1. Group 4: Wal-Mart Case Study
Summary of the Critical Issues
Sam Walton,founderof Walmart,believedthatthe future of retailinglaidindiscountingthus
creating“everydaylowprices.”Seeminglytoogoodtobe true,the conceptshouldbe able to translate
and thrive beyondculturesandintointernational markets; however,Walmarthashadsome failuresand
upsetswhile enteringforeignmarkets.The questionstill remainswhatisholdingWalmartbackfrom
successfullygrowinginternationally?
Sam Walton’shumble beginningsgave rise tohissimple yeteffective businessmodel.Basedin
Rogers,Arkansas,Walton’scompetitorswere those whodominatedthe majorcitiessurroundingthe
area.With histarget,rural marketinmind,he gave thema reasonto commute nofurtherthanhisone
stopshop due to his“always”lowprices.Eventually,Walmartgrew tosucha substantial size thatit
couldcommandeconomiesof scale servingover80% of U.S. households,andexpansionwasinevitable.
No matterthe size,Walmart’ssuccesshasstemmedfromafew strategiesthatremainatthe core of
theirvalues.Small-townlocationsoffermultiple benefits:avoidance of directcompetition,small
populationsleftnoroomforanotherstore of Walmart’ssize tothrive,andreal estate islesscostly.
Walmart alsoleveragesitspurchasingpowerwithits68,000 suppliersaswell asorchestratedunrivalled
distributionandlogisticsmanagementachieving99.5% on-time delivery.Andof course,relentlesscost
control is the principle onwhichWalmartbegan.Withsuchhighlevelsof successinNorthAmerica,
Waltonsaw itas almosta ManifestDestinytolowerthe costof livingtothe East.
Witha growingpopulationof 1.3billion,Asialookedlikeafavorable marketfromafar;however
itspolitical,economic,andcultural differencesposedachallenge forentry.The retail sector,inChina,
usedto be predominantlystate-run;andalthoughthere hasbeenreforms,the governmenthasstill
prioritizedandorganizedretail.Forexample,Walmartwasturneddowninitsinitial requesttoenter
Shanghai because there wastoomuchpre-existingcompetition.Fromaneconomicstandpoint,China’s
2. rapidgrowthformeda wide income gapcreatingan evenmore diverse market,anditwasnot equipped
withthe infrastructure andtechnologytomatchthe operationsmanagementWalmarthadelsewhere.
Lastly,theirhighcontextculture promotedlocal protectionismof domesticchainsasopposedtoforeign
entities.Chinese alsohave differentshoppinghabitsandexpectationsthanthose offeredbyWal-Mart's
logistics.Withevenmore complex differencesbeyondthishighoverview,Walmarthastobe smart
abouthow to approachthisambitiousventure if theychose tostaydespite onlyrankingtwentiethin
salesamongchainstoresin Chinanine yearsafteritsfirstentry.
Strategic Analysis
The firstpossible strategicopportunitythatWal-Martcouldpursue inChinaisthe online
marketplace.Since itsintroductioninthe early1990’s,e-commerce hasbeenrapidlygrowinginChina,
and iscreatinga keyopportunityforforeignretailerstoreacha largerpart of the market(Kuah& Peng,
2017). With Wal-Mart’srecognizable brandname,andlow prices,itcouldcompete withthe likesof
Amazonformore consumersnationwide.Prosof anonline,e-commerce strategyinclude,reachingparts
of the rural communitythatcouldnot be tappedintowithoutthe riskof hemorrhagingmoneythrougha
brickand mortar store,and itwouldnothave the addedriskof shoplifting.Consumerswouldbe able to
browse forthe bestdealsonline,andwouldreceive theiritemsattheirdoorstep,whichwouldalleviate
the problemof havingtotransport theirpurchasesonfootor by bike,therefore allowingthemto
potentiallymake largerpurchases.A downside of thisstrategywouldbe thatthe Chineseconsumer
couldnot checkthe ‘freshness’of whatthey’re buying,especiallyinrespecttofood.The online
marketplace wouldhave tosell foodthatcouldbe deliveredpromptly,because thatiswhatthe average
Chinese consumerspendsmostof theirdisposableincome on.
The secondstrategythat Wal-Mart couldpursue inchinais to putmore effortintotheirsupplier
relations,justastheyhave done inthe UnitedStates.Culturally,chinaisknowntohave a low score on
3. individualismaccordingtothe Hofstede study(Geert-Hofstede,n.d.),whichsignifiesthatpersonal
relationshipsare valuedhighlyinthe businessarena.InorderforWal-Mart to negotiate betterpricing
and create more purchasingpower,itwill needtocreate more personal relationshipswiththe suppliers.
Once a relationshipisformed,there wouldbe manyadvantagestoWal-Mart,includinglowerprices,
and betterqualityserviceandgoods.Wal-Martcouldalsobegininfluencingtheirsuppliersjustasthey
are accustomedtodoinginthe U.S.,by helpingtheirsupplierslearnbetterstandardsof operationsand
technologytocreate more efficiency,anddrive downprices(Nelson,2010).A potential downside of this
strategyisthat Wal-Mart isalreadyseenasbeingtoopushywithsuppliers,andtoughonemployees,if a
well-informedandpositiveplanisnotemployedhere,theycouldface adversereactionsfromsuppliers
and Chinese government.
Thirdly,Walmartcouldpossiblybenefitbystrategicallyimplementingthe diversificationsof
theirmerchandise.As stated,priortothe economicreforminChina,retail wasunderthe directcontrol
of the state government.Therefore low-qualityproducts,andsub-parcustomerservice wasreality.
Immediatelyafterthe reform,thesestate-ownedretailerswere diversified andreplacedwith“new
shoppingcenters,superstoresandhypermarkets”(Taylor,2003). The culminationof new shopping
centers,higherproductqualityandanincreaseddisposable income (upto10%),propelledthe Chinese
consumerto seekouthigherqualitymerchandise;anelementthatWalmartdidnotposses(Income,
2005). The benefitattachedwiththisstrategyisthe abilitytoreacha largerbase of consumers.Bynot
solelyfocusingoninexpensive,low-qualityproducts,Walmartwouldbe able tocontinue satisfyingthe
thresholdof thriftyconsumers,aswell asalluringnew consumerwithhigherendproduct.Incontrast,if
Walmart were toimplementthisstrategy,manyelementsmayaffectWalmart’scostof goods.Meaning,
inorder forWalmart to acquire productswitha higherquality,Walmartwouldhave tosearchfornew
suppliersandpaya higherprice inorderto obtainthese goods.Aswell,some storesinrural areasmay
4. not have the necessaryconsumerthatwouldpurchase these higher-qualitygoods,and thereforeWal-
Mart wouldface an inventoryproblem.
Recommendation
Wal-Mart inthe US issuccessful because of theirlow pricesandgreatcustomerservice,butthat
featureswill notworkinChina.ItisrecommendedthatWal-Martdiversifytheirmerchandise,narrow
theirreachto just one regionandfocusinone costumer’ssegment.
Due to protectionistlocal practices,highlogisticsfees(sometimesillegal),andlackof national
infrastructures(eg.Roadsandhighways) itisnotefficientandfeasibleto reachout everypartof China.
These barrierswill neverletthemcompete inthe marketwiththeirEDLPpolicy.
In addition,Chinese marketconditionsare significantlydifferentthanthe US conditionsdue to
the disparityof householdincome.Evidently, Chinaneedstofocusinthe mostprosperousregion,
Coastal Region.AsshowninExhibit1,the Coastal Regionrepresents58% of the GDP, regionwhere most
of the higherincome householdsare located.
Exhibit 1. Regional Income Disparity
Wal-Mart shouldsell high-endproductsinthe Coastal Regiontohighincome household.This
will lowertheirdistributioncosts,andwill enableittocompete anddominate the mostprofitable
marketsegment.
5. SWOT Analysis
Strength. the locationitself hasstrongpowertodistribute the itemsbecause avarietyof core factory
locatedinchina.As resultof thisfact,the Wal–Mart couldoffercheaperprice byreducingthe delivery
charge andpersonal expense.
Weakness.Wal-Mart lack of product differentiation.Thisisdeterminantfactorinthe Chinese market.
Opportunities. Chinese marketisthe fastestgrowingmarketinthe pastdecades.
Treats. Governmentisinvolvedinthe businesssothatitwill affecttax change,alsotheyhave their
regulationsoitwill influence tothe price of products.In addition,,the laborcostisslowlyincreasing.It
mightbe hard to maintainWal-Mart’sEDLP policy.
Five Forces Model
Threat ofnew entrants. Wal-Mart througha large numberof centralizedprocurementtoobtainlower
purchase costs,the establishmentof asetof advancedlogisticsandsupplychainmanagement,reduce
storage costs.It is hard fornewentrantsto do this.
Threat ofsubstitute. Shoppingonline hasbecome partof people’slives,more andmore peoplebuy
dailynecessitiesonline,clothes,andfoods.The pricesare cheapandprovide deliveryatthe same time.
So,the threatof substitute ishuge forWal-Mart.
Bargainingpowerof supplier.Because Wal-Mart'sdemandfor commoditiesislarge andvaried,anditis
highlysustainable,inordertobe qualifiedasaWal-Mart supplier,the supplierisat a disadvantage.
Bargainingpowerof buyers. Whena retailerincreasesthe price,the buyerwill lookforalternativesand
choose to buyfromother retailers.Wal-Mart’s“same price everyday”strategyisina leadingpositionin
the competition.
6. Industryrivalry. Inthe retail industry,Wal-Mart’sadvertisingcostsare the lowest,butsales are the
largest.Ownbrandproductsare producedbythe manufacturersdirectly,helpWal-Martgetadvantage
fromthe competition.
References
Geert Hofstede: China. (n.d.) Retrieved from: https://geert-hofstede.com/china.html
Kuah, A. T., & Wang, P. (2017). Fast-Expanding “Online” Markets in South Korea and
China: Are They Worth Pursuing? Thunderbird International Business Review,
59(1). 63-77.
Nelson, C. (July 1, 2010). Developing China Sales and Distribution Capabilities. China
Business Review. Retrieved from:
https://www.chinabusinessreview.com/developing-china-sales-and-distribution-capabilities/
Taylor, R., “China’s Consumer Revolution”, Asian Business and Management,2003 2.
“Income Gap in China Widens in First Quarter”,China Daily, June 19th 2005.
