Wal-Mart case study - China operation

Essay, 2007

28 Pages, Grade: 70


Table of Contents:

Executive Summary

1 Company Background
1.1 History
1.2 Corporate Strategy
1.3 Mission and objectives
1.4 Business Strategy
1.5 Similarities and differences in the organization culture and management function with host countries
1.5 Strengths
1.6 Weaknesses

2 PEST environment
2.2 Political, Economic, Social Culture and Technology (Opportunities)
2.2 Political, Economical, Social Culture and Technology (Threats)
2.3 Similarities and differences with host country
2.4 Marketing strategies

3 Product Life Cycle
3.1 Market Size and growing rate of retailing industry in China
3.2 Barriers of Entry
-. Labor skills
-. Land
3.3 Sources

4 Competitive Analysis
4.1 Microenvironment Analysis
- Threat of new entrants (Moderate)
- Bargaining power of buyers (Low)
- Bargaining power of supplier (Low)
- Threat of Substitutes (Moderate)
- Rivalry among competitors (High)
4.2 Competitors analysis
4.3 Wal-Mart position

5 Buyer Analysis
5.1 Market segmentation
5.2 Strategies

6 Marketing Strategies
6.1 Marketing objectives
6.2 Marketing Mix
- Product
- Price
- Promotion
- Place

7 Entry Strategy
- Past and Current
- Future

8 Conclusion


Executive Summary

China, a country with population of 1.3 billion people and is currently experiencing rapid growth in economy since it open itself to the world for investment. In the year of 1994, Wal-Mart made its first move to China by selecting CITIC (China International Trust and Investment Corporation) group as local partner for the investment. Opening its first store in Shen-Zen in the year of 1996 and since then has grown to 81 stores in 20 more cities around china. In China, Wal-Mart is using adaptation strategy where it locally sourced its product although the organizational culture is standardized with the home country. Adaptation strategy does not apply only to the product wise, in term of the store formats are also adapted to the local cultures where racks height, and stores layout are also changed to meet local taste.

From the macro-environment view of the china retailing industry, Wal-Mart will face threats on the political side where the government is not transparent enough in the policy making. Moreover, it is currently anticipating the economic big turnover by tightening the regulations on the land although China is still encouraging foreign investment. In China, Wal-Mart will face strong competition from its arch-rivals Carrefour and other strong local competitor such as Lian-Hua supermarkets and China Resources Enterprise of which both are the pioneers in the China retailing industry. The current position of Wal-Mart in China is still far away to be as the same level with them as Wal-Mart is unable to apply its superiority in logistics that win the competition in USA.

Although it is a vast market, not all the populations have great spending power. It is a country of haven and have not, where the income disparity become a large issue. The middle income class only represents 25-30 millions people and mostly remain in the urban area. China is a very fragmented market and rich in cultures background which may trap companies to generalize them. Despite of it, China is certainly a very attractive market to invest in as the indicators in economic has been shining for the last twenty years.

1 Company Background

1.1 History

Sam Warton, the founder of today’s retailer monster started the business in the year of 1962 in Bentonville, Arkansas. The first store is called “Warton’s Five and Dimes” (Belsie, 2002). Currently, the number of stores has grown to 6796 stores, covering 15 countries around the world, beside United States there are Wal-Mart in Canada, Argentina, Puerto-Rico, Mexico, Guatemala, Brazil, Honduras, El-Salvador, Nicaragua, Costa-Rica, United Kingdom, Japan, and China (Wal-Martchina, 2007).

Wal-Mart expansion campaign in China begins in the year of 1994, where it sent a team to evaluate the prospect of investment in that country. The first store only started to operate in the year of 1996 in Shenzhen (ICFAI, 2005). The last count made in 4th April 2007 showed that the number of the stores in China has grown to 81 stores; 76 supercenters, 3 SAMs club and 2 neighborhood markets (Wal-MartChina, 2007).

1.2 Corporate Strategy

From the analysis on Wal-Mart overall business strategies, their corporate strategies are Firstly, to dominate the retail industry by being a company that is offering the lowest price possible (Wal-Mart annual report, 2007) to the customer, Second is to expand in the US and internationally which currently have reached 4058 in US and 2898 in other 14 countries (Wal-Martchina, 2007). Third is to refine the image of the company by carrying out company sustainability, community benefits (Scott, 2007), social responsibility (Wal-Martchina, 2007) programs besides allowing unionization of its workers (McGregor, 2004). Finally is to reach out to other sector of retailers by opening up Pharmacies, Optical, Tire and Lube services, or Alaskan Bush shoppers for those who stays in Alaska and need to shop. (Wal-Mart, N/D).

1.3 Mission and objectives

Although Wal-Mart does not have any official mission statement, their slogan of “Everyday’s low price, Always!” has certainly become the de-facto mission statement (Fishman, 2003). Therefore, In order to provide customers the lowest price, Wal-Mart has taken into actions to fulfill few objectives that can be seen in their sustainability strategies. Their sustainability strategies are to improve social, economic and environmental practices. Wal-Mart is to reduce the operation cost by using more high tech bulbs that will save them millions of dollars in bills, and to operate the logistic trucks efficiently (Wal-Mart, N/D) beside using 100% renewable energy and produce zero waste (Wal-Martstores, N/D).

1.4 Business Strategy

Wal-Mart in entering the China is trying to adapt the same strategy which is to offer lowest price possible to the customers. In order to apply this strategy, Wal-Mart is currently trying to increase local procurement, establish good relationship with suppliers, modernized commodity distribution and computerized system in its management with a reason to improve efficiency and reduce cost (ICFAI, 2005). Also, in order to refine the bad image that it received in the host country, Wal-Mart in China has begin the social responsibilities campaign early where it involves itself in environment protection, donation to the wellbeing of senior citizen, education support, and disaster relief (Wal-MartChina, 2007).

1.5 Similarities and differences in the organization culture and management function with host countries

Sam Walton as the founder of the company have laid down 3 basics belief to be carried out in doing a retailer business, they are respect for individuals, serve our customer, and strive for excellence (Saporito, 2003). These three basic beliefs furthermore create the culture of the “Sundown rule”, “Ten foot rule” and pricing philosophy (Arnold and Fernie, 2000). These cultures values customer as the most important of all, where managers are considered as “servant leaders” that helps the associates to realize their potentials and have to answers the questions made by customer within 24 hours. Moreover, whenever associates of Wal-Mart come to a customer within ten feet, they will have to greet and offer helps to the customer.

China is a collectivist culture, different to the host country which is more on the individualists. Moreover, the Chinese are also higher on the power distance if compared to host country (Hofstede, 1993). Furthermore, it is also noted that the Chinese of which have lived under influence of western culture will aware of their self-enhancement thus low power distance, and more ambitious rather than those who never lived under the influences (Jaw, et.al, 2007).

1.5 Strengths

Wal-Mart has many strength points in China, one of which is its partner in the expansion campaign. It chose CITIC (China International Trust and Investment Corporation) group, a large company that being established since 1979 (Jie, 2004). This partner will surely have a reliable knowledge towards the market condition and situation thus provides good information for Wal-Mart to adapt its strategy. In addition, to imply the strategy of low cost, Wal-Mart is using local procurement to stock the shelves in its mart. As matter of facts, 95% of the goods were locally purchased. Moreover, good relationships were also being established with the suppliers, where Wal-Mart is paying the supplier within 3-7 days (ICFAI, 2005).

Wal-Mart encourage its workers to perform better, thus it provides career incentives to those that performs well. It gives training opportunity for them, by sending them to U.S to attend a training program. Finally, since 1996 it has already won numerous awards, including Best Performers in China, Employer of the Year, No Fake Product and Most Admired Company in China (Wal-Mart China, 2007).

1.6 Weaknesses

Despites of its strengths, Wal-Mart in China also have several falling points, where it faces some difficulties in applying the Just in Time technology. This off course will affect the efficiency in the distribution of the goods and furthermore affect the low price strategy not being carried at the best. Moreover, Wal-Mart in China is not applying an aggressive expansion strategy where it only managed to open 77 stores in 11 years of operations.

The lack of market knowledge has also hinders Wal-Mart to have a wholly owned company based in China thus the profit will have to be shared with others unlike Carrefour that able to operate in sole-ownership since 2006 (Euromonitor, 2006).


Excerpt out of 28 pages


Wal-Mart case study - China operation
Oxford Brookes University
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ISBN (eBook)
ISBN (Book)
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Wal-Mart, China
Quote paper
Johnsen Chen (Author), 2007, Wal-Mart case study - China operation, Munich, GRIN Verlag, https://www.grin.com/document/77167


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