is almost euphoric. However, business and

human resource strategies were widely a failure of adaption and innovation. The following will

give context into this matter as a case study for the success of Wal-Mart, and any organization in

this same scenario, in international adaptation.

Major Issues

Worker Population

The ability of Wal-Mart to find talent within the industry was scarce at best. One study

found, only 10% of Chinese university graduates) were employable in multinational organizations

because of deficiencies in language, interpersonal skills, ability to work in teams, and basic

literacy (Mello, p. 622, 2011). Even though Wal-Mart paid very well by China’s standards and

compared to competition, such as paying employees 13 months of salary and a cash bonus at

Chinese New Year, appropriate workers were scarce.

Unions and Politics

China’s communist government had difficult politics to maneuver which directly

impacted Wal-Mart’s ability to create an actionable business plan. In 2001, China joined the

World Trade Organization - it eliminated the requirement of foreign companies taking ownership

shares with state-owned partners (Mello, p. 622, 2011). However, the one exception to this

requirement was chain stores that held more than 30 locations (i.e. Wal-Mart).
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As the case study mentions, the culture of Wal-Mart (and Sam Walton himself) was to

close a store rather than allow it be “unionized” (Farhoomand, 2006). However, the All-China

Federation of Trade Unions (ACFTU) was not an independent organization. The ACFTU is one

and the same with the Communist Party of China (Kolben, 2007). The reason behind this

structure: worker happiness directly results in the stability of political power.

On November 22, 2004 – less than a month after ACFTU “blacklisted” status – Wal-Mart

publicly commended associates requesting the formation of a union. In addition, during 2007

China passed a new law on employment that places stricter requirements on employers to have

written employment contracts, and provides for collective bargaining between the union and

employers, and for consultation with unions on certain workplace issues, such as layoffs

(Standing Comm, 2007).

Defeat
Q

In 2006, Wal-Mart separated themselves of stores in Germany and South Korea, citing

lack of market penetration in each case; as of 2006, China operations were break-even. Pressures

from China’s Communist Party to curb inflation harshly, increase worker compensations through

unions, and create competition through an approval process can make for a good excuse to

shareholders of the need to divest in China as well after a decade of operations; however, the

brand-name would be severely tarnished.

Alternative Courses

Ironically, Wal-Mart’s success came from finding an open market in rural, backwater

towns that other retailers cited as too costly – but in China, Germany, South Korea, and others -

they took the populated per km strategy. Furthermore, after a series of defeats Wal-Mart took the
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popular (large corporation) marketing method of mergers and acquisitions; in 2006, Wal-Mart

purchased the chain of 100 “hypermarkets” in China (Blecher, 2008).

Recommendation

Worker Population

The key difference in China is Wal-Mart’s strategy to gain traction with their middle-

class which is a premium compared to low-price shoppers in the United States. Add to this the

red-tape obstacles of location approvals Wal-Mart and other retailers must acquire it would be

wise to acquire competitors at a high premium and amortize the cost on the balance sheet.

The problem regarding talent and demographics is typical of a developing nation and to

donate to the community to promote such talent (instead of paying high costs for re-locations) is

a better choice. In November 2004 Wal-Mart did just that, donating $5 billion to Tsinghua
)
University to establish China's first-ever institute for retailing research.

Unions and Politics

Wal-Mart was able to side-step any harsh critics with the reply that it was China (through

the ACFTU) that mandated/conceded unionization of workers and not itself. By mid-October all

66 Chinese Wal-Mart locations were unionized (Lague, 2006). Similar to – but still harsher than

- Germany’s and Canada’s labor laws, China’s government stance on unions had a dictatorship

feel backing its goals. Wal-Mart’s only option was to succeed or be made an example of union

policy in China.

Concede

In 2007, the largest and most important expansion effort by Wal-Mart in China to date

has been its 33% purchase of Taiwanese retailer Trust-Mart (Bounteous) for US $1 billion;
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Trust-Mart operates under the same name (Gereffi & Ong, 2007). Wal-Mart’s financial

statements have operating income at ~$4 billion consistently for the last 3 years (i.e. no net

growth) while at the same time consolidates operations into International and United States – so

it is extremely difficult to show operations in different regions of the world. Thus concession is

not a viable recommendation without data but it would be a useful tactic against unions if

needed.

Conclusion

Management's mistake was to implement a successful U.S. business formula in Germany

without paying any attention to local idiosyncrasies. As such anti-trust lawyers banned its

practice of luring consumers with price-dumping, while Germany's stringent laws governing

opening hours meant stores couldn't stay open too long (Schultz, 2006).

)
Concurrently, Wal-Mart was only successful in the United Kingdom because it was

birthed from an acquisition. Wal-Mart finally learned from its consistent mistakes of monopoly

farce in Germany and South Korea (and possibly China) by looking to buyout competitors; a

tactic they are looking at in Russia. A prominent analyst of Wal-Mart (China) sums it up best:

"This is just 1 percent of what they need to do," Svinos at KPMG said of their stake in Trust-

Mart. "They need to create a critical mass and build a credible presence in the Chinese market."
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References

Blecher, M. (2008). WHEN WAL-MART WIMPED OUT. Critical Asian Studies, 40(2), 263-

276. doi:10.1080/14672710802076796

David, Lague. Official union in China says all Wal-Marts are organized,” New York Times, 13

October 2006. http://www.atlantic-times.com/archive_detail.php?recordID=615

Gereffi, G., & Ong, R. (2007). Wal-Mart in China: Can the World's Largest Retailer Succeed in

the World's Most Populous Market?. Harvard Asia Pacific Review, 9(1), 46-49.

Retrieved from EBSCOhost.

Kolben, K. (2007). WAL-MART IS COMING, BUT IT'S NOT ALL BAD: WAL-MART AND

LABOR RIGHTS IN ITS INTERNATIONAL SUBSIDIARIES. UCLA Journal of

International Law & Foreign Affairs, 12(2),

) 275-332. Retrieved from EBSCOhost.

Kozloff, E. P., & Gordon, I. J. (2002). Building The Great Wal★Mart of China. In , White Book

- Building The Great Wal-Mart of China (pp. 1-23). Bernstein Global Wealth

Management. Retrieved from EBSCOhost.

Mello, Jeffrey. 2011. Strategic Management of Human Resources, 3rd edition. South-Western

Cengage Learning.

Schultz, Harald. This Is Not America. Why Wal-Mart left Germany.

“Wal-Mart sets up 19 trade unions in Chinese outlets,” People’s Daily, 19 August

2006.
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Standing Comm, Nat'l People's Cong, on June 29, 2007, effective Jan, 1, 2008) (P,R,C,)

available at

http://al2.mofcom.gov.cn/aarticle/chinalaw/humanresource/200712/20071205270196.htm