Wal-Mart's Strategies in China

            
 
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Case Details:

Case Code : BSTR178
Case Length : 28 Pages
Pages Period : 1994-2005
Organization : Wal-Mart Corporation
Pub Date : 2005
Teaching Note :Not Available
Countries : China
Industry : Retailing

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"Country by country, the world is discovering the great value of shopping at Wal-Mart." 1

- John Menzer, President, International Division, Wal-Mart, in 2003.

"In Brazil, Mexico and China we were picked as one of those countries'"Most Admired"companies (for 2004)." 2

- Wal-Mart's Annual Report, 2005.

Welcome to Wal-Mart China

On March 04, 2004, Wal-Mart Stores Inc. (Wal-Mart) held its Board of Directors' annual meeting in China.

It was an indication of the importance the company accorded to its Chinese operation. Although Wal-Mart entered China way back in 1996, it had adopted a slow expansion approach in the country.

However, in the early 2000s the company began to realize that China had the potential to replicate its US model of massive growth due to a huge population of over 1 billion and an increasing per capita disposable income.3 The members of the Wal-Mart board wanted the company to "get a lot more aggressive"4 in its expansion in China. Wal-Mart planned to increase the number of its stores in China from 48 in 2005 to 90 in 2006.

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Industry observers pointed out that China was a unique market for Wal-Mart. The company sold goods worth $940 million and purchased to the tune of $18 billion5 from Chinese manufacturers in 2004, thus having a substantial presence both as a purchaser and a seller of goods in China.

In December 2004, the Chinese government eased restrictions on foreign retailers to fulfill its commitments as a World Trade Organization (WTO) member. Experts commented that this would help Wal-Mart's expansion efforts in the country.

Most analysts said that Wal-Mart's expansion in China would create more jobs and improve supply chain efficiencies in the retail sector of the country. However, a few analysts were critical of Wal-Mart's operations in China. They pointed out that Wal-Mart had reduced wages to below sustenance levels not just at its own stores but at supplier's end as well.

Since the time it entered the Chinese market, Wal-Mart had offered the Chinese 'Tian Tian Ping Jia'; its global practice of Every Day Low Prices (EDLP). At the same time, it had also successfully localized its offerings to Chinese consumers with significant innovations. However, analysts pointed out that it had not been all smooth sailing for Wal-Mart in China; it had got over a lot of hurdles. They predicted that Wal-Mart would not be able to rest easy as there would be plenty of challenges in the future as well.

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1] Andy Rowell, "Welcome to Wal - World," Multinational Monitor magazine, October 2003.

2] Wal-Mart was ranked No.8 in the "Most Admired Companies in China" Survey conducted by the Chinese edition of the Fortune magazine.

3] As per data by China Statistical Yearbook 2004, the per capita disposable income in China had grown by 64.2% between 1997 (RMB 5,160) to 2003 (RMB 8,472).

4] Clay Chandler, "Wal-Mart in China," Fortune, July 25, 2005.

5] Roughly 10 percent to 15 percent of overall U.S. imports from China. If Wal-Mart were a country, it would rank as China's sixth-largest export market, ahead of the United Kingdom, Taiwan, Singapore and France.

 

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