Wal-Mart's Strategies in China
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Case Code: BSTR178 Case Length: 28 Pages Period: 1994-2005 Pub Date: 2005 Teaching Note: Not Available |
Price: Rs.500 Organization: Wal-Mart Industry: Retail Countries: China Themes: International Business, Globalization Business |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Business Segments
Wal-Mart had two types of divisions - Retail divisions and Specialty divisions. Retail divisions were further classified into -Wal-Mart Stores, Sam's Clubs, Neighborhood Markets, Wal-Mart International and Wal-Mart.com. The specialty division was divided into - Tire & Lube Express, Wal-Mart Optical, Wal-Mart Pharmacy, Wal-Mart Vacations and Wal-Mart's Used Fixture Auctions......
Wal-Mart's International Operations
In the early 1990s, Wal-Mart announced that it planned to go global. It wanted to look for international markets for the following reasons:
» Wal-Mart was facing stiff competition from K-mart and Target . These two firms had adopted aggressive expansion strategies and had started eating into Wal-Mart's market share
» Although Wal-Mart had the scope to expand in the US, it was becoming difficult for the company to sustain its double digit growth rate. Wal-Mart was suffering from soft sales and rising inventories, especially in its Sam&'s Club divisions
» Wal-Mart also realized that the US population represented only 4% of the world's population and confining itself to the US market would mean missing the opportunity to tap vast markets elsewhere
» In the early 1990s, globalization and liberalization opened up new markets and created opportunities for discount stores such as Wal-Mart across the world...
Wal-Mart's Strategies in China
Wal-Mart began the groundwork for its Chinese operations in 1994 when it sent a team of executives to China. It started its actual operations in China in August 1996 at Shenzen with the opening of its first Super Centre and Sam's Club in partnership with Shenzhen International Credit Investment Company...
Localization Strategies
To maintain its practice of EDLP, Wal-Mart adopted a three pronged approach in China. First, it focused on increasing local procurement thus reducing procurement costs. Second, it maintained satisfactory supplier relationship during its initial years by paying suppliers within 3-7 days. Third, it established modern commodity distribution centers and computerized its management to improve efficiency and reduce cost.....
Governance Practices
Unlike Chinese companies, at Wal-Mart, associates found a high degree of transparency in relation to career growth. All new employees went through three months training at Shenzhen. Wal-Mart valued an individual's competence rather than personal connections when promoting an employee.
According to a report by People's Daily Online, Du Limin who started her career as an ordinary checkout person at Wal-Mart, became general manger of a Sam's Club in Shenzhen in just two years. In 2003, Wal-Mart figured among the 15 most popular foreign employers in China in a survey of university students conducted by ChinaHR.com one of the leading online recruitment websites in China. Wal-Mart suppliers also underwent "standards training." As per Wal-Mart standards, suppliers were not allowed to have a work-week of more than 40 hours. Wal-Mart also restricted overtime to three hours per day and emphasized that safety requirements were met and satisfactory accommodation was provided to the workers.......
The Problem Areas
Wal-Mart's Chinese operations have had their share of problems. The company's supply chain operations were not as efficient as in its home market. In addition, there was stiff competition from both local Chinese retailers and from foreign retailers who had established their base in China. Thus, even after nine years of presence in China, Wal-Mart was still very small with just 48 stores. Its 2004 sales from the Chinese operations were $940 million which was around 2% of its international sales and a miniscule portion of its total sales of $256.3 billion.....
Future Prospects
Wal-Mart had long been criticized for its slow international expansion. Analysts pointed out that its nearest rival, Carrefour, had gained a lot of ground due to rapid expansion in international markets. The same applied to China as well. Experts pointed out that Carrefour had been successful in China because it had been able to study Chinese consumers through its venture in Taiwan, while Wal-Mart did not have any such experiential advantage. Also, Wal-Mart did not make use of its first mover advantage and expanded slowly in China......
Exhibits
Exhibit I: Regulations in retail industry in china: Pre and Post 2004
Exhibit II: The Wal-Mart Cheer
Exhibit III: Sam walton's Ten Rules for Building a Successful Business
Exhibit IV: Wal-Mart: Financial Summary
Exhibit V: Wal-Mart's Division Wise Operating Results
Exhibit VI: Geographic Map of China
Exhibit VII: A Profile of the Retail Industry in China
Exhibit VIII: Popular Employers in China as seen by University Students
Exhibit IX: List of Honors Received by Wal-Mart in China
Exhibit X: A note on Supply Chain and Logistics in China
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