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
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
Key Issues Target Customer •What to Sell •How to Sell •Sell to Whom Distribution Centre •Foresight •Signaling
Going local: Why Selling Crocodiles is key to Walmart’s success.
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
Example Crocodiles Pig faces Turtles Assorted Dried Reptiles
Targeting Quality: Why you canbring Walmart to your wedding in China.
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
Example• MNC strategies US Pizza Hut Chinese Pizza Hut
Vertical Differentiation: Where would Goldilocks shop?
Sell to WhomVertical Differentiation: occurs in a market where severalgoods can be ordered according to their objective qualityfrom lowest to highestExample:
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
Distribution: Why Walmart Planned to Lose Money?
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
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
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?
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
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
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.
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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