Examining the Sustainability of Wal-Marts International Strategy

WILLIAM JUSTICE KAPLAN UNIVERSITY GRADUATE SCHOOL OF BUSINESS AND MANAGEMENT GB580-02N STRATEGIC MANAGEMENT DR. CHARLES NEEDHAM 05/17/11

A Look at China in the 21st Century

OVERVIEW

Wal-Mart China Background

y History: Began operations in 1996; Global

Procurement Office opened in 2002; Purchased 35% interest in Trust-Mart. y Opportunity: On-going engagement with customers, suppliers, employees and the local communities where they operate. y Goal: Deliver real value to their customers, building and sustaining partnerships with their suppliers and providing its employees with development and growth opportunities.

Key Challenges in China

Issues Faced in Gaining Market Share
Intensifying Competition High level of competition, differentiation almost irrelevant, easily substitutable products, EDLP is nullified since elasticity of demand is approx. zero Regulatory Restrictions & Local Protectionism Tolls on foreign transportation of products, regulations in place to prevent expansion Infrastructural Deficiency Under-developed highway network, various forms of transportation fragmented, goods had to be warehoused during transit resulting in higher costs and waste Lack of IT Network Limited IT infrastructure in China which results in poor communication throughout the supply chain Society & Culture Inability to comprehend consumer preference or behavior, buying patterns, societal makeup

Wal-Mart Strategic Elements

Strategic Position
Niche position in which costefficiencies create low production costs and capital retention capabilities contributing to lower pricing and global expansion

Core Competencies
Achieving costefficiencies Strategic marketing for brand awareness Supply Chain Management (SCM)

Strategic Capabilities
Market presence and saturation Proven business model Demonstrated financial and marketing capabilities

Core Competencies & Competitive Advantage

Strong brand awareness, proven EDLP strategy, awareness of customer value proposition

CostEfficiencies

Low prices from suppliers, low agency costs, low overhead costs due to employee compensation model, low production costs

Strategic Marketing

SCM

Strong buyer influence, efficient distribution due to warehouse location

Niche Position Contributes to its Competitive Advantage

Maximizing Strategic Capability

Incorporate domestic (Chinese) suppliers and partners , adjust to foreign regulatory framework such that supply chain can work around poor foreign IT networks
Strengthen International SCM

Engage in intensive research of the foreign consumer as well as society and culture, understand the socioeconomic framework for consumers

Flexible Business Model to Interface with Unions

Maximizing Strategic Capabilities

Dynamic Marketing Strategy

China, like many other countries has a strong union presence and or mandatory unions. Adaptive planning is necessary to address this issue

Global HR Strategy

Must familiarize itself with cultural labor practices, close communication gaps, integrate foreign (Chinese) managers into HR strategy, create transparency in employment model

Enables Sustainable Competitive Advantages

Wal-Marts International Strategy

FLAWS & WEAKNESSES

International Strategy Failings

No Contingency Planning for Regulatory Framework No Contingency Planning for Expansion Strategy Does not account for variances in consumer behavior Overly centralized HR approach
Does not effectively address costs associated with protectionism or value chain effects, poor economic evaluation of foreign markets

Void of strategy to address density issues in foreign market, no dynamic research on expansion vs. land use policies and laws

Strategy not easily adaptable to foreign markets, doesnt grasp cultural/societal differences, does not account for socioeconomic contingencies

No foreign managers in HR approach, poorly formulated and non-transparent HR strategy, pursuing labor practices that are not applicable to foreign society

Conclusion
Achieving Sustainability: y Wal-Mart does a limited job of making adjustments for foreign consumer behaviors in its international strategy y Wal-Mart is losing its competitive position globally as leveraging EDLP is no longer enough to sustain its competitive advantage y There is no evidence of adaptive and contingency planning this is critical to the strength of the international strategy y The execution of a clear HR strategy and employment model globally that accounts for cultural and communication gaps y Wal-Mart must understand how EDLP is translated across the global landscape and adapt strategic marketing practices such that the needs of consumers (value vs. quality vs. price) are communicated precisely.

Questions

References
An, F. (2009). China Business Strategy: Wal-Mart and Chinese culture. Retrieved from http://www.filination.com/blog/2009/03/14/china-business-strategy-walmart-chinese-culture/ Bhatnagar, P. (2006). Wal-Marts challenge in China. Retrieved from http://money.cnn.com/2006/01/12/news/companies/walmart_china/index.htm Farhoomand, A., & Wang, I. (2006). Wal-Mart Stores: Everyday Low Prices in China, Asia Case Research Center The University of Hong Kong. Retrieved from Kaplan University Course Database. Rigby, D. K. and Haas, D. Outsmarting Wal-Mart. Harvard Business Review, December (2004). Winston, A. Wal-Marts new sustainability mandate in China. Bloomberg Business Week, October 28 (2008). Wal-Mart. (2011). China fact sheet Wal-Mart. Retrieved from http://walmartstores.com/download/1999.pdf