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International Business Topic: Walmart in ChinaDocument Transcript
1Running head: VIDEO CASE STUDY –WALMART IN CHINA Video Case Study –Walmart in China Jessica Northey Full Sail University
VIDEO CASE STUDY – WALMART IN CHINA 2 Video Case Study –Walmart in China In the business world of globalization, there have been pioneers and followers. Pioneerscan gain and maintain competitive edge in new markets. There is a risk in being a pioneerbecause they could possibly not gain the success and longevity they seek. Every business thatdecides to enter into international markets must decide which strategy their business can handle.Walmart decided to workas a follower, and now have a proven track record of global success. In1996, Walmart entered the Chinese market by opening its first Supercenter and Sam’s Club inShenzhen, China. Walmart has several different store formats there, which include Supercenters,Sam’s Clubs, and Neighborhood Markets. In 2010, Walmart had 189 stores in 101 differentcities and created more than 50,000 jobs all over China. (“Walmart china factsheet,” ) The competition in foreign markets such as China, which has the largest population in theworld, is too important for business owners to ignore. Walmart entered into the Chinese marketfor the opportunity to expand. Walmart may have been a follower entering into China, but theywere one among the first followers in 1996. Before Walmart arrived, state-owned retailers oftencarried a small variety of low-quality products, uncomfortable shopping environments, and weregenerally disorganized. (Ball-Geringer-Minor-McNett, 2010)This gave Walmart an opportunityto strive to offer what consumers experience in the U.S., quality and customer service. China’s government was beginning to open up to investments, easing restrictions onforeign businesses, and encouraged Chinese business owners to build joint ventures withWesterners. Shenzhen was announced as a special economic zone, which had no taxes on foreignbusinesses for the first few years of operation. Business began to grow as South China’sgovernment improved their infrastructure. Lastly, foreign businesses had a financial reason toinvest in China’s growing market. In 1994, the government devalued China’s currency from
VIDEO CASE STUDY – WALMART IN CHINA 3about 5 to 8 Yuan to the dollar, further causing the country’s rapid development. From thatannouncement, it only took two years for Sam Walton to begin hisglobal expansion plans of hislegacy, Walmart.Although Sam Walton’s vision supports U.S. producers, he alsohas sights toexpand globally. He was the architect of Walmart’s secret “Buy Asia” program. His plan was toenter into Asia markets before going directly into China in order to continue providing the lowestprice for their customers. The strategy to follow others into the market, versus being the pioneer,helped keep their prices low. After the initial foundation of American retailers had pioneeredtheir way into China, Walmart planned to step in and take advantage. One of the advantages ofbeingWalmart is how they have sufficient resources and competencies to overwhelm thepioneer’s early advantage. The other advantages they have arecontinuing to increase companyprofits and expanding their stores where pioneers have as well. (Hornblower, 2004) Walmart values it’s position in the Chinese market because it is important for their globalstrategy. Retail sales revenue is predicted to grow from 14.5 percent to $5 trillion annually by2016. China’s population is 1.3 billion and they are experiencing fast urbanization. Theirgovernment is promoting domestic consumption in order to establish sustainable development ofthe economy. (Woke, 2011) The advantages Walmart gained by forming joint partnerships with Chinese developerswas through connections in the Chinese government, global sourcing, and control over theirvendors. Walmart has always believed in local sourcing of their products, which proved to besuccessful in the United States. Walmart has established partnerships with almost 20,000suppliers throughout China. More than 95 percent of the merchandise in Walmart stores in Chinais sourced locally, including their employees. Walmart’s CEO made a commitment to their localtalent through development and diversity, especially in hiring female staff and executives.
VIDEO CASE STUDY – WALMART IN CHINA 4 “99.9% of Walmart China associates are Chinese nationals. All our stores in China are managed by Chinese local talent. 43% of leaders at senior manager level and above are female. In 2009, the company established the “Walmart China Women‟s Leadership Development Commission” for driving women‟s career development.” ("Walmart china factsheet," ) One of the issues Walmart was concerned with was the impact that they would possiblyhave on local businesses because Beijing reacted by creating restricted operations of foreignretailers. Walmart retaliated by partnering with a retailer that already had growth in China, calledCharoen Pokphand, but was terminated due to issues with control. There are a few disadvantagesto equity-based mode joint ventures, which is sharing profits and losing complete control.Additionally,the partnership did not solve a restriction that required government-backedpartnerships. Their other challenge was to figure out a way around the cap on the number andlocation of stores. With strategic alliances, the goals include faster market entry, access to newmarkets, and cost-savings by sharing costs, resources, and risks. Walmart began a new venturewith two partners that were connected politically called Shenzhen Economic Development Zoneand Shenzhen International Trust and Investment Corporation. As well as having controllingstake in the venture, Walmart was now ready for expansion. The first Chinese Walmart store inShenzhen was growing at a fast pace and proved to be a perfect place to gain experience inChinese retailing. They quickly learned that the cheerful, small-town mannerisms of Americans that theyhave become accustomed to, is now a strong asset for the Chinese stores compared to otherassets such as having the lowest price. The majority of the retail companies in China do not have
VIDEO CASE STUDY – WALMART IN CHINA 5a young person offering their help along with a smile in their stores. Walmart’s excitement aboutexpanding in the Chinese market is stronger than ever.(Ball-Geringer-Minor-McNett, 2010 ) Walmart is excellent at their global supply chain management, from their suppliers totheir consumers. In the past few years, Walmart has been “the single largest U.S. importer ofChinese consumer goods” who has surpassed the trade volume of entire countries. Globalsourcing has been completely integrated into Walmart’s operations. Importing foreign productsis what gives Walmart the ability to offer low prices to the customers. Walmart believes that consolidating their manufactures in China will increase theircontrol by keeping the vendor list short. Their strategy is making their vendorsdependent onWalmart being their customer because they order in large volumes. Walmart seeks out the top 1percent of factories worldwide and the top 50 factories in a country. They have 60 percent of thelargest factories in the world as vendors. “As one retired senior executive from WalMart‟s Global Sourcing group explained, the idea is to have „one huge buy‟ from apparel to food to general merchandise manufacturers. By joining the orders of every WalMart division in every country, the company achieves massive economies of scale in its purchases.” This strategy will be one of their greatest advantage they have gained through formingjoint partnerships with Chinese developers. Walmart gained control in China’s market becausethere was a large growth and trade tariff laws were relaxed. They also gained experience in theChinese retail marketplace. The United States, much less any other country, can compete withChina’s efficiency and manpower. For example, in shoes or housewares alone, 80 to 90 percentis exporting from China. (Hornblower, 2004) If Walmart had not gone into Asia, they wouldhave missed tremendous opportunities.
VIDEO CASE STUDY – WALMART IN CHINA 6 Walmart sees China as its best bet for repeating the success it has achieved in Americabecause Walmart’s mission is to continue expanding their growth. This is due to China’sextensive population growth and increased use of the Internet for shopping. Walmart is now focusing on the rapidly increasing online sales in China, which isexpected to match U.S. online sales within a few years. Wan Ling Martello, executive vice-president of global e-commerce for emerging markets at Walmart is optimistic about China’s e-commerce market and projected growth. Their global e-commerce China headquarters is inShanghai, which focuses on offering their Chinese customers a larger selection of qualityproducts at low prices with an enjoyable online shopping experience. The China Internet Network Information Center maintains the country’s Internetinfrastructure, and states that China had 161 million online shoppers in 2010. A researchcompany called Forrester Research, projected that online sales would risefrom $48.8 billion in2010 to $159.4 billion by 2015. (Woke, 2011) It is clear why Walmart showed patience and endurance when planning their entranceinto China. The results through their choice of strategic global partnerships have shown successin spite of the challenges of the different cultures from where Walmart began, China has enjoyedthe extra smile Walmart offers their customers.
VIDEO CASE STUDY – WALMART IN CHINA 7ReferencesHornblower, S. (2004, November 23).Wal-mart& china: A joint venture. Retrieved from www.pbs.org/wgbh/pages/frontline/shows/walmart/secretsWalmart china factsheet. (n.d.). Retrieved from http://www.wal- martchina.com/english/walmart/index.htmWoke, L. (2011, August 25). Walmart china has big plans in small cities. Retrieved from http://www.wal-martchina.com/english/news/2011/20110901.htm