The Great Wal-Mart of

China

Roll no.
3211-3288
Regulations in Retail Industry in China
o Pre-2004:
 Before July 1992, foreign investment was totally
prohibited in retail and wholesale industry in China.
 In July 1992, the government allowed investment in
retailing through joint-ventures in a few cities and
special economic zones.
Regulations in Retail Industry in China
 In June 1995, the retail and wholesale sectors were
listed in directory for foreign investment.
 By 1996, the government had approved upto 300 joint
ventures in the retail sector.
 In June 1999, the central government issued more
liberalized rules on foreign investment and retailing.
Regulations in Retail Industry in China
These rules permitted foreign retailers to set up joint
venture, co-operative retail or wholesale companies.
The Chinese partners had to have a minimum stake of
51% in the JVs.
Franchising was prohibited.
JVs weren’t allowed to act as commodity import or
export agents.
Regulations in Retail Industry in China
Post 2004:
Foreign retailers were allowed to wholly own
subsidiaries.
Locational restrictions were abolished.
Restriction on the number of stores was lifted.
Minimum criteria on sales, capital or assets was lifted.
Regulations in Retail Industry in China
 Export import restrictions were relaxed.

Retailers were allowed to operate distribution

activities.
Impact of Regulations on the Retail Industry
Pre 2004, because of severe restrictions, the growth of
the retail industry was stunted.
The retail sector was completely dominated by
domestic retailers.
Consumers did not have access to a large variety of
goods at low prices as Chinese firms weren’t
streamlined.
Impact of Regulations on the Retail Industry
Post 2004, the foreign investments were relaxed, thus
giving rise to the number of foreign companies
entering the Chinese retail industry.
As of 2004, the Chinese retail market was estimated to
be worth $240 Billion and by 2005, it was estimated at
$277 Billion.
35 of the world’s top 50 retailers were conducting
business in China, but foreign retailers held just 2.6%
of the country’s retail market in 2004.
Entry and Expansion Strategies of Wal-Mart
in China
In August 1996, Wal-Mart started its operations in
China at Shenzhen.
Wal-Mart decided to enter south China first as it felt
that the customers there were keen to have a retail
shopping experience.
Also, the city government had agreed to provide Wal-
Mart with preferential tax treatment.
Entry and Expansion Strategies of Wal-Mart
in China
Its first store in Shenzhen was very successful, its sales
were $120.8 million in the first year.
In 1998, Wal-Mart established 4 development centers
to direct the overall development across the country.
In 1999, Wal-Mart ranked ninth among China’s
retailers.
In April 2000, Wal-Mart opened its first super center
in north China in Dalian.
By the end of 2000, Wal-Mart’s investment in China
was more than RMB 900 million.
Entry and Expansion Strategies of Wal-Mart
in China
In October 2002, Wal-Mart entered into a joint
venture called Wal-Mart East China Stores Co. with
CITIC.
The first store of this venture opened in Nanjing,
marking the expansion of Wal-Mart from south to east
China.
By 2004, Wal-Mart had invested around RMB 1.6
billion in China and established 45 stores.
Entry and Expansion Strategies of Wal-Mart
in

China
In July 2005, Wal-Mart opened its 48 store in
th

Shanghai, a market that was extremely competitive

and saturated.
Wal-Mart decided to locate its Super Centre on
the outskirts of Shanghai city, which proved to be a
good strategy. The store received thousands of
shoppers from the city as well as from nearby
provinces.
In the next phase, the company planned to open a
centre in the western region of the country,
thereby fulfilling the government’s ambitions to
develop this region.
Pros of Entry and Expansion Strategies of
Wal-Mart in China
Wal-Mart entered with its first super center in south
China , a region where the people were ready to have a
retail shopping experience.
The strategy of EDLP appealed to Chinese masses as
they were primarily middle-class.
Specifically for Shanghai, Wal-Mart set up its store
outside Shanghai as the city was saturated with
competition by other retailers; and at the same time
attracted customers from nearby semi-urban areas.
Cons of Entry and Expansion Strategies of
Wal-Mart in China
The Chinese market wasn’t ready for store formats like
Sam’s Club, a fact that the Wal-Mart management
failed to foresee.
Wal-Mart was obsessed with low prices causing
problems to its local suppliers.
Wal-Mart did not have country-wide distribution
network.
Localization Strategies
Procurement and Distribution:
 Wal-Mart focused on increasing local
procurement.
 They maintained satisfactory supplier relationship
by paying the supplier within 3-7 days.
 They established modern commodity distribution
centers and computerized its management to
improve its efficiency.
 Almost 97% of the goods in Chinese stores were
sourced from within the country.
Localization Strategies
Store Management:
 When Wal-Mart started its operations in 1996, it had a
completely American workforce.
 By 2004, 99% of its work-force and many of its
managers were local Chinese people.
 Associates in China were dressed in red colored
uniform to cater to Chinese fondness of the color.
 The stores in China also had Lantern Festivals.
Localization Strategies
Store Management:
 Associates used clamor to attract the attention of the
Chinese consumers towards a stack of goods by re-
stacking goods noisily.
 Wal-Mart changed the lay-out of its stores to cater to
the local customers.
 They started bus services for its local customers to
make it more convenient to take non-perishables in
bulk.
 They allotted space for groups from local area schools
for cultural performance.