Competitive Strategy Assignment: Market Expansion Of Walmart In China
Managers tend to speak optimistically about the prospects of globalization, and for good reason. Globalization has fostered an increasingly interconnected world, with more than $30 trillion in goods and services traded and more than $1 trillion in corporate investment each year. Advances in information technology and transportation have helped facilitate globalization—connecting developed and developing worlds, lifting some 400 million people out of poverty along the way.
Nations are now inextricably linked through global trade and investment. There is no turning back. Accordingly, managers often view globalization as a powerful and inevitable force, and they tend to treat it with reverence— speaking of it as if it were a breakthrough technology, the wave of the future that will change the world, if not their companies’ fortunes. And they tend to think of themselves as the champions of globalization, akin to explorers embarking on a mission to discover and conquer far-off, unexplored lands.
Managers express their optimism for globalization in terms of the profitability it can generate for their companies. They salivate at the potential for double-digit sales growth. They are seduced by opportunities that promise to slash costs by half or more, simply by shifting operations overseas. And they lead their companies on journeys to global markets in search of untapped and untold riches.
However, opportunity and reality do not always coincide. Although globalization certainly holds promise, it is also rife with hazards. It presents risks that managers fail to appreciate and that they often overlook. Sadly, in the high-stakes world of global strategy, companies regularly fail to convert potential into profits. Most companies are poorly positioned to capitalize on globalization’s potential, and many are spectacularly unsuccessful in their attempts to globalize.
China provides the setting for a classic cautionary tale about globalization. Given a population of more than 1.3 billion people and the market potential that goes hand in hand with a consumer base of that size, the prospect of expanding to China is enough to make any manager’s eyes light up. The potential is seemingly limitless.
But on further inspection, it becomes clear that China poses tremendous challenges for Western companies. The first obstacle is economic. Though China has made tremendous strides and enjoyed incredible growth since opening its markets to global trade and investment in 1979, the development of its economic institutions and its infrastructure has lagged behind that in the West. The second obstacle is cultural. Chinese consumers, for example, tend to be very different from those in the West, which makes it difficult for Western companies to appeal to local consumer tastes. The third obstacle is political. Western companies struggle to skillfully navigate China’s complex web of local and national political organizations. All of these factors led G.E.’s CEO Jeff Immelt to conclude: “China is big, but it is hard.”
Walmart has learned these lessons the hard way. Walmart’s ongoing troubles in China, since opening its first superstore in Shenzhen in 1996, reflect a fundamental misunderstanding of China’s political, economic, and cultural environments.
The American retailer has struggled to understand Chinese consumers and Chinese culture. Chinese consumers, unlike those in the U.S., differ widely from city to city in their needs. Walmart therefore struggles to find the right product mix to offer in the 117 cities and 25 provinces in which it operates. This makes it challenging to sell a core set of products nationwide.
Walmart has also suffered from troubled relationships with politicians— both local and national. The company has had its fair share of run-ins with the law. On one occasion the Chinese government fined Walmart for violating local and national laws and even forced it to close stores temporarily for purported product violations. Walmart paid the fines, even though the company believed the claims to be unfounded.
Although China has led the gobe in infrastructure investment over the last several years, outside of its largest cities (e.g., Shanghai, Beijing, Tianjin, Guangzhou, and Shenzhen), its infrastructure remains more than problematic. The efficient transport of goods from one region to another is a challenge because of China’s sheer physical size, and because its air, ground, and rail infrastructure does not meet developed country standards. Not surprisingly, Walmart’s China business has struggled to generate profits, and it has consistently underperformed in this huge and potentially lucrative market.
The lesson in all of this is that, when it comes to globalization, managers are not just optimists; all too often, they are unbridled optimists. They habitually overestimate the benefits of globalization and underestimate its costs. In evaluating globalization opportunities, managers often forget the other side of the opportunity equation: risk. Risk goes hand in hand with opportunity, and managers fail to accurately account for the risks they face in global markets.
Managers often make dangerous assumptions about what it takes to succeed in global markets. They tend to assume that their current business model, one they successfully and profitably exploit in their home country, will translate simply and effectively to other countries, yielding similar levels of profitability. These same managers fail to account for real and salient differences between nations, and fail to consider how those differences generate operational risks that may negatively impact their business. Unfortunately, they end up learning the hard way that the risk borne out of cross-country differences can overwhelm even the best-laid globalization plans. And Walmart is no exception.
To improve the practice of global business and to make better global expansion decisions, managers need a more sophisticated understanding of the economic, political, and cultural environments in the countries in which they intend to operate. They must appreciate how nations differ economically, politically, and culturally, and how those differences manifest as increasing risks (and costs). They then need to incorporate those risks into their existing strategy and financial decision models.
Robert Salomon is a professor of International Management and Faculty Scholar at NYU’s Stern School of Business and has researched globalization and global strategy for nearly 20 years. This article is excerpted from his book, Global Vision: How Companies Can Overcome the Pitfalls of Globalization. Published by Palgrave Macmillan; reproduced by permission.
Task: Consider the above case study and prepare a report on competitive strategy assignment utilizing the international strategy for Walmart to expand its business in China market.
This competitive strategy assignment discussed the Walmart-China Case study and provided brief information about the Walmart Company while operating their business in China. In this study, it outlined the several strategic issues of the Walmart Company while operating its business in the China Market. It also discussed the relevant theories and strategies of the Internationalization and application of the appropriate international strategy based on the business operation of the Walmart Company.
The case study of the Walmart-China has been selected to further provide the answer to each question of this assignment. Based on the Walmart-China Case Study, the report identified that Walmart utilized the International Strategy to expand its business in the China Market. In the first section, it discussed the entire case study of Walmart China. In the second section, it identified the strategic issues involved within the organization. In the third section, it discussed the relevant theories relating to international strategy. In the last section, it discussed the application of the above-identified appropriate International Strategy for the Walmart Company.
Brief Summary of the Walmart-China Case Study:
Based on the Walmart-China case study, it can be stated that Walmart Company faced many challenges in China since the company started operating its business in 1996. The case study reflects the fundamental misunderstanding of the Walmart Company about the cultural, economic, and political environments of China. The American Retailer Walmart has faced many challenges to understand the choice of Chinese customers and their culture. The choice, needs, and norms of the Chinese consumers differ from one city to another city of China. Walmart Company has faced struggles to find out the right choice and product mix for the Chinese consumers to offer it to Chinese customers in 25 provinces and the 117 Cities in China (Wang, 2020). It created a challenging situation for the Walmart Company to sell its core products in the market of China. Walmart Company also faced political issues due to the non-satisfactory relationship with the local and national politicians. The Chinese government also fined the Company and forced it to close its stores temporarily for violating national and local laws relating to products. Walmart also faced many issues while transporting goods from one location to another due to China’s poor infrastructure in transport except the good transport facility in the large cities like Beijing, Shanghai, Shenzhen, Guangzhou, and Tianjin. The sheer physical size, ground, air, and rail infrastructure of China failed to meet the standard of the developed countries that why it is difficult for the Walmart to generate profit in China’s huge and lucrative market. According to this case study, apart from having the many opportunities to generate profit for the company, there are also several risks involved in the expansion of the business in the global market. It indicates that without assuming the risk while expanding the business in the global market may be the biggest reason for the failure of the business.
Identification of the Walmart Company’s Strategic issues:
Based on the Walmart-China Case Study, several strategic issues of the Walmart Company that may be the reason for their struggles and challenges can be identified.
According to the reference of the Walmart-China Case study, the managers of all reputed companies always overestimate the benefits of internationalization and while underestimating the cost of expanding the business in the global market. Walmart Company also faced challenges due to the overestimation of the opportunities and benefits and underestimation of business operational risk in the global market. It is the main strategic issue of the Walmart Company.
The Walmart Company wanted to operate its business in China based on the business model of its home country America. The company assumed that the business model of its home country may be successful and profitable for the China Market as well. It is another strategic issue of the Walmart Company for which the Walmart Company failed to understand the choice and needs of the Chinese consumers and their cultures. The Cultural norms and choices of the Chinese people are very different from the Western Countries. This issue created challenges for the company to understand the different choices of people between the different nations and it effected the business operation that created a negative impact on the business of the Walmart Company.
The Walmart Company also faced many challenges from the Chinese government. The manager of the Walmart Company’s unsophisticated understandings about the political, economic, and cultural environment is the main reason for the non-satisfactory relationship with the Chinese Government. The company’s misunderstandings of political laws and regulations of China create many unexpected challenges for the Walmart Company (Wang, 2020). Due to this reason, the government of China fined the Walmart Company for the reason of violating the local and national laws of China. The poor management strategy is another strategic issue of the Walmart Company.
The Walmart Company also faced challenges while transporting the goods from one region to another region in China that increases the transportation cost of the company. The poor transport infrastructure, sheer physical size, poor rail, ground, and air infrastructure increases the cost of transportation and also increases the cost of their business operation. The Poor Financial decision model of the Walmart Company is another strategic issue of the company. Due to this reason the company faced challenges while generating profits for the company in the Huge and lucrative market of China. The misunderstanding and lack of marketing research regarding the economic structure, political laws, and cultural norms about China became the main strategic issue for Walmart Company.
Relevant theory of Internationalization:
Several relevant theories of Internationalization are used by marketers while expanding their business in the global market. In reference to the case study, Walmart Company expanded its business in the huge market of China and the company faced troubles since opening its first store in China. International strategy defines the company’s needs to identify both opportunities and risks in the global market through market research and choose the appropriate market strategy for their business (Festa et al., 2017).
According to the Bartlett and Ghoshal Matrix, international businesses has been clustered based on the two categories such as local responsiveness and global integration. Global integration defines the company's needs to reduce their product’s cost by creating the economies of scale through standardized products worldwide (Braga et al., 2018). Local responsiveness defines the company needs to design their products and services based on the local choice and needs. This matrix represents the four types of international strategies that help the organizations to successfully operating their business internationally.
Multi-domestic Strategy: It defines low global integration and high local responsiveness. According to this strategy, the company aims to meet the needs and requirements of the local market and consumers by customizing their products as per the local choices. These types of organizations loosely coupled and the subsidiaries of the main company operate their business autonomously and independently (Arenas and Ayuso, 2016).
Global Strategy: It defines high global integration and low local responsiveness. According to this strategy, the company aims to offer standardized products across the world that help them to maximize the efficiency of the business by reducing the cost of the products. These types of organizations highly centralized and branches of the company depends on the procedure and strategies of headquarter of the company.
Transnational strategy: It defines high global integration and high local responsiveness. According to this strategy, the company aims to meet the needs of the local markets and also gain benefits by using the global integration strategy (Lakshman et al., 2017). These types of companies maintain the proper value chain and maintain the flexibility to easily adapt to the local changes.
International Strategy: It defines low global integration and low local responsiveness. It also refers to the exporting strategy. The company exports its products from the home country to other countries (Stafford and Taylor, 2016). So there have little need to maintain global integration and local responsiveness. They operate their business by local channels.
Application of the proper International strategy:
The above- analysis indicates the Walmart Company’s needs to maintain the transnational strategy of Internationalization while operating its business in the market of China. This strategy may help the company to understand china’s economic, political, and cultural environments (Kawai and Chung, 2019). It will help the company to understand the local choices, cultural differences, and local needs by experimenting that help the company to customize its products and services to meet the local needs of the China market (MNCs, 2017). This strategy will also help the company to understand local laws and regulations, uncertainty, competitive advantages, and local advantages. It helps the company to implement the global integration strategy by reducing the cost of its products and services according to maintain the economies of scale of the company (Kang and Hwang, 2018). It indicates that the Walmart Company needs to implement the transnational strategy of Internationalization to develop a strong connection with the local community and society. It will help the company for its business growth and utilize the business profitability in the huge and lucrative market of China (Wang, 2020). It will also help the company to develop a proper financial model and business strategy for further expansion.
In reference to the above discussion, it concluded that the Walmart Company should implement the transnational strategy of Internationalization to meet the needs of the local people of China and the company itself. It will help the Walmart Company to operate its business in China according to local rules and regulations and the taste of local consumers.
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