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 Waltons U.S. model didnt 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 Sams Clubs
throughout the country:
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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
Chinas entry into the WTO in 2001 changes this; however
the lift of regulations were not always enforced.

Technology
Lack of infrastructure support to:
Utilize Walmarts 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 - Walmarts 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)
Walmarts 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 - Walmarts Weaknesses
Political and legal challenges
Supply chain and distribution challenges/shrinkage
Unpredictable market patterns
Aversion to any kind of union


Environmental Audit - Walmarts Opportunities
Worlds 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 - Walmarts 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 1990s
Major Competitors
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 dont 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.
Chinas strict limitations on where and how many stores could be
opened
Local protectionism
Chinas 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
Chinas
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
Walmarts 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 Sams
Clubs throughout the country:
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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
Im 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