Strategic Analysis and Recommendations Wal-Mart in China Presented by: Tim Gnadt Mimi Gough Ashura Khan Shannon Krainz Tony Macon

Introduction The purpose of this presentation is to: Overview Wal-Mart’s history and culture Illustrate its explosive growth Explore its international expansion Focus on issues and recommendations for Wal-Mart in China

Sales increased from $1 Million to nearly $0.5 Trillion in 50 years Explosive Growth 3 (Wal-Mart, 2011)

International sales now comprise over 25% of total sales International Expansion 4 (Wal-Mart, 2011)

International store count eclipses US International Store Count 5 (Wal-Mart, 2011)

New Strategies for China may be required China Growth: Less Impressive 6 (Wal-Mart, 2011)

Environmental Audit: Opportunity Two decades of Chinese reform increasing non- state enterprises shares to 72.6%. China has the size (7 th largest retail market) and population (1.3 billion) necessary for Wal-Mart to replicate its U.S success Relaxation of government restrictions due to China’s membership in the WTO (World Trade Organization)

Environmental Audit: Chinese Consumer Chinese values mimic those of Wal-Mart’s target customers: a strong emphasis on value and low prices Chinese consumers often demand live animals for meat selections Chinese Consumers preferentially patronize domestic retailers Chinese Retail market from 1980 – 2003, measured in sales (Farhoomand, 2006)

Environmental Audit: Challenges The highway infrastructure in China is in significantly worse condition than in the U.S., severely hindering Wal-Mart’s ability to establish a similar distribution network The information technology infrastructure is not capable of supporting Wal-Mart’s need to control their supply chain Large income disparities in China make it difficult to predict consumer behaviours Wal-Mart experiencing high turnover due to cultural differences & employment practices

Business Analysis Practices the Porter five force model Owns its transportation network Information technology is critical to Wal-Mart’s logistical network but Chinese infrastructure can not support it as of now

Business Analysis “Every day low prices” Wal-Mart prides itself on customer satisfaction Wal-Mart is the world’ biggest company by sales; Buying power to negotiate with over 68,000 suppliers for lower prices Tough negotiator on prices

Recommendations : Strategic Direction - Ansoff Matrix (Johnson, 2008) Existing Products New Products Existing Markets New Markets Market Penetration Wal-Mart expands market in China manufacturing presence to retail stores. China has strict legal restrictions which disrupts growth. Consolidation Competitors alter expansion plans, after Wal-Mart is able to consolidate by purchasing Chinese Company. Market Development Wal-Mart expands into new geographical regions in China, particularly the rural south, where they are allowed to build. Attempts to expand in Northern China but initially runs into regulatory restrictions. Plans move ahead when regulations are modified. Product development meets with delays in supply chain as well as reduced quantity/sizes and freshness issues. Wal-Mart realizes there are technological disadvantages in China and no match for the North American model of efficiency. Diversification should balance creating greater company value and serve management interests, more than shareholders ( Johnson, 2008) Wal-Mart has achieved tremendous success in the U.S., so its quest to diversify and move the business away from existing products and into other markets led it to expansion in China.

Recommendations: Explanation of Strategic Nature Market Penetration Wal-Mart’s decision to enter the Chinese market lead to fierce competition, but eventually allowed for greater acquisitions. It is recommended to continue on this path Initially, ran into strict legal concerns, but patience paid off as restrictions were eased and growth allowed. It is recommended to continue on this path Consolidation Wal-Mart needed to defend its position of EDLP, by altering products and buying out the competition. This was effective and should continue Building customer loyalty was a challenge, due to cultural differences. Wal-Mart should continue working on this strategy

Final Recommendations of Strategic Nature Market Development New markets were introduced to EDLP and quantity items. Packaging and customer service need modifications Expansion into rural areas, was less successful than urban areas. Need to continue expanding the market in both areas Product Development Need to redefine value in fresh/alive products Increased risk and cost to add/change product; must consider options Diversification Strategy for further expansion for efficiency, marketing and revenue growth

Conclusion Wal-Mart has a business model that is already appealing to the Chinese consumer The environment in China is one in which Wal- Mart could replicate its success in the US By fine-tuning itself to the Chinese market and adjusting its model with consideration for the resources in China, Wal-Mart can grow market share within the country and capitalize on the economic expansion of China

Questions

References Cao, B. (6 JAN 2011). China’s ‘Wal-Mart’ Developers to Lead Gains, Jefferies Says. Bloomberg News. Retrieved from: Farhoomand, A. F., & Wang, I. (2006). Wal-Mart Stores: Everyday Low Prices in China (Case Study HKU590). Boston: Harvard Business School Publishing. Johnson, G., (2008) Exploring corporate strategy. 8 th Ed. Prentice Hall. Essex, England. Porter, M. (JAN 2008). The Five Competitive Forces that Shape Competitive Strategy. The Harvard Business Review. p Spulber, D., (2007) Global competitive strategy. Cambridge University Press. New York. Walmart 2011 Annual Report. (2011, January). Retrieved June 30, 2011, from df df Walmart Corporate. (n.d.). Retrieved June 30, 2011, from Walmart Fact Sheets:

References Walmart Corporate. (2011, February 18). Retrieved June 30, 2011, from Walmart Reports Fourth Quarter and Fiscal Year 2010 Results: newsArticle&ID= &highlight= newsArticle&ID= &highlight Walmart Corporate. (2011). Retrieved June 30, 2011, from