Walmart China Presentation

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Walmart China Presentation

  1. 1. Walmart In China
  2. 2. Agenda •Introduction •Industry Comparison •Key Issues •Analysis •Conclusion
  3. 3. Introduction Walmart Global •Founded in US in 1960 •Fortune 500 company with 8400 units in 15 countries •$300+ billion in revenues Walmart China •First store in 1996 in Shenzhen •Currently operates 189 units + 100 Trust -Marts in 101 cities •95% of the merchandise is sourced locally
  4. 4. Walmart US Vs Walmart China Vs Carrefour China Walmart Walmart Carrefour US China China Distribution  x  E.D.L.P  x xMarket Power  x x Location    PowerGovt. Relation  x 
  5. 5. Key Issues Target Customer •What to Sell •How to Sell •Sell to Whom Distribution Centre •Foresight •Signaling
  6. 6. Going local: Why Selling Crocodiles is key to Walmart’s success.
  7. 7. What to Sell? • Grocery section accounts for more than half at Chinese hypermarkets Percentage of Sales by Product Category 100% 80% 45% 69% The others 60% Grocery 40% 55% 20% 31% 0% Wal-mart US Chinese HypermarketsSource: Walmart Stores Inc. 2006 10-K Report; China Retail Annual Report
  8. 8. Example Crocodiles Pig faces Turtles Assorted Dried Reptiles
  9. 9. Targeting Quality: Why you canbring Walmart to your wedding in China.
  10. 10. How to Sell: Quality over Price • Does EDLP work in China? • Local community stores have cost advantages • Chinese middle-class are willing to pay for quality – Better understanding of local market – Backed by Deloitte report – Food safety crisis in China • Multi-national big names mean higher quality in Chinese mindset
  11. 11. Example• MNC strategies US Pizza Hut Chinese Pizza Hut
  12. 12. Vertical Differentiation: Where would Goldilocks shop?
  13. 13. Sell to WhomVertical Differentiation: occurs in a market where severalgoods can be ordered according to their objective qualityfrom lowest to highestExample:
  14. 14. Vertical Differentiation •Combines full line of groceries, general merchandise and bulk quantities •Consumer target: Upper class •Differentiation: requires membership, offers higher end products at higher prices, delivery service available •Combines full line of groceries and general merchandise •Consumer target: Middle-Upper •Differentiation: offers huge variety of good quality products at generally medium-high prices •Offers various commodities, including food, home appliance, textile and garments •Consumer target: Middle class •Differentiation: offers quality products at cheaper prices
  15. 15. Distribution: Why Walmart Planned to Lose Money?
  16. 16. The ProblemWalmart China replicated its US distribution center modelbuilding a center in Shenzhen in 1996 and Tianjin in 2003.However, Walmart’s distribution centers didn’t keep costsdown compared to decentralized local distribution.Key problems:• Road infrastructure in China• IT systems of suppliers• Insufficient scale of stores• Interprovincial ‘corruption’• Local food distribution still required
  17. 17. Foresight:Long-Run Success How did the IT infrastructure in China grow? # Internet Users in China 450 400 350 300 250 200 150 100 50 0 00 01 02 03 04 05 06 07 08 09 10
  18. 18. Foresight:Long-Run SuccessHow did the scale of Walmart’s operations grow? 1996 2005 2011 # Stores 2 43 >300Why did Walmart not wait until the infrastructure wasready to build their distribution centers?
  19. 19. Signaling:The Role of Sunk CostsHow does signaling work?What does building distribution centers signal?• Long-run commitment to China market• Store expansion in nearby regions
  20. 20. Signaling:Success vs. FailureWas it successful in scaring off competitors? SHENZHEN TIANJIN Southern 2005 2011 N & NE 2005 2011 Stores Stores Walmart 20 73 (+39) Walmart 20 37 (+7) Carrefour 13 38 Carrefour 25 54Why was it more successful in Shenzhen than Tianjin?• Timing – Shenzhen distribution center was built much earlier (1996 vs. 2003).• Credibility
  21. 21. Summary: Why WalmartBuilt Distribution CentersBelieved they would be successful in the long-run andgive them competitive advantage.Signal commitment to store expansion, which couldscare off competitors in that region by changingpayoffs, and China market.
  22. 22. Application: The Role ofSunk Costs
  23. 23. Conclusion • Knowledge is power • Position correctly • Signaling • Distribution network is key for an aggressive growth strategy • Must anticipate where future demand will be greatest when deciding store location • Western retail - Chinese style

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