Wal-Mart faces different challenges operating in China compared to the US. In the US, Wal-Mart dominates competition and faces no union or legal barriers, while developed infrastructure allows for efficient logistics. However, in China Wal-Mart faces intensified competition from local players, issues with logistics due to a lack of IT integration with suppliers, and obstacles like local protectionism and poor infrastructure. To address these challenges, Wal-Mart's strategy is to pursue adaptation by changing store formats to better fit local needs, pursue higher decentralization to increase responsiveness, and focus on developing relationships with local government and influencers to strengthen its position in China over 5 years.
2. Situation analysis: Wal-Mart in U.S.
Company
Strong corporate culture: low-cost & customer;
EDLP as value proposition;
Very centralized management;
Hypermarkets mainly in small towns.
Customers
High disposable income;
P. behavior: few trips & big planned purchase;
Brand loyalty;
Processed food, rather than freshness.
Competition
Wal-Mart leader in U.S.
Collaborators
Integrated IT systems with Wal-Mart;
Low bargaining power;
Partnerships;
Efficient logistics.
Context
No union or legal barriers;
Developed infrastructure;
Authorities not blocking.
3. Situation analysis: Wal-Mart in China
Company
Strong corporate culture: low-cost & customer;
EDLP as value proposition;
Very centralized management;
Hypermarkets in big cities.
Customers
Income disparity & consumption: urban Vs. rural;
Purchasing behavior: many trips - little purchase;
Comparing prices in different shops;
Impulse purchase;
Freshness of the food;
Shoplifting.
Competition
Intensified competition;
Local players dominating the market;
EDLP standard value proposition;
Supermarket as the most common format.
Collaborators
Lack of IT integration with suppliers:
purchasing & distribution more difficult.
Context
Local Protectionism: taxes;
Illegal Tolls & lack of geographic freedom;
Poor Infrastructure;
Labor unions. & tighter labor regulation
4. Peterson, Management decision model
Adaptative
management
Scenario
Planning
Maximum
sustained yield
Build
resilience
uncertainty
Controllability
Controllable Uncontrollable
HighLow
What is the next step…
Scenario
Planning
Strategy: defining & implementing it (1/7)
5. Strategy: defining & implementing it
Scenario planning (simplified)…
Foreign business restrictions
Low High
HighLow
Cultural
change
EXIT
AGRESSIVE
RE-EDUCATE
ADAPTATION
STATUS QUOI love US!
Citizen protest
Sticking to
traditions
We want US out!
(2/7)
6. Alternatives
+ adopting a homogenous bm to local fit
+ usage of established /proven channels
+ better fit for local needs
+ elimination of cross cultural problems
+ support of local authorities
- risky negotiation process M&A
- non-usage of possible synergies
- against global/uniform strategy
+ higher decentralization (growth potential)
+ follows Wal-Mart global strategy (Mexico)
+ higher responsiveness to meet local needs
+ support of local authorities
- unions problem remain
- loss of control
+ no union problem
+ no change of value proposition
+ short time horizon
+ known losses
- not following global expansion strategy
- loss of the future market
- not following global expansion strategy
+no change of value proposition
+usage of synergies
-still union problems
-very long time horizon
-no possible short term measures
-ignore local disparities
Strategy: defining & implementing it
Aggressive
(local supermarket chain)
Exit
(Withdraw from that market)
Re-educate
(educate chinese)
Adaptation
(changing store format)
1-3
years
5-7
years
6
months
10 - 15
years
(3/7)
7. Strategy: defining & implementing it
Scenario planning: Alternative selection
Foreign business restrictions
Low High
HighLow
Cultural
change
EXIT
AGRESSIVE
RE-EDUCATE
ADAPTATION
STATUS QUO
ADAPTATION
(4/7)
8. Strategic Road Map (5/7)Strategy: defining & implementing it
Efficient staff
(corporate culture)
Key
Local autonomy
(org. structure)
China coverage
(control, org. size)
Guanxi
(ext. environment)
Strategic imperatives
9. Strategic Road Map (6/7)Strategy: defining & implementing it
KeyLocalautonomy
(org.structure)
Efficientstaff
(corporateculture)
1st year 2nd year 3rd year 4th year 5th year
1. Identify change agent & involve
2. Convince & involve key stakeholders
3. Support from top-management
4. Communication
1. Adapt Wal-Mart’s China mission & vision statement to China’s culture
2. Create organizational chart (national, regional, local)
3. Define clear responsibilities & power for decision making
4. Incentives to foster commitment
5. Develop profit centers
1. Bonus and compensations system
2. Performance review system
3. Training
Critical initiatives
10. Chinacoverage
(control,org.size)
Guanxi
(ext.environment)
Strategic Road Map (7/7)Strategy: defining & implementing it
1st year 2nd year 3rd year 4th year 5th year
1. Establish budget for business related meetings
2. Contact & develop relationship influencer
3. Networking events: Chinese New year
4. Develop relationship with local Government
1. Marketing research to understand needs
2. Taylor product offering
3. Launch new supermarket format
Risks
(a) China’s Government: tighter restrictions to foreigner
(b) Product offering not aligned with local tastes:
Market research
Benchmarking
Pilot trial with only a set of stores
-
Critical initiatives
Customers High disposable income, Purchasing behavior: few trips, big purchase. Planned purchase. Brand loyalty.Processed food (instead of freshness).
-competition. Wal-Mart leader in U.S. (80%) -Collaborators.
Integrated IT systems with Wal-Mart.
Low bargaining power.
Partnerships
Efficient logistics.
-Context. No union, no legal barriers, well developed infrastructure (roads, ports, warehouses). Authorities support.
company.
Strong corporate culture, price & service: low-cost, customer is key.
EDLP as value proposition
Very centralized management
Hypermarkets in small towns
-customers:
Income disparity & consumption pattern: rich urban areas Vs. poor rural areas.
Purchasing behavior: Many trips, little purchase. Everyday purchases.
Comparing prices in different shops. Impulse purchase, swayed by proportional campaigns. Low brand loyalty.Demand for absolute freshness in food.Shoplifting. Police officials pay little attention to complaints.
-competition.
Intensified competition
Local players dominating the market
EDLP as required value proposition
Supermarket as the most common format
-Collaborators. Lack of IT communication with suppliers, making purchasing and distribution difficult.
-Context. Local Protectionism, barriers to set up stores because of Tax income. illegal Tolls. Lack of geographic freedom to set up the DC. Poor Infrastructure. Labor unions. Tight labor regulation
-company.
Strong corporate culture, price & service: low-cost, customer is key.
EDLP as value proposition
Very centralized management
Hypermarkets in big cities
We had a problem , but then we had to tackle it, So we used the peterson management decision model to consider which strategic movement should be considered. Since this market is totally new to us, and its booming, there is uncertainty about it. And all the factors we want to overcome, most of them are out of our control. So the best way to prepare for this situation is was to conduct an scenario planning
We took some hours to discuss which were the main issues wal mart could face, the main driving forces that could affect Walmart in this situation. We came with Two main axis of uncertinty. Cultural change, which ranges from no adaptation to western culture, to total adaptation. And Foreign business restrictions, which range from liberalization, to increase in restrictions (bolivia)
For the case of the diminising foreign restrictions, we came with this two scenarios, the one we called I love US, in which chinese people start to addapt their consumer patterns and behaviors to a more western, more american culture, and the one called “Sticking to traditions” in which, even if chinese governemnt allow foreign business to operate with freedom, chinese customers stick with their traditional habits.
On the side of the increased regulations, we forecasted another two scenarios, The one called “Citizen protest”, in which chinese customer wants the western retailing formats because of their changing habits, but Chinese government makes things difficult, and the “we want you out”, in which both Chinese government and customers dont want Walmart in their land.
Afther the scenario planning, we analyzed which strategy would fit better with each scenario. We came with the following strategies.
Exit, since neither government if customers want us, leaving the market would be the best choice in this case
Being aggresive. Since customers would like to have a western store, but government makes our life harder, in this case we would purchase a chinese company whch were succesfull, and rebrand it.
Status quo. In case both customers and government wants to be with us, why changing anything. The actual model would work in the main aspects
Reeducate. In case we can do our business but customers keep their purchasin patterns, naybe an strong marketing campaing could re-educate them
Adaptation. In this scenario, another option could be to adapt our format to one who fits better with the actual customer needs.
We considered the pros and cons of this alternatives, except Status quo, which means to change anything and we now how we are doing with our actual business model.
For the aggresive alternative, a big pro would be that we would be acuiring a company which is already succesful, on the other side, we have risks of the process and also this could change our business model in china completely.
For the exit alternative, a pro would be that it takes shor period to implement, and we now how much money we are going to loose, pm the other side, we would loose the chance to be in the future market which is china.
Reeducate alternative. In this case, the pros would be that we would use our distribution channels, so in case we were succesful, the efficiency we have in the US would remain. On the other side, this is a really long strategy to be succesful, with big potential losses meanwhile
So, after analyzing these four scenarios, and with the experience Adrian has in working in china, we concluded that the most feasible scenario would be this (señala low, low). And considering the two alternatives discused before, we decided to implement the Adaptation strategy, because it is aligned with the global strategy of the company, and because of the shorter time frame.