Wal-Mart's Success in China

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Wal-Mart’s Success in China

Wal-Mart Stores is recognized as the world’s largest retail chain. Founded in July 2^nd 1962 by Sam Walton, the store had its headquarters in Rogers, Arkansas. The 44-year-old Walton believed in discounting as the future for all retailing businesses. Due to this the company grew steadily even in the face of other retail giants like Woolworths and Sears which were known to dominate big cities. The year 2005 created very many changes in the corporate strategies of retailers wanting to sell in China. China was regarded and still is regarded as the most populous consumer market in the world. Since 2005, business strategies by companies to try to tap the vast population in China have continued. The strategies include entering into partnerships with local partners, development of international relations and the Chinese market was open to all (Farhoomand & Iris, 2006).

To Wal-Mart, venturing into the Chinese economy had long been a target. Wal-Mart was handling nearly 20 billion dollars worth of Chinese made goods and this helped it to drive its costs down. Moreover, the Chinese population was vast due to its enormous size in land and there were people from the middle class emerging daily eager and ready to spend. This meant that China was just the perfect spot for Wal-Mart to spread its business model and spread the every day low prices policy. The company suffered a few hiccups here and there in their first years of operation in china. Nine years after its entrance into china, its Chinese president resigned and this struck down the business for the company there. The company was ranked twentieth in terms of sales among all chain stores nine years after its inception in the country.

This was a dismal performance since its competitors who had entered the Chinese market almost at the same time as it did had higher ranks. Its nationwide number of stores in China was also less than its competitors’ and it was still making losses. The company desperately needed to duplicate its business strategy in America and make it happen in China. Wal-Mart’s dream of going global started way before their move to China. Before achieving this though, they had to satisfy their local market and see whether the plan to go international was viable. Finally, their discount concept was ready to hit the overseas markets. The market out there counted for about 95% of the world’s population, it had the need to be served, and generally, consumers around the world are alike as they all look for quality in products, favorable prices and good treatment.

China was the most lucrative looking market in the world for Wal-Mart and it presented similar enormous challenges as it did appeal. Very few other markets resembled the Chinese market. The country’s population of 1.3 billion had created a large market that would create a goldmine for Wal-Mart. The country’s retail industry had been estimated to have a 860 billion dollar mark by 2006 and a 2.4 trillion dollar mark by 2020. This made it the seventh largest retail market in the world with an estimated growth rate of 8-10%. Moreover, the general business environment in China was inviting to any foreign investor by relaxation on the regulatory requirements. This crated fairness in China’s competitive landscape since many companies had targeted the market (Farhoomand & Iris, 2006).

One of the reasons for Wal-Mart’s success in China was the reforms that occurred in China’s retail market structure. The increase in competition in the retail sector in China meant that the government owned stores and traditional enterprises would disappear and stop controlling the local market. This meant that the foreign investors would have a chance to invest in the country. This also meant higher product qualities and a larger variety demanded by the Chinese people since they had greater incomes. The growth in the Chinese retail market between the years 1996 and 2002, by about 52%, also contributed a lot in the success of Wal-Mart in the country. The types of retail business structures that existed in china did not include chain stores. This was noted by the Chinese government and was seen as a successful venture. Wal-Mart’s chosen business structure was the chain stores and this showed that there was quite a lucrative opportunity for them.

Chain stores in china were first started in the 90’s and the number grew considerably to about 17, 000 by the year 2002. The business structure of Chain stores was considered quite an effective way to create expansion in the modern retailing in china and to move it from the urban centers to the rural centers. When Wal-Mart tried to establish stores in Shanghai, it was turned down by the government claiming too much competition. Fifteen years down the line, the industry in china was overcrowded and the stores grew more than the sales. Bigger cities had more stores and this caused the decline in productivity on a per store basis. The sales were reducing and the margins of profit were reducing every day. It looked quite bad for other stores but Wal-Mart and other top retailers were slowly coming up due to the continuous consolidation and elimination of weaker stores (Farhoomand & Iris, 2006).

The understanding of the Chinese consumer structure was the next activity that Wal-Mart did to strengthen its hold on the market. The difference between Chinese consumer earnings grew and increased the gap between the rich and the poor. In their marketing strategy, Wal-Mart classified people with different incomes along with their different needs. The difference was quite vast that while in urban areas a certain good was saturated it may have just started being consumed I a rural area. Moreover, the lower a person earned, the less they bought, mostly necessities, and they consumed fewer luxuries. This meant that a retailer had to develop strategies that would enable them fit the requirements for all the regions since the income per capita for any individual determined where they lived.

Though it was an expensive and difficult task, Wal-Mart struggled on to satisfy the different needs of every region. Overall, it is the efforts put in place by Wal-Mart to satisfy the needs for the Chinese clients and the consumers’ pursuit of good value for their money. The middle class in china were also always eager to spend and the growing demand for quality and service supported Wal-Mart’s business. Their EDLP strategy and the superstore formats also supported the success of the retail chain store. However, the difference in consumer habits from the home market to the Chinese market added a challenge on Wal-Mart’s plate. This limited the economies of scale brought about by the setting of prices as low as possible while still enjoying high profit margins (Farhoomand & Iris, 2006).

The Chinese people mostly make more trips to the market and very little purchases due to the structure of their country. Their common means of transport is usually cycling or walking and this means that they cannot carry as much as their counterparts in America can. Window-shopping is also quite common in the Country. Wal-Mart endeavored greatly to provide quality services to the Chinese people, to understand their unique needs, to provide as similar services as those provided in America do. The two models, the Asian and the American are however competing since the Asian model, led by Wal-MartChina has become quite successful. Though it is hard to establish loyalty among Chinese customers, Wal-Mart has won its considerable share of the market, which shall ensure that it stays and grows profitably in the future.

The company has offered the Chinese people exactly what they need in terms of services and products for twenty-three years and though the journey was tough in the beginning, times have gotten smoother gradually to finally allow the company to make quite impressive profits. The continued support by the Chinese people of Wal-Mart and the continued offering of quality and value to them by Wal-Mart shall ensure that they shall remain on top of the retailer’s list and the world companies.

Works Cited

Farhoomand, Ali & Iris Wang. “Wal-Mart Stores: ‘Every Day Low Prices’ in China.” Harvard Business Review, 11 September 2006. Web. 29 June 2011.

<http://hbr.org/product/wal-mart-stores-everyday-low-prices-in-china/an/HKU590-PDF-ENG>