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Strategy Implementation Wal Mart Case

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Implementation of a new strategy for WalMart in China

Implementation of a new strategy for WalMart in China


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  • Customers High disposable income, Purchasing behavior: few trips, big purchase. Planned purchase. Brand loyalty. Processed food (instead of freshness).
    -competition. Wal-Mart leader in U.S. (80%) -Collaborators.
    Integrated IT systems with Wal-Mart.
    Low bargaining power.
    Partnerships
    Efficient logistics.
    -Context. No union, no legal barriers, well developed infrastructure (roads, ports, warehouses). Authorities support.

    company.
    Strong corporate culture, price & service: low-cost, customer is key.
    EDLP as value proposition
    Very centralized management
    Hypermarkets in small towns

  • -customers:
    Income disparity & consumption pattern: rich urban areas Vs. poor rural areas.
    Purchasing behavior: Many trips, little purchase. Everyday purchases.
    Comparing prices in different shops.        Impulse purchase, swayed by proportional campaigns. Low brand loyalty. Demand for absolute freshness in food. Shoplifting. Police officials pay little attention to complaints.
    -competition.
    Intensified competition
    Local players dominating the market
    EDLP as required value proposition
    Supermarket as the most common format
    -Collaborators. Lack of IT communication with suppliers, making purchasing and distribution difficult.
    -Context. Local Protectionism, barriers to set up stores because of Tax income. illegal Tolls. Lack of geographic freedom to set up the DC. Poor Infrastructure. Labor unions. Tight labor regulation

    -company.
    Strong corporate culture, price & service: low-cost, customer is key.
    EDLP as value proposition
    Very centralized management
    Hypermarkets in big cities

  • We had a problem , but then we had to tackle it, So we used the peterson management decision model to consider which strategic movement should be considered. Since this market is totally new to us, and its booming, there is uncertainty about it. And all the factors we want to overcome, most of them are out of our control. So the best way to prepare for this situation is was to conduct an scenario planning
  • We took some hours to discuss which were the main issues wal mart could face, the main driving forces that could affect Walmart in this situation. We came with Two main axis of uncertinty. Cultural change, which ranges from no adaptation to western culture, to total adaptation. And Foreign business restrictions, which range from liberalization, to increase in restrictions (bolivia)

    For the case of the diminising foreign restrictions, we came with this two scenarios, the one we called I love US, in which chinese people start to addapt their consumer patterns and behaviors to a more western, more american culture, and the one called “Sticking to traditions” in which, even if chinese governemnt allow foreign business to operate with freedom, chinese customers stick with their traditional habits.

    On the side of the increased regulations, we forecasted another two scenarios, The one called “Citizen protest”, in which chinese customer wants the western retailing formats because of their changing habits, but Chinese government makes things difficult, and the “we want you out”, in which both Chinese government and customers dont want Walmart in their land.

    Afther the scenario planning, we analyzed which strategy would fit better with each scenario. We came with the following strategies.

    Exit, since neither government if customers want us, leaving the market would be the best choice in this case

    Being aggresive. Since customers would like to have a western store, but government makes our life harder, in this case we would purchase a chinese company whch were succesfull, and rebrand it.

    Status quo. In case both customers and government wants to be with us, why changing anything. The actual model would work in the main aspects

    Reeducate. In case we can do our business but customers keep their purchasin patterns, naybe an strong marketing campaing could re-educate them
    Adaptation. In this scenario, another option could be to adapt our format to one who fits better with the actual customer needs.
  • We considered the pros and cons of this alternatives, except Status quo, which means to change anything and we now how we are doing with our actual business model.

    For the aggresive alternative, a big pro would be that we would be acuiring a company which is already succesful, on the other side, we have risks of the process and also this could change our business model in china completely.

    For the exit alternative, a pro would be that it takes shor period to implement, and we now how much money we are going to loose, pm the other side, we would loose the chance to be in the future market which is china.

    Reeducate alternative. In this case, the pros would be that we would use our distribution channels, so in case we were succesful, the efficiency we have in the US would remain. On the other side, this is a really long strategy to be succesful, with big potential losses meanwhile
  • So, after analyzing these four scenarios, and with the experience Adrian has in working in china, we concluded that the most feasible scenario would be this (señala low, low). And considering the two alternatives discused before, we decided to implement the Adaptation strategy, because it is aligned with the global strategy of the company, and because of the shorter time frame.
  • Transcript

    • 1. Situation analysis: Wal-Mart in U.S. Company Strong corporate culture: low-cost & customer; EDLP as value proposition; Very centralized management; Hypermarkets mainly in small towns. Customers High disposable income; P. behavior: few trips & big planned purchase; Brand loyalty; Processed food, rather than freshness. Competition Wal-Mart leader in U.S. Collaborators Integrated IT systems with Wal-Mart; Low bargaining power; Partnerships; Efficient logistics. Context No union or legal barriers; Developed infrastructure; Authorities not blocking.
    • 2. Situation analysis: Wal-Mart in China Company Strong corporate culture: low-cost & customer; EDLP as value proposition; Very centralized management; Hypermarkets in big cities. Customers Income disparity & consumption: urban Vs. rural; Purchasing behavior: many trips - little purchase; Comparing prices in different shops; Impulse purchase; Freshness of the food; Shoplifting. Competition Intensified competition; Local players dominating the market; EDLP standard value proposition; Supermarket as the most common format. Collaborators Lack of IT integration with suppliers: purchasing & distribution more difficult. Context Local Protectionism: taxes; Illegal Tolls & lack of geographic freedom; Poor Infrastructure; Labor unions. & tighter labor regulation
    • 3. Peterson, Management decision model Adaptative management Scenario Planning Maximum sustained yield Build resilience uncertainty Controllability Controllable Uncontrollable HighLow What is the next step… Scenario Planning Strategy: defining & implementing it (1/7)
    • 4. Strategy: defining & implementing it Scenario planning (simplified)… Foreign business restrictions Low High HighLow Cultural change EXIT AGRESSIVE RE-EDUCATE ADAPTATION STATUS QUOI love US! Citizen protest Sticking to traditions We want US out! (2/7)
    • 5. Alternatives + adopting a homogenous bm to local fit + usage of established /proven channels + better fit for local needs + elimination of cross cultural problems + support of local authorities - risky negotiation process M&A - non-usage of possible synergies - against global/uniform strategy + higher decentralization (growth potential) + follows Wal-Mart global strategy (Mexico) + higher responsiveness to meet local needs + support of local authorities - unions problem remain - loss of control + no union problem + no change of value proposition + short time horizon + known losses - not following global expansion strategy - loss of the future market - not following global expansion strategy +no change of value proposition +usage of synergies -still union problems -very long time horizon -no possible short term measures -ignore local disparities Strategy: defining & implementing it Aggressive (local supermarket chain) Exit (Withdraw from that market) Re-educate (educate chinese) Adaptation (changing store format) 1-3 years 5-7 years 6 months 10 - 15 years (3/7)
    • 6. Strategy: defining & implementing it Scenario planning: Alternative selection Foreign business restrictions Low High HighLow Cultural change EXIT AGRESSIVE RE-EDUCATE ADAPTATION STATUS QUO ADAPTATION (4/7)
    • 7. Strategic Road Map (5/7)Strategy: defining & implementing it Efficient staff (corporate culture) Key Local autonomy (org. structure) China coverage (control, org. size) Guanxi (ext. environment) Strategic imperatives
    • 8. Strategic Road Map (6/7)Strategy: defining & implementing it KeyLocalautonomy (org.structure) Efficientstaff (corporateculture) 1st year 2nd year 3rd year 4th year 5th year 1. Identify change agent & involve 2. Convince & involve key stakeholders 3. Support from top-management 4. Communication 1. Adapt Wal-Mart’s China mission & vision statement to China’s culture 2. Create organizational chart (national, regional, local) 3. Define clear responsibilities & power for decision making 4. Incentives to foster commitment 5. Develop profit centers 1. Bonus and compensations system 2. Performance review system 3. Training Critical initiatives
    • 9. Chinacoverage (control,org.size) Guanxi (ext.environment) Strategic Road Map (7/7)Strategy: defining & implementing it 1st year 2nd year 3rd year 4th year 5th year 1. Establish budget for business related meetings 2. Contact & develop relationship influencer 3. Networking events: Chinese New year 4. Develop relationship with local Government 1. Marketing research to understand needs 2. Taylor product offering 3. Launch new supermarket format Risks (a) China’s Government: tighter restrictions to foreigner (b) Product offering not aligned with local tastes: Market research Benchmarking Pilot trial with only a set of stores - Critical initiatives
    • 10. Thank you for your time…. Team A