Walmart entered the Chinese market in 1996 and has since expanded to over 189 stores across China. While Walmart has had success replicating aspects of its US model in China, it has faced key issues in distribution and targeting the right customers. Walmart built early distribution centers in China despite infrastructure challenges to signal long-term commitment and scare off competitors, though this approach was more successful in Shenzhen than Tianjin due to timing and credibility differences. Overall, Walmart has had to adapt its model to the Chinese market by selling more local products, focusing on quality over low prices, and utilizing a multi-tier store strategy to target different income levels.

1. Walmart In China

2. Agenda
•Introduction
•Industry Comparison
•Key Issues
•Analysis
•Conclusion

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. Walmart US Vs Walmart China
Vs Carrefour China
Walmart Walmart Carrefour
US China China
Distribution  x 
E.D.L.P  x x
Market Power  x x
Location   
Power
Govt. Relation  x 

5. Key Issues
 Target Customer
•What to Sell
•How to Sell
•Sell to Whom
 Distribution Centre
•Foresight
•Signaling

6. Going local: Why Selling Crocodiles
is key to Walmart’s success.

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
Hypermarkets
Source: Walmart Stores Inc. 2006 10-K Report; China Retail Annual Report

8. Example
Crocodiles Pig faces
Turtles Assorted Dried Reptiles

9. Targeting Quality: Why you can
bring Walmart to your wedding in
China.

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

12. Example
• MNC strategies
US Pizza Hut Chinese Pizza Hut

13. Vertical Differentiation: Where
would Goldilocks shop?

14. Sell to Whom
Vertical Differentiation: occurs in a market where several
goods can be ordered according to their objective quality
from lowest to highest
Example:

15. 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

16. Distribution: Why Walmart
Planned to Lose Money?

17. The Problem
Walmart China replicated its US distribution center model
building a center in Shenzhen in 1996 and Tianjin in 2003.
However, Walmart’s distribution centers didn’t keep costs
down 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

18. 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

19. Foresight:
Long-Run Success
How did the scale of Walmart’s operations grow?
1996 2005 2011
# Stores 2 43 >300
Why did Walmart not wait until the infrastructure was
ready to build their distribution centers?

20. Signaling:
The Role of Sunk Costs
How does signaling work?
What does building distribution centers signal?
• Long-run commitment to China market
• Store expansion in nearby regions

21. Signaling:
Success vs. Failure
Was 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 54
Why was it more successful in Shenzhen than Tianjin?
• Timing – Shenzhen distribution center was built
much earlier (1996 vs. 2003).
• Credibility

22. Summary: Why Walmart
Built Distribution Centers
Believed they would be successful in the long-run and
give them competitive advantage.
Signal commitment to store expansion, which could
scare off competitors in that region by changing
payoffs, and China market.

23. Application: The Role of
Sunk Costs

25. 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