A Comparative Study of Strategies Adopted by

Wal-Mart and Carrefour in China:

A Resource-Based Perspective








By
Yue, LIU

September 2007



Acknowledgements


I appreciate my dissertation supervisor Dr Wang, Ior his continuous patience, support,
guidance and constructive comment throughout the period oI my dissertation. I would
like to thank the proIessors and lectures Irom whom I learned a lot throughout my
master year. I also would like to show my gratitude to Nottingham University
Business School that provided this value chance Ior my postgraduate studies as well
as the chance to conduct this research.

I wish to acknowledge all those who helped me with the inIormation and data, and
those who showed their support and care during this period. Last, but by no means
least, thanks to all members oI my Iamily.


Abstract

This research aims to provide an overview oI links between a Iirm`s strategies and the
Iirm possessed resources and capabilities. Two casesWal-Mart and CarreIour in
China are chosen. By using resources-based theory, their development strategies in
China are compared and analyzed. This research adopted documentary research
method, particularly Iirms` historical documentary review and analysis, Ior this
qualitative research to study each case.

In China`s retail market, the competition is intensive and market conditions are
evolving. To capture greater market share in this market, Wal-Mart and CarreIour
adapted their strategies to cater local customers as well as economic and political
conditions. Although Wal-Mart and CarreIour in the same market environment, there
are still diIIerences between the strategies adopted by each giant retailer. ThereIore, it
is probably saIe to argue that the diIIerences between strategies adopted by the two
retailers, to certain extent, are due to their distinct Iirm-speciIic resources and
capabilities.





Contents
Page No.

Chapter 1 Introduction (5)

1.1 Background (5)
1.2 Research Questions (6)
1.3 Aims and Objectives (7)
1.4 Structure oI the Research (8)

Chapter 2 Literature Reviews (11)

2.1 Entry Modes (11)
2.1.1 The Timing and Scale oI Entry (11)
2.1.2 Entry Modes (14)
2.2 Operating Strategies (17)
2.3 Positioning Strategies (18)
2.3.1 Cost Leadership (19)
2.3.2 DiIIerentiation (20)
2.3.3 Focus Strategy (23)
2.4 Human Resource Management (24)
2.4.1 HRM Adaptation to Local Context (26)
2.5 Resource-Based Theory and Management Strategies (31)
2.5.1 The Resource-Based Theory (31)
2.5.2 Entry Modes Selection and Resource-Based Theory (33)
2.5.3 Positioning Strategies and Resource-Based Theory (35)
2.5.4 Human Resource Management and Resource-Based Theory (36)

Chapter 3 Research Methodology (39)


3.1 Research Design (39)
3.2 Research Methods (41)
3.3 Case Design (42)
3.4 Data Collection (43)
3.5 Summary (46)

Chapter 4 Industry Analysis of Chinese Retail Market (47)

4.1 Industry Facts (47)
4.2 Market DeIinition (49)
4.3 Internal Rivalry (49)
4.4 Entry (51)
4.5 Substitutes and Complements (53)
4.6 Supplier Power (55)
4.7 Buyer Power (57)

Chapter 5 Foreign Retailers in China-Wal-Mart and Carrefour (59)

5.1 Wal-Mart (59)
5.1.1 About Wal-Mart (59)
5.1.2 Wal-Mart`s Entry into China (61)
5.1.3 Wal-Mart`s Development in China (62)
5.1.4 Wal-Mart`s Positioning in China (64)
5.1.5 Wal-Mart`s Local Adaptation in China (65)
5.1.6 Wal-Mart`s Sourcing in China (67)
5.1.7 Human Resource Management and Public Relations (69)
5.2 CarreIour (70)
5.2.1 About CarreIour (70)
5.2.2 CarreIour`s Entry into China (71)
5.2.3 CarreIour`s Development into China (73)

5.2.4 CarreIour`s Positioning in China (75)
5.2.5 CarreIour`s Local Adaptation in China (77)
5.2.6 CarreIour`s Sourcing in China (79)
5.2.7 Human Resource Management and Public Relations (80)

Chapter 6 Analysis of Wal-Mart and Carrefour`s Strategies (82)

6.1 Assessment oI Two Giants` Strategies (82)
6.1.1 Entry Strategies (82)
6.1.2 Expansion Strategies (84)
6.1.3 Positioning Strategies (86)
6.1.4 Local Adaptation (88)
6.1.5 Sourcing Strategies (90)
6.1.6 Human Resource Management and Public Relations (91)
6.2 Resource-Based Theory and Their Strategies (92)
6.2.1 Entry Strategies (93)
6.2.2 Expansion Strategies (94)
6.2.3 Positioning Strategies (95)
6.2.4 Local Adaptation (96)
6.2.5 Sourcing Strategies (97)
6.3 Summary (98)

Chapter 7 Conclusions and Recommendations (100)

7.1 Findings oI the Research (100)
7.2 Conclusions (102)
7.3 Recommendations Ior Wal-Mart and CarreIour (103)
7.3.1 Recommendations Ior Wal-Mart China (103)
7.3.2 Recommendations Ior CarreIour China (105)
7.4 Limitations oI the Research (106)


References (108)

Chapter 1 Introduction

1.1 Background

China has been developing rapidly in the last two decades, especially aIter
market-oriented economic reIormation and entry into World Trade Organization
(WTO). Coupled with the trend oI business globalization, many multinational Iirms
view China as a Iavored market with great potential oI opportunities.

The development oI Chinese retail market started since the 1980s when China started
to move Irom a planned to a market-oriented economy. This transition oI economy
system has stimulated the development oI Chinese tertiary industry, as evidenced by
the proIound revolution in the retail industry since 1990s. In 1992, Ioreign capital was
allowed to enter Chinese retail sector. Although there were still strict regulations in
place to restrict the operation oI Ioreign retailers at that time, the implementation
oI these regulations was rather Ilexible and local authorities bypassed many oI these
restrictions to support these Ioreign retailers (Levy, 1996). A large number oI Iamous
international supermarket retailers such as CarreIour, Wal-Mart, Makro, Ito-Yokado
appeared in China. Wal-Mart and CarreIour are the world number one and two
retailers in terms oI turnover and employment (Colla and Dupuis, 2002), and they
entered into China in 1996 and in 1995, respectively. Wal-Mart has so Iar opened 68
stores in China and CarreIour 98.


However, the two giants in China exhibited diIIerent perIormances in terms oI market
shares. It is reported that Wal-Mart ranked as the largest retailer in the world, and
CarreIour as the second largest (asia.proquestreIerence.inIo). While in China, CarreIour
perIorms as the market leader compared with Wal-Mart in terms market share
(euromonitor.com). What interested most is that although both Wal-Mart and CarreIour
are in the same industry and the same Chinese retail market, their entry and expansion
strategies are quite diIIerent. It is possible that the diIIerent perIormances oI the
Ioreign retailers can be partly explained by their diIIerent entry and expansion
strategies.

1.2 Research Questions

Wal-Mart and CarreIour pursue diIIerent strategies when entering and operating in
China. This is possibly because both Wal-Mart and CarreIour have their own
distinctive resources and capabilities which enable them to Iollow distinctive sets oI
strategies even when they are in the same environmental settingChinese retail
market.

However, it may not be reasonable to say which particular strategy is better than the
other, because the strategies adopted are related and interact with the Iirm-speciIic
resources, and with the speciIic market conditions. The resource-based theory views

Iirms are heterogeneous and possess heterogeneity resources. According to WernerIelt
(1984), the resource-based approach views the Iirm as a historically determined
collection oI assets or resources which are tied semipermanently to the Iirm`s
management. Lockett and Thompson (2001) state that 'resource-based view
emphasizes Iirm heterogeneity and path dependency, as each Iirm`s resource bundle is
unique, and the consequence oI its past managerial decisions and subsequent
experiences, it Iollows that so is each Iirm`s opportunity set. In short, the
resource-based view provides a Iramework Ior management strategy development. So
could it explain why diIIerent Iirms adopted diIIerent strategies even in the same
environmental context.

There have been many studies on strategies oI Wal-Mart and CarreIour (Colla and
Dupuis, 2002), and development oI supermarkets in China (Lo et al, 2001). This study,
however, applies the resource-based theory to compare the two giants` strategies in
China. Thus, the Iirst research question is that how the strategies oI Wal-Mart and
CarreIour are diIIerent Irom each other; and the second research question is that why
they diIIer in the perspective oI resource-based theory.

1.3 Aims and Objectives

More speciIically, the research objectives oI this study are as Iollows:
(1). To provide a comprehensive overview oI the Chinese retail market, in terms oI

Porter`s Five Forces.
(2). To analyze the strategies oI Wal-Mart and how these strategies interact with
Chinese government policies and local market conditions
(3). To analyze the strategies oI CarreIour and how these strategies interact with
Chinese government policies and local market conditions
(4). To implement a comparative study oI the strategies oI the two retailing giants.
(5). To make recommendations oI strategies Ior the two retailers in the context oI
Chinese entry into the WTO and Iurther opening oI the retail sector.

The possible diIIerences oI strategies oI the two retailers are mainly analyzed in terms
oI entry strategies, positioning strategies, and expansion strategies, sourcing strategies,
local adaptation strategies, human resource management and social relationship. The
Iinal objective is to link the resource-based view to these resources and present how
the resource-based theory could explain these resources.

ThereIore, the overall aim oI this research is, by using the resource-based theory as
the basic principle and using the two casesWal-Mart and CarreIour, to provide an
overview oI the relationship between the Iirm strategies and its possessed resources
and capabilities.

1.4 Structure of the Research


Following this introduction, Chapter 2 reviewed the literatures concerning with the
strategies oI a Iirm in a Ioreign market as well as the resource-based theory. The
strategies reviewed in this chapter include the entering strategies, operating and
competing strategies, and human resource management strategies. The resource-based
theory is reviewed and also linked with the previous part in Chapter2, providing an
analysis oI why a Iirm preIers one strategy to another. The third chapter introduces the
methodology oI doing this research. It includes the analysis oI why the case study
research approach and documentary method are selected, why Wal-Mart and
CarreIour are chosen as the cases to study, and how the inIormation and data
collected.

Chapter 4 provides a detailed analysis oI Chinese retail market by applying Porter`s
Iramework oI Iive Iorcesinternal rivalry, entry, substitute and complementary
products, supplier power, and buyer power. It will not only identiIy the Iactors
aIIecting Iirms` perIormances in terms oI both vertical trading and horizontal
competitive relationships, but also identiIy the opportunities and threats in this
industry (Besanko et al, 2003).

Chapter 5 provides the studies oI the strategies adopted by the two retailing
giantsWal-Mart and CarreIour, including entry, positioning, expansion strategies,
local adaptation strategies, and human resource management and public relations.
Chapter 6 compares and contrasts the similarities and diIIerences between strategies

adopted by Wal-Mart and CarreIour in terms oI the above six aspects. Then is the
analysis oI the comparisons using the resource-based theory and explanations why
there are similarities and diIIerences.

Finally, Chapter 7 includes the Iindings and conclusions oI this research, and
recommendations will be provided to both Wal-Mart and CarreIour Ior their Iuture
development. This chapter also contains a brieI analysis oI the limitations oI this
research.

Chapter 2 Literature Reviews

Each country has diIIerent economic, political and legal systems. When a Iirm has
made decision to enter a particular market, these diIIerent systems determine the
opportunity costs oI how to enter and develop in that country. This chapter reviews
the entry, expansion and development strategies available Ior Ioreign investors.

2.1 Entry Modes

When Iirms have decided to enter a Ioreign market, how to enter becomes another
important issue. Generally, at this stage, companies need to consider the timing, scale,
and mode oI entry.

2.1.1 Timing and Scale oI Entry

Ghemawat (1991) argue that when thinking oI the entry timing and entry scale, Iirm
should consider market uncertainty and the potential irreversibility oI investment. Any
investment, especially investment to a Ioreign country, involves great opportunity
costs and commitment. Indeed, no matter whether large scale entry or small scale
entry, and no matter early or late entry, there must advantages and disadvantages oI
each option.


Timing of Entry. Usually, it is an early entry when an international business enters a
Ioreign market beIore other competitors, and a late entry when aIter them. Liberman
and Montgomery (1988) suggest that there are Iirst-mover advantages iI a Iirm
pursues an early entry. The idea oI Iirst-mover advantage is that 'the initial occupant
oI a strategic position or niche gains access to resources and capabilities that a
Iollower cannot match (Grant, 2005, p236). According to Hill (2004), there are
several Iirst-mover advantages Ior an international business. The Iirst is that the Iirst
mover could preempt rivals and capture demand by establishing strong brand
reputation with suppliers and customers. The second advantage is concerned with cost
advantages, which reIers that, by enter the market earlier, the Iirm could produce at
lower cost by moving down the learning curve Iaster through building a larger
producing volume than competitors. A third advantage is that early entrants could
create switching costs so that customers are unlikely to switch to the products or
services provided by Iollowers. However, there are still Iirst-mover disadvantages
(Shaver, Witchell and Yeung, 1997). The most common one is known as pioneering
costs, which are costs that early entrants bear and later entrants could avoid (Hill,
2004). There are many causes oI such pioneering costs as argued by Hill (2004). They
may arise in the Iorm oI time and eIIort spent on learning the rule oI business systems
in a Ioreign country. Mistakes that are made as a result oI that the early entrant Iails to
understand the country he enters also brings pioneering costs. Pioneering costs also
include the costs oI promoting a new product to customers in a Ioreign market
incurred to early entrants, such as educating customers. A special condition when

regulations change in a way that diminishes the value oI an early entrant`s investment
would put the early entrant at a server disadvantageous position. In the conditions
mentioned above, the Iollowers could learn Irom the early entrants` experiences, avoid
the mistakes and costs, and ride on their investments. Shave, Mitchell and Yeung
(1997) have Iound that iI international business could enter a Ioreign market aIter
several competitors, the probability oI survival is greater than otherwise.

Scale of Entry. When an international business enters a Ioreign market, the size oI
entry is another important issue. Hill (2004) argues that large scale entry requires
commitment oI signiIicant resources and implies rapid entry. The resulted strategic
commitment has great as well as long-term impact on Iollowing development oI the
Iirm and diIIicult to reverse (Ghemawat, 1991). Ghemawat (1991) continues to argue
that such strategic commitment in the Iorm oI large-scale entry will inIluence the
nature oI competition in the market in terms oI attracting customers and distributors in
the long run and deterring entry oI potential competitors, but also in terms oI
restricting its own resources to Iurther expansion. Indeed, on one hand, the large entry
size is a signal to customer and distributors that this Ioreign Iirm make signiIicant
strategic commitment to its investment and thus gains customers and distributors trust
and loyalty, and makes the potential entrants to reconsider their entry decision; on the
other hand, as the Iirm have made signiIicant commitment to its investment, most its
resources are inevitably been sunk into this Ioreign market, which may limit the
Iurther expansion into new market in another industry or country. ThereIore, a Iirm

should balance the risks and beneIits oI signiIicant strategic commitment.
Nevertheless, a small entry scale also brings beneIits as well as risks to a Iirm when
entering a Ioreign market (Hill, 2004). A small size with little strategic commitment
would allow the Iirm to learn about the Ioreign market with limited risk. By achieving
this, the Iirm could Iirst collect inIormation oI the Ioreign market and then deciding
whether to expand, maintain or quit. However, this small scale entry may have
diIIiculties in capturing market share, achieving scale economies, and creating
switching costs.

2.1.2 Entry Modes

A Iirm`s entry mode is how to enter the Ioreign market, and how to make its goods or
services available to Ioreign customers (Bishop, 2006). Generally, there are six
diIIerent modes Ior an international Iirm to choose: exporting, turnkey projects,
licensing, Iranchising, joint ventures, wholly owned subsidiary (Hill, 2004). Each
entry mode has its distinct characteristics (see, e.g., Hill, 2004; Hill, et al, 1990; Hill
and Kim, 1988; Anderson and Gatignon, 1986; Madhok, 1997; Brouthers and
Brouthers, 2000; Bishop, 2006). They are summarized in Table 2.1.

Choosing an appropriate entry mode is a diIIicult decision Ior Iirms interested in
entering a Ioreign market (Agarwal and Ramaswami, 1992). Sometimes, an
international Iirm may use more than one entry modes simultaneously (Bishop, 2006).

According to Wei et al (2005) there are many Iactors aIIecting the entry modes, such
as host country Iactors, resource commitment and cultural distance.

Table 2.1 Advantages and Disadvantages of Each Entry Mode

Entry Mode Advantages Disadvantages
Exporting
Ability to realize location and experience
curve economies
High transaction costs
Trade barriers
Problems with local marketing agents
Turkey
Contracts
Ability to earn returns Irom process
technology skills in countries where FDI
is restricted
Creating eIIicient competitors
Lack oI long-term market presence
Licensing Low development costs and risks
Lack oI control over technology
Inability to realize location and experience
curve economies
Inability to engage in global strategic
coordination
Franchising Low development costs and risks
Lack oI control over quality
Inability to engage in global strategic
coordination
Joint
Ventures
Access to local partner`s knowledge
Sharing development costs and risks
Political acceptable
Lack oI control over technology
Inability to engage in global strategic
coordination
Inability to realize location and experience
economies
Wholly
Owned
Subsidiaries
Protection oI technology
Ability to engage in global strategic
coordination
Ability to realize location and experience
economies
High costs and risks
Source: Hill (2004), p409.

Host country Iactors are important in aIIecting the entry mode choice. Khanna and

Palepu (1997) argue that in some countries, there are extensive government
intervention, lack oI reliable inIormation, and lack oI eIIective enIorcement oI
contract law. These would inevitably create signiIicant risks Ior Ioreign investors and
make business operations less eIIicient (Isobe et al, 2000). According to Tse et al
(1997), nonequity-based entry modes, such as joint ventures, would like to be adopted
by Ioreign investors rather than equity-based modes.

Cespedes (1988) argues that the resource availability and control determine the entry
mode choice Ior Ioreign investors. As any business decision is made based on
trade-oIIs between expected beneIits and risks, when Iirms have made signiIicant
investments into a Ioreign market, they should choose an entry mode with a high
degree oI control such as wholly owned enterprises rather than one with high risks
and shared investment commitment such as joint ventures. ThereIore, Larimo (1993)
and Hennart and Larimo (1998) argue that the larger the resource commitment to a
Ioreign market, the less likely that a Iirm will share the equity in a Ioreign market.

Hennart and Larimo (1998) argue that national culture is also widely believed to
aIIect the entry modes decisions. Countries vary in terms oI psychological
characteristics (HoIstede, 1980), and an international Iirm`s decision on the entry
modes will reIlect characteristics oI the home countries (Shetty, 1979). As what
Taylor et al. (2000) have Iound, although resource commitment is widely considered
true, Japanese multinational Iirms are more likely to adopt an entry mode with a lower

control even when resource commitment is high. Erramilli (1996) concludes that
Iirms Irom countries that are characterized as high power distance and low uncertainty
avoidance may preIer an entry mode with Iull ownership control in a Ioreign market.

The entry strategies are very important Ior a Iirm when they have decided to enter a
Ioreign market. The entry strategies include the timing, scale and modes oI entry. It is
obvious that an early entry may gain several advantages, but they must be balanced
against the pioneering costs and risks. Large scale entry into a Ioreign market implies
great strategic commitment that limit the Ilexibility oI the Iirm, while potential huge
beneIits are also associated with such a strategy. Concerned with the entry modes,
there are six modes Ior a Iirm to enter a Ioreign market, and each oI them has its own
distinct advantages and disadvantages. Wei et al (2005) has concluded several
important Iactors that aIIecting the choice oI modes. Firms that are going to enter a
Ioreign market need to balance the beneIits, costs and risks associated with each
option, and choose the most appropriated entry strategy.

2.2 Operating Strategies

AIter the entry into a Ioreign market, how to organize and operate the business in the
Ioreign market is also signiIicantly important. According to Grant (2005), every Iirm
has three sets oI key characteristicsgoals and values, resources and capabilities, and
organizational structure and system. In addition, he argues that strategy is viewed as

Iorming a link between the Iirm that embodied by the three characteristics and its
external environment, and is mainly concerned with planning how to achieve its
goals.

There are Iour basic strategies Ior international Iirms to compete in a global
environment: an international strategy, a Multidomestic strategy, a global strategy and
a transnational strategy (Bartlett and Ghoshal, 1989). Firms pursuing an international
strategy try to transIer valuable skills and products that competitors do not possess to
Ioreign markets, but undertake limited local customization. Firms that pursue a
multidomestic strategy try to customize their product oIIering, marketing and all other
business strategies to adapt the Ioreign national conditions to achieve maximum local
responsiveness. Firms pursuing a global strategy Iocus on increasing proIitability
through experience curve eIIects and location economies to achieve a low cost
strategy. Firms that pursue a transnational strategy plan to exploit experience curve
eIIects and local economies, transIer core competencies and Iocus on local
responsiveness, which may enable Iirms simultaneously achieve both cost and
diIIerentiation advantages. Each oI the Iour strategies has both advantages and
disadvantages, and Hill (2004) argues that international Iirms should choose the
appropriate strategy based the pressures Ior cost reduction and Ior local
responsiveness.

2.3 Positioning Strategies


When an international company has been settled in a Ioreign market, it has to decide
how to compete in the particular industry. Besanko et al (2003) argue that a Iirm`s
position in the market is one oI the most important Iactors in determining a Iirm`s
success, and a Iirm`s generic strategy describes how it positions itselI to compete in
the market. There are three generic strategies that establish basic models Ior strategic
management: cost leadership, diIIerentiation, and a Iocus or niche strategy (Porter,
1980).

2.3.1 Cost Leadership

Cost Leadership is the strategy that a Iirm succeed by achieving the lower cost per
unit oI products than competitors` without sacriIicing a quality (Holt and Wigginton,
2002). By achieving cost leadership, the Iirm could gain signiIicant market share.
Cullen and Parboteeah (2005) argues that the eIIiciency achieved by cost savings
could occur anywhere Irom the very beginning oI the production, such as the design
or research oI a product or raw material purchases, to the end oI product Iinal sale.
Grant (2005) suggests that every business can be viewed as a chain oI activities that
creates value, and each activity along the value chain has diIIerent cost structure.
ThereIore, to build cost advantages, a Iirm needs to analyze costs structure and cost
drivers oI each activity along the value chain. Grant (2005) has concluded the
principal stages oI value chain costs analysis as Iollows.


First, the Iirm needs to disaggregate its entire business into separate activities, which
requires Iull understanding oI the processes Irom inputs to customer delivery. Usually,
the Iirm`s divisional structure is a useIul guide, but Iirm should also consider the
importance oI an activity, the dissimilarity oI activities and how the competitors
perIorm a particular activity. Then the Iirm should establish the relative importance oI
the activities that are the major source oI cost in the total cost oI the product. AIter
that, the Iirm should compare the costs oI identiIied activities with those oI
competitors, and hence could Iind out which activities the Iirm perIorms more
eIIiciently and which not. IdentiIying the cost drivers oI each activity is very
important. Cost drives are the Iactors that determine the level oI cost Ior each activity,
such as wages rates and deIects rates are important cost drivers Ior labour intensive
activities. However, some business activities are interrelated, and hence the cost oI
one activity may be determined by other activities. ThereIore, it is crucial to identiIy
this kind oI linkages in order to identiIy the right cost drivers. Through the stages
above, the Iirm thereIore could identiIy the opportunities to reduce costs oI each
possible activity along value chain. There are several ways Ior Iirms to achieve cost
advantages, and Figure 3 has summarized these drivers oI cost advantage (Grant,
2005, p254).

2.3.2 DiIIerentiation


DiIIerentiation advantage is the strategy that Iirms provide superior value within the
industry to customers (Cullen and Parboteeah, 2005). Porter (1980) argues that the
perceived superior value as compared to industry competitors is the key Ior the Iirm to
diIIerentiate itselI against competitors. The basic reason is that, through diIIerentiation,
Iirms could charge premium prices on the superior value oI the product and thus enjoy
more proIits than competitors in the industry. Usually, Iirms could provide the
superior value to customers through many ways such as unique product Ieatures,
higher quality, or all-round complementary services, etc.every aspect oI the way
that the Iirm relates to its customers (Grant, 2005).

Grant (2005) argues that, to achieve diIIerentiation advantages successIully, Iirms
should match customers` demand Ior diIIerentiation with the Iirm`s capacity to supply
diIIerentiation. ThereIore, a successIul diIIerentiation depends on both the demand
side and supple side oI a product.

As the demand side is concerned, the key is to Iully understand customers in terms oI
their requirement and preIerence oI product Ieatures, and their willingness to pay Ior
superior value. ThereIore, Grand (2005) has concluded several useIul techniques that
can guide the Iirm`s positioning and pricing oI their product, including
multidimensional scaling that analyzes customer`s perception oI diIIerent attributes oI
competing products (SchiIIman, et al., 1981), conjoint analysis that analyzes the
customers` preIerence among diIIerent attributes (Cattin and Wittink, 1982), hedonic

price analysis that calculates the market price Ior each valuable attribute (Gondal,
1994), and value curve analysis that identiIies innovative combinations oI product
characteristics that can create new market space Ior a Iirm (Kim and Mauborgne,
1999). However, Grant (2005) argues that the above statistical market research
techniques would not lead to an eIIective diIIerentiation. He continues to argue that
what really matters is an understanding oI customers on what and how they behave,
because most customers choose a product that reIlects their social goals and values to
realize community with others or one`s own identity. These social and psychological
Iactors may not be captured by the statistical techniques.

On the other side, the Iirm`s ability to oIIer diIIerentiation is also important to achieve
diIIerentiation advantage. Many well-diIIerentiated Iirms usually spend more on Irom
product research and development, technology, hiring higher skilled people, to
marketing, distribution, and customer services ((Holt and wigginton, 2002). Grant
(2005) concludes several principal stages that use the value chain to identiIy
opportunities Ior diIIerentiation advantages Ior Iirm. The Iirst stage is that the Iirm
should construct a value chain Ior the Iirm as well as customers. Then along the value
chain, the Iirm can identiIy the drivers oI uniqueness in each activity in order to assess
the Iirm`s potential Ior diIIerentiating its product. Among the drives oI uniqueness
identiIied, Iirms should select the most promising diIIerentiation variables Ior the Iirm.
Firm then locate linkages between the value chain oI the Iirm and that oI the
customers so that a Iirm can identiIy the means by which it can create value Ior

customers and can evaluate the potential proIitability oI diIIerentiation.

2.3.3 Focus Strategy

Focus strategy, compared with the above two basic generic strategies, can also be
used to achieve competitive advantages by Iocusing on one segment oI a market or
concentrating on one good or services (Holt and Wigginton, 2002). The key issue is
competitive scope, which represents how broadly a Iirm targets its products or
services (Cullen and Parboteeach, 2005). Cullen and Parboteeach (2005) argue that
Iocus strategy oIIers several strategic advantages Ior Iirms relative to broad-based
competitors. It enables the Iirm to react more quickly and behave more Ilexible than
rivals to customer needs, and also helps a Iirm to attract and retain customers. There
are three common Iocus strategies: customer specialization, product specialization,
and geographic specialization (Besanko, et al, 2003). Customer specialization means
that the Iirm oIIers their products to cater the needs oI particular class oI customers,
and the example oI customer specialization is that clothes oI Top Shop are designed
Ior young and Iashion people while those oI Burberry are designed Ior classic and rich
people. As a result, the Iirm would not underserve or overserve customers who
especially value certain attributes oI a product or who do not. Product specialization
means that the Iirm produces a limited set oI products Ior a wide set oI customers so
that the Iirm could serve these group oI customers especially well. The Iocus on a
limited set oI products enables the Iirm to enjoy beneIits oI economies oI scale and

learning economies. The geographic specialization means that the Iirm oIIers their
products within a narrowly deIined geographic market, which would enable the Iirm
to enjoy economies oI scale such as in local marketing, and to better serve local
markets. In addition, Besanko, et al (2003) conclude that these three basic Iocus
strategies, compared with broad-based strategies, insulate the Iirm Irom competition,
as limited customer demand in some segment oI market could more beneIit the only
one Iocusing Iirm in this market in terms oI little competition and substantial returns.

Cost leadership, diIIerentiation, and Iocus are three generic strategies Ior Iirms to
create their competitive advantages in order to compete in the market they are serving.
Each oI them can help a Iirm to realize success in the market with keen competition.
ThereIore, Iirms need to recognize their internal strengths and weakness as well as
external environment, and hence Iormulate a suitable strategy and then implement it

2.4 Human Resource Management

Human resource management is gradually Irom being viewed as a support Iunction oI
strategy implementation to one oI strategic importance (Pucik, 1992; Scullion and
Starkey, 2000). Indeed, people are the most valuable assets in a Iirm. Without people,
the Iirm would not exist; plans, decisions and strategies would not be carried out; and
the competitive advantages would not be achieved. Human resource management is
the activities a Iirm carries out to use its human resources eIIectively, and the basic

Iunctions include staIIing, training, motivation and labour relations (Hill, 2004).
When human resource management is applied to the international setting, it becomes
international human resource management (Cullen and Parboteeah, 2005). Bartlett
and Ghoshal (1989) argue that an eIIective human resource management is vital Ior
the successIul implementation oI international strategies Ior multinational Iirms.
International human resource management concerns with meeting the needs oI
multinational conIigurations with little similarity to traditional organizations (Holt
and Wigginton, 2002). ThereIore, when a Iirm enters into a Ioreign market and hence
an international context, this Iirm Iaces more complexity in human resource
management.

Researches on international human resource management can be categorized into
three broad strands (Keating and Thompson, 2004). The Iirst concerns human
resource management in multinational Iirms, which Iocuses on the management oI
human resource in international Iirms to eIIectively achieve its strategic objectives
(Schuler et al, 1993; Sparrow et al, 1994; Scullion, 1995; Taylor et al, 1996; De Cieri
and Dowling, 1999). These studies particularly argue that the nature oI both
home-country and host-country aIIect the extent to which multinational Iirms
implement their human resource management in the local subsidiaries (Ferner, 1997),
and Adler and Ghadar (1990) indicate that international human resource management
should be linked to external environment as well as internal business strategies. The
second strand mainly Iocuses on culture diIIerences relating to human resource

management, which suggests that culture will inIluence the development and
operation oI human resource management policies (HoIstede, 1980; Laurent, 1986;
Schneider and Barsoux, 1997; Adler, 2003). They argue that cultures, values and
norms aIIect employees` behaviours and attitudes as well as management practices,
and thereIore, there is no universal model oI management and management theories
and practices are not transIerable Irom one culture to another. The third is
comparative human resource management, which compare the human resource
management systems and practices across diIIerent nations (Pieper, 1990; Brewster et
al, 2000; Clark, 1996). They describe and explain diIIerences oI human resource
management systems between diIIerent countries, and argue that these diIIerences are
attributed to diIIerent national cultural, legal, economic, and social environments. The
three strands oI international human resource management studies have the similar
objectivesunderstanding and explaining human resource management, and the
diIIerence is that each oI them has its distinct Iocusing explained point.

2.4.1 HRM Adaptation to Local Context

Staffing. Schein (1985) reIers staIIing policy as the selection oI employees Ior
particular jobs and it does not only involve selecting individuals who have the
required skills, but also a tool Ior developing and promoting corporate culture.
Geringer et al (2002) also Iound that technical skills as well as a person`s potential to
do to good job are important selection criteria Ior managers in 13 countries. ThereIore,

the main objective Ior selection is to enable the Iirm to achieve and attain higher
perIormance. According to Hill (2004), there are three types oI staIIing policy: the
ethnocentric approachall key positions in management are Iilled by home-country
nationals, the polycentric approachhost-country nationals are recruited to manage
subsidiaries and home-country nationals occupy key position at headquarters, and the
geocentric approachthe best people regardless oI nationality are recruited Ior key
jobs. Each oI the three approaches has advantages and disadvantages. By hiring
home-country nationals, the Iirm can easily maintain uniIied corporate culture,
transIer core competencies to Ioreign subsidiaries; On the other hand, this will limit
advancement opportunities that lead to resentment, lower productivity and higher
turnover rate, and will Iail to understand host-country cultures that lead to 'cultural
myopia (Hill, 2004). Recruiting host-country nationals will enable the Iirm to avoid
the problems oI 'cultural myopia and enjoy the beneIits that the local managers
bring to the Iirm such as political, social and business connections; however, it also
has disadvantages such as gap between host-country and home-country managers due
to languages, cultures and other diIIerences, and lack oI integration between
headquarters and Ioreign subsidiaries (Holt and Wigginton, 2002; Hill, 2004). The
geocentric staIIing policy enables the Iirm to build and make the best use oI a cadre oI
international executives, but the oIten time-consuming and expensive creation oI a
cadre oI makes this policy diIIicult to implement (Hill, 2004).

Training. No matter whether the home-country nationals or host-country nationals

are recruited, they should be trained when they enter into a new international
environment in order to perIorm better. It is Iound and estimated that there are high
Iailure rate and costs oI expatriation all over the world (Harvey, 1983; Black and
Gregersen, 1999; Caudron, 1991). ThereIore, Dowling and Schuler (1990) Iound that
cultural training, language training and practical training are useIul ways to reduce
expatriate Iailure Ior international Iirms. Culture training is to prompt the
home-country managers to understand the host-country culture, so as to eIIectively
deal with host-country subordinates and business aIIairs. Although English is
prevalent all over the world, communications in the language oI the host-country will
build rapport with host-country subordinates and improve the management
eIIectiveness. Practical training reIers to that Iirms oIten devote considerable eIIort to
build expatriate community alike with good sources oI support and inIormation, and
thereIore the expatriate manager and the Iamily will be more easy and smooth to
adapt to a Ioreign liIe and culture. Unlike expatriate managers, managers Irom
host-country lack training at parent company as well as cross-cultural exposure, and
only learn through their own experience (Cannon, 1995), and hence although they
have the potential to do a good job, they lack international knowledge and experiences.
Holt and Wigginton (2002) have identiIied several opportunities Ior local managers to
gain knowledge and experiences. First, there have been many distance learning as
well as education alliances Iormed between local and western schools that create new
and more learning opportunities Ior people all over the world. In addition, many
international Iirms send local promising managers back to school and hence many

leading American universities take this opportunity to oIIer resident, exchange as well
as modular development courses to attract them. Some employers also make
substantial investment in training potential management such as mentoring programs
adopted by Ford to match candidates to work alongside Ioreign managers on joint
projects, and the creation oI Motorola University in China to provide long-term
education to aspiring young managers. In a word, management training is an
important but also expensive investment Ior international Iirms, because they oIten
hire people with management potential, and then help them to develop and give Iull
play to their potential.

Motivating Employees. Even iI an international Iirm has the best strategy and human
resources, it will not be successIul iI the management does not well motivate and lead
employees in the host-country. Mitchell (1997) deIined motivation as the process that
account Ior an individual`s intensity, direction, and persistence oI eIIort toward
attaining a goal; thus, motivation is the stimulus that drives behaviors. However, in
the context with diversiIied cultures, motivation becomes more complicated as the
cultural characteristics are not universal. HoIstede (1980) argues that human values
and needs such as perceived importance oI monetary rewards and achievement vary
among cultures, so it is dangerous to motivate people Irom diIIerent cultures in the
same way by the same phenomena. HoIstede (1983) Iound that even within the same
culture in one country, people`s perceptions may also vary among diIIerent social
classes and occupational groups. Inglehart (2000) conducted a study oI people`s

attitudes toward work in 50 countries, and their work the World Values Surveys and
European Values Surveys suggest that people Irom diIIerent nations place diIIerent
magnitude oI importance to their work Iunctions. Indeed, people Irom some countries
may place selI-achievement at a higher priority while others may place monetary
income at a higher priority. ThereIore, management oI the international Iirm should
understand the working reasons oI Ioreign employees. In addition, work centrality is
also an important dimension oI employees` values to work. England (1986) reIers
work centrality as the degree oI general importance oI work relative to other interests
Ior an individual. Parboteeah and Cullen (2003) examined work centrality diIIerences
in 26 countries and Iound that national cultures do have signiIicant impact on people`s
work centrality. They Iound that uncertainty avoidance and masculinity negatively
aIIect work centrality, and individualism positively aIIects work centrality. Usually,
people with greater work centrality usually work more and are dedicated, and hence
lead to more eIIective organization (Collen and Parboteeah, 2005). Moreover, the
value oI rewards may diIIer among diIIerent nations and cultures. Holt and Wigginton
(2002) argue that motivation is inextricably linked with employees` perceived value oI
rewards that reIlects the meaning oI their eIIorts. They continue to argue that
perceptions oI rewards vary according to values oI diIIerent cultures, such as people
in a high individualism nation valuing more on individual achievement or personal
recognition than those in collective nation, and people in masculinity culture more
valuing motivation in terms oI job toughness and competition.


Thus, it is serious error Ior international managers to generalize human values and
motives across cultures. Alder (1997) argues that most motivation theories, such as
Maslow`s hierarchy oI needs, ERG, expectancy theory, etc., were developed in the
context oI American. As cultures are not universal, neither are these theories.
However, the logic oI these theories is important, such as Maslow`s hierarchy oI
needs in which the hierarchy can be adapted according to Ioreign national cultures.
ThereIore, managers should understand the host-country`s value about work, jobs and
rewards, and make suitable motivation strategies in order to motivate employees
eIIectively.

2.5 Resource-Based Theory and Management Strategies

2.5.1 The ResourceBased Theory

Every Iirm plans and implements various strategies in order to create competitive
advantages so that they could outperIorm their competitors and earn a higher rate oI
proIits in their industry. To achieve superior competitive advantage, Besanko et al
(2003) argue that a Iirm must create more values, which depends on its stock oI
resources and distinctive capabilities oI using those resources. For long-term
proIitability, a Iirm must ensure its successIul strategies and the created competitive
strategies are sustainable (Cullen and Parboteeah, 2005). Sustainable is critical and it
means that strategies are not easily neutralized or attacked by competitors (Aaker,

1989), and its competitive advantage persists despite eIIorts by competitors or
potential entrants to duplicate or neutralize (Barney, 1991).

ThereIore, during 1990s, the resource-based theory oI Iirm was developed, and it
argues that any Iirm is essentially a pool oI resources and capabilities which
determine the strategy and perIormance oI the Iirm; and iI all Iirms in the market have
the same pool oI resources and capabilities, all Iirms will create the same value and
thus no competitive advantage is available in the industry (Barney, 1991; PeteraI,
1993; Dierickx and Cool, 1989; Grant, 1991; WernerIelt, 1984; Mahoney and Pandian,
1992). Lockett and Thompson (2001) state that 'resource-based view emphasizes Iirm
heterogeneity and path dependency, as each Iirm`s resource bundle is unique, and the
consequence oI its past managerial decisions and subsequent experiences, it Iollows
that so is each Iirm`s opportunity set. Resource-based theory also argues that, to
sustain competitive, a Iirm should possess resources and capabilities that are
imperIectly mobile, valuable, nonsubstitutable and diIIicult to imitate. These Iour
characteristics can lead to the asymmetries in the resources and capabilities oI Iirms in
the industry and serve as the basis oI sustainability. Besanko et al (2003) suggest that
these Iour characteristics can be induced or reinIorced through isolating mechanisms
that are deIined by Rumelt (1984) as the Iorces that limit the extent to which a
competitive advantage can be duplicated or neutralized through the resource-creation
activities oI other Iirms. There are two groups oI isolating mechanisms: impediments
to imitation that impede existing Iirms and potential entrants Irom duplicating

resources and capabilities, such as legal restrictions, superior access to inputs or
customers, scale-based barriers and intangible barriers (e.g. causal ambiguity,
dependence on historical circumstances and social complexity; and earlv-mover
advantages that increase the economic power oI a competitive advantage over time,
such as learning curve, reputation and buyer uncertainty, buyer switching costs and
network eIIects.

The resource-based theory has been diIIused and accepted widely. Peng (2001)
suggested several reasons Ior this. The Iirst is that resource-based theory has greater
perceived advantage due to its Iocus on Iirm-level determinants oI company strategy
and perIormance. Second, resource-based view is compatible with both behavioral
and economic schools oI thought in strategy (Mahoney and Pandian, 1992). The third
reason is that the logic oI resource-based theory is simple and easy to understand. In
addition, the resource-based theory has a high level oI trailability'the degree to
which an innovation may be experimented with on a limited basis (Rogers, 1983,
p15). The Iinal reason is that various high visibility Iorums and events have supported
the resource-based theory, and thus the role oI credible is instrumental. With the
above attributes above, the resource-based theory is adopted by most Iirms all over
the world.

2.5.2 Entry Mode Selection and Resource-Based Theory


It has been suggested that there are several entry modes available Ior Iirms to consider
aIter they have made an entry decision to a Ioreign country, and each oI these entry
modes can bring both advantages and disadvantages to these Iirms. ThereIore, the
selection oI the most appropriate entry mode involves signiIicant tradeoIIs and it is
very important Ior the Iirm`s Iuture development. Hill et al (1990) argue that a
particular entry decision is closely related to the overall strategic resources and
capabilities owned by the Iirm.

Hill (2004) has made some generalization Ior international Iirms about how to select
an entry mode based on the resources they owned. He suggests a distinction between
Iirm`s resources and capabilities oI the international Iirm in deploying its
technological know-how and in management know-how. II a Iirm can create
competitive advantages by deploying its technological know-how, licensing and joint
venture arrangements should be avoided, and a wholly owned subsidiary is preIerred.
Based on resource-based theory, technological know-how is one oI the resources
those are easy and rapid Ior competitors to imitate iI not protected well, so a wholly
owned subsidiary is the most rationale entry mode to protect technological know-how.
However, licensing and joint-venture are oIten selected when the Iirm owning the
technological know-how would like to reduce the risk oI the technology being
expropriated or when the Iirm expects imitation by competitors to avoid transitory. On
the other hand, some Iirms create competitive advantages by deploying management
how-how, and they possess value brand name and reputation. Usually, brand names

are protected by laws and regulations, as a result many Iirms would choose a
combination oI Iranchising and subsidiaries to control the Iranchises in a Ioreign
country, and the subsidiaries may be in Iorms oI wholly owned or joint ventures.

2.5.3 Positioning Strategies and Resource-Based Theory

Whether to purse a cost leadership or diIIerentiation strategy also depends on the
resources and capabilities that both the parent Iirm and subsidiary own. In the early
part oI this research, several drivers oI cost advantages have been identiIied, such as
economies oI scale, economies oI learning, production techniques, etc. These costs
advantages can be achieved iI the Iirms have superior advantages oI purchasing,
advertising and research and development. Usually larger and more reputed Iirms may
enjoy beneIits oI bulk purchases at a lower unit price, large coverage oI advertisement
at a lower advertising cost per consumer, and R&D spillovers when ideas developed
in one project are oI help in another project (Besanko et al, 2003). ThereIore, Ior Iirms
with resources and capabilities that enable the drivers oI cost advantages, a cost
leadership strategy is Iavored to create competitive advantages. As diIIerentiation
strategy is concerned, Grant (2005) argues that Iirms need to consider their internal
strengths in terms oI resources and capabilities to determine whether they have
potential and advantages Ior diIIerentiation compared with their competitors. Usually,
diIIerentiation requires high levels oI technologies and services, which, in turn,
requires signiIicant superior inIormation system supporting Iast response capabilities,

training to support customer service excellence, and Iast new product development. In
addition, each activity along the value chain is also very important, such as quality oI
components and materials, wide variety oI product, Iast delivery, eIIicient order
processing, strong brand reputation, and customer aIter-sale services (Grant, 2005).
These resources and capabilities provide Iavorable conditions Ior Iirms to pursue a
diIIerentiation strategy. For international Iirms, Peng and Wang (2000) argue that it is
not necessary that the resources and capabilities needed are a one-way process
originating Iorm headquarters, but rather, subsidiaries can develop their own. As
Birkinshaw (1996) reported, some subsidiary growth is driven by its own distinctive
capabilities developed through eIIorts by subsidiary management rather than parent
management. ThereIore, the choice oI strategies does not depend on the resources and
capabilities owned by parent Iirm, but also local subsidiaries.

2.5.4 Human Resource Management and Resource-Based Theory

In this paper, it has been argued that human resources are critical Ior the success oI an
international Iirm. Human resources oIIer skills, knowledge, and reasoning and
decision-making abilities (Grant, 2005). Grant (2005) also suggests a Iew kinds oI
resources and capabilities that human resources bring to the Iirm. The Iirst is that the
education, training and experiences oI employees determine the skills available to the
Iirm. In addition, the adaptability oI employees contributes to the strategic Ilexibility
oI the Iirm. Moreover, the social and collaborative skills oI employees bring the

capacity oI the Iirm to transIorm human resources into organizational capabilities.
Finally, the commitment and loyalty oI employees determine the capacity oI the Iirm
to attain and maintain competitive advantages. ThereIore, these characteristics oI
human resources play signiIicant role on the perIormance oI the Iirm. II these
characteristics are inimitable and immobile, then resource-based theory suggests that
the Iirm is able to create and maintain its competitive advantages compared with its
competitors.

Taylor et al (1996) have studied three levels oI human resourcesthe parent Iirm, the
subsidiary and the employees. They suggest that top managers at the parent Iirm level
present some oI the most valuable, unique, and hard to imitate resources. Top
managers oI an international Iirm have signiIicant international experience and
speciIic tacit knowledge, and thus Carpenter et al (2001) argue that this kind oI
experience and knowledge are diIIicult to access and imitate Ior other international
Iirms those do not possess. At the subsidiary level, staIIing subsidiaries with
entrepreneurial managers (Birkinshaw et al, 1998), providing suIIicient incentive to
subsidiary (Gupta & Govindarajan, 2000), and seeking a Iit between its human
resources practices and local culture (Schuler & Rogovsky, 1998), are all suggested to
be able to Iacilitate subsidiary capability development and knowledge sharing. Finally,
at the employee level, Bae & Lawler (2000) and Lee & Miller (1999) Iound that it is
more likely to attain higher perIormance iI Iirms value people as a source oI
competitive advantages.


Human resources possess complex social relationships, and Barney (1991) argues that
social relationships may be one oI the most diIIicult to imitate resources. ThereIore,
Irom the resource-based view oI point, human resources are vital to propel the Iurther
progress in creating and sustaining competitive advantages in the industry.



Chapter 3 Research Methodology

The previous chapter has reviewed the strategies Ior international Iirms to enter,
expand and develop in a Ioreign country, and how the resource-based theory
contributes to the selection oI an appropriate strategy. This chapter will introduce the
research methods used in this research.

A methodology is 'the analysis oI, and rational Ior, the particular method or methods
used in a given study, and in that type oI study in general (Jankowicz, 1994).
ThereIore, it is generally a research approach Ior studied topics. Blaikie (2000)
suggests that it also includes a critical evaluation oI alternative research methods.

3.1 Research Design

This dissertation will Iind out the extent to which the strategies oI Wal-Mart and
CarreIour in China are diIIerent Irom each other and the reasons why they are
diIIerent in a resource-based perspective. There are two broad categories oI researches:
quantitative and qualitative research. Qualitative research has always been in an
important place in the studies oI international business (Marschan-Piekkari and Welch,
2004). This dissertation will apply the qualitative method to conduct the comparative
study oI the two retailing giants` strategies. According to Van Maanen (1983, p9),
qualitative methods is deIined as procedures Ior 'coming to terms with the meaning

not the Irequency oI a phenomenon by studying it in its social context.

Cresswell (1998) listed Iive research approaches that each has a distinguished history
in one oI the social science disciplines and then explores their application in research
design. The Iive research approaches include:

1. Biographical research, concerned with an individual and their experiences, and
maybe in the Iorm oI a selI-report or autobiography or a biography prepared by
another person based on oral reports and or written materials.
2. Phenomenological, concerned with experiences oI more than one person in
relation to a concept or phenomenon.
3. Grounded theory, concerned with generating or 'grounding theory in their
observations rather than applying or using an extant theory.
4. Ethnography, concerned with a variety oI diIIerent schools oI thought (e.g.
structural Iunctionalism, Ieminism, critical theory, etc.), that emphasizing the
Iirst-hand collection oI data based on the observation oI people.
5. Case studies, concerned with a detailed and in-depth description and analysis oI a
'case or 'bounded system using multiple sources oI inIormation.

Considering the research questions, I choose the case studv to conduct this research.
According to Hartley(2004, pp.323), 'case study research consists oI a detailed
investigation, oIten with data collected over a period oI time, oI phenomena, within

their context, and the aim is to provide an analysis oI the context and processes which
illuminate the theoretical issues being studied. Hartley also argues that case study is
particularly suited to research questions which require detailed understanding oI
social or organizational processes. In addition, Yin (1994) suggests that case studies
are preIerred when 'how and 'why questions are to be answered, and when the
researcher has little control over events and when the Iocus is on a current
phenomenon in a real-liIe context.

As this research is concerned, it is an investigation oI strategies adopted by Wal-Mart
and CarreIour in the Chinese retail industry, and an analysis oI the diIIerences
between the two in a resource-based theory perspective. ThereIore, designing this
paper in the Iorm oI case studies is the most appropriate.

3.2 Research Methods

AIter designing the research, the research methods that are going to be used are also
important. Fisher et al (2004) suggest several commonly used research methods:
interviews, such as an open interview, pre-coded interview, and semi-structured
interview; panels, that gather a group oI people to have a Iree Ilowing, but Iocused,
discussion on a particular topic; questionnaires, including both pre-coded and open
questionnaires; observational research, either open or pre-coding observation; and
documentary research by using documentary materials to take either an open or

pre-coded Iorm. The use oI methods mainly depends on the nature and scope oI data
collected.

In this research, documentary research method, particularly Iirms` historical
documentary review and analysis is adopted Ior this speciIic case study. History is
regarded as a repository oI Iacts and can be used to illuminate the present and Iuture
especially in the resource-based view. De Geer et al (2004) argue that historical
documents can be used in two diIIerent capacities. The Iirst is that they are remnants
oI earlier processes in the organization and thus bear witness to activities in the past.
They tell the activities and events happened at that period oI time, but researchers
need to identiIy and veriIy the authentic document required. On the other than, these
sources may tell numerous inIormation about some hidden situations, processes and
attitudes within the organization. These requires critical scrutiny because they involve
complicated relationship that researchers cannot easily assess.

3.3 Case Design

Two casesWal-Mart and CarreIour are selected to be studied in this research. This
design oI case studies is decided Ior several reasons.

First, due to the aim oI this researchto provide an overview oI the relationship
between the Iirm strategies and its possessed resources and capabilities, a comparative

studies oI more than one Iirm in the same market context would be more convincing
than one case studies. By contrasting the diIIerent strategies adopted by diIIerent
Iirms in the same context, the determinant Iactorsresources and capabilities are
stressed as the main points. However, the number oI cases chosen cannot be too much.
Studying a great number oI cases would result in verbose and repeated data
interpretation and analysis. It is also a work burden. Two or three cases should be the
better choice Ior a comparative study. Due to time and words limitation oI this
research, two cases are preIerred in this research.

In addition, Wal-Mart and CarreIour are chosen as representatives depending on
several Iactors. First, Wal-Mart and CarreIour are the largest two retailers worldwide.
They have similar business scales and strength, and hence they are comparable in
terms oI their resources and capabilities. In addition, Wal-Mart and CarreIour entered
China in the same period oI time, and then expand and develop together experiencing
diIIerent periods oI policy changing. This enables a successive analysis oI the two
retailers` strategies Irom their entry until today. Furthermore, although Wal-Mart
ranked head CarreIour in the world, but it becomes Iollowing CarreIour in Chinese
retail market. These three Iactors all enable a comprehensively comparative study oI
their strategies.

3.4 Data Collection


Orbell (1987) suggests that most suIIicient inIormation Ior historical documentary
method can oIten be collected, without having to contact companies, in public sources
available to most oI people. The main sources oI these historical inIormation that
could be used are through companies` websites, annual reports, documents or
websites published by government, trade associations, and research organizations and
proIessional bodies, newspapers and magazines, textbooks, academic journals, or
online database and so on. The available sources oI inIormation are listed in Table 3.1,
and the ticked ones are the sources available to use Ior this research.

Table 3.1 Sources of Information


Data generated by individuals and organizations
Government bodies; \
Trade associations; \
Private companies;
Local employer networks;
Trade unions;
Patent oIIices;
Research organizations and proIessional bodies; \
Consumer organizations

Data recorded in primary sources

Monographs (books on a single topic);
Academic journal articles; \
ConIerence papers;
Unpublished research reports (available Irom author);
Newspapers and magazines (some Ieatures and news items) \
Company annual reports; \
Company price lists;
Company internal house magazines`; \

Data organized, collated and indexed in secondary sources
Books oI readings 9collations oI journal articles);

Textbooks; \
Encyclopedias;
Bibliographies;
Dictionaries; \
Academic journal review articles; \
Academic journal annual index pages;
Annual review books (oI topics in academic disciplines);

Those are summarized and signposted in tertiary sources
Subject guides;
Library catalogues and indexes; \
On-line databases; \
InIormation services; \
Librarians;
Your tutor; \

Source. Howard and Sharp (1983).

As this research is concerned, the websites oI parent companies are good sources oI
the overview oI Wal-Mart and CarreIour, as well as their possessed resources and
capabilities. The websites oI local companies provides their activities and strategies in
China. Both provide the inIormation year by year, which provides convenience and
reliability Ior researchers. Some important Iigures and policy documents can be
obtained through governments` oIIicial websites, such as Central People`s
Government P.R.C, and Ministry oI Commerce China, which enable the collected
inIormation`s reality and reliability. Online public published newspapers, magazines,
academic journals, textbooks and etc., especially with great reputation, will provides
reliable and just inIormation and analysis oI the activities and strategies oI Wal-Mart
and CarreIour.



3.5 Summary

According to the research aims and objectives, this research chooses Wal-Mart and
CarreIour as two cases to conduct a qualitative cases study. Through documentary
research method, both Wal-Mart and CarreIour`s historical documentary are reviewed
and analyzed. All the inIormation and data about Wal-Mart and CarreIour will be
gained through companies` websites, governments` oIIicial websites as well as other
public published newspapers, magazines, academic journal articles, textbooks and etc.
Due to the strict approval, edition and reputation, these sources oI inIormation and
data are believed to be just and reliable.

Chapter 4 Industry Analysis of Chinese Retail Market

Industry analysis provides a Iramework Ior assessment oI industry and Iirm
perIormance, identiIication oI key Iactors aIIecting perIormance, determination oI
how changes in the business environment may aIIect perIormance and identiIication
oI opportunities and threats in a particular business context (Besanko, et al 2003).
This chapter conducts an industry analysis by applying Porter`s Five Forces
Irameworkinternal rivalry, entry, substitutes and complementary products, supplier
power and buyer power.

4.1 Industry Facts

It is probably saIe to argue that, since the Chinese economy reIormation occurred in
1979, retail sector is one oI the sectors with the most rapid changes, the most
Iundamental transIormation and most intensive competition. Since 1979 the Iree
market retailing became legal again, and Chinese retail sector grew exponentially
(Davies, 1994). Davies (1994) Iound that aIter Iree market retailing was permitted, the
number oI retailing stores in China grew explosively Irom 1 million in 1979 to 10
million in 1992. By the end oI 2001, the number oI retail businesses reached around
20 million units (euromonitor.com, 2003). Meanwhile, the retail sector is growing
more mature and complete. Every retailer, Irom domestic to Ioreign ones, is
diIIerentiating itselI to realize its distinct position in this industry, and adopting

advanced management models and technologies.

The most important event in Chinese retail industry is the market openness policies
Ior Ioreign investment started in 1992. This openness policy brings both opportunities
and challenges to Chinese retail industry. On one hand, it leads to industry revolution,
and on the other hand, it brings intensive competition to domestic retailers. China
opened its retail market gradually to Ioreign retailers. In July, 1992, the central
government oI China issued Commercial Retail Areas on the Issue of the Use of
Foreign Investment Approvals, which started to allow one or two Ioreign retailers to
open business as pilots in Beijing, Shanghai, Tianjin, Guangzhou, Dalian and Qingdao,
and Iive Special Economic Zones. However, there are Iour conditions Ior these
Ioreign investments: (1) the Chinese partner must have a stake more than 51, (2)
they must Iorm joint ventures or cooperation to enter the market, (3) they cannot
operate wholesale businesses, (4) the proportion oI imported goods, shall not exceed
30 (Marketing BrieIs). In June 1996, the central government oI China expanded the
number oI experimental cities to all provincial capital cities and several separated
planned cities, and also allowed Ioreign retailers to operate wholesale businesses. This
is believed to indicate that China, especially the retail industry, took an important step
in the opening policy. At the end oI 2004, China removed all limits on business
location, amount and shares structure. Accompanied with the large market with great
proIit potential, the Ioreign investments greatly accelerate the pace oI entering China.


4.2 Market Definition

According to Besanko et al (2003), market deIinition requires identiIication oI both
product market and geographic market. Retail can be deIined as the Iunction and
activities involved in the selling oI commodities directly to consumers
(www.theIreedictionary.com). ThereIore, the product market can be considered as
providing brick-and-mortar stores with a large range oI commodities and services Ior
consumer shopping. Others, such as Chinese traditional wet markets and street market,
as well as online retailing and television retailing, are considered as substitutes in this
analysis. Consumers tend to shop locally, and consumers oI a metropolitan area tend
to visit retailing stores in the same vicinity. It might be thought that each metropolitan
is a distinct geographic market. However, considering the aims oI this research, we
will deIine the geographic market to be studies as the entire Chinese retail market.

Market deIinition is a cornerstone oI industry analysis (Besanko, et al, 2003). Porter`s
Iive Iorces Iramework (illustrated in Figure *) will be perIormed to analyze the retail
industry in China.

4.3 Internal Rivalry

According to Besanko et al (2003), internal rivalry reIers to the jockey Ior shares by
Iirms within a market. Due to the economy reIormation in China, the number oI

competitors in Chinese retail industry is increasing rapidly. Especially aIter China
oIIicially became a member oI WTO, the Ioreign retailers enter China market as well
as expand in China in a signiIicant rapid pace. In addition, each competitor may have
diIIerent cost. There is also substantial excess capacity Ior each retailer. Furthermore,
in this retail market, customers oIten have low switching costs. According to Besanko
et al (2003), these characteristics oI retail market tend to heat up price competition.
ThereIore, the Chinese retail market meets the criteria Ior Iierce internal rivalry.

According to China Internet InIormation Center News (2002), China has planned to
create its own large domestic retailers. There are a Iew domestic retailers engage in a
Iast and large development. With a Iew number oI international retail giants, the
competition in China retail industry is inevitably intensive and sharp. Table 4.1 shows
the a Iew top retailers in China consisting both domestic and Ioreign ones.

Table 4.1 The Rank of Retailers in China
Rank Retailer Name
Sales in 2006
(Billion RMB)
Number of Outlets
1 Gome Electric Appliance, China 86.93 820
2 Bailian Group, China 77.09 6280
3 Suning Appliance Chain Store, China 60.95 520
4 China Resources Vanguard, China 37.85 2250
5 Dashang Group, China 36.14 182

6 CarreIour, France 24.80 95
14 Wal-Mart, USA 15.03 71
17 Lotus, Thailand 13.50 75
23 Metro, Germany 9.37 33
24 Tesco, UK 9.30 47
Source: Each company`s website

From the table, it is easy to Iind that domestic retailers occupy the top Iive retailers in
terms oI sales in 2006, and they own a signiIicant market share in Chinese retail
market. CarreIour, the best perIorming Ioreign retailer took the sixth position and
Wal-Mart took the Iourteenth. However, in recent years, the openness policies become
more relax and Ilexible, more and more Ioreign retailers landed China. Most oI them
have completed their strategic layout oI their stores over China perIectly. ThereIore,
although some oI the domestic retailers have occupied the leading position, they are
still Iace severe challenges. It is estimated that in the next Iew years, 60 oI Chinese
retail market will be owned by 3-5 world-class retail giants, and 30 will be owned
by Chinese national retail giants, and the rest oI 10 will be owned by regional retail
giants.

4.4 Entry

In an industry, argued by Besanko et al (2003), new entrants will erode current

players` proIit in two ways: (1) entrants will divide the market demand among more
sellers, and (2) entrants will decrease the market concentration which will in turn heat
up internal rivalry. Usually, there are many kinds oI entry barriers in an industry.

In the early years aIter economy reIormation, there was no Ioreign retailers allowed to
enter China, and Chinese central government encouraged and supported the
development oI new retailers. ThereIore, operating retail stores was considered as a
good way to make proIit due to the small entry barriers. It does not entail signiIicant
economies oI scale or experience curve, because small retail stores still make proIits
with lower cost. Retailers` reputations are not signiIicantly important, as the goods
they sell to customers are less diIIerent. Retailers can access to buyers easily and there
are no network externalities. As a result, the number oI retailers increased rapidly.

Recently, China central government has introduced policies to regulate and promote
the development oI retailing, which encourages competitive Iirms to realize scale
expansion, and to reorganize assets that are cross-sector, trans-region and
cross-ownership. This, meanwhile, leads these enterprises to become larger and
stronger. Especially when China central government completely removed the
limitations oI Ioreign retailers to enter and develop in China, the barriers Ior both
domestic and Ioreign retailers to enter Chinese retail market became smaller. More
and more powerIul domestic and Ioreign potential entrants will enter this market.


However, small entry barriers, on the other hand, discourage potential entry to this
industry. A report Irom A.T. Kearney Iound that the attractiveness oI Chinese retail
market in 2006 showed a downward trend (www.chinabgao.com). As Besanko et al
(2003) suggested expectations about post entry competition are also important. As
more and more enter this market, the competition is inevitably considered as intensive,
and market is gradually saturated. However, Irom Chinese retail market`s overall
growth trend, many experts conclude that there is still huge potential Ior Iurther
development and opportunities Ior investment. According to China State InIormation
Center, the retail market in China will maintain an annual growth rate oI 8 to 10.

In addition, the value oI RenMinBi (RMB) will also inIluence the potential entrant to
the retail market. First, iI there is RMB revaluation, the consumers` real purchasing
power will increase and hence the retailers will beneIit Irom this, which will
encourage more entries. Second, the RMB revaluation indicates the real prices oI
imported goods decrease, which will beneIit the retailers and encourage potential
entrants.

4.5 Substitutes and Complements

Substitutes and complements are two important Iactors inIluencing market demand.

Substitutes would divide the proIits and intensiIy the competition in this market,
while complements would boost the demand and hence enhancing proIit opportunities
in this market.

Chinese traditional marketswet markets and street marketsare considered to be
substitutes oI retailing stores in Chinese retail market. Wet markets are large and
enclosed, and space is divided among counter-service departments. Street markets, on
the other hand, sell Iresh Iood in the open by private sellers with tiny stalls. The
environments oI both are dirty, crowded and noisy. The competitive advantages oI wet
markets and street markets lie in cheaper prices and Iresher Iood. In the early days,
these wet markets and street markets are strong substitutes oI retailing stores. With the
improvement oI people`s living standers, a comIortable shopping environment, wide
variety oI goods, and outstanding services provided by retailing stores attract more
and more customers.

In addition, nowadays, sales on Internet and television become more and more
popular. Advanced technology enables the online and television shopping transactions
to be gradually Iast and saIe. Furthermore, online and television shopping are
considered to be time and cost suIIicient. Combined with the increasingly Iast paced
liIestyle oI society, the demand oI online and television shopping is increasing. In
2001, the Internet retail sales had hit RMB 1200 billion that is more than one third oI

the traditional retailing Iormat with sales oI RMB3230.6 billion (euromonitor.com).
There is no doubt that online and television retailing brings great challenges and
threat to traditional brick-and-mortar retailing stores.

Both Chinese traditional market and modern online and television retailing reap the
market demand in this retail industry. However, online shopping will complement and
can boost the demand Ior brick-and-mortar retailing stores. The presence online will
increase the exposure oI the retailer, and give the potential customers a Iull
introduction oI this retailer. In addition, other industries such as tourism, restaurants
and hotels, will also boost the sales oI retail industry in one city.

4.6 Supplier Power

Besanko et al (2003) argue that the supplier power is the ability where industry`s
upstream input suppliers to negotiate prices that extract industry proIits. Besides, they
also suggest that suppliers may have two kinds oI power over a downstream industry.
II suppliers are in a competitive market, then they have 'indirect power. Suppliers
with indirect power charge the downstream industry according to the supply and
demand in the upstream industry, and also can sell their goods and services to the
highest bidder. Supplier have 'direct power iI the industries oI suppliers are
concentrate, or there is relationship-speciIic investments between suppliers and buyers.

Suppliers with direct power can raise prices oI the goods and services they provide
without destroying that market. Both direct and indirect power will erode the proIit oI
downstream industry.

In China, especially aIter China`s entry to the WTO, relationships between retailers
and suppliers have become increasingly important (www1.chinadaily.com.cn). It is
possible that the retailing stores have become the most important distribution channels
with great development potential. Retailers are the most important customers Ior the
manuIacturers. Especially in China, there are a lot oI medium and small suppliers and
the intensive competition oIten makes the Iittest to survive. ThereIore, the suppliers
have weak power over retailers. On the other hand, with the Iurther and Iast
development oI retail industry, many retailers are becoming larger in terms oI their
operating scales and hence their purchasing scales. This will lead the retailers to a
position with strong bargaining power.

In addition, the revaluation oI RMB leads to the decreased competitive advantages on
exporting prices. BeIore that, Chinese manuIacturers have tremendous competitive
advantages in exporting. However, recently, manuIacturers in such a diIIicult situation
have to seek domestic retailing channels to distribute their goods and services. As a
result, retailers would beneIit in terms oI their bargaining power as well as the prices
and quantities these suppliers provide.


ThereIore, it is probably saIe to argue that the suppliers oI Chinese retail industry
have low bargaining power, and they impose little threat to the proIit oI retail industry.

4.7 Buyer Power

Buyer power reIers to the ability oI individual customers to negotiate purchase prices
that can extract proIits Irom sellers, and analogous to supplier power, and buyers also
have direct and indirect power over retailers (Besanko, et al, 2003).

Due to the sustained growth oI GDP in China, citizen`s personal incomes are rising,
and thereIore this Iurther stimulates citizen`s consumption level. With Iast economic
growth, the Chinese consumption level is expected to grow continuously (Luo, 1998).
This enables Chinese retail industry to enter a good stage oI development. In 2005,
China central government issued Central Governments proposal on the Fifteenth Five
Year Plan Profect of National Economv and Social Development. This policy was
mainly issued to Iurther increase the income oI residents, enhance consumers`
conIidence, promote potential consumption, and hence to support the retail industry to
develop more healthy and continuously (www.gmw.cn). It is estimated that during the
period oI the IiIteenth Five Year Plan (2006-2010), the growth rate oI consumption
sales will reach between 13 and 15.


In retail market, buyers` liIestyle and psychology play very important role. With the
increase oI citizen`s income levels, more and more people are seeking a better
liIestyle. The increase oI car ownership and improved transportation links enable
people to travel to and shop in Iarther retailing stores. In addition, it is reported that,
due to the lower import duties and tariIIs aIter China`s accession to WTO, sales oI
high quality consumption goods have started enlarging in small market because more
and more middle-class income residents are able to aIIord the spending on those high
quality goods (China Country Report, 2002).

Table 4.2 summarizes the Iive Iorces in the recent Chinese retail market. Generally,
each retailer Iaces intensive competition and challenges as well as great opportunities
in this market. The proIitability oI this industry depends on many Iactors, oI which
government policies play a more important role in China than in other countries.

Table 4.2 Five Forces Analysis of Chinese Retail Market
Forces Threat to Profits
Internal Rivalry High
Entry Medium to High
Substitutes/Complements Medium
Supplier Power Low to Medium
Buyer Power Medium


Chapter 5 Foreign Retailers in China
-Wal-Mart and Carrefour

In this chapter, Wal-Mart and CarreIour are chosen as two representatives oI Ioreign
retailers in China. They are two oI the largest Ioreign retailers in China and enter
China in an early time. ThereIore, it is more convincing iI these two Ioreign retailers
are used to provide an overview oI how Ioreign retailers enter and develop their
business models in Chinese retail market. The objective oI this chapter is to analyze
the two giants` entry and development strategies, and especially how their strategies
interact with Chinese government policies and local market conditions.

5.1 Wal-Mart

5.1.1 About Wal-Mart

Wal-Mart was established by Mr. Sam Walton, who is believed to be the legend oI the
retail industry worldwide, in 1962 in Arkansas, US. AIter 40 years oI development,
Wal-Mart has become the largest chain retailer in the world. In 2005, Wal-Mart has
reached the sales oI $312.4 billion. Currently, Wal-Mart has opened nearly 6,800
shopping stores globally, and employs more than 190 million peoples, located in 14
countries. It is estimated that there are about 176 million visits per week
(www.wal-martchina.com). With the same slogan 'Low Prices Everyday and

Table 5.1 Wal-Mart Histories

















Source: www. Wal-martchina.com

'SatisIactory Services all over the world, Wal-Mart has won a large number oI
customers. There is no doubt that Wal-Mart is always the industry leader in terms oI
1962 Company Iounded with opening oI Iirst Wal-Mart store in Rogers, Arkansas.
1969 Company incorporated as Wal-Mart Stores, Inc. on Oct. 31.
1972 Wal-Mart approved and listed on the New York Stock Exchange.
1983 First SAM'S CLUB opened in April in MidWest City, Oklahoma.
1987 Wal-Mart Satellite Network (largest private satellite communication system in the
U.S.) was completed.
1988 First Supercenter opened in Washington, Missouri.
1990 Wal-Mart became nation's No. 1 retailer.
1991 International market entered Ior the Iirst time with the opening oI a unit in Mexico
city.
1992 President George Bush presented Sam Walton with the Medal oI Freedom.
1996 Wal-Mart entered China through a joint-venture agreement with Shenzhen
International Fiduciary Investment Co. Ltd.
1997 Wal-Mart replaced Woolworth on the Dow Jones Industrial Average.
1998 Wal-Mart introduces the Neighbourhood Market concept with three stores in
Arkansas.
1999 Wal-Mart had 1,140,000 employees, making the company the largest private
employer in the world.
1999 Wal-Mart acquired the ASDA Group plc. in the United Kingdom (229 stores).
2000 H. Lee Scott named president and CEO oI Wal-Mart Stores, Inc.
2001 Wal-Mart named by FORTUNE Magazine as the 3rd most admired company in
America.
2002 Wal-Mart signed JVs with Zhongxin Company Ior Iuture stores in Shanghai and
nearby.
2002 Wal-Mart topped Fortune`s Global 500 and ranked Iirst among the 'Most Admired
Companies in America.
2002 China becomes Wal-Mart`s most important purchasing centre in the world.
2003 Wal-Mart opened its Iirst outlet in Beijing in July. AIter then Wal-Mart has opened
27 outlets in China by August.
2004 Wal-Mart held its shareholder meeting on March 4 in Shenzhen, China.
2006 Wal-Mart makes its Iirst Ioray into Central American retailing by buying a stake in the
region`s top retailer Irom Dutch retailer Royal Ahold, which has stores in Costa Rica,
Guatemala, EI Salvator, Hoduras, and Nicaragua.

Ioreign market expansion as well as management models. Table 5.1 highlights some
oI the important events during the 40 years` development.

5.1.2 Wal-Mart`s Entry into China

Wal-Mart entered China in 1996, which is Iour years aIter the allowance by Chinese
central government. It is also the time when China central government increased the
number oI experimental cities, where Ioreign retailers are allowed to operate their
businesses. Wal-Mart did not enter until the Iurther openness policy in China, which
illustrates that Wal-Mart considered this as mature and great opportunities Ior its entry
into Chinese retail market.

As stated in the previous chapter, in 1996, Ioreign retailers must Iollow the
regulations Irom Chinese central government to start their businesses, and one oI
regulations was that their businesses must be in Iorm oI joint ventures or cooperation
with one Chinese partner and the Chinese partner must own a stake more than 51.
ThereIore, beIore its Iormally entry, Wal-Mart and Shenzhen International Trust &
Investment Co., Ltd, China, signed Agreement on Joint Ventures, and established
'Shenzhen Wal-Mart & Pearl River Department Stores Ltd in August 1995
(www.szitic.com). In the Iollowing year 1996, Wal-Mart opened its Iirst super center
and Sam`s club store in Shenzhen (www.wal-martchina.com).


5.1.3 Wal-Mart`s Development in China

Stores Formats. AIter entering in Chinese retail market, Wal-Mart tried with diIIerent
store Iormats. Supercenter is always the principal Iormat Ior Wal-Mart retailing since
its Iirst supercenter opened in March 1988 in Washington. Today, Wal-Mart has over
1,000 supercenters all over the world and China has 81 supercenters. Wal-Mart`s
supercenters have become the customers` Iavorite store Iormats, and they lead to the
positive development oI Wal-Mart. Another Iormat is Sam`s Clubs, which act as
procurement agents Ior their members, and provide the branded merchandises at
preIerential prices to companies and individuals. The products in Sam`s Club are
packed in large packages, and the shopping environment is like warehouses. Hence,
these lead to lower margin costs and thus, enable members to experience lower prices.
Wal-Mart also began to test smaller neighborhood supermarkets in communities.
Although there are now two neighborhood supermarkets, they seem to Iit better with
consumers` buying behaviors in China.

Store Locations. At a news conIerence in Beijing, Joe HatIield, CEO oI Wal-Mart
Asia, said, Wal-Mart evolved by starting in smaller cities and moving into the larger
cities (Meredith, 2004). Indeed, when Wal-Mart took Shenzhen as their Iirst step oI
entering China, the store distribution network implied its 'second tier cities
expansion direction. This can be easily prooIed when Wal-Mart limited its store
locations in South oI China such as Shenzhen, Dongwan, Xiamen and etc. between

1996 and 2001. Until 2001, Wal-Mart gradually moved to bigger cities, such as
Guiyang, Changchun and Nanjing. In the two largest citiesBeijing and Shanghai,
Wal-Mart only opened three stores in each city in a late stage. In addition, most oI the
stores are located in communities and the junction oI urban and rural areas that are Iar
Irom the prosperous areas.

Expansion. Although Wal-Mart ranks No.1 in the worldwide, its growth in China is
not aggressive. Table 5.2 shows the expansion list oI Wal-Mart in China. It can be
Iound that, in the early years oI Wal-Mart`s entry, the speed oI expansion was slow.
Wal-Mart started to accelerate its expansion in 2004 when the central government oI
China announced the removal oI restrictions. to Ioreign retailers. In addition, beIore
Table 5.2 Wal-Mart China Histories








Source: Shanghai Business Daily, (www.shbiz.com.cn)
2006, the expansion oI Wal-Mart in China took the Iorm oI opening new stores.
1996 Wal-Mart opened the Iirst supercenter and Sam`s Club in Shenzhen, Guangdong
Province.
1997 The second Wal-Mart supercener was opened in Dongwan, Guangdong Province.
1999 Wal-Mart stepped out oI Guangdong and opened its IiIth supercenter in Kunming,
Yunnan Province.
2000 Wal-Mart opened it Iirst supercenter in Dalian, Liaoning Province, which is the Iirst
supercenter in the North oI China.
2001 Wal-Mart entered Fujian Province; opend 7 stores totally this year in China.
2002 The Iirst neighborhood market opened in Shenzhen, Guangdong Province; opened 7
stores totally this year in China.
2003 Wal-Mart opened Sam`s Club in Beijing, and opened 8 stores totally this year in China.
2004 Wal-Mart opened 11 stores totally in China, which is the year that opens the most stores.
2005 Wal-Mart entered Shanghai Ior the Iirst time, and opened the Iirst supercenter in
Shanghai
2006 Wal-Mart opened its Shanghai`s second store.
2007 Wal-Mart bought 35 oI shares oI Trust-Mart.

However, in 2007, Wal-Mart spent $1 billion acquiring Trust-Mart, which is also one
oI the leading retailers in Chinese market. The main attraction oI Trust-Mart to
Wal-Mart until Wal-Mart willing to invest such large amount oI capital is that
Trust-Mart has large number oI stores and its leading position in China. Undoubtedly,
this acquisition enables Wal-Mart to capture much more competitive advantages in
China.

5.1.4 Wal-Mart`s Positioning in China

'Everyday Low Price is Wal-Mart`s promise to consumers. This is attractive to
Chinese consumers, since the average income oI Chinese population remains low.
ThereIore, Wal-Mart must enable its costs to be low enough so that its low price
competitive advantages can be realized. ThereIore, Wal-Mart in 2002 announced that
they would not charge suppliers` administration Iees Ior the products entered their
store. The aim oI this announcement is believed to lower the cost oI suppliers and
hence enable the suppliers to lower the prices oIIered to Wal-Mart. This not only helps
Wal-Mart to achieve its lower costs position, but also promote the good relationship
with suppliers.

In addition, Wal-Mart`s modern inIormation system enables the lower stock-holding
costs. Wal-Mart requests suppliers to adopt electronic data interchange system, which
can transIer inIormation swiItly and can save stock-holding costs. Each store sends

inIormation and orders to its suppliers via the Internet and has products replenished in
on-average two days versus Iive days oI their rivals (Huey and Walton, 1992). Its
complete storage management system enables Wal-Mart to replenish goods twice a
week (once bi-weekly to their rivals) and reduce storage space and delivery time.
Consequently, Wal-Mart is able to reduce stock-carrying and transportation costs and
thereIore increase proIitability by 2.5 compared with their competitors (Stern and
Stalk, 1998).

However, in Iact, Wal-Mart Iaces the embarrassment that their prices are not low
enough compared with the prices oI CarreIour (Qin, 2004, www.gemag.com.cn).
ThereIore, on the meanwhile oI controlling costs, Wal-Mart makes eIIorts on assuring
the products quality. Wal-Mart has a strict control over the goods they are purchasing.
Usually, Wal-Mart orders and replenishes the stock oI goods directly Irom the
manuIacturers. They even purchase Irom overseas iI suppliers provides a lower prices.
In addition, Wal-Mart appealed some purchasers who accepted bribes in court. Thus,
the goods purchased have a good quality and price assurance in Wal-Mart.

5.1.5 Wal-Mart`s Local Adaptation in China

Wal-Mart, as the No.1 international retailer, started to learn to do things the Chinese
way. They need change in order to adapt the special environment oI retail market in

China.

Satisfying Customers` Needs. The buying behaviors oI Chinese consumers are
diIIerent Irom those oI Americans, due to the diIIerences in culture, income, and
many other Iactors. Taking the Iood purchase Ior example, Chinese shoppers preIer to
select their own Iresh vegetables, Iruits, live Iish and seaIood (Trunick, 2006), and
they insist on requesting Ioods to be Ireshly harvested, or even killed in Iront oI them.
In the early days oI Wal-Mart, Chinese shoppers were not satisIied because Wal-Mart
was trying to sell them dead Iish as well as meat packaged in StyroIoam and
Cellophane (Naughton, 2006). As Wal-Mart discovered that Iood products are
critically important to create and maintain a strong customer base (Trunick, 2006), it
began to adapt to customers needs in the way oI displaying uncovered meat, live
Iishes and killing in Iront oI costumers. In addition, Wal-Mart in China has put in
demonstration stations Ior cosmetics where customers can be shown how to apply
various cosmetics products (Trunick, 2006). According to Govindarajan and Gupta
(1999), Wal-Mart also accepted that most Chinese buy small quantities oI goods, and
will tailored their marketing approaches according to language and culture
diIIerences.

Relationships with Local Suppliers. In 2002, when Wal-Mart announced that it
would not charge suppliers any administration Iee Ior the goods entering in its

supercenters, it won acclaim Irom its suppliers. This makes its competitors surprised
and embarrassed. This decision oI Wal-Mart allows suppliers to yield more proIits in
the market, and enables the continuous and good cooperation relationship. In 2003
and 2006, Ministry oI Commerce China and China Chain Store & Franchise
Association, both awarded Wal-Mart as Chinese Retail Industry`s Top Employer.

Relationships with Governments. Wal-Mart is always keeping a good relationship
with both Chinese central and local governments. This is a good strategy Ior
Wal-Mart`s development in China. As Wal-Mart has a large scale oI purchasing in
China, and in 1996 the purchasing reached $2 billion. Chinese government Iavored
this exporting scale, and Ior return, Wal-Mart gets the permit to opening its Iirst store.
In addition, Wal-Mart is known as non-union policies in the US. However, China
Iorces Ioreign companies to allow trade unions under a proposed legal amendment
(Fong, 2006). Naughton (2006) suggests that aIter eight years` hard line in China,
Wal-Mart soIten and agreed to accept unions in 2004. Partly because Wal-Mart
realized organized labor as a cultural and political imperative in China; Iurthermore,
this is also good chance to maintain good relationship between Chinese governments.

5.1.6 Wal-Mart`s Sourcing in China

Wal-Mart always purchase merchandises Irom manuIacturers and suppliers directly.
Thus Wal-Mart China has three options Ior its sourcing. The Iirst is that products are

purchased Irom global suppliers and the products are not manuIactured in China; the
second option is that Wal-Mart can purchase products Irom global suppliers and the
products are manuIactured in China; and Wal-Mart can purchase goods Irom local
suppliers. According to Govindarajan and Gupta (1999), Wal-Mart China chooses to
purchase 85 percent oI its merchandise Irom China, which is a combination oI option
two and three. This does not only meet the needs oI Chinese consumers Ior high
standards imported products, but also reduce the pressures Irom local government to
purchase domestic goods.

Wal-Mart establishes international procurement headquarters that provides sourcing
inIormation oI local retailers and centralized sourcing practices and then directly
distributes goods to each distribution centre (Lin and Liang, 2001). Wal-Mart
established three distribution centers supplying its supercenters in China, but it does
not sound like much oI a logistics network to support its operations. It is widely
believed that the global success oI Wal-Mart is mostly attributed to the excellent
logistics management that combines advanced inIormation system and traditional
transportation. However, Chinese certain special conditions pose challenges Ior
Wal-Mart and its suppliers. HuIIman (2003) argues that Chinese provincial autonomy
and selI-suIIiciency hinder interprovincial trade and pose diIIiculties Ior road
transportation, private and commercial trucking, and Customs clearance Ior imports.
In addition, due to the small number oI stores, Wal-Mart is unable to establish
distribution and operation centers in large scales. ThereIore, Wal-Mart in China oIten

establishes distribution centers Iirst and then opens stores in cities nearby. This
inevitably limits the speed oI expansion by opening new stores as well as increases
the costs oI expansion.

5.1.7 Human Resource Management and Public relations.

'The undeniable cornerstone oI Wal-Mart`s success can be traced back to our strong
belieI in the dignity oI each individual we view our associates as much more than a
pair oI hands to do a job, but also as a wonderIul source oI new ideas. Our people
really do make a diIIerence!Don Soderquist, Senior Vice Chairman oI Wal-Mart
Store, Inc. (www.wal-martchina.com). Wal-Mart pays particular attention on
employees` training programs. Joe HatIield, president and CEO oI Wal-Mart Asia
points out that training takes place every day in every store (Trunick, 2006). Wal-Mart
sends employees with good skills and potentials to US to attend Walton Institute,
whereas those who do not speak English Iluently are provided with other trainings
such as computers and management programs. In addition, according to Trunick
(2006), Wal-Mart China has a 16 employee turnover rate which is the lowest among
any operation worldwide, especially in an area where skills are in short supply and job
poaching is common. In November 2005, as the Iirst program in celebration oI the
tenth anniversary oI its entry into China, Wal-Mart invited more than 120 employees
whose tenure was 10 years and their Iamilies to come to Shenzhen headquarters to
attend 'Wal-Mart 10
th
anniversary celebration Ior staII, and share Wal-Mart`s ten

years oI glorious achievements.

'We should not ask Ior beneIits Irom liIe, but contribute to the community we live
and disseminate good things.Helen Walton (Sam Walton`s wiIe)
(www.wal-martchina.com). Wal-Mart China has donated Iunds and support worth
more than $3.4 million, to local charity and welIare organizations over the past ten
years. Wal-Mart China associates have also denoted more than 130,000 man hours to
these activities. Wal-Mart`s corporate social responsibility programs Iocus on Iive
areas: environmental protection, education, child welIare, community involvement
and disaster relieI. Recently it was awarded as Most Generous MNC Donors in China
by Forbes China (www.wal-martchina.com).

5.2 Carrefour

5.2.1 About CarreIour

The CarreIour Company was created by the Fournier and DeIIorey Iamilies in 1959 in
France, with the meaning oI its name 'crossroads expressing convenience.
CarreIour opened its Iirst supermarket in 1960 and then invested and opened its Iirst
hypermarket in 1963. In 1969, CarreIour entered Belgium and opened its Iirst store
outside France by Iorming alliance with local partners. CarreIour stepped outside

Europe in 1975 by opening a hypermarket in Brazil. Over the past 40 years, the
CarreIour group has become the world`s second largest retailer and the largest in
Europe. Today, CarreIour has reached 30 countries in Europe, Latin American and
Asia. Currently, CarreIour has opened over 12,500 stores all over the world, with
sales in 2006 oI $114.9 billion and 456,000 employees. (www.carreIour.com). Table
5.3 listed the some important events during its development.

5.2.2 CarreIour`s Entry into China

CarreIour entered China in 1995, and large scale oI operation was the main objective
since its Iirst entry. It was still the period oI tight control over Ioreign retailers by
Chinese central government. At that time, Ioreign retailers were only allowed to
operate in several particular cities, and only allowed to own less than 49 oI shares in
their joint ventures or cooperative enterprises. CarreIour did Iorm a joint venture with
a Chinese company called Zhongchuang Commercial Company, but exploit a
loophole oI this regulation. CarreIour signed a joint venture agreement with
Zhongchuang Commercial Company, and established Jiachuang Commercial
Management Company. Then Zhongchuang registered another company called
Chuang Yijia Commercial City and Jiachuang took over the businesses and
management oI Chuang Yijia. AIter Chuang Yijia opening the chain store at Beijing
International Exhibition, CarreIour as the main shareholder oI Jiachuang controlled

the chain store and named it CarreIour in public. ThereIore, CarreIour had absolute
control over the interests oI its chain store and started to expand in China through
similar way (hn.rednet.com.cn).
Table 5.3 Carrefour Histories












Source: www.carreIour.com

BeIore coming to Mainland China, CarreIour entered in Taiwan and opened the Iirst
1959 CarreIour Company was created by the Fournier and DeIIorey Iamilies.
1960 CarreIour opened its Iirst supermarket in Annecy, Haute-Savoie.
1963 CarreIour invested a new store concept hypermarket. The Iirst hypermarkets were
Iound in France.
1969 CarreIour opened its Iirst hypermarket outside France in Belgium.
1970 CarreIour shares listed on the Paris stock exchange.
1975 CarreIour opened its Iirst hypermarket in Brazil.
1979 Development oI hard discount: CarreIour created Ed chain in France and Dia banner in
Spain.
1985 CarreIour brand-name products were introduced.
1989 The Iirst CarreIour hypermarket opens in Asia, in Taiwan.
1995 CarreIour opened its Iirst store in China by a JV with Zhongchuang Company.
1996 CarreIour continues to grow in Asia, adding Thailand, Korea and Hong Kong to its
list.
1999 CarreIour and Promodes merged to create the largest European Iood retailing group
and second largest worldwide.
2000 AIter the two groups merge, all Continent hypermarkets become CarreIour stores
and supermarkets adopted the Champion name in France. CarreIour launched on-
line supermarket Ooshop and opened its Iirst hypermarket in Japan.
2001 CarreIour inaugurated 17 CarreIour service stations on France`s motorway
networks and became the largest Iood retailer in Argentina.
2002 CarreIour sold its 35 shares oI 27 stores in China to Chinese companies due to
disobeying the government regulations.
2003 CarreIour was under Iire Ior imposing unIair charges on Iood suppliers in June.
2003 CarreIour operates 39 hypermarkets in China and set up GoWest` plan.
2004 CarreIour announces the sales oI its share in Modelo and its purchase oI 13
hypermarkets in Poland Irom Ahold.
2005 CarreIour acquired 6 hypermarkets in Taiwan and 2 other projects currently Irom Tesco.

CarreIour hypermarket in Asia in 1989. Lean-Luc Chereau, the head oI CarreIour
China, in an interview by Child (2006) stated that entering Taiwan brought a Iantastic
advantage when entering China in terms oI learning how to adapt and deal business
with Chinese. It is obvious that, although the economic systems are diIIerent between
Taiwan and Mainland China, both the liIe and business cultures are Iairly similar.
ThereIore, experiences in Taiwan are more valuable Ior international business than
experiences in Europe or the United States.

5.2.3 CarreIour`s Development in China

Store Formats. CarreIour operates three store Iormats in China: CarreIour
hypermarkets, Champion supermarkets, and Dia discounted convenience stores
(www.carreIour.com.cn). Since CarreIour entered China in 1995, hypermarkets were
the principal Iormat Ior CarreIour expansion. Yan (2003) argues that this hypermarket
Iormat Iits the countries like China who is developing Iast due to low prices oI
products. He also suggests that this hypermarket Iormat poses challenges to both large
department stores by lower prices, and small chain stores by comprehensive goods. In
2004, CarreIour opened its Iirst Champion supermarket in Beijing as asked by Beijing
government to do something to modernize the small retail business (Child, 2006).
However, Chereau Iound that Beijing consumers oIten use a hypermarket as a
supermarket and hence he saw a very diIIicult Iuture Ior supermarkets (Child, 2006).

CarreIour opened 150 Dia discounted convenience stores in Shanghai and 100 in
Beijing in 2003 (www.carreIour.com.cn), but Iaces Iierce competition Irom 7-Eleven
stores Irom Taiwan. CarreIour would more likely to learn Irom and Iollow 7-Eleven in
the convenience store niche (Child, 2006).

Store Location. China is still a country with a relative low income level and hence
the mainstream power oI consumption remains in large and prosperous cities and city
centers. ThereIore, CarreIour establishes their stores in Iirst tier cities and also in
more prosperous and business areas (Li, 2004). Yan (2003) argues that CarreIour`s
strategy oI store location enables its leading position among Ioreign retailers. He
continued to argue that the decision oI selecting Shanghai as the headquarter location
enabled CarreIour`s rapid strategic expansion in China, due to a better sourcing
environment, transportation conditions and marketing expansion capabilities in
Shanghai compared to Shenzhen where Wal-Mart`s headquarter located. Today,
CarreIour has almost Iinished its strategic networking establishment in coastal cities
and prosperous cities.

Expansion. CarreIour, at the end oI 2006, was ranked the 6
th
in Chinese retail market
in terms oI sales with 95 stores. Table 5.4 shows the development histories oI
CarreIour in China. The development oI CarreIour is rapid, and this can be prooIed by
the report Irom Ministry oI Commerce, China that until June 2004, CarreIour was

ranked the Iirst with sales oI $0.97 billion and 50 stores among Ioreign retailers in
China (Li, 2004). However, in 1999 CarreIour was warned Ior its expansion by China
central government as the shares that CarreIour held was more than regulated in its
retail joint venture (Yan, 2003). In 2001, CarreIour stopped expansion and
development operations Ior 18 months due to the Iailure oI getting approval Irom
central government but only local government (Child, 2006). AIter that, in the year
2001, CarreIour continued its Iast expansion. From Table 5.4, it is clear that the
expansion Iorm oI CarreIour is only to open new stores. However, Chereau
announced that CarreIour may acquire at least ten Chinese retailers as part oI its
expansion strategy (Wall Street Journal Asia, 2006).
Table 5.4 Carrefour China Histories




Source: www.carreIour.com.cn

5.2.4 CarreIour`s Positioning in China

The slogan oI CarreIour China is 'Happy Shopping in CarreIour and the mission is
1995 Carrefour opened first hypermarket in Beijing.
1996 Carrefour entered Shanghai and Shenzhen.
1997 Carrefour opened stores in Tianjin.
1998 Carrefour entered Chongqing, Zhuhai, Wuhan, and Dongwan.
2000 Carrefour opened 5 hypermarkets to speed up its expansion.
2002 Carrefour opened 35 hypermarkets in 20 cities.
2003 Carrefour opened store in Hangzhou, and Dia Discounted convenience store
entered Shanghai and Beijing
2004 The first Champion supermarkets opened in Beijing
2005 Carrefour opened its 60
th
store in Chongqing.

to IulIill customers` needs with Iull eIIort and provide the best prices to customers in
every country, in every retailing Iormat, and in the range oI the best goods
(www.carreIour.com.cn). ThereIore, CarreIour positions itselI as providing both good
shopping environment and low prices. In terms oI low prices, Li (2004) suggests that
the prices oI goods in CarreIour are lower than those in Wal-Mart, especially the
prices oI living necessities such as rice, Iood, oil and so on. This lower prices strategy
provides CarreIour a competitive advantage in the retail market competition and leads
more and more competitors to imitate. The lower prices come Irom lower costs oI
purchasing goods. It is suggested that CarreIour adopted various and rather Ilexible
sourcing methods, such as local stores can purchase their own goods as long as the
prices oI purchased are low, and this leads to Iamous Iake white wine aIIairs in
CarreIour China (Qin, 2004).

However, according to Qin (2004), the actual shopping environment contradicts with
its 'Happy Shopping in CarreIour. In Shanghai, there are many complaints on the
diIIerence between the prices on shelI and actually paid. In addition, although there is
poster saying, 'You Iound the cheaper prices elsewhere, you get twice the prices
diIIerences payback, there are various restrictions when customers request.
Furthermore, as most oI CarreIour hypermarkets are in city centers, the limited car
parking spaces bring inconvenience to customers.


5.2.5 CarreIour`s Local Adaptation in China

It is probably saIe to argue that the leading position among Ioreign retailers is
attributed to its local adaptation to some extent, and its experiences in Taiwan play an
important role.

Satisfying Customers` Needs. Gaining valuable experiences in Taiwan has made
CarreIour understand the buying behavior and habits oI customers in Mainland China.
ThereIore, since their Iirst entry in Chinese market, CarreIour decided to adopt
Iresh-market style Ior vegetables, Iishes and other seaIood, and to display the above
products at lower prices in a better and cleaner environment (Child, 2006). This
undoubtedly provides a Iresh market image that Chinese customers are accustomed to.
In addition, CarreIour also believes that customers group Ior each store are diIIerent
and unique, so CarreIour organize each store diIIerently to adapt the needs oI their
local customer group in terms oI products varieties, and their places and orders on
shelves, and most oI these adaptation decisions are made by local store management
Ilexibly (Qin, 2004). In addition, Chereau indicated that CarreIour is trying to be a
quarter-hour ahead oI the customers, which means that the products will not be too
advances or too late (Child, 2006). For some new but not too advanced products,
CarreIour brings in and explains them to customers.


Relationships with Local Suppliers. The relationships between CarreIour and its
suppliers are believed to be strained (Li 2004; Yan, 2003). Li (2004) argues that
CarreIour oIten reaps proIits by charging suppliers` administration Iees and asking
suppliers Ior Iinancial support in Iestivals. Charging suppliers administration Iees is
created by CarreIour in Chinese retail market, and iI a supplier would like his
products enters CarreIour hypermarket, the supplier needs to pay six diIIerent kinds oI
Iees that may reach 36 oI expected sales oI his products (Li, 2004). In 2003,
Shanghai Seed and Nut Roasters Association proposed to stop supplying to CarreIour
in order to protect the beneIits oI more than 5000 members in the association due to
high administration Iees (www.gzii.gov.cn). In addition, according to Yan (2003),
some oI CarreIour stores transIer the loss oI discounting, product wear and tear as
well as negative balance oI proposed sales to suppliers. This inevitably leads to more
costs to suppliers.

Relationships with Government. CarreIour always has a good relationship with
local governments. CarreIour`s remarkable volume oI goods purchase win Iavor and
support Irom local government, as it generates a large export proIit margin Ior local
government (www.people.com.cn). However, CarreIour has a strained relationship
with Chinese central government. The main reason is believed to be that, in order to
realize its rapid strategic expansion, CarreIour disregards the regulations on Ioreign
retailers Irom central government, and exploit the loophole oI the regulation
diIIerences between local governments and central government (Yan, 2003). Chinese

central government was annoyed by this, and hence put CarreIour in the blacklist and
commanded CarreIour to stop to reorganize its share proportion and expansion
strategies in China. This was not resolved until CarreIour sold its illegal shares in its
joint ventures and announced the decision to establish 10 sourcing bases in China Ior
CarreIour`s global purchasing (Li, 2004).

5.2.6 CarreIour`s Sourcing in China

Similar to Wal-Mart, CarreIour also purchases most oI its goods within China.
However, each store oI CarreIour has around 85 oI its stock procured locally and
has them distributed directly to each store. CarreIour believes that this Ilexibility oI
purchasing strategy does not only cater the needs oI local customers, but also can
lower the purchasing costs (www.supplychainer.com). CarreIour was reported already
established 11 sourcing bases in big cities in China since 1995 and plans its 12
th

sourcing base in Yiwu, Zhejiang Province (yiwu.ipr.gov.cn). In addition, the
empowerment also reIlects CarreIour`s Ilexibility in management. CarreIour
headquarters empowered purchasing rights to Iour local sourcing centers: Beijing,
Shanghai, Guangzhou and Wuhan; each store is also empowered purchasing rights Ior
its own stock (Cai and Zhang, 2003).

However, this lack oI centralized sourcing and distribution systems is considered to be

problematic. Cui (2003) argues that this imperIect physical distribution systems and
delay oI inIormation system development in China brings higher costs and diIIiculties
to large retailers as most suppliers are still at the stage oI workshop that are unable to
provide accurate and complete services on delivering. However, as the special
conditions oI Chinese provincial autonomy and selI-suIIiciency, a centralized
procurement system is diIIicult and costly to operate. ThereIore, by relying on the
distribution systems oI suppliers, CarreIour`s Ilexible sourcing and logistic strategies
enable CarreIour to save costs on distribution as well as catering the diIIerent needs oI
stores in each location.

5.2.7 Human Resource Management and Public Relations

CarreIour established its Iirst CarreIour China Institute in Asia, and it aims to train
Chinese staII to take positions with more responsibility. Training covers staIIs,
supervisors, department managers and mandarins, and provides both general and
specialized knowledge Ior their career development (www.carreIour.com.cn). In
addition, to retain trained and talent people, CarreIour needs them to sign a three- or
Iive-year contract: any staII who go to work with a competitor have to pay back the
money CarreIour spent on training, and that is a huge amount oI money; but iI staII
stay Ior Iive years and more, they are given a super bonus that is several times oI
salary (Child, 2006). This signiIicantly reduces employees` turnover rate in CarreIour

China.

CarreIour China makes eIIort on being an enterprise citizen with Iull responsibilities
on society all over the world, such as actively sponsoring Ior public welIare events
and community building. In 2004, CarreIour China was awarded as Top Ten Foreign
Enterprises with Outstanding Contribution in China. In addition, CarreIour
established CarreIour (China) Food SaIety Fund Foundation, whose aim is to promote
the Iood saIety.


Chapter 6 Analysis of Wal-Mart and Carrefour`s Strategies

The previous chapter provides analysis oI strategies adopted by Wal-Mart and
CarreIour respectively. These strategies, as analyzed, are planed and implemented
highly interacting with Chinese government policies and market conditions. Some oI
these strategies lead a competitive position Ior Wal-Mart or CarreIour, while some
need to be adjusted Ior Iurther and better development. This chapter will Iirstly
compare and contrast the similarities and diIIerences between strategies adopted by
Wal-Mart and CarreIour. The second part oI this section will explain the link between
the resources and capabilities that they possess and the strategies they adopted by
using resource-based view as basic principle.

6.1 Assessment of Two Giants` Strategies

Both Wal-Mart and CarreIour entered China in the mid-1990s, and there are both
similarities and diIIerences oI the strategies adopted by the two giants according to
the previous chapter. This section will provide an assessment oI the two giants`
strategies in terms oI entry strategies, expansion strategies, positioning strategies,
local adaptation, and human resource management and public relations.

6.1.1 Entry strategies


Wal-Mart and CarreIour both entered Chinese retail market in Iorm oI joint ventures
with local companies. BeIore 2004, when Chinese central government cancelled
limitations on Ioreign retailers` entry mode, joint ventures were the only mode that
Ioreign retailers can choose. Although the entry modes are chosen according to the
government regulations, both Wal-Mart and CarreIour expressed that they would still
enter in Iorm oI joint ventures iI there were no such regulations. As listed in Table 2.1,
Ioreign retailers can beneIit Iorm local partners` knowledge oI the host country on
cultures, languages, relationship networks, political systems and market conditions.
ThereIore, it is probably saIe to argue that joint ventures are the optimal entry modes
Ior the two retailing giants to enter China.

Although the entry modes that two giants adopted were the same, there are diIIerences
in details. First, Wal-Mart Iormed a joint venture with Shenzhen International Trust &
Investment Co., Ltd, China, and Iollowed government regulations strictly. However,
CarreIour exploited the loophole oI regulation, and Iormed a nominal joint venture
with Zhongchuang Commercial Company, China, but controlled most oI shares and
management in their business. This is consistent with CarreIour`s objective to build
large a large scale in a short period in China (Li, 2004). By controlling more shares
and business management, CarreIour is able to engage in its expansion strategies
more Ilexibly and without loss oI knowledge Irom local partners.

In addition, Wal-Mart entered China in 1996, and CarreIour entered in 1995. Although

there is only one-year diIIerence, the government policies on Ioreign retailers changed
signiIicantly. As mentioned in the previous chapter, beIore 1996, Ioreign retailers
were only allowed to enter 11 cities throughout China. However, in 1996, Chinese
central government allowed Ioreign retailers to enter all provincial cities and some
other cities. This early entry also provides CarreIour Iirst-mover advantages by earlier
establishing strong brand reputation and stable customer groups. Wal-Mart`s later
entry also provides competitive advantages in terms oI more Ilexible choices oI
location Ior its entry.

Indeed, beIore its entry into China, Wal-Mart had prepared Ior Iour years and made
great eIIorts. In 1992, Wal-Mart received a charter in Chinese retail industry, and set
up its agency in Hong Kong to conduct researches on Chinese retail market. The
researches mainly concerned on economic policies, government supports, city
economy, GDP, national income, and consumers` habits (sying.com). This
undoubtedly helped Wal-Mart to select a better strategy to enter according to its
researches. CarreIour, on the other hand, entered Taiwan Iirstly where the cultures as
well as customers preIerences and buying habits are closely similar with those oI
Mainland China. AIter learning and gaining successIul experiences in Taiwan, their
entry was easier and more conIident, especially Ior Iuture expansion.

6.1.2 Expansion Strategies


The speed oI expansion Ior both Wal-Mart and CarreIour were not rapid enough.
Obviously, Wal-Mart and CarreIour are the largest two retailers in the world, and they
have strengths and powers to expand aggressively to become the market leader in
Chinese retail industry. However, during more than 10 years development in China, at
the end oI 2006, CarreIour and Wal-Mart ranked only the 6
th
and 14
th
respectively,
with sales no more than one third oI the market leader.

BeIore end oI 2006, both two giants expanded through opening new stores. At the end
oI 2006, CarreIour ranked the 6
th
by opening 95 new stores and Wal-Mart the 14
th
by
opening 71. This market structure changed when Wal-Mart acquired Trust-Mart which
have101 stores. This is the Iirst acquisition Ior Wal-Mart in China, and did push
Wal-Mart`s position in the rank Iorward signiIicantly. CarreIour is still keeping
expanding by opening new stores. However, according to Chereau, CarreIour is
considering to do an acquisition as well (Child, 2006), and it is believed that
Wal-Mart`s acquisition encouraged CarreIour to seek acquisition Ior Iuture expansion.
According to Hill (2004) there are advantages and disadvantages Ior both opening
new stores and acquisitions. By establishing a new store, on one hand, Ioreign Iirms
could have a greater control over the Iorms oI its subsidiary stores such as cultures,
operating routines and so on; on the other hand, it is slow and risky to establish new
stores. Acquisitions are quick to execute, preempt competitors and less risky, but they
also Iail because oI clashes between cultures in two Iirms, diIIiculties in integrating
resources oI two Iirms, and inadequate preacquision screening. On the early stages oI

Wal-Mart and CarreIour`s entry in mid-1990s, the competition in Chinese retail
industry, especially in the supermarket niche, was not intensive, and hence it allows
Wal-Mart and CarreIour to spend time on expanding by opening new stores. This
provides advantages Ior two retailing giants to build its brand image and reputation in
Chinese retail market. Today, as the retail market in China opening Iurther, the
competition is more and more intensive. Expanding by opening new stores is
considered to cost time and money, so acquisition becomes a competitive option Ior
Wal-Mart and CarreIour to expand Iurther in China.

Store locations are important Ior retailers. Wal-Mart and CarreIour adopted diIIerent
strategies Ior locations. Wal-Mart preIers to locate stores in second tier cities, and
their strategy is to start in smaller cities and then move to larger ones. CarreIour,
however, particular emphasizes its stores to be located in big cities and city centers or
prosperous areas. China is still a developing country with a relative low level oI
people`s income. ThereIore, more developed cities and city centers are still the
mainstream oI higher consumption levels that lead to higher sales Ior retailers.

6.1.3 Positioning Strategies

As Besanko et al (2003) argued a Iirm`s positioning strategy is one oI the most
important criteria in determining a Iirm`s success. Wal-Mart and CarreIour adopted
diIIerent positioning strategies, which can be seen Irom their marketing slogans

respectively. Wal-Mart emphasizes 'Low Prices Everyday. It conveys to customers
that it is always the right choice to shop at Wal-Mart since the prices are cheap
everyday. CarreIour, on the other hand, with 'Happy Shopping in CarreIour, aims to
emphasizing its good shopping environment. The Chinese name oI CarreIour is Jia Le
Fu, in which Jia means Iamily, Le means joy, and Fu means happiness. It expresses
the shopping environment in CarreIour will bring joy and happiness to Iamilies shop
there. However, the Iacts contradict with positioning strategies Ior both oI Wal-Mart
and CarreIour.

As prices are concerned, both retailing giants understand that prices are vital Ior
Chinese consumers. In the retail industry, the main sources oI costs are procurement
and stock management. Wal-Mart takes its advantages oI its advanced inIormation
system that can reduce the costs oI sending and receiving inIormation and orders with
suppliers, as well as the costs oI stocking. Wal-Mart also stops charging products
administration Iees to suppliers so that pay less when purchasing Irom suppliers as
these suppliers bear less cost. CarreIour, however, lower the prices oI people`s
necessities to attract customers. Flexible sourcing methods also enable CarreIour`s
competitive advantages, as local stores purchase products individually as long as the
prices are low. Although Wal-Mart emphasizes its low prices in its slogan, it is Iound
that prices in Wal-Mart are not lower enough or even higher than those Irom
CarreIour, and it is also widely agreed by customers (Qin, 2004). The slightly lower
prices oI products enable CarreIour to gain more market shares than Wal-Mart.


For shopping environment, Wal-Mart wins CarreIour slightly. This is the
diIIerentiation strategy that Iirms provide superior value within the industry to
customers (Cullen and Parboteeah, 2005). Wal-Mart always has tight control over the
products they sell. All products are purchased directly Irom suppliers, even some oI
them Irom another country. Wal-Mart prohibits close and abnormal relationships
between purchasers and suppliers to avoid corruption that lead to unsatisIied product
qualities. However, there have been many scandals concern with CarreIour`s products
qualities. The main reason is that CarreIour pursues Ilexibility and low costs purchase
and not all products are purchased Irom suppliers, and hence the quality oI products
cannot be assured Ior customers. In addition, as most oI stores are located in city
centers, there are also complaints on the car parking problems. The unmatched actual
treatment to customers with promised by CarreIour also reduces the reliability oI
CarreIour. This diIIerentiation allows Iirms to charge premium prices on the superior
quality oI products and comIortable shopping environment, so by keeping prices low
everyday, Wal-Mart is in a competitive position in its diIIerentiation advantages.

6.1.4 Local Adaptation

Having a good relationship with customers, suppliers and, especially with government
oI China is important Ior Ioreign enterprises in China. They are all determinant Iactors
Ior a Ioreign Iirm to develop, expand, and even survive.


Catering the needs and preIerences oI local customers is critically vital Ior Ioreign
retailers. ThereIore, both Wal-Mart and CarreIour adjust their selling models
especially Ior Ioods, to cater the buying habits oI Chinese customers. On its Iirst day
oI entry, CarreIour adopted Iresh-market style Ior vegetables, Iishes and seaIood.
However, Wal-Mart took a tortuous way in understanding Chinese customers` buying
habits, as at the early stage oI development Wal-Mart still relied on the same Iorm oI
selling Iood in America or Europe, and sold vegetables, dead Iish and seaIood in
StyroIoam and Cellophane. Today, both Wal-Mart and CarreIour adopted the Chinese
traditional wet market selling models but provides a better shopping environment Ior
customers.

Wal-Mart and CarreIour adopted totally diIIerent strategies in dealing with suppliers.
Wal-Mart sets store by the relationship with suppliers. It stopped charging
administration Iees to suppliers, and allows suppliers to yield more beneIits. CarreIour,
however, is widely considered to reap proIits Irom suppliers. Products administration
Iees were created and promoted by CarreIour in Chinese retail industry and become
the main source oI retailer`s proIits in China. In addition, CarreIour also charges many
other various kinds oI Iees to suppliers, which leads to lots oI complaints Irom
suppliers. It is obvious that Wal-Mart establishes a good relationship with suppliers,
while CarreIour does not. It is believed that harmony relationships with suppliers
would promote a healthy and continuous Iuture development and expansion oI

retailers.

As relationship with government is concerned, both have good relationships with both
local and central governments. As both are two retailing giants in the world, and
hence they make great contribution to local and national economy and receive great
Iavors Irom governments. The only diIIerence lies in the attitudes towards
government regulations on Ioreign retailers` development. Wal-Mart is always
Iollowing regulations Irom its Iirst entry until its expansion and development, whereas
CarreIour oIten exploits the loopholes oI these regulations to reap its beneIits. In 2001
CarreIour was warned Ior its disregard oI regulations and was Iorced to stop Iurther
expansion. China is a highly central controlled country, and governments intervene
Ior both political and economic reasons. ThereIore, when entering and developing in
China, Ioreign Iirms need to understand, respect and Iollow the government
regulations.

6.1.5 Sourcing Strategies

Sourcing and logistics are important Ior retailers. HuIIman (2003) suggests that the
eIIective management oI sourcing and logistics is always high on many retailers` lists
oI goals. Wal-Mart and CarreIour adopted totally diIIerent strategies Ior their sourcing
and logistics. Both oI the two giant retailers have more than 80 percent oI their
products purchased Irom within China. However, Wal-Mart emphasizes central

sourcing and distribution Ior all stores within China. It provides sourcing inIormation
to local retailers and centralizes sourcing practices through the procurement
headquarters, and goods are then distributed to each distribution center. Wal-Mart has
three distribution centers in China Ior all oI its stores. CarreIour, however,
established 12 sourcing bases in China, and each oI them is empowered with
purchasing rights. CarreIour emphasizes Ilexibility oI sourcing and distribution, and
thereIore each store have their own rights and decisions on their goods purchasing and
stocking.

There are both advantages and disadvantages Ior the two strategies. Centralized
sourcing and distribution would be better in terms oI products quality and delivery
control. However, China`s special conditionsprovincial autonomy and
selI-suIIiciency, pose challenges Ior centralized strategies. Especially, the amount oI
stores that Wal-Mart has in China is still small, and the costs oI such strategies would
be more. For the empowered sourcing strategies adopted by CarreIour, it is argued
that the products quality and delivery cannot be assured. However, it is more suitable
to Chinese inter-provincial conditions, and the Ilexibility oI these strategies enables
CarreIour to save a lot oI costs and time in purchasing and delivery.

6.1.6 Human Resource Management and Public Relations

Both Wal-Mart and CarreIour attach great importance on its employees training and

retaining. As argued by Cannon (1995), although managers Irom host countries may
have good management knowledge, skills and potential, they lack cross-cultural
exposure and they only learn through their own experience. ThereIore, both Wal-Mart
and CarreIour send good and potential management employees to their head oIIices in
parent countries to learn Ior their Iuture career development. Employee motivation is
also important Ior Iirms` human resource management. This would reduce the rate oI
employees` turnover and help talent retaining. Wal-Mart, Ior example, awarded
employees who worked Ior 10 years on its 10
th
anniversary celebration. CarreIour, use
competitive remuneration contracts to avoid trained employees to leave Ior
competitors and to retain the talent staying Ior longer time.

Corporate social responsibility is closely related to business ethics, and it reIers to the
idea that businesses have a responsibility to society beyond making proIits (Cullen
and Parboteeah, 2005). Both Wal-Mart and CarreIour devote much time, money and
eIIort to Chinese social welIare aIIairs. They exert themselves to promote
environment protection, sponsor education, and join community activities as well as
other public activities. These do not only lead to better environment and society in
China, but they are also ways to marketing themselves and build brand image in the
society.

6.2 Resource-Based Theory and Their Strategies


Firms plan and implement strategies in order to create competitive advantages to
outperIorm competitors. As each Iirm has a distinctive bundle oI resources and
capabilities, the opportunity set Ior each Iirm is distinct Irom others. ThereIore, the
strategies are planned depending on resources and capabilities a Iirm possesses. In the
last section oI this chapter, strategies adopted by Wal-Mart and CarreIour are
compared and contrasted in terms oI six aspects. This section will use resource-based
theory as basic principle to explain the relationship between resources and capabilities
possessed by Wal-Mart and CarreIour and the strategies they adopt.

6.2.1 Entry Strategies

Hill (2004) argues that the choice oI entry modes depends on the type oI know-how
that a Iirm possesses, whether technological know-how or management know-how.
Wal-Mart and CarreIour both adopted joint ventures as their entry modes and also will
continue with this method during their Iurther development. Wal-Mart and CarreIour
both are successIul and ranked the Iirst two large retailers in the world. Their
successes depend largely on their management know-how on every aspect relating to
retailing businesses. As management know-how is accumulated through business
development process and gained by experience, it is path dependency resources and
diIIicult to imitate. On the other hand, by Iorming a joint venture with local partners,
the two retailing giants are able gain valuable knowledge on Chinese market,
economic and political conditions. ThereIore, joint ventures are good options Ior their

entry. Through joint ventures, not only their valuable resourcesmanagement
know-how is applied while protected in Chinese market, but they also gained valuable
knowledge on Chinese conditions.

6.2.2 Expansion Strategies

During the expansion oI Wal-Mart and CarreIour, they adopted diIIerent store location
strategies, and the speed oI expansion oI CarreIour is slightly more rapid than that oI
Wal-Mart. These diIIerences are generally due to diIIerent experiences in
internationalizations oI the two retailing giants. CarreIour had more experiences in
internationalization as well as developing new market overseas. CarreIour opened its
Iirst store outside France in Belgium in 1969, and now CarreIour has presented in 30
countries globally. Wal-Mart entered Mexico and opened its Iirst oversea store in
1991, and now there are only 15 countries that Wal-Mart has entered. In addition, the
experiences gained Irom operation in Taiwan by CarreIour also provide great
competitive advantages Ior its development in China. ThereIore, CarreIour
understands more on consumers` needs, preIerences, buying habits as well as the
location oI mainstream oI high-level consumptions. These experiences resources
provide CarreIour great capabilities in exploiting new market as well as developing in
China.

As the choice oI stores location is concerned, Wal-Mart would more likely to choose

smaller and second tier cities in China, whereas CarreIour would more likely to
expand to larger and more developed cities. For Wal-Mart`s choice, this is also due to
the past experiences during its development processes. Wal-Mart started in a small
city in Arkansas, US and continues to develop new stores in smaller cities more than
in big cities to avoid intensive competitions. As Lin and Liang (2001) suggest,
Wal-Mart always adopted a 'circumvent big cities strategies to steadily cultivate
talents and accumulates experiences. This has been traditions Ior Wal-Mart to develop
internationally, and hence provides experiences to Wal-Mart Ior the same
development strategies.

6.2.3 Positioning Strategies

Both Wal-Mart and CarreIour adopt cost leadership strategy and oIIer low prices in
order to capture more market shares. As argued in previous chapters, cost advantages
can be achieved iI Iirms have superior advantages in purchasing, advertising, and
research and development. Wal-Mart and CarreIour are both large retailers in China.
As most oI their products sold worldwide are purchased in China, their buying powers
are relative high than other retailers. ThereIore, this enables the two retailing giants to
purchase at lower prices. In addition, they also enjoy the beneIits Irom advertising,
because their larger coverage oI their advertisement enables lowers advertising costs
per consumers. Wal-Mart also possesses advanced inIormation system that enables its
lower costs on stocking and inIormation communicating.


Both Wal-Mart and CarreIour also aim to achieve diIIerentiation strategies. However,
Wal-Mart outperIorms CarreIour in terms oI this aspect. According to Grant (2005),
diIIerentiation requires high levels oI technologies and services. As retail industry is
concerned, customer services are the key to achieve competitive advantages.
CarreIour and Wal-Mart both emphasize the creation oI a Iriendly atmosphere at
every store where employees wander around to replenish goods and see iI any
assistance is required (Lin and Liang, 2001). Wal-Mart also especially regulates its
staII to keep 'ten-Ioot attitudes and 'eight-tooth smiles Ior customers. Wal-Mart
insists on ordering and purchasing goods Irom suppliers directly to assure their
qualities. It also pays more attention on customers` complaints and requests. With
gradually accumulated customers` satisIaction, the company`s image will also
gradually built as good shopping environment, which are valuable resources to
achieve diIIerentiation advantages.

6.2.4 Local Adaptation

During the development oI Wal-Mart and CarreIour, both retailing giants make great
eIIorts on its local adaptation. CarreIour adapted on the Iirst day oI its entry, such as
Iood selling as well as exploiting the loophole oI government regulations. These are
its distinct strategies Ior its expansion and development in China. Regardless oI
whether CarreIour`s strategies are good or not, compared with Wal-Mart, CarreIour is

more adapted to Chinese market environment and hence expands and develops Iaster.
This may be attributed to CarreIour`s experiences in Taiwan. Through six years`
operation in Taiwan, CarreIour undoubtedly gained great knowledge on customers`
needs, preIerences, and buying habits as well as Chinese social cultures,
communication cultures and business cultures. These experiences provide great
advantages Ior CarreIour`s local adaptation strategies. Although Wal-Mart took Iour
years in researching Chinese market, economic and political condition, these research
results are not unique, and they can be obtained or imitated by any competitors.
ThereIore, CarreIour does possess competitive advantages in local adaptation
strategies.

6.2.5 Sourcing Strategies

The sourcing strategies adopted by Wal-Mart and CarreIour are totally diIIerent. This
is also due to the diIIerence resources that each oI the two retailing giants possesses.
Wal-Mart is Iamous Ior its logistics system and it is widely considered as one oI the
most important Iactors that lead to global success oI Wal-Mart. Take Wal-Mart in US
Ior example, a distribution center with satellite system is capable to distribute Ior 120
stores, and Wal-Mart use its own lorries to distribute goods to stores that are no Iar
than 24 hours` driving distances. This advanced distribution system is argued to
depend heavily on locations and destinies oI stores. ThereIore, technologies and
management oI centralized distribution system are valuable resources Ior Wal-Mart.

Although the distribution systems in China now are not as suIIicient as those in the
US, it is believed that with the increase oI the number oI stores, Wal-Mart`s
centralized distribution systems in China will provides signiIicant competitive
advantages (Li, 2004). CarreIour, however, adopted decentralized and empowered
sourcing strategies, and hence the distribution oI goods relies on local sourcing base
and suppliers. This is due to CarreIour`s lack oI technologies and management
know-how and also the lower costs oI such a strategy. ThereIore, although Wal-Mart
costs more money and time on its distribution system, it may beneIit more than
CarreIour in the long-run.


6.3 Summary

This chapter conducts a comparative study oI strategies adopted by Wal-Mart and
CarreIour respectively. There are both similarities and diIIerences. Generally, the
strategy that Wal-Mart adopted is more smooth and steady, enIorcing long-term
development and sustainability, while CarreIour`s strategy is more aggressive and
Iocusing on rapid short-term development.

These strategies adopted by each Iirm depend on various Iactors, such as government
regulations, market conditions and so on. However, they are mostly aIIected by the
resources and capabilities that each Iirm possesses. Since each Iirm has its unique

bundle oI resources and capabilities that determine opportunity set Ior each Iirm,
strategies adopted by Iirms may diIIerent. ThereIore, it is reasonable to Iind that
although Wal-Mart and CarreIour are in the same industry with the same context, the
strategies adopted are diIIerent and it is determined by the resources and capabilities
they possess respectively.

Chapter 7 Conclusions and Recommendations

The previous chapters have analyzed and compared the strategies adopted by
Wal-Mart and CarreIour, and provided the explanations oI links between the strategies
adopted and resources and capabilities possessed. ConIronted with intensive
competition in Chinese retail market especially aIter China`s entry into WTO, Ioreign
retailers need to plan and implement their strategies tightly according to market
conditions and their Iirm-speciIic resources. This chapter will Iirst conclude the
Iindings oI aims and objectives oI this research. A conclusion will be drawn in the
Iollowing part. There are also recommendations to both Wal-Mart and CarreIour Ior
their Iuture development in China. At the end oI this research is the limitations oI this
research.

7.1 Findings of the Research

This research aims to provide a comparative study oI strategies adopted by Wal-Mart
and CarreIour in a resource-based view, and the purpose is to provide an overview oI
the relationship between Iirms` strategies and its possessed resources. Through the
analysis oI Chinese retail industry, studies oI Wal-Mart and CarreIour`s strategies in
China, comparing and contrasting the similarities and diIIerences oI these strategies
adopted, and combining the resource-based theory with the comparative studies,
Iindings oI objectives are as Iollows.


Since the transition oI Chinese economy system occurred, the government policies on
retail market gradually become open to Ioreign retailers, especially aIter Chinese
entry into WTO. ThereIore, the retail market in China also evolves with these changes.
Based on Porter`s Five Forces Iramework, in Chinese retail market today, the internal
rivalry is highly intensive, potential entry level is medium to high, the inIluence oI
substitutes and complements are medium, suppliers oI retailers have low to medium
level oI power, and the power oI customers are medium. ThereIore, it can be
concluded that competition in Chinese retail market is Iairly intensive.

Wal-Mart always adopts steady development strategies Iocusing on long-term and
adapts its strategies to the local market conditions and government policies. CarreIour
also adapts its strategies according to Chinese market condition. However, CarreIour
pursues aggressive development strategies and sometimes disregards and exploits the
loophole oI government regulations.

Through a comparative study oI the two retailing giants` strategies, it is Iound that
there are both similarities and diIIerences between their strategies. The choices oI
their strategies are selected largely based on the resources and capabilities they
possess, such as management know-how, experiences, technology and etc.



7.2 Conclusions

In conclusion, China is always an attractive market Ior Ioreign investment especially
aIter China`s entry into the WTO. This research employs case studies research method
and uses Wal-Mart and CarreIour and Chinese retail industry as representatives to
illustrate Ioreign Iirms` entry and development in China. It can be Iound that although
the retail market in China is oI great potential, the competition is very Iierce. In
addition, government policies play important role in Ioreign retailers` strategies.
Although the importance oI regulations decreases with gradually Iurther openness oI
Chinese market to Ioreign investment, establishing good relationships with
government and paying attention on government regulations are very important Ior
Ioreign investors. ThereIore, Ioreign Iirms need to plan its entry and development
strategies based on economic, market and political conditions. However, the resources
and capabilities are the critical Iactors in determining strategies, as they provide
unique opportunity sets Ior each Iirm. Through the analysis oI strategies oI Wal-Mart
and CarreIour, it is Iound that both giant retailers plan strategies according to local
market, economy and government conditions and achieve great competitive
advantages on their local adaptations. In addition, their successes also rely on the
strategies exploited based on their resources and capabilities. However, there is also
space Ior Iurther improvement oI both Wal-Mart and CarreIour`s strategies.

Undoubtedly, aIter China`s entry into the WTO and policies are more open to Ioreign

investors, more and more Ioreign investment come into China, and they bring
advanced technologies and management knowledge, and some oI these Ioreign
entrants are successIul worldwide. However, business models and experiences proved
to be successIul in other countries would not be successIul in China. Internal
resources and external environment are both critically important Ior Ioreign investors.

7.3 Recommendation for Wal-Mart and Carrefour

From the previous analysis, there are both similarities and diIIerences between the
strategies adopted by Wal-Mart and CarreIour. Some oI the strategies may lead to
competitive advantages, while others are not. II the strategies that do not lead to
beneIits, the Iirm needs to consider how to adjust it Ior its Iuture positive development.
II it is the unique resources and capabilities that lead to competitors` success, the Iirm
needs to consider how to create a substitute oI or imitate the competitors` distinct
resources. ThereIore, as Wal-Mart and CarreIour`s strategies in China are concerned,
some recommendations are made Ior their Iurther development in the context oI
China`s entry into the WTO and Iurther opening oI the retail sectors.

7.3.1 Recommendations Ior Wal-Mart China

Wal-Mart`s strategies are considered to Iocus on long-term development and they are
based on regulations oI every level oI governments in China. They pursue harmony

relationships with customers, suppliers, governments and the whole society. However,
there are still some strategies to be adjusted or paid more attention to Ior its better
development in Iuture.

First, to be more Ilexible. Wal-Mart keeps developing very steadily, and it can be
proved by its expansion and distribution strategies. Wal-Mart still Iocuses more on
opening new stores in second tier cities, and the number oI stores in developed and
large cities is still low. However, although 'circumvent big cities strategies are used
to accumulate experiences, the mainstream oI consumption power still lies in
developed cities and prosperous areas. In addition, it has been more than 10 years
since it entered China, it is time Ior Wal-Mart to invest more in large and prosperous
cities and areas. Distribution systems oI Wal-Mart also need to be more Ilexible. Due
to the small number oI stores in China, it is still diIIicult Ior Wal-Mart to realize
economies oI scale in centralized distribution system. In addition, China`s provincial
autonomy and selI-suIIiciency pose diIIiculties in interprovincial transportation.
These inevitably increase the delivery time and costs. ThereIore, Wal-Mart should
consider a more Ilexible logistic system to lower the costs oI distribution currently.

In addition, Wal-Mart acquired Trust-Mart at the end oI 2006, and thus Wal-Mart
needs to make eIIort on integrating resources oI the two Iirms to achieve greater
competitive advantages. It may be a great opportunity Ior Wal-Mart to gain more
market shares as well as proIits, but it still may be great challenges Ior Wal-Mart.

Learned Irom Wal-Mart`s acquisition experiences worldwide, iI Wal-Mart acquired a
proIitable Iirm, then the acquired Iirm will stay proIitable, such as acquisitions in
Canada, Mexico and UK; iI Wal-Mart acquired a Iailed Iirm, then the acquired Iirm
will continue to make loss. Trust-Mart that Wal-Mart acquired is a Iirm with
signiIicant loss. ThereIore, whether it is a good acquisition or not largely depends on
the integration oI the resources and capabilities. Resources integration is important Ior
Iirms involved in acquisition, and thereIore, Wal-Mart needs to contribute more on
integrating resources and avoid culture clashes.

7.3.2 Recommendations Ior CarreIour

CarreIour`s strategies are more aggressive since its Iirst entry into China, and hence
the expansion and development oI CarreIour are more rapid and Iluent than those oI
Wal-Mart. However, its rapid and aggressive expansion makes CarreIour neglect
some important issues.

The most important issue is that CarreIour needs to attach importance on the
relationship with customers and suppliers. Compared with Wal-Mart, CarreIour
received more complaints Irom customers and suppliers, and warning Irom
government. Although the prices oI products in CarreIour are widely considered to be
cheaper than Wal-Mart, the customer services are also vital Ior survive oI a retailer. In
addition, CarreIour always reaps great proIits Irom suppliers, and hence suppliers can

obtain a small proIit margin. ThereIore, it is dangerous Ior CarreIour iI these suppliers
leave and stop supplying in the Iuture especially when Wal-Mart have a stronger
buying power.

In addition, CarreIour needs to Iocus on its long-term development and plan strategies
to create values resources in order to achieve competitive advantages. For example,
having an integrated supplier network Ior its sourcing and distribution centers should
be more important than opening more and more new stores. Empowered purchasing
and distribution rights and management hinder the delivery quality oI goods, which is
critically important Ior retailers. In addition, CarreIour should develop advanced
inIormation systems on communicating with suppliers and stocking, which will save
signiIicant costs and beneIit CarreIour`s stock management in the long-term,

7.4 Limitations oI the Research

This research aims to provide an overview oI the relationship between the Iirm
strategies and its possessed resources and capabilities. It uses Wal-Mart and CarreIour
as two cases representatives and studies their activities and strategies in Chinese retail
market. The research relies on qualitative research methods by collecting data and
inIormation Irom government websites, company websites, textbooks, journal articles,
company reports and etc. These public published sources oI inIormation improve the
quality and reliabilities oI data.


However, there are still limitations oI this research. II a longer period is given, more
data and inIormation would be collected and two cases would be studied better and
more completed. In addition, this research only chooses two cases to study their
strategies and possessed resources and capabilities, so iI there were more cases such
as Tesco and Makro, the research would be more convincing. Furthermore, interviews
and surveys are important methods in case studies, and iI there were interviews or
surveys conducted the research would be more inductive. Moreover, the data and
inIormation may not be the latest, and some oI the latest reports does now allow to
access. As a result, the analysis and recommendations are based on the strategies and
activities accessible, and thereIore they may be preliminary and more detailed and
in-depth ones need to be developed. Further research should Iocus on a comparative
study on the resources possessed by domestic retailers and Ioreign respectively and
how theirs strategies diIIer Iorm each other, and their Iuture development responding
to the other`s evolution.

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