Wal-Mart Stores: "every Day Low Prices" in China

WAL-MART STORES:

"EVERY DAY LOW PRICES" IN CHINA

Prepared by:

Daniel Magen

Report Distributed February 10, 2012

Prepared for

Florida Atlantic University

MAN 4602: Global Business Operations

Spring 2012: F 9:30 - 12:30

Focus/Perspective

Joe Hatfield, President and CEO of Wal-Mart Asia. Responsible for implement Wal-Mart's business model Every Day Low Prices (EDLP) to China.

Recommendation & Plan for Implementation

Wal-Mart has to implement their business model EDLP and define a different strategy for Chinese market and culture.

Internal & External Strategic Issues

Wal-Mart faces several environmental, cultural, political, economical, social and legal issues and challenges that may act as obstacles for being successful in China. Several internal issues include:

* Employees

* Shoplifting

Wal-Mart pays low salaries and does not offer any type of share for employees. As a result, high rate of managers turn over and unhappy workforce, makes very difficult reproduce domestic business model in China. Corruption and delinquency are very common in under developed countries. China is not the exception, having a high rate in corruption, is another obstacle for Wal-Mart to be efficient amd keep low prices. Several External issues include:

* Chinese Consumer Behavior

* Too Many Competitors

* Diverse Population

* Local Protectionism

* Backward Infrastructure

* Regulatory restrictions

Chinese behavior in terms of consumption is hard task to define. Chinese are not predictable. First, because of lack of infrastructure and automobiles, customers use bicycles and walk and therefore they go every day and make small purchases. In addition, purchases are more impulsive and Chinese do not have preferences for any specific brand they are looking for the best offer. Furthermore, customers spend their free time visiting malls and stores comparing new businesses, quality of the products and prices. Clearly, forecasting sales in this type of market is a hard duty. China is a rapidly emerging economy is attracting investors from all over the world. Every year new retailers have been approved by the government to open their business in China. Wal-Mart, as a top 25 chain stores in China, has to be competitive with prices and try to dominate the domestic and international competition. Indeed, this seems to be almost impossible since local retailers have more advantages in knowledge, better relationship with suppliers, and have established cheap distribution system. Chinese population has experienced a rapid economic growth in the last 20 years. This economic growth had not only increase income and wealth but also had created a significant gap between rich and poor. Rural sector in China is in a very considerable disadvantage that it is almost impossible for retailers to create a uniform marketing strategy. China implemented new fiscal policy that prohibits local government to impose barriers against foreign firms, these new policy seems to be ineffective, because authorities are not enforcing them. Before 1997, China lacked of expressways. In addition, construct highways is a slow process and very costly. Lack of infrastructure is affecting Wal-Mart's distribution system and imposing high cost in logistics. Government has regulatory restrictions that limit foreign retailer's expansion by allowing them to open three stores in each city. Also, Wal-Mart is not allowed to open in every city.

Alternative Strategic Options

There are several alternative strategic options that can be implemented for Wal-Mart to accomplish business purpose. Some alternatives are:

* Get strong local knowledge

* Understand the culture and traditions

* Understand customer behavior

* Merge and acquisition of existing companies

* Customize their products partially according to the demand

* Work close with the suppliers

Reference to Key Reading

According to Joan Margretta, "a business model isn't the same thing as a strategy, even though many people use terms interchangeably today. Wal-Mart showed in the United States that they have a clear understanding between these words. By using the business model of discount retailing and developing an unique strategy that fits in the American market.

Recommend course of action

Wal-Mart would be able to implement their business model EDLP because China has similar US characteristic. On the other hand, Wal-Mart has to use a different strategy that fit in the Chinese's environment. In addition, get strong local knowledge, understand the culture and traditions, understand customer behavior, merge and acquisition of existing companies, customize their products partially according to the demand and work close with the suppliers. Finally, competitors are going for low prices and providing low quality. Successful business means good business model, being different and have a unique strategy.

SILVIO NAPOLI AT SCHINDLER INDIA

Prepared by:

Daniel Magen

Report