This paper will examine the local ecosystem that Walmart operates in inside China. It will also explore the customers, marketing intermediaries, and the general public, in addition to the organization’s suppliers, are some of the microenvironmental elements that affect an organization’s day-to-day operations. In this paper, the reasons why Walmart has not traditionally been successful in China have been examined. In addition, the paper analyzes the three separate income brackets that make up the Chinese population: the low, middle, and high-income brackets. In addition, the article has provided a proposal for the market positioning approach that needs to be used in all the different income brackets. The Bartlett and Ghoshal Model of International Growth is discussed in the last section of this paper. The paper also discusses the recommended approach that Walmart should use to operate in China successfully.
The Walmart Company is a multinational corporation with stores in almost every country. Since its founding in 1962, Walmart has expanded into various international markets, hiring almost two million people. In 1996, Walmart established two shops in Shenzhen as part of a cooperative venture to penetrate the Chinese market. More than 430 Walmart shops have opened in 189 Chinese cities since 1996. Walmart has over 20,000 suppliers in China and is responsible for providing jobs to over 70,000 Chinese nationals.
Walmart’s worldwide expansion strategy included China because of its huge population (more than 1.3 billion people) and promising economic future. Not to mention, China has a growing economy and a sizable pool of available workers. Most Chinese consumers are middle class, giving discount retailers like Walmart a huge opportunity to expand their businesses. There are Walmart Supercenters and Sam’s Clubs in China. More than ten thousand square meters of retail space may be found in Wal-hypermarkets Marts in 189 Chinese cities.
Nonetheless, the retail space at Sam’s Clubs is over 20,000 square feet. More than 70,000 local Chinese citizens, or 99 percent of the associates, have been employed by Walmart. Around 60% of Walmart’s employees are women, and over 42% of those working in management are also women (Yahoo! (n.d.) Walmart sales in China has climbed steadily throughout the years, with a 25% increase recorded in 2008.
The China government emphasizes local protectionism, which has been a profound barrier to the expansion of Walmart in China. The restriction of foreign ownership and barriers to importation by the government of China has influenced the business operation of Walmart. One weighty hindrance to Walmart’s operation in China was a government regulation that restricted foreign trade business operations in some cities in China. The regulation allowed Walmart to open its store in only eleven cities with a maximum limit of three retail stores per city. Although some foreign restrictions were waived in 2001 after China became a member of the World Trade Organization (WTO), Walmart still faces challenges from the Chinese government. In one instance, the government of China fined Walmart Company for
alleged product violations per local and national laws and even temporarily closed some of the Walmart stores.
Businesses that operate in international markets are supposed to adapt to the cross-cultural environment in the foreign country, which may be different from that of the home country. It has been a challenge for Walmart to adapt to the Chinese lifestyle and cultural environment, which is far, much different from that of Walmart’s home country. The Chinese cultural environment is highly predisposed to the Confucian culture, which focuses on interpersonal relationships. The cultural environment profoundly influences the business operation of a foreign company. Chinese culture is different from western culture, which makes it challenging for foreign firms from the west, such as Walmart, to conform to the tastes and preferences of the resident customers.
China has incorporated the international economic pattern, which is dedicated to creating a unified society and enhancing the capacity to implement sustainable development. Business enterprises should fulfill their social responsibilities by focusing on the employees, consumers, stakeholders, communities, and the environment. Although foreign investors are permitted to invest in China, the local administrators have the largest control over the market. In 2010, it was reported that Chinese companies should own at least 51 percent of a joint venture and have greater control over foreign firms. Registration for a foreign company is delayed up to 3 months since the Chinese Government is enforcing restrictions on foreign investments.
China’s economy is based on the Soviet Union’s economic strategy, which allows the government to control economic practices. The government implements local protectionism policies to protect local firms from foreign competition. Therefore, foreign firms like Walmart are limited and regulated by the government and cannot compete favorably with local firms. China’s economy is the second largest in the world due to its large population, large customer base, high labor force, increasing disposable incomes, and thriving middle-class citizens. However, foreign firms, including Walmart, cannot resonate with the local market, limiting their growth in China. The China market contributes only two percent of overall Walmart’s revenue.
Chinese consumers prefer quality and authentic products to low prices, which is one of Walmart’s strategies. They, therefore, consider Walmart products as cheap and unauthentic for the China market. The Chinese economic growth has slackened since 2012 with a growth rate of 0.7, affecting Walmart sales. China’s market has limited opportunities for growth, and Walmart should take advantage by implementing strategies that will place them ahead of their competitors. Walmart needs help determining the appropriate product mix offered to the different Chinese markets. Because of the types of products that Walmart sells, the company will likely have no competitive advantage over its competitors, who offer differentiated products. The Chinese market may be well served by customized products that are of high quality and authentic. Walmart would benefit from customizing its product to appeal to Chinese customers.
China is a technologically developed country that allows Walmart to promote its sales through social networks. The increased social networking community provided a large customer base which Walmart can exploit by advertising its products over social media. To cut costs, multinational companies like Walmart expand their business operations to foreign countries. International organizations such as the World Trade Organization (WTO) provide guidelines for the operation of MNCs in foreign countries. However, the international organizations’ guidelines do not substitute the regulations and laws of the host countries; instead, they offer guidance to the home governments on how the appropriate actions if host institutions need to be functional. Walmart is bound by the laws and regulations of China and any other country in which it ventures. It is, therefore, necessary to initiate negotiations with the host government and acquaint them with the laws and regulations governing the host country to conduct their business activities as per the provided legal guidance.
After correcting for purchasing power parity, economists estimated that each Chinese citizen earned $16,784 in 2019. There are several subsets that makeup China’s market. Although consumer confidence and expenditure have risen in coastal cities like Shanghai, inland regions have experienced delayed or even negative expansion in economic activity. The increasing need for labor in China’s coastal towns has unfairly promoted urbanization in the eastern provinces, leading to regional inequalities. Despite China’s large income difference between rural and urban areas, several coastal regions still have greater per capita incomes than interior provinces. Today, the middle class comprises around 39 percent of the population or about 400 million individuals.
Conferring to the National Bureau of Statistics, the average income of a middle-class Chinese household is between $295 and $740 every month. Seventy-six percent of China’s urban populace will have middle-class incomes by 2022, according to a forecast by McKinsey. Despite this, the gap between the middle and upper middle classes is rather wide. The middle class in China has two income brackets, with the lower middle-class making $10 to $20 per day and the higher middle-class making, on average, $20 to $50 per day (Fortune, 2021). It means 75% of China’s middle class is struggling financially. More than eighty-two million Chinese citizens are forced to live on less than a dollar daily, while about sixty percent of the population relies on a daily income of two to ten dollars. The inequality measuring tool known as the Gini index showed a slight decline in 2019 compared to the previous year. The result was 46.5, which is a drop from 2018’s 46.5. In China, women earned 20.8% less than men for doing the same amount of labor, ranking the country as having the 103rd worst gender pay gap in the world (out of 149 countries).
Walmart faces an additional obstacle in its efforts to break into the grocery industry. Online grocery shopping and delivery are on the rise in China, just as it is in the United States. As a consequence of this pattern, logistical costs are rising. To better fight with Alibaba, another of their common opponents, Walmart and JD.com, which Tencent owns, have created a tactical relationship. Regarding each platform’s share of China’s total e-commerce retail sales, Alibaba is the most popular, followed by JD.com.
Walmart has sometimes made the best decisions when it comes to choosing partners. Its first investment in a Chinese startup was in Yihaodian, another online grocery provider, in 2011. Despite initial optimism, Yihaodian never matured into a serious threat to Alibaba and was sold to JD.com by Walmart, which had already acquired a majority stake in the firm.
Products sold at Walmart China come from a wide range of domestic suppliers. Over 95% of the merchandise sold at Walmart stores in China is made or produced inside the country. In addition, it has developed cooperative ties with about twenty thousand Chinese suppliers and now exports around nine billion US dollars worth of Chinese products annually. According to a 2006 poll conducted by a representative of the government of Shangai, Walmart China was judged to have the highest customer satisfaction rating.
Walmart has announced plans to open as many as 500 new shops in China and related warehouses over the next five to seven years. Despite concerns about a faltering Chinese economy, this move is being hailed as one of the firm’s most important in the state. Walmart claims that the success of its initiatives in e-commerce, home grocery distribution, and car pickup has been critical to the firm’s continued viability. These investments have helped boost Walmart’s bottom line and entice more customers into its shops.
It was also theorized that Walmart China would be interested in unloading its stores there. Notwithstanding Walmart’s rejection of the charges, the situation is eerily similar to an occurrence that happened at the French retail giant Carrefour several years ago. Although some companies, like Tesco, have completely exited the Chinese market, others, like Carrefour, are still active there. Historically, international supermarket brands have struggled in China due to fierce competition.
Walmart China plans to increase its emphasis on local businesses and how much land it sells fresh foods to attract middle- and lower-class consumers. Walmart has ambitious growth goals, particularly emphasizing developing markets in the developing world and emerging economies. The bulk of the company’s resources is being put into establishing 40-50 new shops per year, per the company’s stated goal. One of Walmart China’s primary goals as a company is the spread of eco-friendly policies. Its first eco-friendly flagship shop, which used 40% less energy than its predecessors, opened in Beijing in 2018. Features including a robust cold chain system, energy-efficient light bulbs, and durable long-term assets were installed in the business.
Meanwhile, Walmart in China launched an initial phase of a social responsibility campaign to improve the company’s image in the country that is home to its activities. Environmental protection, elderly citizens’ health, happiness, aid to schools, and natural disaster relief are only a few of the causes that benefited from the retail giant’s involvement in this program.
Local receptiveness and international operations or the international integration strategy are the two options presented in the Bartlett and Ghoshal Model of International Growth as the strategy choices available to businesses that want to manage their global actions based on twofold pressures. No matter where a company chooses to compete, it is very necessary for them to have a solid grasp of the worldwide market. For Walmart to run efficiently in China, the company must consider the two options presented before. Both of these are viable options for the company to pursue. When considering assimilation on a global scale, one must consider the extent to which comparable items, in addition to additional strategic components, might be organized to compete worldwide. Walmart’s ability to locate marketplace parts that transcend foreign markets and service these opportunities using international locating strategies is the primary goal of this approach. The methods of dividing up worldwide markets should be the primary focus when considering local receptivity. The basis for international subdivision is not determined by country but rather by other criteria of subdivision, which are becoming more important. These factors include things like linguistic group, climate, and income.
Bartlett and Ghoshal developed a hypothesis based on a matrix of worldwide conglomerate and transnational strategies. The pair of individuals contend that it is possible to achieve both local receptiveness as well as worldwide assimilation at the same time. Low pressure is indicated for integration, while high pressure is indicated for separation, according to the multinational approach. It is built on the principle of being open to the requirements of the regional market. For instance, Walmart may start offering items tailored specifically to the needs of the Chinese people in that region. In situations where local receptiveness, separation, and adaptability are critical, but the prospects for effective production, international understanding handoff, economies of scale, and range are limited, this multinational strategy may be used successfully. The knowledge and experience of the home country serve as the foundation for an international strategy that emphasizes low pressure for assimilation in addition to low pressure for separation. Combining products is the cornerstone of the global technique that signals strong pressure for assimilation and low pressure for separation (Team, 2021). By using this technique, Walmart will be able to concentrate on producing standardized goods in a manner that is very advantageous from a financial perspective, thanks to the incorporation of worldwide best practices.
A transnational technique entails applying high pressure for combination and high pressure for separation. The primary objective of this strategy is to guarantee that local receptiveness and combination are maximized to the greatest extent possible. This will need Walmart to seek knowledge in addition to creativity and develop it in its entirety, which will be a challenge for the company. In addition to the learning opportunities afforded by the remunerations of items and methods that are changed locally, this strategy syndicates the paybacks internationally. Because of this, Walmart will be able to transform its selected affiliates into distribution facilities for its items in addition to performing its regular operations. Because of this, matrix management might be considered the strategy’s defining characteristic. The end goal of this strategy is to make it possible for Walmart to acquire access to and use all of the resources available worldwide, with the integration of both international and local knowledge. The adoption of this transnational strategy is being pushed, in addition to severe internationalization, by the rise in the number of competing factors. If Walmart implements this strategy, the company will be able to reduce expenses and deal with local variations, enabling it to maintain its edge over its competitors and guarantee that its operations in China are carried out effectively.
References
Yahoo! (n.d.). Where Walmart isn’t: Four countries the retailer can’t conquer. Yahoo! Finance. Retrieved March 26, 2023, from https://finance.yahoo.com/news/where-walmart-isnt-four-countries-184946433.html
Fortune. (2021, April 24). Here’s why Walmart stumbled on the road to China. Fortune. Retrieved March 26, 2023, from https://fortune.com/2016/02/21/why-walmart-stumbled-on-road-to-china/
The team, T. (2021, June 30). Why Walmart never picked up in China? Forbes. Retrieved March 26, 2023, from https://www.forbes.com/sites/greatspeculations/2014/06/18/why-Walmart-never-picked-up-in-china/
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