Walmart ME Final_For Presentation
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Transcript of Walmart ME Final_For Presentation
IN CHINA
Does Wal-Mart’s Successful US Business Model Work in China?
--Economic Analysis --By HKUMBA2011
Amer Bukhari, Phyllis Chiu, Rachel Yu, Prince Wong, Michelle Dagenais, Tony Tung, Albert LiuAmer Bukhari, Phyllis Chiu, Rachel Yu, Prince Wong, Michelle Dagenais, Tony Tung, Albert Liu
Sam Walton – Leader, Entrepreneur, Visionary
Introduction/BackgroundIntroduction/Background
Wal-Mart's success in the US
Small town USA, flying under the radarCost Control leads to Uniform Low PricingThe One-stop shop. Single trips, Large carts, Fat.. InventoryRule #1, the Customer’s always right. Rule #2, see Rule #1Distribution, Logistics, Supply-Chain, Infrastructure / IT, JIT
Every Day Low Price - Wal-Mart’s Business Model
International accounts for 20% of total Sales
Projections: 439 Million US Consumers by 2050. China – 1.4 BILLION. Annual compound growth to $2.4 Trillion by 2020
How much shampoo can you sell, if everybody washed their hair everyday?
1996 China market growth. Chain stores, following a phased approach proposed by State Government
2001, WTO. China opens it doors. Hypermarkets, small cities, retail akin to the US/European model.. the unruliness ensues
Wal-Mart International
Introduction/BackgroundIntroduction/Background
Does Wal-Mart’s successful US business model work in China?
Competitive Markets Industry saturated with international and domestic players International renowned retailers have management expertise
and deep pockets Domestic retailers have knowledge of consumer preferences
and consumptions patterns Supermarket segment primarily dominated by domestic players Local demand, supply and distribution provides an edge for
domestic retailers
Market Challenges Market Challenges
By Phyllis
High store density in larger cities – productivity per store declines
Income Disparity Market demand is an average estimate of the demand for an individual
Average income does not accurately reflect market
Market Challenges Market Challenges
By Phyllis
Low Income Groups – limit purchases to daily necessitiesMiddle Income Groups – purchase consumer durables and commercial
housingHigh Income Groups – purchase sophisticated products and advanced information services
Income Disparity China market is less homogeneous compared to the US market Broad gap between rich and poor, urban and rural populations Local income low in rural areas
Difficulty to develop uniformed market or pricing strategy
Unable to implement US-bred strategy of locating stores in smaller communities
Market Challenges Market Challenges
By Phyllis
Economies of Scales Cost advantages that a business obtains due to expansion Reduction in unit cost as the scale increases
US Small-Town Locations Relentless Cost Control Partnerships with Suppliers Unrivalled Distribution and Logistics Management
What about in China? Hypermarket business model – cost efficiency
Economies of Scale to Achieve EDLPEconomies of Scale to Achieve EDLP
By Rachel
High Operating
Cost
Challenges to Achieve Economies of Scale in China
Challenges to Achieve Economies of Scale in China
By Rachel
LocationDoubts to operate large supercentres in rural areas with
low incomeStrong regional dominance of domestic players in prime
areas with extensive networks e.g. Bailian
Increase operating cost
Challenges to Achieve Economies of Scale in China - Location
Challenges to Achieve Economies of Scale in China - Location
By Rachel
Shopping Pattern - Many Trips, Little Purchase
Consumer Flow ≠ Consumer Purchase Impulsive purchase rather than planned Shop around for best bargain Frequent shopping than purchase in bulk
Increase average cost of serving a customer
Challenges to Achieve Economies of Scale in China - Consumer Behavior
Challenges to Achieve Economies of Scale in China - Consumer Behavior
By Rachel
Food Quality - Fresh Means Alive Demand for absolute freshness – animals alive like fish, eels, frogs and snakes
Shoplifting Presence of a considerable mass of transient population or immigrants from the p
oorer provinces; Employees Lost of 5% of sales compared to international standard of 0.3%
Procured locally instead of through Wal-Mart’s centralized procurement system
Diminished economies of scale and interrupted supply chain meant higher costs in satisfying Chinese consumers
Challenges to Achieve Economies of Scale Consumer Behavior
Challenges to Achieve Economies of Scale Consumer Behavior
By Rachel
Distribution and Logistics ManagementDependent on under-developed highway networkGoods often had to be warehoused while in transit, leading to high
er costs and more wasteBackward transportation network added to the cost of inter-region
al distribution
Challenges to Achieve Economies of Scale Distribution
Challenges to Achieve Economies of Scale Distribution
By Rachel
My StoryMy Story
My Story : Strategy Thinking My Story : Strategy Thinking
The Art of WarBy Sun Zi
About ten years ago, in the dinner between my last day in the academy and the first day I step into the society, I talked to my father that:
I want to start my own business, not to be an employee.
Father give me six words.
They are 天時 , 地理 , 人和 (Timing, Geography and Relationship )
Then, I start with these 6 words and 20K from student loan…
At last, I found out these 6 words come from The Art War, a great book about strategy thinking by Sun Zi.
Why the Wal-Mart’s business model does not work in China?Why the Wal-Mart’s business model does not work in China?
BECAUSE:
Infrastructural DeficiencyBECAUSE:
Infrastructural Deficiency
Total Length of Expressways:
Wal-Mart distribution system depends on different forms of the transportation:
Leading To High Cost and More WasteLeading To High Cost and More Waste
Warehouse
Highway RailwayPort Distribution
Centre
Retail ShopsWarehouse Warehouse Warehouse
CN
VS
US
>1997 >2004 >2004
no expressways 34,288 km (28%)
120,000 km
(100%)
CN
VS
US
157 km (21%) 720 km (100%)
The Density of Land Transport System: km per 1000 square km
Under-developed Highway Network In China:
By PrinceWhy the Wal-Mart’s business model does not work in China?Why the Wal-Mart’s business model does not work in China?
BECAUSE: Distribution Center Not Fully Functioned BECAUSE: Distribution Center Not Fully Functioned
Why the Wal-Mart’s business model does not work in China?Why the Wal-Mart’s business model does not work in China?
Slow the speed of transportation Do not able to reduce the cost
Distribution centers were underusedTwo Distribution Centers:
Located in Shenzhen and Tianjin
By Prince
Wal-Mart USMap of Store 2004
Wal-Mart CNMap of Store 2005
“The biggest obstacle Wal-Mart faced in mainland China was
the lack of an information-technology network with suppliers,
making purchasing and distribution difficult.” --John Menzer, Chief of international operation of Wal-Mart
BECAUSE:
Lack of IT Network BECAUSE:
Lack of IT Network
Why the Wal-Mart’s business model does not work in China?Why the Wal-Mart’s business model does not work in China?
Network was critical to Wal-Mart’s success in the US:The Web-based system allowed to:
Tracking of sales, inventory, pricing Real Time Communication: Headquarter >> Store >> Suppliers In total 15,000 local suppliers: More than 70%, received orders through fax, not by IT network
The lack of IT network impaired the retailer efficiency
By Prince
Local Government Protected Source of taxes, political power, private benefits
Wal-Mart centralized its operations in Shenzhen and settled all accounts in this area, most specifically tax
Slowed municipal approval
Welcomed by most Chinese city governments, Carrefour set up accounts and financial controls in each store
Carrefour had the first mover advantage by entering the China market in 1995. Establishing itself before government regulations were implemented
By Michelle
Wal-Mart’s Disadvantaged Government RelationshipsWal-Mart’s Disadvantaged Government Relationships
1962 – 1996 Strict Policy -no unions- 5,000 failed attempts Shut down store in Quebec Texas store switched from butchers to repacked meat
By Michelle
China’s Influence on Wal-Mart’s No Union Policy
China’s Influence on Wal-Mart’s No Union Policy
Horizontal integration, Wal-Mart purchased Trust-Mart providing 100 already established stores in China Bypass Chinese city governments red tape for opening new
stores Avoid complexities in purchasing land
Allowing ACFTU to set up branches in all its 66 Chinese outlets Strategic move – better relationship with government results
in fewer regulations.
By Michelle
Wal-Mart’s Strategic Moves in 1996Wal-Mart’s Strategic Moves in 1996
Wal-Mart can maintain growth strategyChina can maintain control of foreign enterpriseRepercussions of not allowing
Accused of breaking law that states companies are not allowed to ban or impede the creation of unions
BlacklistedEndless auditsTax examinationsLogistical restrictionsInaccurate news coverage in the mediaUnwanted visits from union reps every couple of weeks
By Michelle
Wal-Mart’s UnionsWhy Now?
Wal-Mart’s UnionsWhy Now?
By Michelle
All China Federation of Trade UnionsAll China Federation of Trade Unions
Wal-Mart vs CarrefourWal-Mart vs Carrefour
Entry StrategiesWal-Mart:
Entered China in 1996 Later entry More flexible choices of
location for its entry
Followed government regulations strictly - open stores much slower
Account, financial control & taxes settled in Shenzhen headquarter
Relationship with local government - not as good as Carrefour
Carrefour: Entered China in 1995 First-mover advantages Establishing strong brand reput
ation and stable customer groups
Exploited the loophole of regulation - open stores quickly [bypassed central government approval process]
Account, financial control & taxes settled in each store
Better relationship with local government
By Tony
Wal-Mart ranked 14th in 2006 Carrefour ranked 6th in 2006
Expansion StrategiesWal-Mart:
At the end of 2006, WalMart the 14th by opening 71 new stores
Locate stores in second tier cities
Start in smaller cities and then move to larger ones.
Carrefour: At the end of 2006, Carrefour
ranked the 6th by opening 95 new stores
Emphasizes its stores to be located in big cities and city centers
Wal-Mart vs CarrefourWal-Mart vs Carrefour
By Tony
Positioning StrategiesWal-Mart:
Emphasizes “Low Prices Everyday”
Carrefour: “Happy Shopping in Carrefour”,
aims to emphasizing its good shopping environment.
Local Adaptation StrategiesWal-Mart:
At the early stage, same form of selling food in America or Europe
Carrefour: Adopted the Chinese traditional
wet market selling models
Wal-Mart vs CarrefourWal-Mart vs Carrefour
By Tony
Wal-Mart vs CarrefourWal-Mart vs Carrefour Sourcing Strategies
Wal-Mart: Centralized purchasing High development cost Low utilization High uniformity in service Good quality and delivery
control
Carrefour: Decentralized purchasing Low development cost Flexible Challenges of uniformity in
service, quality and delivery control
However, it is more suitable to Chinese inter-provincial conditions and save a lot of costs and time in purchasing and delivery
By Tony
Go with the FlowDon’t impose foreign ideas into centuries of state authority Cooperate with regional government Technology advances counter traditional provincial autonomy and self-efficiency Increase flexible supplier chain and logistic management
Appropriate Technology LevelChina’s abundant labor supply Manual labor / Automatic process Tradeoffs: accuracy and quality Shift to “Mid-Tech”
SuggestionsSuggestions
By Albert
27
Nontariff Trade BarriersFind other means to protect its domestic consumer market as China complies with WTOKeep Chinese products on-shelves and imported products off -shelves International brands manufacturedin China slowly count as “local” in the government’s eyes
New Frontier Focusing from main cities to hinterlands
SuggestionsSuggestions
By Albert
28
Financial MattersRegional fragmentation of finance regulation, tax laws and payment systems counters efficiency similar to logistics in the supply chain Computer approval vs. stamped-happy culture Appoint a provincial lead to handle financial matters
Education Training and workshops for suppliers
Flexibility Hire “local” people and Adopt “local” view Adjust Utilization Rate to meet local demands
SuggestionsSuggestions
By Albert
29
Prisoner’s Dilemma Price Competition – Capture Market Share
Wal-Mart supply chain prowess offers “Everyday Low Prices”
Product Market Share vs. Disposable Household Expenditure
Why? Focus Product Differentiation
SuggestionsSuggestions
By Albert
30
(Carrefour, Wal-Mart)Wal-Mart - $69.8 RMBCarrefour - $72.7 RMB
Wal-Mart's “Wal-Co” Create partnership program with local suppliers
ex. Similar to “Ebay Motors Certification” or “Alibaba TrustPass” Incentivize local suppliers
ex. Trial shelf space at national level Save the Environment Local Business Benefits
Private Label Hybrid System – Local and Focal (from distribution center)
SuggestionsSuggestions
By Albert
31
Louis Vuitton sues Carrefour in China -
Question & Answer Question & Answer
1. Farhoodmand, Ali (2006) “Wal-Mart stores: Every Day Low Prices In China”, Asia Case Research Centre The University of Hong Kong
2. Naughton, Keith. (Oct. 30, 2006) “The Great Wal-Mart of China”, Newsweek3. Huffman, Ted P. (Sept.-Oct. 2003) “Wal-Mart in China: Challenges Facing a Foreign Retailer’s Supply Chain”,
The China Business Review4. ChinaRetailNews.com Editor (Oct. 19, 2006), “Wal-Mart Acquires Trust-Mart For US$1 Billion”, China Retail
News5. Foreman, William (Oct. 12, 2008), “Wal-Mart’s New Market: Small Town China”, Huffington Post6. Management Team, Oct. 24, 2007, “Wal-Mart Q1 2009 Earnings Call Transcript” Seeking Alpha7. FastCompany.com Editor (2003), “Game On”, FastCompany.com8. Fishman, Charles (Dec. 19, 2007), “The Wal-Mart You Don’t Know”, FastCompany.com
Sources
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