Analysis of Wal

Analysis of Wal-Marts Expansionary Efforts Into China Essay Analysis of Wall-Marts Strategy and Business Model for Expansion into China. Introduction Business organizations in the modern world face an ever-increasing challenge to compete for a share of the global market. Advances in transportation, communications, and technology make it possible for a company to build a device in one country out of components made in a dozen other countries and sell it anywhere in the world. To survive in this business environment, businesses must devise strategies that minimize the risks associated with global expansion and maximize the return. A successful global strategy brings growth and a argue share of the market. A failed strategy can seriously affect growth and, in some cases, force the business to close. The key to a successful strategy is to understand the differences within each market. It is also important for the business to adapt its domestic model so as to best utilize the business strengths in response to those differences. The market within the United States is relatively homogeneous and stable. The global market and markets Within other nations are just the opposite. Distance matters in the global market. With distance comes a wide variety of cultural, administrative, political, geographic, ND economic differences. [lithe strategy that embraces these differences will succeed. The purpose of this paper is to review Wall-Marts domestic business model and identify the factors contributing to the success of that model, identify the unique characteristics of the market in China and how these characteristics compliment or work against the strengths of the domestic model, evaluate the success total-Marts strategy and the application tot its domestic business model in China relative to the models used by its primary competitors, and recommend changes to Wall-Marts strategy and business model to improve Wall-Marts nominative edge in China and other Asian nations. Wall-Marts Domestic Model and Strategy Wall-Marts domestic business model and strategy, as applied to the market in the United States and Canada, is based on the following principles: Exceptional pricing and customer service, combined with equally exceptional cost savings and operational efficiencies. Locating stores in small towns deemed too small for their competitors to serve but that had a homogeneous client base with the means to support the stores. An unrivaled distribution and logistics management system coupled with an excellent transportation and communications network. A stable and cohesive government structure in which all competitors were able to operate according to the same rules and regulations. The ability to leverage all Of these factors to reduce prices for consumers and generate profits for the company. Pricing Sam Walton, the founder of Wall-Mart, built the company on the belief that superior pricing was a cornerstone of a successful business. Wall. Mart built its entire marketing strategy on the idea of offering Every Day Low Prices (IDLE) rather than periodic sales. This was a successful move to undercut the competition and secure a larger share of the retail market. The strategy worked and drew millions tot customers into Wall-Mart each day. Walton was passionate about matching or beating his competitors, so much so that it was widely held that he would shop at his competitors to check their prices then call his managers and reduce his own if he found them to be lower. Wall- Mart also instituted the Roll-Back program designed to reduce prices on bundled merchandise, items that would normally be purchased together, These marketing campaigns and strategies, when combined with quality products, built Wall-Marts reputation as the place to shop for the best prices, regardless of a customers income level. Customer Service Sam Walton understood that in the United States, pricing alone was insufficient to maintain a loyal customer base. Pricing might bring customers into the store, but only a combination of exceptional pricing and customer service would keep them coming back. This approach is particularly important when one considers the small cities and towns in which Walton positioned stores. There is a tendency in smaller cities and towns for all members of the community to intermingle, regardless of the economic and social differences, Walton understood this and set forth three cardinal beliefs that formed the backbone of Wall-Marts corporate philosophy and ensured that the company would reflect the same values as its customer base. These beliefs are Provide great customer service Show respect for the individual/family Strive for excellence These beliefs, coupled with the idea that the customer is always number one and exceptional pricing enabled Wall-Mart to become the retail juggernaut it is today. Cost Savings and Operational Efficiencies Pricing and customer service are two cornerstones of Wall-Marts domestic business model and strategy. Cost savings and operational efficiencies are the other two. It was only possible for Walton to reduce prices if he reduced overhead and operational expenses as well. TO that end, he dictated that every dollar spent should tie into providing customers with greater value or savings. Corporate officers share rooms at inexpensive motels and fly coach when they travel. Corporate officials meet vendors in the company lobby rather than in conference rooms. Every action by every person in the company is oriented to saving money and passing those savings on to customers, Vendors are not immune to the constant drive toward lower prices. The companys buying power gives it incredible bargaining power and it uses that power to minimize the cost tot goods sold through negotiations with vendors and by working with vendors to improve their operational efficiency and cost structure. In exchange for helping vendors improve their processes, Wall-Mart negotiates special pricing. Suppliers are motivated to accommodate these pressures from Wall-Mart due to the significant sales that Wall-Mart contracts offer. Distribution, Communications, Transportation, and Logistics A sophisticated satellite-based communications system coupled with an equally sophisticated inventory tracking System enables Wall-Mart to coordinate the flow of products flow from vendors to the distribution centers and then on to the stores. In essence, Wall-Mart, runs a perpetual, real-time inventory management system. The highly efficient inventory tracking system is based on highly-evolved electronic data interchange (EDI) software that coordinates the flow of inventory and other business data been stores, warehouses, and suppliers. This results in enhanced supply chain efficiency by enabling rapid and even anticipatory responses to changes at all levels of the chain. Wall- Mart utilizes a hub and spoke supply chain design, which places all stores geographically within a days drive from the distribution centers, This hub and spoke supply chain design helps Wall-Mart take advantage of economies of scale by serving up to one hundred twenty stores from a single distribution center. Each distribution center is highly automated and operates twenty-tour hours a day, Wall-Mart owns its own diesel truck fleet, which boasts an impressive 99. % on-time delivery. This system enables Wall-Mart to effectively manage its product flow and inventory throughout its distribution network This highly efficient system makes it possible for Wall-Mart to minimize the space it requires for storing inventory. The inventory supply system reaches all the way to the vendors and suppliers that provide the products. This makes it possible fo r Wall- Mart to require that goods be shipped in specific quantities to ensure that no product sits on a shelf any longer than is necessary and minimizes storage requirements. Critism on so long a letter EssayPanky Somewhat provides keen insights as to why Wall-Marts experience in China failed to live up to its expectations in the article Distance Still Matters: The Hard Reality of Global Expansion. Somewhat shows that distance is more than a linear concept in business. Distance is a measurement Of differences. The more geographic. Cultural, administrative, and economic differences. The greater the distance between a compass home market and the one into which it is venturing. Somewhat specifically identifies China as a challenging market. He notes that language, a business culture based on personal injections, consumers who prefer home brands over foreign brands, market- access restrictions, high taxes, and custom duties are specific contributors to distance between the united States and Chinese In order for Wall- Mart to be successful in this market, the strategy it employs must contain points that address the differences, Wall-Marts domestic model fails to address the differences that increase the distance trot the United States market and the market in China Wall-Marts initial analysis of the market in China incomplete, not necessarily inaccurate. A complete analysis, using the CAGE Distance Framework detailed by Checkmate, would have provided Wall-Mart management with a clearer view of the market and brought forward the barriers to trade that exist within Chin Managers should have known how a ban on satellite communications, a critical piece of Wall-Marts distribution, management, and logistics operations, would affect the companys operations in China. Likewise, the management team should have known consumer buying habits in China and adjusted the model to better reflect the needs of the Chinese consumer. Without that information or a plan to address the market differences, here was simply no way for Wall-Mart to succeed in China. The distance was too great to overcome simply by transporting and implementing the domestic model in this situation. Moving Wall-Marts Business in China Forward Wall. Mart must reevaluate the market in China using a thorough and complete analysis such as the CAGE Distance Framework to clearly identify the differences that magnify the distance between the markets in the United States and China, This analysis must be unprejudiced and realistic, It must identify those differences that can be overcome as the company moves forward and it just identify alternative courses of action that differ from its domestic business model. Wall-Mart must be more aggressive in developing and establishing relationships with local governments and politicians. This is an area in which Wall-Marts primary competitor, Careful, excels. It is important to recognize that local protectionism will prevent the expansion of Wall-Mart stores in different regions of China as long as those in power have no incentive to change. The custom in Chinese business is to focus more on relationships than on transactions. Wall-Mart would benefit from establishing and improving legislations Within each community, and spend more time courting local politicians and business leaders. One method for gaining local support is to, as much as the business model Will allow, aggressively seek out and focus more on relationship building with local leaders and change the model it uses in China to enable the payment of taxes to the local entity as a sign of appreciation. This could potentially lead to Wall-Mart being exempt from paying these local governments. This will give local leaders the incentive they need to cooperate more fully with the compass plans, Communications, Distribution, and Logistics Wall-Marts domestic model depends of the use of satellites to coordinate its business Given that satellite technology is banned in China, an alternative system is necessary to ensure some form of real-time inventory control and a reasonable level of efficiency with regard to distribution and inventory control. One option is to maximize the use of existing telecommunications networks to enable an electronic data interchange (EDI) based inventory and business control system for its business locations and suppliers in China. Although considerably slower than a satellite-based system and less reliable, given the infrastructure in China, such a system is possible and can help the company move forward in the market. Wall-Mart should scale back the logistics and distribution system used in the domestic model to reflect the inefficiencies of the system it must use in China. By utilizing a periodic inventory maintenance system instead of a real- time system, the company will experience some improvement in efficiencies. The periodic system is not as cost effective and efficient as the system used in the United States, but it is much less expensive and would serve as a foundation for a system that can grow as the infrastructure in the country improves. Neighborhood Stores Vs.. Hypermarkets Wall-Mart should also adapt its current business model to emulate some of the local business in the communities. In effect, Wall-Mart should open smaller, neighborhood stores with limited inventories and products specifically oriented to the more limited needs of small communities. These neighborhood stores could even be mobile, traveling stores that move from town to town on a set schedule, but with consistent product tottering tailored to a specific clientele. Developing such a local presence will enable Wall-Mart to secure additional sales ND good will as well as grow its business. Hypermarkets as Distribution Centers The smaller stores should be set up using the hub and spoke pattern successfully applied to the domestic model In this case, however, the hypermarkets serve as the distribution centers for the surrounding neighborhood Stores. This does add an additional layer in the distribution chain, but it also better utilizes the space and supply chain for the hypermarkets. Using hypermarkets as mini-distribution centers for neighborhood stores would give Wall-Mart a mechanism for supplying all of its businesses in a cost- competitive manner. In addition, Wall-Mart may be able to use hypermarkets as distribution centers without seeking local approval, given that the stores already exist. In essences, the neighborhood stores become the bulk shoppers for the hypermarkets. Conclusion The market, the culture, the political systems, and the environment in China prevented Wall-Mart from replicating its domestic business model in China. Wall-Mart will improve its overall performance in the market by adapting its business model and leveraging available technologies. By using a combination of aggressively pursuing and establishing relationships with local politicians, implementing an EDI system across businesses and suppliers, developing and implementing periodic inventory system, adapting its business model to include a local business model, which would be neighborhood stores selling a limited amount of goods and limited amount of volume, and using the larger superstructures as smaller distribution centers, Wall-Mart could improve its competitive position in China. These business model changes will address the key factors working against the successful application of Wall-Marts domestic model in China, factors that include: A government structure that is inefficient, parochial, and bureaucratic. An inadequate and disconnected transportation and communications network that prevents the company for utilizing its distribution and logistics management system to attain cost savings and improved margins.