Walmart in China

WALMART IN CHINA

1. Over Overvi view ew of of the the Comp Compan any y History of Wal-Mart

The company which today is known as Wal-Mart was founded by a renowned American retailer by the name Sam Walton. Sam, after ending his military service in !"#, moved with his his wife wife,, $elen $elen,, to %ewp %ewport ort,, Arkansa rkansas, s, where where he gaine gained d retai retaill e&peri e&perienc encee 'Wa 'Walmart lmart (orporate). *t was during this time he opened his first retail store- Walton+s #. ollowing the success of Walton+s first dime store, Sam left %ewport for /entonville in !#, where where he event eventual ually ly opened opened the first first Wal-Mart l-Mart in 0oger 0ogers, s, Arkansa rkansas, s, in the year year !1 !12 2 'Wa 'Walmart lmart (orpo (orporat rate) e).. $avin $aving g recor recorded ded over over 32 32.4 .4 milli million on in sales sales in !1 !14 4 'Wa 'Walmart lmart (orporate), the company became officially incorporated in !12 as Wal-Mart Stores, *nc. Wal-Mart *nc. operates through its the 56very 7ay 8ow 9rice+ business strategy. *n !!, Wal-Mart through a Me&ican retail company by name (ifra opened its first overseas Sam+s (lub in the %orth America country. Thereafter, operations of Wal-Mart were e&panded into (anada in !!". ollowing the series of success, Wal-Mart opened its first stores in Shen:he Shen:hen, n, (hina, (hina, in the year !!1 'Wal 'Walmar martt (orpora (orporate). te). *n (hina, (hina, Wal-Mar al-Martt operates operates hypermarket, Sam+s clubs, and %eighbour stores formats. Wal-Mart International O!e"tive

Wal-Mart Wal-Mart is currently in operations in 2; countries worldwide worldwide with over ,# stores under  4 banners 'About Walmart Stores, *nc.). Wal-Mart+s operations span (hina, ingdom, /ra:il, Africa and elsewhere with head?uarter in /entonville, =nited States where it employs over .# million associates at over # stores and clubs nationally 'Walmart 'Walmart (orporate). (orporat e). Wal-Mart Wal-Mart offers retailing and e-commerce e-commerce services in its 2; countries of operations operations covering sales of groceries, bakery, deli and dairy products, electronics, apparels, toys, beauty products etc. *n the 21 financial results, Wal-Mart posted revenue of over 3"; billion, conse?uently  becoming listed in the top to p of ortune+s top # companies 'Walmart (orporate). Con"ept of M#ltinational Corporations $MNCs%

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As defined by 8a:arus A., a multinational corporation is a business venture that operates in more than two countries '8A@A0=S, A., 2). An M%( is the organi:ational form of  oreign 7irect *nvestments '7*) into a foreign country. A multinational corporation has also  been defined as one on e with overseas subsidiaries '$A007, <. W.). W.). M%(s can vary based b ased on their activities or the number of countries of operations. ollowing the definition, Wal-Mart *nc. is clearly a multinational corporation as its operations span 24 countries besides its home operations in the =nited States. 2. Host Co#ntry Analysis China

Within the last three decades, china has risen to become a maBor economic power in the world. ollowing the economic reforms by (hina in !4!, its C79 growth stood at over  percent yearly. 9rior to the !4! reform, (hina+s C79 growth was put at an annual growth rate rate of 1.4 D betwe between en !#E and !4;. !4;. 'M0 'M00* 0*S S%, %, W. W. M., 2#). 2#).


 purchasing power parity '999), (hina is the world+s largest economy in manufacturing, merchand merchandise ise e&port e&port and imports imports,, foreign foreign e&change e&change reserve reserve holding. holding.

A number number of =S

companies are in operation in the booming (hinese market to sell their products, and also leverage on the cheap labour that abounds in (hina. (hina+s (hina+s economy when measured using nominal e&change rates, had a gross domestic product 'C79) si:e of 3 ." trillion as of  2", with a per capita C79 of 34,#;! as estimated by the *nternational Monetary und '*M) in the same year 'M00*S%, W. M., 2#). According According to the Michael 9orter+s 7iamond 7iamond Model, the first attribute the first attribute is the factors that prevail in the country. The country factor conditions can be broadly categorised into hum human an resourc resources, es, material material resource resources, s, knowled knowledge ge resource resources, s, capital capital resource resources, s, and infrastructural resources. The human resources further consist of ?ualifications and cost of  labour labour while while the materia materiall resource resourcess consist consist of space, space, natural natural resource resources, s, and vegetati vegetation. on. '06(>8*6S, 7., 2#). 'A7
(hinese market. (onse?uently, it deployed an everyday 8ow 9rice strategy to con?uer the (hinese market. Cenerally, for marketing seeking Multinational (orporations like Wal-Mart, the market si:e and growth potentials are always among the determining factors that affect oreign 7irect *nvestment *nvestment decisions. *t can be inferred, therefore, therefore, that Wal-M Wal-Mart art prior to its !!1 entry into (hina, have been attracted by the market si:e and growth potentials of (hina. Wal-Mart Wal-Mart was able to overcome earlier entry problems due to the wnership advantage 'i.e. the company company+s +s abiliti abilities es and e&perti e&pertise). se). This clearly clearly conform conformss to the 7unning 7unning 6clecti 6clecticc 9aradig 9aradigm. m. Wal-Mart+ l-Mart+ss successf successful ul interna internatio tionali nalisati sation on in (hina (hina was also signific significantl antly y determined determined by the everyday 8ow 9rice and everyday 8ow-(ost 8ow-(ost strategies that it deployed to great effect. The (hinese business environment of which Wal-Mart, is a part of, is clearly indicated in igures  to E. The trend and nature of retail investments are as shown in the three figures from 21 to 2. After the effect of the economic downturn in 2;, the attractiveness of  the retail market as of 2! is also captured.

&i'#re 1( China Retail Investment )ol#me *++,-*+11

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*( roportion of Retail Investment Rea"he New Hi'h

&i'#re /( 0istri#tion of Investment in *+11 y ro#"t Type

/. ntr ntry y 2trat 2trate'ie e'iess of of WalWal-Mar Martt in Chin China a

As stated by /ishop, an entry strategy is a mode through which a company enters a foreign market, and how it makes its products and services available to the customers in the foreign country 'F=6, 8., 24). The entry strategy chosen by the foreign firm is very important to its success. As reported by b y
host. (ommitment decisions and internationali:ation can be affected by knowledge level as well as commitment to foreign markets as espoused by the =ppsala model. Wal-Mart officially entered (hina in the year !!1 'Walmart (orporate). /efore its entry, Wal-Mart waited for openness in policy, following the increase in the number of e&perimental cities where non-(hinese firms were allowed to operate by the (hinese government. This was  because the government of (hina had put restrictions and regulations which prevent foreign  businesses from operating unless it entered into a partnership with a (hinese company, with the (hinese company owning over #D in the Boint venture 'F=6, 8., 24). As a result, Wal-Mart before its formal entry had gone into partnership with Shen:hen *nternational Trust  *nvestment (ompany 8imited in !!#. *t was afterwards that Wal-Mart opened its first outlets in Shen:hen, (hina. Wal-Mart *nc. has had success as the largest retail stores. WalMart Mart adopt adopted ed a Boint Boint ventur venturee as its its entry entry strate strategy gy which which allow allowed ed it gained gained ade?ua ade?uate te knowledge of the (hinese market and other country factors from its local partner. Wal-Mart+s success was in part due to its ownership advantage in business e&pertise and know-how of  retailing, and the valuable knowledge it ac?uired from its partnership. (hin (hina, a, bein being g the the mo most st popu populo lous us coun countr try y in the the worl world, d, pres presen ents ts huge huge reta retail il mark market et opportunities. /etween !! and !!#, prior to Wal-Mart+s entry, (hina recorded annual retail sales growth of D 'CG*%7A0A., 22), which was fuel fuelle led d by risi rising ng dema demand nd for for cons consum umer er good goodss and and econ econom omic ic reco recove very ry.. Wal-Ma l-Mart rt e&perimented with a variety of strategies to determine which had the greatest appeal to the (hinese market. ne of the entry strategy used by Wal-Mart was the opening of the Shen:hen superce supercenter nter,, which which combine combined d a supercen supercenter ter with with warehou warehouse se clubs. clubs. Wal-Mart l-Mart also tried tried various products merchandise to determine the one that had great appeal and suits the (hinese culture better. (onse?uently, Wal-Mart began selling a lot of perishable goods that the (hinese (hinese found appeali appealing. ng.

0egulat 0egulations ions in (hina pose great great challenges challenges for foreign foreign

 businesses. Another factor fa ctor that posed a challenge to Wal-Mart+s Wal-Mart+s low price model was the low middlemiddle-leve levell disposal disposal income income in (hina. (hina. (onse?u (onse?uentl ently y, Wal-Mart l-Mart adapted adapted its marketi marketing ng strategies to suit the (hinese consumers+ pattern of buying in small ?uantities while also  paying attention to language la nguage differences in the labelling of products produc ts and branding. Multinational (orporations 'M%(s) like Wal-Mart view entry into (hina as not Bust an opportunity to e&pand and grow their businesses, but also an opportunity for supporting the over .E billion population of (hina. Wal-Mart aims to become a top player in the retail 5

sector- this has informed its decision to ac?uire Trust-Mart 'M=%, F. 8. and Fa:danifard, 0., 22). Wal-Mart+ Wal-Mart+ss proposed 3 billion takeover of Trust-Mart Trust-Mart is seen as its largest efforts at e&panding its operations in (hina 'C6066, 0. and ng, 0.), with Trust-Mart recording over 3.4 in sales in the year 2#. Apart from utili:ing the ac?uisition strategy in (hina, Wal-Mart is also utili:ing the offshore sourcing strategy in (hina. Wal-Mart uses (hina to source for its product. As a result, it has become the largest e&port channel of products from (hina to the =nited States and elsewhere. Wal-Mart does not operate a manufacturing plant in (hina nor does it have any direct control on manufacturing processes and supplies. This strategy enables it to maintain its everyday low price that has become its core philosophy. Wal-Mar l-Martt is able able to e&erc e&ercise ise it high high barga bargaini ining ng powe powerr while while also also maint maintain aining ing its its high high ownership advantage. The high point of the strategy is that Wal-Mart is able to purchase cheap products from (hina which it can sell at higher prices to the =nited States and elsewhere. The e&pansion plans by Wal-Mart has faced challenges from the government of  (hina. The A(T= A(T= had threatened Wal-Mart Wal-Mart and other M%(s to allow employees to set up  branches of the union in their companies companie s or else face fa ce being sued. sue d. 6ven though the action may ma y greatly benefit the china government, Wal-Mart will be faced with limited options in handling employee benefits and resolutions of grievances among employees. ". International International 3#siness Impa"ts an Contri#tions( Contri#tions( Wal-Mart has embarked on a global campaign to cut down the environmental impacts of its operations operations in (hina and elsewhere. 9rior to before now, in the !;+s and !!+s, !!+s, Wal-Mart Wal-Mart had attempted to initiate a few green products and eco-friendly stores. The environmental initi initiati atives ves by Wal-Ma l-Mart rt in (hin (hinaa have have signa signall lled ed other other corpor corporati ations ons to embra embrace ce sou sound nd environmental practices. Though it has been modest, but it continues to make laudable achievements in this regard. The global economic downturn which impacted Wal-Mart+s  profit margin had a hand in the stalling of the programs. Through its sustainability s ustainability program, Wal-Mart is aiming to reduce waste, encourage reuse, increase organic based products, support farmers, use more renewable energy, and to cut its energy footprints. Through its organic and green product initiatives, Wal-Mart sources much of its food from 7irect arm 9rogram which it established in the year 24 'S($688 , ., 2). Wal-Mart has found it difficult dealing with (hina+s worsening industrial pollution problems. To this end, it enlisted the help of %Cs to train and monitor workers in the factories of its suppliers.

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(urrently, Wal-Mart is the largest private employer of labour with over 2. million workers. Since it began buying made in china products in !!E, Wal-Mart Wal-Mart has grown its operations operations in china to include over E stores and over !, people employed '>088, A., 22). *n the supply chain of Wal-Mart, there are over E, local (hinese factories which are charged with production of 4D of goods that is sold by Wal-Mart. Wal-Mart has recorded sales of 34.# billion in the (hinese market, a figure which accounts for over 2D of its yearly revenues 'S($688 , ., 2). The amount of sales in (hina has continued to increase in the last  years. As mentioned before, over E, (hinese partners are responsible for over 4D of goods sold by Wal-Mart which is worth nearly 3"2 billion dollars yearly 'S($688 , ., 2). (hina has become very decisive to the supply chain of  Wal-Mart. Wal-Mart. (onse?uently, (onse?uently, Wal-Mart Wal-Mart relocated its global head?uarters which was formerly at $ong >ong to Shen:hen, Shen:hen, (hina. The partnership between (hina, the most populated market in world, and Wal-Mart, world+s largest retailer, has helped to fulfil the mutual needs of each  partner. (hina aids Wal-Mart Wal-Mart in fulfilling its growth needs through the provision of supplies while Wal-Mart helps /eiBing in meeting the ever increasing needs of its budding consumers. 4N 5loal Compa"t

Wal-Mart was known for its resistance to employees+ efforts to form trade unions in its areas of operations in (hina and elsewhere. This was clearly a violation of the Erd principle of the =% Clobal (ompact principles, which mandates businesses to uphold the right to freedom of  association association and collective collective bargaining 'The Ten 9rinciples of the =% Clobal (ompact). Wal Wal-Mart employees in (hina have had to act following an order by 9resident $u
'>=0 '>=0T T@86/ @86/6% 6%,, 7., 7., 2 22) 2).. 7espi 7espite te the the effo effort rts, s, Wal-Ma l-Mart+ rt+ss operat operation ionss still still leave leave a detrimental impact on the environment.

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