Wal-Mart Stores: Every Day Low Prices in China
Global Business Operations
This case analysis is written in the perspective of a consultant to the president and CEO of Wal-Mart Asia. Joe Hatfield currently holds the position of president at Wal-Mart Asia: he oversees most of the business related decisions that Wal-Mart plans to exercise in China, and is responsible to influence the application of appropriate business strategies within the company in order to ensure positive revenues. With that said, this case has for purpose to provide him, if possible, with new insights on how to increase the chances of Wal-Mart being successful in incorporating its EDLP (Every Day Low Price) strategy in the Chinese market.
Wal-Mart is currently losing money in China, thus it needs to find ways to be in the positive in terms of revenue.
Disparity in income as well as in regions: most rural areas contain populations with very low income meaning that the people do not have sufficient purchasing power to support the type of demands that the different areas ask for, and many of the regions often differ largely which makes it hard for Wal-Mart to maintain an uniform strategy in terms of merchandising, pricing, and marketing.
Chinese Regulations: Wal-Mart is at the disadvantage because of the unfavorable fees and charges that is faces while operating in different local Chinese markets. Chinese authorities are more prone to protect the state-owned enterprises under their jurisdiction. And the time taken for Wal-Mart to receive municipal approval in certain cities such as Shanghai usually gives the upper-hand to its competitors. Additionally, Wal-Mart faces restrictions in the total number of stores that they are allowed to run in certain cities.
Infrastructure: Due to the low infrastructure of China, Wal-Mart is not able to implement some of the best strategies that work in the United States. For example, Transportation costs are very high as toll fees are able to reach 10% or more of total freight cost.
IT Network: Lack of IT Network makes it difficult for Wal-Mart to efficiently manage its data and inventory logistics which are for the most part the areas in which Wal-Mart excels in the United States. In other words, transmission of information between Wal-Mart in its different local suppliers is not up to par to support the EDLP strategy that Wal-Mart wishes to implement in China.
Wal-Mart needs to reassess the Chinese markets and apply all of the information that it has acquired while operating there and look for various ways to change its core competencies into competitive advantages. Essentially, the Wal-Mart company must realize the distances that exist, as Ghemawhat suggested in “Distance Still Matters”, between a developed country such as the United States and a currently developing country such as China. There is a great distance between them culturally, geographically as well as administratively.
Culturally, Americans have grown accustomed to processed and frozen food while the Chinese people prefer their food to be actually quite fresh, which a sign of quality to them. With that said, different distribution methods