What Wal-Mart is Famous for in the US Market
Wal-Mart became famous through advertising and selling gallon (approximately 3.79 litres) sized jars of whole pickles. This peculiar item, 'Vlasic's gallon jar of pickles' was the size of a small aquarium, and weighed 12 pounds (approximately 5.5 kilograms), too large to carry in one hand. According to Fishman this is the item that Wal-Mart 'fell in love with'. Incredibly, Wal-Mart priced this product, a year's supply of pickles, for less than $3. Pat Hunn, the man who was responsible for the gallon jars, commented that Wal-Mart used this product by; "putting it before consumers, saying, this represents what Wal-Mart's about, you can even buy a stinkin' gallon of pickles for $2.97. And it's the nation's number-one brand." This fascinating case gives a clear demonstration of Wal-Mart and what it is about. But further more, this case brings with itself questions, how can this sort of American retailer, famous for 'Vlasic's gallon jar of pickles', be a relevant company to take abroad? Surely no other country would be interested in a gallon of pickles?
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In fact, Wal-Mart has many quirky facets that one would presume should make it very difficult to have successful operations abroad. Another example is something Wal-Mart is renown for, 'Wal-Mart greeters'. At every Wal-Mart store, when customers enter the store, they are greeted 'with a sweet face, a huge smile and a shopping cart'. The idea behind this is that the welcome creates a more personal feel to the customers' hypermarket shopping experience. Friendly service is always waiting to greet customer at their local Wal-Mart store. This means a lot when the customer go into their Wal-Mart store after a hard days work. They'll enter the store, to find a friendly Wal-Mart employee, waiting to start their shoppingexperience out on the right foot.
In addition to the 'Wal-Mart greeters', and gallon jar of pickles, Wal- Mart is different to other hypermarkets because of how it chooses to do its retail. Unlike other chain stores, Wal-Mart has four retail categories; 'Wal-Mart Supercenters', 'Discount Stores', 'Neighbourhoods Markets' and 'SAM'S CLUB warehouses'. These four separate divisions exist because this is a way that Wal-Mart can determine what type of store would be relevant for each similar location. Thus, each of these retail divisions are attuned to a general type of location and a common customer profile. Of particular interest however is the 'SAM'S CLUB warehouses', because customers are required to have membership to enter these stores. These stores are huge warehouses typically between 110,000 and 130,000 square feet (33,500 and 40,000 squared meters), and present a very basic approach to retailing, no time and effort is given to presentation. Customers entering these stores are solely interested in low prices.
Wal-Mart's Cultural adaptation in China
Wal-Mart in china needs for adaptation, therefore, their managers saw great potential within the Chinese market; 170 cities each with over one million inhabitants. If any nation could sustain a Wal-Mart with success as seen in the States, China could be it. Consequently in 1996, Wal-Mart made a decision to attempt to penetrate the Chinese market. It was an extremely ambitious decision because of the vast cultural differences between Wal-Marts country of origin in respect to China. However the potential gains were high, so Wal-Mart in true American style 'jumped in'.
Wal-Marts move to China was not without problems, or need for cultural adaptation and refinement. As the development went ahead, Wal-Mart discovered that Chinese tastes were very different to anywhere else in the world. It was certain that the 'gallon jar of pickles' that Wal-Mart had become famous for in America, would not go down well with the Chinese consumers. With regards to products, the Chinese customers above all wanted leafy vegetables, and these could only be purchased locally, complicating Wal-Marts normal strategy of 'global centralised' purchasing. The vegetable section in Chinese Wal- Mart's is double that within American Wal-Marts and the products offered in Wal-Mart in China in Shenzen, range from chicken feet, to Ma-Ling branded stewed pork ribs, and Gulong brand pickled lettuce. A considerably different portfolio to that offered in the United States.
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The different product portfolio has had an impact upon the power of the 'global centralised' purchasing of Wal-Mart China, as many products could only be purchased locally. Furthermore, many of Wal-Mart China's products were sourced locally because of the poor transport systems in China and governmental regulations that meant some products such as alcohol and tobacco had to be purchased locally. All in all, what can be seen in Wal-Marts operations in China is that sourcing had to be made locally for a number of reasons; geographical, political and because of consumer tastes. In total, in 2004, a massive 85% of products sold at Wal-Mart China came from 14,000 Chinese suppliers (Tiplady).
Although products and sourcing methods changed, the practical way in which Wal-Mart traded, remained the same. Wal-Mart's first store in China was 'SAM'S CLUB' in Shenzhen, and 'SAM'S CLUB' is also open in Beijing with an area of 18,000 meters, costing $18 to join. This member's only division of Wal-Mart was an ambitious move by Wal-Mart China because other retailers had failed in this area of the Chinese market. However, Wal-Mart China was successful, according to Tom McLaughlin, vice president of merchandising and marketing for Wal-Mart China because of 'high quality and low prices'. As well as 'SAM'S CLUB', Wal-Mart China has also used the neighbourhood markets and Supercenters market models as used in America to meet customer needs.
The result in China for Wal-Mart was an organisation different to the model in the United States. Although Wal-Mart have held onto the 'SAM'S CLUB' warehouses, the 'centralised buying' in Wal-Mart China is less powerful than in the States for the simple reason that so many items have to be sourced locally. Additionally, what is sold within the stores is largely completely different to that of the United States. Nevertheless, operations within China, although very different to U.S. stores have proved profitable with profits of $670 million in 2004.
Wal-Mart in South Korea
Wal-Mart entered South Korea in 1998 when the South Korean Government opened up retail markets to foreign investment. It purchased an 85 percent stake in Korea Makro, which had four stores located in the Seoul metro area. A number of other retailers entered the market at the same time. Eventually in 1998, there were five major foreign retailers actively operating in Korea along with numerous domestic rivals.
Utilizing the eclectic theory, we specifically analyze the locational dimensions of Wal-Mart's entry into Korea. The ownership and internalization dimension really do not seem to have any significant impact compared to the locational dimension. Wal-Mart's natural approach in Korea was to offer a warehouse based store setting - very similar to its settings in the USA. Wal-Mart seems to have missed fully understanding the local Korean retail culture which thrives as a festive and social setting. Korea's retail market is composed of thousands of small retailers that are typically dispersed in local neighborhoods and form both a marketplace and a social center. The successful domestic retail supercenters aimed to recreate the festive, noisy atmosphere of the outdoor markets within their stores.
Wal-Mart's value proposition of price leadership did not seem to work well, as it failed to adapt to some of the unique peculiarities of the South Korean market. While Korean consumers are price sensitive like their American counterparts, they tend to equally value fashion trends, quality, variety, and personalized service over cost. Several of the local competitors - who better understood Korean customers' tastes, buying preferences, and fashion/trend consciousness - improved their offerings to cater to these specific needs of the Korean customer. Also, the Korean retailers very astutely instituted campaigns such as "Buy-Korean" that encouraged Koreans to support their domestic industry, which hurt Wal-Mart. When Wal-Mart using discounted pricing as a lever, it found it difficult to sustain. The domestic retailers reacted very aggressively to Wal-Mart's discount pricing strategy by quickly offering lower prices. This escalated into a price war among the major retailers, limiting Wal-Mart's ability to attract new customers to its stores and limiting the return on their investment.
Besides, running up against the Korean tradition, Wal-Mart seems to have misfired when it came to offering the right products in the Korean market. When Wal-Mart opened its first stores in Korea in 1998, it tried to build its business model around dry goods, such as electronics, which was not at all aligned with the expectation of Korean shoppers, who were looking to the discount giant to supply them with value-priced food and beverages. Also, there were some reports that Koreans were disappointed with the quality of customer service at Wal-Mart.
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Another significant locational parameter that Wal-Mart seems to have been hurt by was a high cost of real estate compared to the domestic retailers. Some domestic retailers were able to purchase or lease prime real estate at low prices after the 1998 Korean economic crisis to establish a lower, sustainable base fixed cost than the foreign competition.
Finally, in 2006, Wal-Mart sold its South Korean unit consisting of 16 stores to the country's biggest domestic retailer in 2006.
- The references are the previous 2 articles and this
- Heart. J. , (2009) "Is Wal-Mart Bad for America". http://www.associatedcontent.com/article/2197649/is_walmart_bad_for_america.html