WAL –MART STORES:
“EVERY DAY LOW PRICES” IN CHINA
Summary of the Case
The Arkansas based company Wal-Mart had been attempting to gain a foothold in China since 1996 and has encountered a variety of problems in doing so. Initially, the company was hindered by Chinese business regulations which were saturated with layers of bureaucracy and forced the US retailer to go slowly. Meanwhile, its chief competitors were bending the rules to their advantage and making greater progress in establishing a secure foothold in the world’s largest consumer market. Wal-Mart was faced with logistical difficulties, regulatory hurdles, and an apparent need to adjust their business model to better fit the Chinese consumer culture.
The result was a very challenging business environment that would put the retailer’s business model to the test. Should Wal-Mart use its “every day low price” strategy in China? Wal –Mart should not “ everyday Price strategy in china because No I don’t think wal mart should use every day prices strategy in china because of different culture. First wal-Mart faced was that of molding their domestic business model to fit the Chinese consumer culture. In the United States, Wal-Mart had seen great success by targeting smaller communities that were underserved by their chief competitors K-Mart and Woolworths. The basic format involved building a store in a rural location and then driving out competitors by making it impossible to compete with the retail giant’s exceedingly low prices. Once they had achieved dominance in a market, they would maintain their hold by offering a wide variety of goods at the lowest possible prices.
The intent was to bring brand names out of dense population centers and into the smaller markets without bringing the associated costs. One thing the case mention Wal mart come with the strategy market everyone watch the hair come with the shampoo. Many Chinese could not afford a bottle of that shampoo based on the low income. Because wal mart didn’t know what the different on the small communities and small town in china. I believe Wal-mart should of let Chinese customers to put their hands on the products, and offering fresh food every day. By doing business in China, Wal-mart found out that joint venture can be very helpful, that stared to work with Chinese government and set up a consolidate joints venture which helps Wal-mart solving lots of issues.
Another issue is Administrative distance ; China strict government control of market access prevented Wal-Mart from building stores in smaller markets. In U.S., Wal-mart fiercely fights unions, and it took the same hard line in its first eight years in China. But analysts suspect that Wal-mart initially did not appreciate the role unions play in China. Unlike U.S., Chinese labor union does not bargain contracts. Instead, they are an arm of the Chinese states, providing funding to the Communist Party for government’s views and securing the social order. Chinese union is seen as a management tool, no workers asked. Local governments may not operate in concert with ventral-government law. Local government can pass rules and regulations at any time without notice. Wal-Mart should pursue a policy of continuing to adjust their Chinese business model to fit better with the Chinese consumer culture.
While in America Wal-Mart had made a name for itself by providing inexpensive brand name goods to underserved markets, the same was not necessarily possible in China due to the difference in the way the Chinese viewed shopping. Even though the nation had a rapidly growing middle class, it still was restricted by several factors: lack of transportation, desire for fresh goods, and an overwhelming preference for low prices over everything else. If Wal-Mart can improve its central distribution model to improve efficiency and drive down costs even further, it will be able to better compete with its rivals by simply out-pricing them. This kind of brand saturation and cultural identification is a goal that Wal-Mart should attempt to recreate in China. By providing a guaranteed low price every time, eventually the Chinese consumer would associate Wal-Mart with always inexpensive items, which is highly appealing to them as consumers.
In Conclusion Wal-Mart was finding it difficult to turn a profit in China when it entered the market in 1996. It did not want to have to pull out of the market like it did in Germany, but it was having trouble duplicating the Wal-Mart business model in their Chinese markets. Strict government regulation led to slow growth and competition tightened the race for consumer dollars. If Wal-Mart can continue to adjust its business model to better fit the Chinese consumer culture, and if it can continue to increase its brand association with always low prices, then it will certainly see gains in its market share and finally be able to post a profit rather than a loss.