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Strategic Business Analysis, August 2011

Kaplan University MBA, Strategic Management

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Strategic Business Analysis, August 2011

  1. 1. WALMART IN CHINA Strategic Business Analysis GB580-02N: Strategic ManagementTeam D: Yvonne Blankenship, Cindy Sterrett, Catherine Tedrick, Lisa Whaley and John Wheeler Kaplan University August 23, 2011
  2. 2. Introduction Sam Walton’s U.S. model didn’t fit well in China due to issues with: – Local Protectionism – Infrastructure – Technology – Consumer habits and Chinese culture
  3. 3. Walmart in ChinaToday, China has 223 Wal-Mart Super Stores and 5 Sam’s Clubsthroughout the country: [5] [4] [8] [1] [7, 2] [2] [2] [4] [8] [18] [4] [5] [10] [12] [10] [13] [12] [14] [7] [10] [9] [13, 1] [6] [38, 2] [3]
  4. 4. Local Protectionism Chinese government restricts expansion of foreign retailers – Limit cities that can have retail stores – Limit number of stores in a city Taxes and fees – Local government keeps percentage of tax revenue – Unregulated toll charges cities’ roads – Inconsistent enforcement of laws
  5. 5. Infrastructure Transportation challenges – Infrastructure protects local interests – Difficulty with customs Regional consumption – Regulatory control of retail and agricultural products. Geographical expansion – Initial government restrictions caused Walmart to stay within south China – China’s entry into the WTO in 2001 changes this; however the lift of regulations were not always enforced.
  6. 6. Technology Lack of infrastructure support to: – Utilize Walmart’s high-tech merchandise tracking – Have distribution centers within one day drive of stores Walmart stores sprawled across the country – Difficult to communicate with local suppliers – Orders were placed by fax
  7. 7. Chinese Culture Chinese prefer to shop daily for fresh foods. – Live animals – More trips with smaller purchases – Very poor use stores as “destination” Labor laws require unions Shoplifting laws not enforced – Consumers AND employees
  8. 8. Environmental Audit - Walmart’s Strengths Strong Business Model – Successfully duplicated in Canada, Britain and Mexico Technological Capabilities – Reduces supplier shrinkage and internal costs – Stores order from distribution centers located within one days drive Strong Supply Chain Experience Operating Information of Walmart Stores – Strong negotiations 1970 to 2005 (in Million US$) – Purchasing in large quantities – Localizing supply source Strong Financials – Averages $413/sf store space in U.S. Wang & Farhoomand (2006)
  9. 9. Walmart’s External Value Chain Computers, Sy stems, Progra ms Walmart Advertising Stores Agencies WalmartSuppliers online Customers Engineering, C Walmart onstruction Companies Corporate Government Regulation, Re Maximizing Strategic lationships Capabilities
  10. 10. Environmental Audit - Walmart’s Weaknesses Political and legal challenges Supply chain and distribution challenges/shrinkage Unpredictable market patterns Aversion to any kind of union
  11. 11. Environmental Audit - Walmart’s Opportunities World’s Most Populous Consumer Market Population of 1.3 Billion Improvement in the General Business Atmosphere Non-State Enterprises = 72.6% of Consumer Goods Sold Retail Market Growth in China 1980 to 2003 Wang & Farhoomand (2006)
  12. 12. Environmental Audit - Walmart’s Threats Three Chinas – Regional Income Disparity Vast Size in Land and Population Continually Operates in Red Intensifying Competition Local Protectionism Income Disparity Wang & Farhoomand (2006)
  13. 13. Strategic Analysis - Competitive Rivalry Walmart made many attempts to enter competition in China during the 1990’s Major Foreign Chain Stores in 2004 Major Competitor’s – Carrefour from France – Lotus from Thailand – Tesco from UK – Metro from Germany Local stores – Regional allegiance – Learn from foreign stores  Technology  Distribution Wang & Farhoomand (2006)
  14. 14. Strategic Analysis - Power of Customers American Shopper v. Chinese Shopper – Arrive in cars – Arrive on foot or bikes – Impulse shoppers – Shop with plans – Shop to shop – Visit stores for leisure Severe income disparity – Rural areas tend be low income who only shop for necessities – Mid to upper income live in more urban communities
  15. 15. Strategic Analysis - Power of Suppliers Suppliers have regional allegiances and far more bargaining power Multiple suppliers are needed due to regional buying patterns Lack of IT network and developed roads slowed the supply chain process Government regulations don’t allow for local distribution centers
  16. 16. Strategic Analysis - New Market Entrant Barriers to entry that Walmart faced were: – Strict Chinese government regulations on competition to protect domestic companies. – China’s strict limitations on where and how many stores could be opened – Local protectionism – China’s underdeveloped infrastructure – both through roadways and technology
  17. 17. Product & Technology Development Largest barrier for Walmart entering China was lack of technology and an IT Network – Regulatory ban on use of satellite – No web-based system for contacting their 15,000 suppliers EDLP Level of Product Differentiation Transportation
  18. 18. Global Analysis - Home Country Walmart opened its first store in 1962 founded on the principle of discounting Opened stores in small rural towns Every Day Low Prices model Three cardinal beliefs: – Provide great customer service – Show respect for the individual – Strive for excellence
  19. 19. Global Analysis - Customer Country Three Chinas Income disparity and 20021population and GDP per capita in China by autonomous region, municipality, and province regional divisions of wealth Three Chinas – Coastal Region has wealthiest citizens; 482 M population – Interior Region has nearly
  20. 20. Global Analysis - Competitor Country Walmart biggest competitor in China is Carrefour – Used target marketing – focus on urban areas – Utilizing local suppliers Carrefour and Walmart China Store Map in 2005 Walmart failed to duplicate domestic model Cultural differences Difficult to fully assess Chinese companies – Walmart China Operating Strategy  Local Sourcing  Local Talent Development  Corporate Responsibility Wang & Farhoomand (2006)  Community Involvement
  21. 21. Global Analysis - Partner Country Walmart has established itself as a good citizen in China China has been trading partners with Walmart for years Growing economy
  22. 22. Global Analysis - Supplier Country In 2001, State Council prohibited local protectionism from interfering in the fair and orderly market system Foreign Constraints on retail operations in China In 2005, Walmart opened up 2 more distribution centers
  23. 23. Obstacles to Global Strategy Cultural Influence Strategic Obtaining Positioning Market Information Obstacles toChina’s Overcome Role of LocalPolicies Partners Foreign Company Negotiation Location Process
  24. 24. Recommendations Culture IT Infrastructure Corporate Responsibility
  25. 25. Recommendations Do we want to use any of this language or should we toss this slide?
  26. 26. Conclusion Walmart was able to overcome the following challenges – Government protectionism at the country, province and local level – Chinese government had strict regulations on use of technology Technology restrictions – Satellite usage impaired Walmart used alternative business model
  27. 27. Walmart’s Potential Capabilities IT Management Innovation Efficient Potential Inventoryrelationshipswith suppliers Capabilities Control Understand Target Market
  28. 28. Walmart in ChinaIn the future, China could have 377 Wal-Mart Super Stores and 15 Sam’sClubs throughout the country: [9,1] [7] [2] [11,1] [2] [4] [11, 2] [3] [2] [3] [3] [10,1] [13,1] [26,1] [2] [11,1] [15] [14] [20] [17,1] [13] [22] [20,2] [23] [15] [16] [21, 1] [10] [47, 2] [5,1]
  29. 29. ReferencesWang, I., & Farhoomand, A. (2006). Walmart Stores: "Every Day Low Prices" in China. Hong Kong, China: Asia Case Research Centre, The University of Hong Kong. Still need to add these in
  30. 30. ReferencesI’m still working on sources all the photos:S1. Walmart China Employees (2011). Retrieved from migration-into-china-real-estate/S2. Sam Walton (2004). Retrieved from City Walmart (2010). Retrieved from domestic-saturation-problem/4028S4. Walmart Truck (2010). Retrieved from Map of China(2011). Retrieved from Frogs & Turtles. Retrieved from on 8/22/11S10. Chinese Associates Union (2010). Retrieved from Chinese Road, Photographer Andy Yleung. Retrieved from on 8/22/11S17. Satellite (2010). Retrieved from Walmart Stores Retrieved from on 8/22/11S__. Distribution Center(2002). Retrieved from