Background of Organization
Wal-Mart Stores, Inc. was founded by Sam Walton in the year 1962. Wal-Mart is the world's largest retailer according to 2009 Global Power Retailing (Deloitte) and the world's third largest corporation after Royal Dutch Shell and Exxon Mobil, with over $400 billion in sales ("GLOBAL 500" 2009). Wal-Mart operated into four segments includes discount stores, Supercenters (hypermarkets), neighborhood stores, and Sam's Club (membership warehouses). Now, Wal-Mart successful expanded internationally in 11 countries and having over 7000 units. It has wholly-owned subsidiaries in Argentina, Brazil, Canada, Mexico, Japan, Puerto Rico and the United Kingdom; and joint-ventures in India and China ("Wal-Mart Annual Report" 2009). While the ventures in Germany and South Korea was unsuccessful and it is forced to pull out.
Mission and Objectives of Wal-Mart
The founder Sam Walton, his goal is understanding people what they needed and the importance they place on value to help them to save money so they could live better. Today, it became the mission of Wal-Mart, "Saving people money so they can live better."
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Three beliefs of Wal-Mart are respect for individual, service to the customers, and striving for excellence. Wal-Mart is aware of the important of customers, which is customer-focused and offer authentic low prices products and quality customer service to customers. Additionally with the support of two rules: the Ten-foot Rule that is providing greetings and attentions within 10 feet of a customer any time; and the Sundown Rule that is fast responding to customers' requests when received. It is because of the values and cultures Wal-Mart makes a difference with its rivals by exceeding what customers' expected. These assist Wal-Mart to reach the objectives everyday-low-prices strategy to deliver on this promise and remain number one among the middle-class customers (Robber Slater 2003, p.49-55).
Overview of Global Development of Wal-Mart Business
- Fast, Friendly, Clean
- More Brand Than Ever
- Improved Customer Experience
- Strong Growth
- Expanding in Asia
- New Market
- Consistent Growth
With more than hundreds of thousands of surveys on customers, Wal-Mart promised of fast checkout, friendly associates and cleaner stores for customer to experience which will bring more customers.
Wal-Mart offered more top brands such as Sony, Dell, and etc. for customers to have new experience and choices in Wal-Mart.
By remodel Wal-Mart stores, to make the stores easier for customers to shop and to ensure the efficiencies of operation.
Net sales rose 6.8 percent to $255.7 billion, while segment operating income boosted up to 7.1 percent as $18.8 billion (also refer to Figure 1 & 2).
("Wal-Mart Annual Report" 2009)
Wal-Mart opened a Hong Kong regional office to facilitate long-term opportunities in Asia, to support existing operations in Japan, China and India, and to further build our leadership team.
Wal-Mart entered Chile through the acquisition of a controlling interest in Distribución y Servicio (D&S), Chile's largest food retailer.
Net sales increased to 9.1 percent as $98.6 billion, while segment operating income grew to 4.6 percent to $4.9 billion (also refer to Figure 1 & 2).
("Wal-Mart Annual Report" 2009)
Entry Modes in Global Expansion & Factor influencing the choices of Entry Strategy
The mode of entry is a fundamental decision a firm makes when it enters a new market because the choice of entry automatically constrains the firm's marketing and production strategy. The mode of entry also affects how a firm faces the challenges of entering a new country and deploying new skill to market its product successfully (Gillespie, Jeannet, and Hennessy 2007). A firm entering a foreign market faces an array of choices to serve the market. In an exhaustive survey of the different modes of market entry, Root (1994) identifies 15 different forms. Following Root, we categorize these into the following five main classes, listed in order of increasing control:
- Export: a firm's sales of goods/services produced in the home market and sold in the host country through an entity in the host country.
- License and franchise: a formal permission or right offered to a firm or agent located in a host country to use a home firm's proprietary technology or other knowledge resources in return for payment.
- Alliance: agreement and collaboration between a firm in the home market and a firm located in a host country to share activities in the host country.
- Joint venture: shared ownership of an entity located in a host country by two partners, one located in the home country and the other located in the host country.
- Wholly owned subsidiary: complete ownership of an entity located in a host country by a firm located in the home country to manufacture or perform value addition or sell goods/services in the host country.
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A firm can choose any of these entry modes or some combination of them to enter a host country. The key attribute that distinguishes the different modes of entry is the degree to which they give a firm control over its key marketing resources (Anderson and Gatignon 1986). At one end of the spectrum is the export of goods, which has the lowest degree of control. Licenses, franchises, and various forms of joint venture provide a progressively increasing degree of control for the firm; at the other end of the spectrum, ownership-based entries, such as wholly owned subsidiaries, afford the highest control.
Two opposing theories suggest alternative outcomes as control increases: the resource-based view and the transactions cost view. The resource-based view holds that as the degree of control increases, the firm's chances of success increase because the firm can deploy key resources that are essential to success (Gatignon and Anderson 1988; Isobe, Makino, and Montgomery 2000).
These resources can be intangible properties, such as brand equity and marketing knowledge (Arnold 2004), or tangible properties, such as a patent or a process blueprint. Control over such properties gives a firm the freedom to deploy resources flexibly, thus enhancing its chances of success. In the context of emerging markets, control provides two key benefits. First, it safeguards key resources from leakage, such as patent theft. Second, it allows for internal operational control, which is essential to a firm's success in emerging markets (Luo 2001). In addition, a firm can control key complementary resources, such as access to local distribution channels, which can be important to its success in any country.
The transaction cost view holds that costs increase with increasing control of the mode of entry. Control and commitment are inextricably linked in mode of entry (Luo 2001). High control in entry strategies entails high commitment. Transaction cost theory suggests that the higher the resource commitment and desired control of an entry mode, the higher is the cost. Wholly owned subsidiaries and joint ventures are high-cost entry modes because of the level of resource commitment needed to set up operations (Pan and Chi 1999).
The role of market entry timing is critical in emerging markets (Pan and Chi 1999). The literature suggests reasons that early entry into international markets could favor or hurt success.
On the one hand, early entry has many advantages. First, the early entrant can lock up access to key resources, such as distribution channels and suppliers. Second, early entrants have the opportunity to set the pattern of consumer preference (Carpenter and Nakamoto 1989; Mitchell 1999), which may disadvantage later entrants. Third, early entrants can benefit from being the first to exploit governmental concessions and incentives, which governments often offer to attract such entrants (Pan and Chi 1999). Fourth, early entrants can time their entry to exploit the "strategic window" of an expanding market and observe and learn market attributes for a longer period.
On the other hand, Golder and Tellis (1993) find that pioneers are often not the long-term winners in a market. Using U.S. data, they show that in several categories, "best" beats "first" (Tellis and Golder 2001). In the international context, pioneers may fail for several reasons. First, firms that rush in first may not be aware of the pitfalls of the newly opened emerging market. Second, returns to the early entrants might be too low compared with their investments, especially because infrastructure is not yet fully developed. Third, latter entrants have a flatter learning curve because they can learn from the early entrants' errors (Fujikawa and Quelch 1998). These three factors may be responsible for the failure of many early entrants in some markets (Arnold 2004).
New trade theories developed by Krugman (1980) and Porter (1990) suggest that firm-specific advantages play an important role in international trade. Although small firms (with fewer than 500 employees) today account for 30% of U.S. exports (Cateora and Graham 2006), in general, larger U.S. firms have been more able to participate in global markets than smaller firms because of their financial and managerial resources (Terpstra, Sarathy, and Russow 2006).
There are several reasons larger firms might have greater success than smaller firms. First, larger firms have recourse to more resources or can commandeer more resources than smaller firms (Bonaccorsi 1992). For example, Coke was able to purchase the leading cola brand in India, Thums Up, to open its entry into India (Ramaswami and Namakumari 2004). Second, larger firms are more likely to possess a greater wealth of product-specific and marketing-specific knowledge than smaller firms. For example, Nestlé has a portfolio of 7695 brands to choose from and a huge organizational history of international expansion to help it exploit any new market that it enters (Parsons 1996). Third, larger firms are more capable of sustaining periods of negative performance on entry into a host country than smaller firms. Luo (1997) finds that size favors performance, even after controlling for mode of entry.
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Conversely, the experience of many large firms shows that size is no guarantee for success. The recent withdrawal of Wal-Mart first from Korea and then from Germany is a case in point (The Economist 2006). Researchers have unearthed some explanations for this result. Large size diminishes organizational flexibility because of increasing bureaucracy (Hitt, Ireland, and Hoskisson 2003). This bureaucratic effect also impairs innovative ability (Chandy and Tellis 2000).
Economic distance is a measure of economic disparity between two countries. Firms find it easy to deal with host countries that are close in economic distance from their home country for several reasons. First, countries close in economic development have similar market segments that can afford to consume similar types of goods and services. Thus, knowledge about market demand transfers easily from home to host country. Second, countries close in economic development have similar physical infrastructure, such as airports, roadways, railways, and seaports. Thus, firms serving a host country with an infrastructure similar to the home country will enjoy efficiencies in its operations, thus lowering costs. Third, firms develop competencies or knowledge-based resources that are related to the markets they serve (Madhok 1997). These resources can be best leveraged in countries that are similar in economic development because the skills learned in one market can be replicated in or adapted to the new markets. Firms entering countries that are widely different economically from their home country need to adjust to the new market conditions, thus reducing their likelihood of success (Dunning 1998).
Erb, Harvey, and Viskanta (1995) define "country risk" as uncertainty about the environment, which has three sources: political, financial, and economic. Political risk is the risk that laws and regulations in the host country will be changed adversely against a foreign firm. These could be of a regulatory nature, such as the imposition of tariffs, or of a political nature, such as unrest caused by pressure groups (Spar 1997). At its severest, political risks may cause confiscation of assets without adequate compensation (Hawkins, Mintz, and Provissiero 1976). Financial and economic risks manifest in several ways. They could take the form of (1) recessions or market downturns, (2) currency crises, or (3) sudden bursts of inflation. Most of these factors arise from imbalances in the underlying economic fundamentals of the host country, such as a balance of payment crisis. Recessions result from business cycles inherent in any economy (Lucas 1987).
The term "openness" refers to the lack of regulatory and other obstacles to entry of foreign firms. Openness could either increase or decrease entry success. On the one hand, openness could increase success for three reasons. First, it stimulates demand by increasing the variety of products offered for sale in the market. Second, it increases competition on quality and thus improves the level of quality supplied. Third, as the economy opens up, competition increases efficiency and lowers prices, resulting in further increases in demand. Evidence from China also shows that "growth acceleration has been associated with the opening of markets" (Naughton 2007, p. 7).
On the other hand, an open economy is a double-edged sword. Although openness makes entry easier for a target firm, it increases competition from other new foreign entrants. Increasing competition affects market success in several ways. First, even a small degree of competition is enough to lower prices significantly (Wallace 1998). Thus, competition keeps margins low, permitting only the most efficient to survive. Second, competition increases costs of purchases, the hiring of talent, and the marketing of products and services. Competitive pressures are a reason firm profitability has been shown to be lower for international markets than for domestic markets (Gestrin, Knight, and Rugman 2001). Third, competition causes firms to lose leadership if they make any strategic mistakes, such as targeting the wrong segment or pricing the product too high, both of which are common mistakes in entering emerging markets. Competitors are quick to pounce on any mistake and prevent firms from recovering lost ground. Thus, increasing openness increases competition and decreases success.
Advantages and Disadvantages of Joint Ventures
Joint Ventures have a number of advantages. First, a firm benefits from a local partner's knowledge of the host country's competitive conditions, culture, language, political systems, and business system. Thus, for many U.S firms. Joint ventures have involved the U.S Company providing technological know-how and products and the local partner providing the marketing expertise and the local knowledge necessary for competing in that country. Second, when the development costs or risks of opening a foreign market are high, a firm might gain by sharing these costs and or risks with a local partner. Third, in many countries, political considerations make joint ventures the only feasible entry mode. Research suggests joint ventures with local partners face a low risk od being subject to nationalization or other forms of adverse government interference. This appears to be because local equity partners, who may have some influence on host-government policy, have a vested interest in speaking out against nationalization or government interference.
Despite these advantages, joint ventures have major disadvantages. First, as with licensing, a firm that enters into a joint venture risks giving control of its technology to its partner. Thus, a proposed joint venture in 2002 between Boeing and Mitsubishi Heavy Industries to build a new wide-body jet raised fears that Boeing might unwittingly give away its commercial airline technology to Japanese. However, joint-venture agreements can be constructed to minimize risk. This allows the dominant partner technology that is central to the core competence of the firm, while sharing other technology.
A second disadvantages is that joint venture does not give affirm the tight control over subsidiaries that it might need to realize experience curve or location economies. Nor does it give a firm the tight control over foreign subsidiary that it might need for engaging in coordinated global attacks against its rivals. Indeed, many joint ventures establish a degree of autonomy that would make such direct control over strategy decisions all but impossible to establish.
A third disadvantage joint ventures is that the shared ownership arrangement can lead to conflicts and battles for control between the investing firms if their goals and objectives change or if they take different views as to what the strategy should be. For example, in the case of ventures between a foreign firm and a local firm, as a foreign partner's knowledge about local market conditions increases, it depends less on the expertise of a local partner. This increases the bargaining power of the foreign partner and ultimately leads to conflicts over control of the venture's strategy and goals. Some firms have sought to limit such problems by entering into joint ventures in which one partner has a controlling interest.
Findings on Wal-Mart's operations in China
In 1996, Wal-Mart began its retail operation in China through joint venture agreement with opening of a Supercenter and Sam's Club in Shenzhen. Over pass 13 years of development, Wal-Mart now has 146 stores in China, across 89 cities, including 138 supercenters, 3 Sam's Clubs and 2 Neighborhood Markets. Beside, Wal-Mart brought out 70,000 job opportunities for China. Wal-Mart is also striving hard on environmental protection and also encourages its suppliers to work jointly with it. About 95 percent of local products are sold in Wal-Mart China store. It is because Wal-Mart built up relationship with nearly 20,000 suppliers. Moreover, Wal-Mart China won quite a number of awards such as Leading Multi-National Enterprise in Asia by Asian Wall Street Journal Award.
Joint Venture as entry strategy into China
Wal-Mart is the world's largest retailer with a powerful retail position to make it possible to expand its market. Because of Wal-Mart's competitive gross margins and high inventory turnover, and enjoyed economies of scale, efficient supply chain logistics, high purchasing power. So that it can enforce everyday low price strategy.
Due to rapid growth of Wal-Mart, it could not constrain its operation in U.S. as the limitation and the lowered trade barrier of the market itself. Wal-Mart had no choice to go for globalization to meet the competition.
The United States is 37% of the world's economy, which leaves 63% for International. If Wal-Mart does their job, International operations should someday be twice as large as the United States. That is a great challenge, but that is the opportunity in front. Someday the U.S. will slow down, and the international will be the growth vehicle for the company (Business Week 2001).
By 1996, Wal-Mart felt that it is real-time to take on the Asian challenge. It targeted China with a population of exceeding 1.3 billion, continued economic of growth, and a large supple of labor forces. Middle-class purchasing power of the Chinese customers exhibited great potential for low-price retailer like Wal-Mart.
However, large cultural differences, too many players, local protectionism, backward infrastructure, government restriction on foreign ownership and import barriers, brought difficulties to Wal-Mart when considering to enter China.
The largest obstacle faced by Wal-Mart was the government regulation that permitted foreign retailing only in certain Chinese cities. Wal-Mart was only allowed to set up business in only eleven Chinese cities (for examples Shenzhen, Beijing, Shanghai), and it was limited to three stores per city.
In December 2001, China joined the World Trade Organization (WTO), it became obligated to waive many limitations on market access. That means eliminating barriers for foreign competitors to compete in China. This allowed Wal-Mart to open up stores in any Chinese cities. After all the challenge of integrating the Wal-Mart's culture into its stores in China seem to be the great obstacle for Wal-Mart.
Late entry also was a non-barrier to Wal-Mart as its main rival - Carrefour had entered into China earlier than Wal-Mart in 1995. It became a major difference between Carrefour and Wal-Mart as while
Carrefour was mainly trying to localize and do things "the Chinese way" by encouraging local branch decision making, building local supplier contracts, amplifying local rules and regulations, and using local promotion marketing schemes, Wal-Mart was more focused on doing things the American way.
As of this consideration, Wal-Mart used joint venture as entry strategy to acquire local retailer chains to expand its business and be more local adaptation in shorter period of time.
Performance of Wal-Mart in China
When Wal-Mart began its operation enter China in 1996 with a store in Shenzhen. By 2003 Wal-Mart had 31 stores with nearly sixteen thousand employees. As of the mid 2000s, it was mostly in major cities like Beijing, Shanghai and Shenzhen.
In 2006, Wal-Mart had about 60 stores in nearly 30 Chinese cities. Its sales increased 30 percent to $2 billion, which drive Wal-Mart to China's 10th largest retailer. Wal-Mart planned to set up 18 stores in 2006. One Sam's Club store reported $100 million in sales in 2005.
In 2006, Wal-Mart had employees of 30,000 and planned to hire 150,000 more employees in the next five years; the turnover rate is in the teens far lower than the United States where it usually remains in 50 percent.
However, Wal-Mart was unable to reapply the efficient logistical system it has in the United States largely. The Sam's Club warehouse stores both in Beijing and Shenzhen did not operate well as most Chinese homes do not have large storage facilities for bulk supplies.
According to OneSource, Wal-Mart brought over a 35 percent stake in Trust-Mart for US$ 264 million from BCL. Bu now, Trust-Mart, a major Chinese discount chain, has 101 chain stores in 34 cities in China.
In 2008, Wal-Mart has achieved annual sales growth in China of at least 25 percent and this strong growth will continue, a company executive said on Tuesday (Reuters 2008).
Now, Wal-Mart has total 243 units' stores in China. It totally rose to 41 units from 2008 to 2009 also refer to Appendix X). Besides Wal-Mart China also won numerous award (also refer to Appendix X).
Current challenges faced by Wal-Mart
Last year, the cases of infant consumed the melamine-contaminated powdered infant formula, and caused over 6240 infants has kidney problems and three reported death (World Health Organization 2008). Also, according to the Greenpeace report, more than 50 kinds of pesticides have been discovered in fruits and vegetables delivered in big cities.
As a result, food safety becomes one of the biggest challenges for the company. Due to the food safety issues are recently often cited in the media, China's government is forced to take action to stop the problems become more seriously. Now, China is more serious about the quality and safety of the products, including the products that are imported and exported from China.
As reported by Business Daily at 15 April 2009, Wal-Mart has launched a job optimization and regrouping program to reduce labor costs in China. Leally Huang, public relations manager, Wal-Mart China said with Asia Pulse in 15 April 2009 that "Those who are unsatisfied with the program and want to leave would be given adequate compensation, but we will try and see if we can retain them."
In addition to the reported from Datamonitor (17 April 2009), Wal-Mart China cut down the labor cots affecting 1,400 employees. Along with the local trade unions are go again for this (South China Morning 2009).
As a consequence, employees are not happy with the low-paid wages by the Wal-Mart and may resent of the action of Wal-Mart. In short period of time, it may seem not be the big problem for Wal-Mart but in long-term it may become the "cancer" for the Wal-Mart China. In additionally, workers will not be loyalty to the company and this will result in the performance of the Wal-Mart or even destroy the reputation. Besides, from the reported news above, because Wal-Mart's target is everyday low price, so what make Wal-Mart to reduce the labor cost, it is because the competitions in China between local and foreign companies are too intense and stiff. Furthermore, Wal-Mart everyday low price practice is easily replicated by its competitors.
According to Reuters (8 Sept 2009), a customer of Wal-Mart was suspecting of shoplifting, and she was death after injured by the employees of Wal-Mart China. The customer, 37-year old female, her husband complained that Wal-Mart did not apologize or offer any compensation after this incident has happened.
This shows that the employees are not being trained well enough. Because the employees who at the front line drive the company's reputation. This case may have bad influence on the Wal-Mart reputation, if Wal-Mart cannot handle it well may destroy the image it built up along the years in China or global.
In the past two decades, Wal-Mart has developed highly efficient supply chains that span the globe. The design of these supply chains was predicated mainly on the low price of energy, which made transport costs low and relatively negligible. Furthermore, the low wages in China's big coastal cities and their modern port facilities rendered the country an excellent location from which to source goods.
However today, things are changing. Energy prices, despite recent declines, are likely to be relatively high in the next few years and transport much more expensive than in the recent past. Wages in China's large coastal cities are also rising, as is China's currency, which will likely rise further. Overall, the cost of sourcing in China is going to increase. Also, global supply chains were designed to take advantage of low transport costs and low wages in emerging countries such as China. The transport costs are growing, and as wages rise in China.
Comparing performance of Wal-Mart in China and Japan
Wal-Mart had spent over four years in study the Japanese retail market, and concluding that its best option was to search for a local Japanese partner to run the Wal-Mart business. Accordingly, in 2002, Wal-Mart paid $46.5 million for a 6.1 percent interest in Seiyu Ltd., Japan's fourth-largest supermarket (Slater 2003, p.143).
In 2005, Wal-Mart took over 51 percent of share of the Seiyu Ltd., and had totally 400 stores and its sales rose by 0.6 percent in the following year. Still, this figure was indicated by analysts that it pales into insignificance when one taken into accounts the $479.5 million that the stores have lost to date.
Even though the media believed that Japan will slowly accept the culture of Wal-Mart, however Wal-Mart was facing the basic culture clash in Japan. With just engaged a simple standardization acquisition strategy to enter the international markets, Wal-Mart was found to be successful. It obtains the major player as partners in the host business, and introduces the "American ways" of operation based on its everyday low price strategy to run the stores. Critically, it works in the country such as China sensitive with the prices. However, in Japan, due to the culture different, the customers are prepared to pay for quality products, as result this strategy did not work as well as in China.
Thus, the fact that Wal-Mart has introduced management team of Americans, Britons and Canadians has not verified favorable in Japan. As Fortune magazine point out, the US companies that doing well in Japan as they understand the Japanese' culture and the need of liberty for employees in Japan, so that appointed Japanese senior managers in management. In 2004, Wal-Mart encouraged the Seiyu to dismiss 1,500 employees, but this decision did not go well as the social of Japan is again it, also due to the culture of Japan is on averse of this.
Earlier in 2007, Fortune believed that investors were waiting to see what Wal-Mart would when it had to decide whether to acquire more Seiyu shares. If it declined then it would have been seen as a vote of no confidence for future investment in the region. However, Wal-Mart retained an option to buy the other two-thirds by 2007. Seiyu's shares rose 60 percent on the news of Wal-Mart investment (Slater 2003).
Wal-Mart made Japanese subsidiary Seiyu a wholly-owned unit in March 2008, increasing its stake from 96% to 100%. The supermarket chain has been unprofitable for some time now and Wal-Mart plans to turn this situation around; however, Seiyu is currently viewed by retail analysts as a weakness in the Wal-Mart stable. Wal-Mart initially invested in Seiyu in 2002 but Japan's fifth-biggest retailer (by sales) has since struggled in an increasingly saturated market. It has not recorded a net profit since 2002. In February 2008, Seiyu posted a net loss of JPY20.9bn (US$193.7m) due to a series of asset write-downs. Seiyu said it had missed its sales and earnings targets after seeing operating profit decline 87% to JPY434m and sales fall 0.9% to JPY952.3m.
Comparing between Wal-Mart and its competitors, Carrefour in China
Carrefour is the second world's largest retailer after Wal-Mart according to 2009 Global Power Retailing (Deloitte). Carrefour founded by Marcel Fournier and Louis Defforey at France. It was an initial test of the one-stop shop formula where customers could get almost all of their shopping needs satisfied at one location. The store provided self-service grocery shopping at discount prices and stocked items such as clothing, sporting equipment, auto accessories, and consumer electronics.
In China, Carrefour sales increased by 7.1% but were down 3.6% like-for-like, because of the trends of H1N1. Food was resilient, driven by significant growth in volumes in a strongly deflationary environment. Non-food sales continued to contract, but showed slight improvement in Quarter 3. Continue expansion at a steady pace with five hypermarkets and fourteen hard discount stores (also refer to Appendix X).
Carrefour has different strategy from Wal-Mart when entered China by building up partnerships with local retailers. Carrefour believes that flexibility matters must be concerned when the market is new, so that Carrefour is more rely on local distributors to deliver directly to the stores. Besides, Chinese customers more prefer to consume fresh food rather than freeze food, and Carrefour purchased nearly 60 percent of products from local suppliers.
On the other hand, Wal-Mart purchased lower percentage of the local products than Carrefour and it is more centralized as the main decisions mostly are made by headquarter in Shenzhen. Moreover, Wal-Mart is famous for its highly efficiency supply chain, but Wal-Mart does not enjoy this advantage in China as the government restriction. After all, Carrefour is more flexible to the customers more than Wal-Mart does.
Wal-Mart's advantage is everyday low price strategy, but it seems to be not that powerful in China as well as it worked on United States. In addition, the price of Carrefour and Wal-Mart does not seen to have much different between them.
According to China Chain Store & Franchise Association, Carrefour ranked in 6th position before Wal-Mart in China Top 100 Chain Retailers 2007. In fact, Wal-Mart was in 13th place but it having sales increased 42 percent more than Carrefour which had only 24 percent. In addition, location number which Wal-Mart has rose 20 percent more than Carrefour (also refer to Appendix X).
In 2008, Wal-Mart grew to place 9th in China Top 100 Chain Retailers 2008, however Carrefour still remain the same position at 6th. Yet the growth of Carrefour in 2008 was decreasing compare with 2007, with 14.1 percent increased on sales and 19.6 percent increased in expansion. Also, Wal-Mart did decrease in both sales and expansion, with 30.6 percent and 20.6 percent.
Despite of the ranking, Wal-Mart has huge growth compare with Carrefour in year 2007 and 2008. Besides, Wal-Mart has won the bid on Trust-Mart over Carrefour in 2007.
Recommendation of strategies for the way ahead
Readjust the Chinese market
Because of the culture differences, it determined the different between Chinese customers consume habit and American customers consume habit. To Chinese consumers go shopping is not doubted to buy things but just want to get out of the houses. Chinese consumers are aware of the brand products but they are not so loyalty to those products. And, this seems a bit off the original strategy of Wal-Mart. In order that Wal-Mart requires going deeper more to understand who the consumers are and also what they are looking for. By those characteristics it might be more relevant to focus on the shopping experience and salesperson fleet using aggressive promotion methods. Wal-Mart may remodel the structures of the stores to make it feel like wet-market that is to adapt to local taste.
At the United States, Wal-Mart brand is associated with low price rather than quality. But in China, everyone is going for low prices and providing low quality, Wal-Mart's own brand was the authenticity for low prices with quality. The suggested strategy in the 2008 Wal-Mart supplier meetings shows that it's heading in that direction (Business Week). This also follows Gome's strategy of renaming its suppliers to their own brand (Business Week), but goes beyond it as the foreign brand in China is already associated with higher reliability and quality assurance. This actually holds true in China were retailers done a better job of enforcing supplier quality than the local regulations. With that, Wal-Mart is still able to use its expertise and knowledge in supplier negotiation and distribution system to keep costs down.
Partnership with the local retailer to meet the needs of local market
Working together with the local partner to understand where and how the local regulations can be used or adjusted for Wal-Mart's success and gaining a stronger hold of the potential customer's heart might help Wal-Mart's growth and dominance in the Chinese market (The Economist).
Additionally, not only flexible to customers but also may reduce the costs than having joint-ventures with investment company. As local retailers deeply understand the customers around them because they had been there many years. Local retailers have experiences and information about the customers that are more accurately than foreign companies like Wal-Mart.
Furthermore, Wal-Mart should joint-ventures with local retailers as local retailers are more understanding to the local customers' needs and tastes. As well the local retailers are more flexible to the local as the only specific on certain provinces not like Wal-Mart needed to take care more geographically. Forming partnerships with local retailers also reduced the competition faced by Wal-Mart with the local retailers. Because of the size of the local retailers, they can be more focus on certain group of customers at locally, and they know ways to get low prices goods, it may not be good quality but is cheaper than what the price Wal-Mart offered. And, the local customers were used to buy the good from local retailers, even not at good quality but in a much cheaper price.
Understanding the customers are important today, customers nowadays are more concern about the safety and quality of goods and of course sensitive with the prices of the products as the switching costs of customers are low, and there have a numerical choices for customers to choose and the prices of differences are not much such as Metro and Carrefour.
Find more suppliers locally that sell safe and reliable goods
As the cases of melamine formula found in the powder of infant last year, China government see it very seriously on the quality and safety of the products.
Wal-Mart China should accept the goods only from the suppliers are certified by the government food safety authorities. Also, using the information announced by authority third party organization such as World Health Organization, to ensure the safety of the goods that imported or exported from different countries. For example, the products that have gone through the safety check and have a logo on the products will be the choices for customers to consume. According to this, Wal-Mart China must get the goods whenever are imported from any countries approved by the authorities.
Business Daily reported that Wal-Mart is going on Direct Farm Program, which will benefit both Wal-Mart China and farmers of China. Wal-Mart China cooperate with the farmers not only upgrade their abilities to adapt to the market, stimulates the production and supports environmental protection in the agriculture sector. Besides, this also improves and ensures the food safety standards, and increases the income of the farmers. It is win-win situation for both parties.
Furthermore, transaction costs are always the matter for Wal-Mart China. Wal-Mart successful to increase numerous numbers of farmers to join the program, it may reduce the problems of getting low prices and safety goods, and also the transaction costs faced by Wal-Mart China. If Wal-Mart succeed in the Direct Farm Program, it can enjoy lower prices and economic of scale than the prices given by the suppliers of Wal-Mart now. So Wal-Mart should put more afford on this program.
Reduce cost by having more part-time employees
Wal-Mart has launched a job optimization and regrouping program to reduce labor costs in China according to Business Daily. This mean that competition for everyday low price, now become harder for Wal-Mart, and it needed to cut jobs to reduce the cost. But employees of Wal-Mart China has paid low wages and now Wal-Mart China required them to accepts lower paid or go off.
Wal-Mart needs to reduce cost to maintain the strength of it that is everyday low price. Wal-Mart China can hire more part-time workers than the full-time employees. As every day the stores should have peak hours and non-peak hours, be flexible to the flow of the customers. In addition, in some occasion such as Chinese New Year, Christmas, or National Day, for different occasions place different numbers of part-time employees accordingly. This may reduce quite a large proposition of the costs, and Wal-Mart China can offer customers better prices. Also, it reduces the used work force and from that to prevent the waste of the resources.
Be more innovative to attract new customers
Wal-Mart is famous in low price strategy, but world is changing, the tastes and needs of consumers change rapidly accordingly. The fast growth in China retailing industry, bring up the wages cost and transportation cost, and it is no more being low wages sources in global.
As a consequence, Wal-Mart China must be innovative to capture the market. For example, very minor of suppliers of top branded products such as Louis Vuitton and Prada, sell these brands in China. Thus, it is very expensive selling in China. Wal-Mart China is world's largest retailers, it can try to sell those brands in stores as it can achieved economic of scale, so the prices will be cheaper than selling in the specialty stores. This may capture the new customers groups that aware of branded products but not willing to but at high price or customers groups that can afford but could not find the brand they needed in China.
Being innovative, let the customers feel Wal-Mart China is different from other retailers, make customers feel new to Wal-Mart. As result, it keeps customers to Wal-Mart and to be more loyalty to Wal-Mart.
Restructure the training system and recovery system
From Reuters, a female customer of Wal-Mart was injured to death. She was suspecting of shoplifting but she refused to show the receipt as the employees asked did not wear the uniform of Wal-Mart. Besides, Wal-Mart did not apologize or offer any compensation after this incident has happened.
What happened to the Wal-Mart China employees? They did not carry out the beliefs and culture of the Wal-Mart, service to customer with "Ten-foot Rule" and "Sundown Rule". The problem happened is because the employees did not get through the systematic training or even they were not being trained.
As the happened of the case, Wal-Mart should immediately reinforce the employees to go for training, including full-time and part-time workers. It may have bad influence on the image of Wal-Mart.
Wal-Mart make quality service a point to address customers' varied needs. But the problem is the employees could not perform it, and worse destroy it. Thus, company should come out with steps for employees to follow, and train them how to perform out with the steps just like McDonald the greeting sentences are same for every employees.
The centralization model has helped the Wal-Mart in American but it seems to hold back Wal-Mart in China. China is less homogeneous than America thus should be decentralization, giving more power to local managers and their supplier-networks ("Bringing best practice to China", The McKinsey Quarterly). Employee's commitment always is the heart to success for enterprise. Value the employees as customers make them pleasure, and they will make customers pleasure, and bring loyalty to company.
Lastly, Wal-Mart should have a good recovery system. For example, after the cases of China Wal-Mart employees detained in shopper's death, what action should Wal-Mart have, and how to react to the problem and solve it. It helps Wal-Mart improve in performances, productions and services.