Wal-Mart, a company from Arkansas, has been attempting to establish its presence in China since 1996. However, it has encountered several challenges during this journey. Initially, the company was impacted by intricate Chinese business regulations that demanded time-consuming bureaucratic procedures, leading Wal-Mart to proceed with caution. In contrast, its primary rivals were able to take advantage of loopholes and make quicker advancements into the world’s largest consumer market. Alongside regulatory hurdles, Wal-Mart had to deal with logistical issues and adjust its business model according to Chinese consumer preferences.
The challenging business environment that resulted put the retailer’s business model to the test. The question of whether Wal-Mart should use its “every day low price” strategy in China arises. However, considering the different culture, it is not advisable for Wal-Mart to employ this strategy in China. One of the major obstacles for Wal-Mart was adapting their domestic business model to suit the Chinese consumer culture. In the United States, Wal-Mart succeeded by targeting smaller communities that were not served well by competitors like K-Mart and Woolworths. Their approach involved building stores in rural areas and driving out competition by offering extremely low prices. Once they established dominance in a market, they would maintain their position by providing a wide range of products at the lowest prices possible.
The aim was to expand brand names from urban areas to smaller markets without incurring additional costs. The case study mentions Wal-mart implementing a marketing strategy, where they sold shampoo to everyone they encountered. However, many Chinese individuals could not afford to purchase the shampoo due to their low income. This occurred because Wal-mart was unaware of the differences between small communities and towns in China. I believe Wal-mart should have allowed Chinese customers to physically interact with their products and offered fresh food on a daily basis. Through conducting business in China, Wal-mart discovered the benefits of forming joint ventures. This led them to collaborate with the Chinese government and establish a consolidated joint venture, which assisted Wal-mart in resolving numerous issues.
Wal-Mart in China faces challenges with administrative distance due to strict government control of market access, hindering the company from establishing stores in smaller markets. In contrast to its stance in the United States where it strongly opposes unions, Wal-Mart initially took a tough approach against unions during its first eight years in China. However, experts believe that Wal-Mart may not have fully understood the role unions play in China. Unlike their counterparts in the United States, Chinese labor unions do not negotiate contracts but instead operate as an extension of the Chinese government, offering financial support to the Communist Party and ensuring social stability. These unions are perceived more as a management tool without worker representation. Additionally, local governments sometimes deviate from national laws and can suddenly impose regulations without prior notice. Therefore, it is advisable for Wal-Mart to continuously adapt its business model in China to better suit Chinese consumer preferences.
Wal-Mart became well-known in America for offering affordable brand name products to underserved markets. However, this success didn’t easily translate to China due to cultural differences in shopping preferences. Despite the country’s growing middle class, several factors restrained Wal-Mart’s potential: limited transportation options, a demand for fresh goods, and a strong preference for low prices above all else. To effectively compete with rivals, Wal-Mart should enhance its central distribution model to increase efficiency and further reduce costs. This would enable the company to outprice its competitors. Achieving widespread brand recognition and cultural association is a goal that Wal-Mart should strive for in China. By consistently providing low prices, Wal-Mart can ultimately establish itself as the go-to destination for inexpensive items among Chinese consumers.
In conclusion, Wal-Mart faced challenges in achieving profitability in China after entering the market in 1996. Unlike its experience in Germany, Wal-Mart aimed to avoid withdrawal from the Chinese market. However, it struggled to replicate its business model in China due to strict government regulations, resulting in slow growth and intensified competition for consumer spending. Nonetheless, if Wal-Mart can successfully adapt its business model to align with Chinese consumer culture and enhance brand recognition for offering consistently low prices, it can expect to increase market share and ultimately achieve profitability instead of losses.
