LUMINITA TANASE 1. Do you recommend Brazil or China as the first international foray for WalMart?
Give your quantitative reasons but also your beliefs on why you think one is better than the other. I recommend to WalMart to expand to Brazil. The Brazilian business environment is as rich and varied as the country itself with a population of about 190 Million, a territory that can fit the whole USA minus Alaska. Even though China’s population is bigger than Brazil’s, and a huge supply of low-cost workers, mainland China has fast become the world’s manufacturing workshop, supplying everything from textile to toys to computer chips. I believe Brazil can provide better market opportunities than China. The quantitative reasons for moving WalMart to Brazil are: - Biggest aerospace power of the southern hemisphere - Biggest fixed line telephone market of Latin America - 3rd in the world in the aircraft industry - 3rd biggest global steel‐making power - 3rd in the world computer market - 4th biggest TV network in the world - 5th biggest mobile phone market. - 7th biggest manufacturer of cars in the world car - 8th world oil power - 10th world producer of capital goods. I think Brazil is a better choice for Wal-Mart’s first international foray because of language which is one way of many dimensions of communication. There are many skills important for bridging cultural differences and communication gaps. When it comes to dealing with USA companies Brazil people have a huge lead on Chinese in many aspects such as:
• • • •
Body language / facial expressions – much easier to understand and follow Overall presentation skills Understanding of professional lingo Grasp on general rules of professional communications and office etiquette
With communications being one of the most important aspects of majority outsourcing initiatives Brazil have a huge lead on China. Brazil is in the top 10 of most industries in the world and the high literacy rate good educational system creates a sound foundation for future developments. 2. Management must decide where the company wants to be positioned with regard to value and cost. Provide quantitative comparative information for the two countries. Brazil Salaries: Operations manager: 159.0 % of US
Source: PayScale, Sourcingline, March 2010 Real Estate: Office occupancy costs (CBD): 84.6 $/sf/yr Source: CB Richard Ellis, Colliers International, SourcingLine, March 2010 Real Estate: Office occupancy costs (suburbs): 63.8 $/sf/yr Source: Colliers International, SourcingLine, March 2010 Taxes: Corporate tax rates: 34.0 % Source: KPMG, October 2009 Taxes: Indirect tax rates: 19.0 % Source: KPMG, October 2009 Taxes: SMB effective tax rates: 69.0 % Source: Doing Business (World Bank), 2010 China Salaries: Operations manager: 133.0 % of US Source: PayScale, Sourcingline, March 2010 Salaries: Customer service representative: 40.0 % of US Source: PayScale, Sourcingline, March 2010 Real Estate: Office occupancy costs (CBD): 47.5 $/sf/yr Source: CB Richard Ellis, Colliers International, SourcingLine, March 2010 Real Estate: Office occupancy costs (suburbs): 31.8 $/sf/yr Source: Colliers International, SourcingLine, March 2010 Taxes: Corporate tax rates: 25.0 % Source: KPMG, October 2009 Taxes: Indirect tax rates: 17.0 % Source: KPMG, October 2009
Taxes: SMB effective tax rates: 63.5 % Source: Doing Business (World Bank), 2010 Value outweighs cost. Companies that use foraying have realized that the supplier enters their value chain and becomes a critical part of what is delivered to the end client at the top of that chain. Price certainly matters to customers, but it is not always the most important factor in a decision. There are other attributes and benefits that a retailer can offer and make it more valuable to the customer and thus able to be sold for a higher price. Since WalMart isn’t selling the exact same products as its local competitor, its strategy is a combination of differentiation and low-cost. WalMart needs to provide low prices to customers as part of their strategy and to operate less inexpensively by producing at low cost and still retain reasonable margins. 3. Pick a position in the market place that is viable in the sense that there is enough demand for the types of items that they sell(high end, middle, low end) Maintaining lower prices, Wal-Mart will continue to deliver increasing value to customers, striving off competition and increasing brand equity. Furthermore, as Wal-Mart’s own operational costs increase year of year (utilities, payroll, equipment, etc) it must look for increasing concessions from suppliers to maintain lower prices and profitability. In order to maintain a price leadership strategy, particularly one of EDLP, Wal-Mart must be able to still make a profit. WalMart needs to work with its suppliers to reduce costs as far down as possible. By working with suppliers to cut costs, Wal-Mart is able to advertise, make payroll and otherwise pay for operations while remain profitable, and thus increasing value of its shares. When launching in a new country, companies look for target segments that are under served. WalMart as in the USA may want to look to the rural market as under serviced, lacking low price retailers carrying a wide array of department store-style inventory. This allowed Wal-Mart to capture the rural market and then parlay that to small town and cities and eventually into urban areas. 4. Configure internal operations so that they support that position. What are the 4 key considerations to you that need to be addressed? To maintain its strategy of low-cost and value to the customers, Wal-Mart needs to address the state of the economy, the cultural differences and product mix, the logistics & distribution, and competition. First, it needs to focus on the current state of the economy. Although the current state of the Brazilian economy could be characterized stable as compared, the future outlook of the economy does not provide any guaranties on a long-term basis. Second, WalMart needs to consider the cultural differences. Brazilian retail consumers consider product quality the most important factor in the decision-making process of purchasing, followed by product price, customer service, store cleanliness, and store distance. The product mix in Wal-Mart’s supercenters should be as close to reflecting the needs of Brazilian consumers as possible. Offering products popular in the
United States such as golf equipment, vacuum cleaners for garden leaves, American footballs, and food grinders shows complete ignorance to Brazilian consumers since they have little or no use for these items. Third, WalMart needs to consider the logistics and distribution. Brazilian suppliers are covering behind their U.S. counterparts in logistics technology, thus making computerized inventory management systems useless. Constant traffic jams present another major obstacle to consistency and predictability in supply. Fourth, WalMart needs to consider local competition. Competition is increasing everywhere, and all to the benefit of end-consumers. Many retailers are focused on expansion into different retail formats with the purpose of targeting different customer segments. Increasing the number of stores across the country is another way WalMart compete in Brazil. However Wal-Mart, “price wars” are the most visible effects of fierce competition. 5. Make sure that the firm has the right organization structure in place to execute its strategy. Be sure to include the links to the U.S. headquarters. Develop an organization chart to support the new venture and explain why you designed it like that.
1. http://www.terratechnology.com/suppliers-use-wal-mart-s-vmi-to-become-demanddriven/Suppliers: Use Wal–Mart’s VMI To Become Demand Driven