Wal-Mart is one of the leading retailers in the world with a net income of over $13 billion and sales of $457.5 billion (Morning Star 2017). This multinational is also one of the fastest-growing companies. This success is partially due to the retailer’s successful expansion in the Asian market. The Chinese grocery retail market is predicted to become the largest in the world by 2020. This market was predicted to increase by11% up to $1.5 trillion in 2015, which is an unprecedented growth compared to the development of the US market which will grow only by 4.2% (Farhoomand & Garrett 2012).
Therefore, the growth prospects of Wal-Mart China are more than bright. This report includes a detailed analysis of the company, challenges it faces, and strategies used to address them, as well as recommendations concerning its long-term development with a brief plan.
Analysis of External Factors
Cultural Environment
Wal-Mart is a multinational company based in the USA. When analyzing its Chinese division, it is beneficial to start with the analysis of the cultural environment as Chinese and American societies are very different. The cultural dimension is essential as it shapes a company’s marketing strategies as well as human resources management methods (Morschett, Schramm-Klein & Zentes 2015). It is possible to use Hofstede’s cultural dimensions, to understand the society where the company is operating and the most effective strategies and approaches to employ.
The country has a high score (80) on the power distance dimension (China 2017). This score shows Chines people’s attitude towards authority. The inequality within society is regarded as acceptable, and people believe that ranks are important and cannot be ignored. Power abuse by people in power is common, but it evokes little or no attention or protests among the population. China scores 20 at the dimension of individualism, which shows that the society is very collectivist (China 2017).
Strong family ties and close relationships in the working place are characteristic features of Chinese society. Employees may often undervalue the corporate goals as the relationships with other members of the group are put to the fore. Chinese people may be less cooperative or even hostile with people who do not belong to their group (workplace, community, and so on).
The dimension of masculinity shows people’s attitudes towards competition, success, and achievement. The country has quite a high score (66) at this dimension, which means that it is a Masculine society (China 2017). Chinese people are goal- and success-oriented, and this is manifested in different spheres of their lives. For instance, males tend to leave their families to go to other regions of the country in their search for employment. Another example of this cultural peculiarity is Chinese students’ focus on their scores that are regarded as the degree of their success and their major achievements.
Uncertainty avoidance is another important dimension to consider as it unveils people’s attitudes towards the future and uncertainty. Chinese society’s score is 30, which means that Chinese people are rather comfortable with ambiguity. One of the manifestations of this uncertainty acceptance is the abundance of words with multiple meanings and ambiguity of the language (China 2017). When it comes to the business sphere, this dimension shows that Chinese people are entrepreneurial and very adaptable.
The dimension of long-term orientation reveals people’s perspectives concerning traditions and norms, as well as their adaptability. China’s score is 87, so this is a very pragmatic country. People put a significant value on traditions, but they can be adapted to a new environment quite easily. Various examples of this attitude can be found. One of the brightest examples is the country’s attitude towards the Communist doctrine. Although the Chinese people proclaim their country to be a Communist state, the Chinese market is governed in terms of Capitalistic norms. Therefore, Chinese people adapted their political doctrine to a new global environment, which enables them to survive (unlike the USSR) and even become one of the fastest-growing economies.
Finally, China has a low score in the indulgence dimension. Chinese people tend to have a restrained society where people do not pay much attention to leisure time and the gratification of their desires. They believe that indulgence is negative and quite unacceptable. At that, in many cases, cynicism can occur as Chinese people may behave in a way they are expected to behave while being less restrained in other settings.
PESTLE Analysis
Apart from purely cultural factors, it is essential to take into account several other external factors that may have an impact on the development of a multinational in China. The use of PESTLE analysis is beneficial as it unveils major aspects to consider when planning or implementing operations in another country. PESTLE analysis involves the focus on such key areas as political, economic, sociological, technological, legal, and environmental (Masterson & Pickton 2014).
The political environment in the country is becoming less favorable for foreign companies operating in China. Several decades ago, the Chinese government was interested in attracting foreign investors, so the necessary environment was created. The labor force was not expensive, and taxation was very attractive. However, in the 2000s, the situation started to change as the Chinese government started protecting local businesses by imposing higher taxes on foreign companies.
Now, foreign companies have to collaborate effectively with local businesses and enter joint ventures (Farhoomand & Garrett 2012). It is also necessary to note that the corruption exists, and loyalty of some politicians can be gained, but this loyalty can become rather risky as Chinese officials are often imprisoned, and companies developing some relationships with this or that official can lose some benefits or even be forced from the market.
As has been mentioned above, China is one of the fastest-growing markets in the world. Although the labor force is becoming more expensive, the middle class is increasing, and Chinese people’s buying capacity is growing. Therefore, the retail market is predicted to grow twice as fast as the American market at a rate of over 11% (Farhoomand & Garrett 2012). As for social factors, these are associated with demographics, work ethic, lifestyle trends, consumer buying trends, and the like.
China’s population exceeds1.3 billion people and is increasing, which makes the Chinese market very attractive. Foreign companies can also benefit from the prevailing work ethic and lifestyle trends as Chinese people are very hardworking and entrepreneurial. They are ready to work long hours and perform well to achieve high results. Of course, the growing middle class and the development of the consumer society in China are beneficial for a retailer. Chinese consumers are becoming less price-conscious and more loyal to famous brands.
As for the technological environment, China is adopting (and developing) the latest technological advances. For example, e-commerce is one of the fastest developing markets with over 160 million online shoppers. Chinese people prefer buying online electronics, apparel, home appliances, and items for the house, as well as other products (including food) (Farhoomand & Garrett 2012). It is noteworthy that the Chinese market is very competitive as foreign and local companies tend to use the latest technologies to address the needs of their customers. The attention paid to e-commerce is significant and different retailers are expanding their online operations (Stone & Boyle 2017).
Legal factors affecting businesses operating in China are not very numerous or different from those existing in other regions. The tendency of the increased protection of local companies persists. As has been mentioned above, foreign companies cannot operate in the Chinese market unless they enter a joint venture with a local enterprise (Farhoomand & Garrett 2012). More so, labor force regulations (as well as environmental restrictions) are becoming stricter. Trade unions are gaining more power in the country and Walmart as some other multinationals have already had to address this empowerment (Li & Liu 2016).
In 2014, one of the Walmart stores in China had to be closed, but the employees were not notified about it beforehand, which led to a series of protests and, eventually, to some financial (paying rewards) and reputational losses. Finally, environmental factors can also have a considerable effect on the development of a multinational. The Chinese government, as well as the entire society, are becoming more conscious about the environment. Therefore, more attention is paid to the issues associated with pollution, excessive use of resources, and so on. Weather conditions should also be taken into account as floods and other natural disasters are quite common in different regions of the country. These issues may have particularly adverse effects on the company’s supply chain management.
Analysis of Internal Factors
SWOT Analysis
Apart from analyzing external factors, it is essential to consider internal factors affecting the development of the company. The SWOT analysis is an effective instrument that can help identify the most urgent challenges and the most effective strategies to address them (see Table 1). Wal-Mart has several strengths that can help the retailer to achieve its goals in the Chinese market. For instance, the company is famous for its efficient supply chain management (Huang & Jia 2015).
Wal-Mart manages to manage its logistics operations effectively as it uses efficient information systems and develops proper relationships with partners. Michelson et al. (2017) note that the retailer develops effective relationships with local farming households, which is beneficial for the development of the retailer’s fresh food segments.
Another strength of the retailer is its price advantage that is achieved through several strategies. First, Wal-Mart’s condition put to suppliers is at a low price. At that, the cooperation with the retailer is profitable even though suppliers have to agree to very low prices as they do not have to invest in advertising and transportation. The company’s office expenses are also very low (only 2% of the turnover), which contributes to the retailer’s ability to launch numerous promotions (Michelson et al. 2017). These promotions contribute to the development of proper relationships with Chinese customers who are willing to buy during sales and promotions.
Table 1: SWOT Analysis.
At the same time, the company has several weaknesses as well. One of the major factors contributing to the occurrence of these issues is culture. The company focuses on the implementation of its corporate culture that is effective in American society. However, it is ineffective and often harmful to the Chinese cultural environment (Michelson et al. 2017). The retailer fails to take into account Chinese people’s peculiarities, which results in inefficient HRM and marketing strategies. For instance, Wal-Mart fails to recognize the fact that Chinese society is very collectivist, which often puts family ties and personal relationships to the fore leaving corporate goals neglected (Li & Liu 2016).
As for the development of marketing strategies, the company tends to use the ones that have proved to be effective in the USA. However, Chinese shoppers have different buying preferences. For instance, they buy various products when having their leisure time, and they prefer to make their purchases near their households (Michelson et al. 2017). Furthermore, Wal-Mart is a late entrant as it appeared in the Chinese market when local retailers, as well as the French giant Carrefour, had already started their operations in the region (Farhoomand & Garrett 2012).
Irrespective of these weaknesses, the company can benefit from various opportunities the Chinese market offers. As has been mentioned above, Chinese people’s incomes are growing as well as their buying capacity (Michelson et al. 2017). The development of consumer society in the country is a promising factor for the retailing industry. Besides, Wal-Mart’s pricing strategies can potentially attract millions of loyal customers as Chinese people are still price-sensitive.
The use of promotions is also beneficial as it is consistent with Chinese people’s buying habits. In China, people regard buying as a pastime, and they do not often have shopping lists, which makes them prone to various sales and promotions. The retailer also enters numerous joint ventures with local retailers, IT companies, farming households, and so on (Farhoomand & Garrett 2012). Any international expansion is associated with various opportunities as companies may attract more customers, sell more products, and, as a result, make more profit.
However, it is crucial to take into account the major threats the company is facing to develop effective strategies. First, cultural peculiarities of the Chinese society pose most threats as customers may become dissatisfied with services provided, employees may become unmotivated and start performing poorly, and the public can become hostile to the retailer. The Chinese retail market is becoming more competitive as other international retailers, as well as local companies, expand the operations.
The company is facing numerous challenges associated with insufficient infrastructure. Michelson et al. (2017) state that transportation infrastructure is still poorly developed, which makes logistics operations more expensive and time-consuming. Finally, the Chinese government is becoming more focused on the development of local retailers. Various regulations and laws make such multinationals as Wal-Mart operates in quite tight boundaries.
CSA/FSA
The CSA/FSA framework can also be employed to identify the major internal and external strengths and weaknesses (Collinson, Narula & Rugman 2016). As for the multinational’s internal strengths, it is necessary to mention effective supply chain management, the focus on innovation and the use of advanced technology, effective joint ventures with some local retailers, the use of the customer-oriented approach, and low prices advantage. The final two strengths contribute heavily to the retailer’s success in the region. Customers receive high-quality services and can get a good bargain (Michelson et al. 2017).
The stores’ employees are trained to provide detailed information that is valued by customers and behave in certain ways (smile, give the change using both hands, etc.). However, there are still serious weaknesses that pose considerable threats to the successful development of the company. These weaknesses include insufficient attention to cultural differences, ineffective collaboration with local authorities, the focus on the existing (American) management strategies, and methods.
One of the most significant and alarming weaknesses of Wal-Mart is its inability to address the actual needs and expectations, as well as changing preferences, of the Chinese consumer (Korelc & Robertson 2014). The focus on suburban locations can result in significant losses in the long run as shoppers will buy from other retailers. The Chinese consumer society is also becoming more brand-conscious, so-to-speak, which may require more attention to the development of their brands.
As for the external strengths, these include the growth of the Chinese retail market, the development of the middle class, the development of the consumer society, and comparatively low labor force costs. All these factors are favorable for the development of a retailer in the Chinese market. Nevertheless, external weaknesses can undermine the company’s progress or even lead to considerable losses. For instance, the Chinese market is becoming highly competitive (Lu 2016).
Local retailers are becoming significant rivals as they are developing new strategies (a balance of western approaches and local traditions) and have governmental support. The Chinese government is introducing various regulations that make foreign companies’ operations substantially more difficult. The infrastructure of the country is still under development, which often makes it difficult for companies to deliver goods, share information through online resources, and so on (Michelson et al. 2017). Williamson and Yin (2013) emphasize that the focus on innovations is a characteristic feature of China, and it contributes to the creation of a highly competitive environment.
Current Issues and Challenges
The current issues the company is facing show the major areas of concern. For instance, the company has had some issues with its Chinese employees, and, in some cases, it led to the empowerment of the corresponding trade unions (Li & Liu 2016). The company’s inability to take into account Chinese shoppers’ peculiarity is another area of concern. The company tends to construct its stores in suburban areas while Chinese people prefer making purchases in local stores and during their leisure time. The Chinese consumers’ interest in brands can become another challenge as the company will have to make an effort to increase its customers’ loyalty (Korelc & Robertson 2014).
The Chinese government is introducing various regulations that can pose certain threats to Wal-Mart’s growth in the region (Farhoomand & Garrett 2012). The conditions of the development of joint ventures are becoming less attractive to foreign retailers. The costs are quite high as the labor force costs are increasing due to the improvement of the population’s quality of life. Transportation costs are also quite significant as the retailer fails to use the most effective routes due to the absence of appropriate roadways (Michelson et al. 2017). The use of information technologies is not completely efficient as numerous restrictions concerning the digital world exist in China.
Finally, local retailers are becoming a considerable threat to the development and further expansion of Wal-Mart as they are supported by the Chinese government, understand the peculiarities and needs of their customers, have the necessary resources, and focus on innovation.
Recommendations
Recommendation 1
The company should develop a new strategic approach as the old strategies seem to be failing. For instance, the company should focus on making Wal-Mart China “Chinese” so-to-speak. It is necessary to bring it closer to customers so the retailer should abandon numerous American methods. Innovation is another priority as innovative ideas, services, products, and strategies contribute to the development of competitive advantage.
Recommendation 2
Wal-Mart needs to implement large-scale research concerning cultural peculiarities of the country. This research should include the discussion of shopping preferences, customer profiles, customers’ needs, and expectations, employees’ needs and expectations, as well as the political environment of China. It should also include a deep analysis of competitors with a focus on potential partnerships and joint ventures.
Recommendation 3
Based on the research mentioned above, new marketing and HRM strategies should be developed. For instance, the location of stores should be reconsidered as it is essential to make sure that a sufficient number of stores are available in the downtown and near recreational areas. The company should continue developing its products and promoting them. Wal-Mart should remain a brand associated with low prices, high quality, innovation, convenience, and western chic. As for internal operations, the working atmosphere environment should be characterized by the focus on relationships and social ties. Wal-Mart should become a family or, at least, a community for its employees.
Recommendation 4
The effective collaboration should be another priority for the company. This aspect implies two directions. First, it can be beneficial to continue developing joint ventures with local retailers. Wal-Mart has substantial resources to acquire smaller companies or develop effective partnerships with larger ones. Collaboration with local entrepreneurs is also important. Local farmers should become a large part of the company’s supply chain management.
Another area of concern is the collaboration with Chinese authorities. Effective collaboration can involve participation in various charitable campaigns. The company can also invest in the development of local infrastructure. This collaboration can help the company obtain the information concerning the development of infrastructure, which, in its turn, will be beneficial for its supply chain management. It can also be effective to address several politicians (instead of collaborating with one) as it will ensure the implementation of the company’s plans in case one of the officials is detained or fired.
Recommendation 5
It is essential to maintain Wal-Mart’s focus on innovation as it can be regarded as a manifestation of these innovative approaches (La Monica 2017). More and more Chinese people are trying to buy online. The scope of products bought is quite wide and constantly changing. At that, the online resources used should comply with the regulations imposed. Mobile services can also be provided as Wal-Mart can send some data concerning promotions, new products, etc.).
Plan and Its Implementation
The medium and long-term plans will include several steps (see table 2).
Table 2: Recommendations and Implementation.
Conclusion
The analysis of the major areas of concern and opportunities for development shows that the cultural domain should receive significant attention. Wal-Mart should understand the peculiarities of customers, employees, and authorities. The use of innovation is another aspect to concentrate on. The company should remain competitive, which makes it essential to innovate and employ advanced technologies. The retailer should also make sure that its price advantage will be further developed. It is possible to provide several recommendations to ensure the maintenance of a high position of the company in the Chinese retail market.
To remain competitive Wal-Mart should change its strategic approach making the focus on innovation and cultural dimension. The steps to be undertaken include the collaboration with marketing research companies, local suppliers, authorities; the development of appropriate atmosphere in the working place; investment in the development of infrastructure; the focus on e-commerce and innovative services. The provision of training to the personnel is essential. At that, it is necessary to make sure that the strategies promoted are linked to Chinese people’s traditions and values. Wal-Mart has the necessary resources to implement the plan effectively and can win a leading position in China.
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