Download - Walmart China Presentation
Walmart In China
Agenda
•Introduction
•Industry Comparison
•Key Issues
•Analysis
•Conclusion
Introduction
•Founded in US in 1960
•Fortune 500 company with 8400 units in 15 countries
•$300+ billion in revenues
Walmart Global
Walmart China
•First store in 1996 in Shenzhen
•Currently operates 189 units + 100 Trust -Marts in
101 cities
•95% of the merchandise is sourced locally
Walmart
US
Walmart
China
Carrefour
China
Distribution x
E.D.L.P x x
Market Power x x
Location
Power
Govt. Relation x
Walmart US Vs Walmart China
Vs Carrefour China
Target Customer
Distribution Centre
Key Issues
•What to Sell
•How to Sell
•Sell to Whom
•Foresight
•Signaling
Going local: Why Selling Crocodiles is key to Walmart’s success.
• Grocery section accounts for more than half at
Chinese hypermarkets
0%
20%
40%
60%
80%
100%
Wal-mart US Chinese Hypermarkets
31% 55%
69% 45%
The others
Grocery
Source: Walmart Stores Inc. 2006 10-K Report; China Retail Annual Report
Percentage of Sales by Product
Category
What to Sell?
Pig faces
Turtles
Crocodiles
Assorted Dried Reptiles
Example
Targeting Quality: Why you can bring Walmart to your wedding in
China.
• Does EDLP work in China?
• Chinese middle-class are willing to pay for quality
– Better understanding of local market
– Backed by Deloitte report
– Food safety crisis in China
• Multi-national big names mean higher quality
in Chinese mindset
How to Sell: Quality over Price
• Local community stores have cost advantages
• MNC strategies
Example
US Pizza Hut Chinese Pizza Hut
Vertical Differentiation: Where would Goldilocks shop?
Vertical Differentiation: occurs in a market where several
goods can be ordered according to their objective quality
from lowest to highest
Sell to Whom
Example:
Vertical Differentiation
•Combines full line of groceries, general merchandise
and bulk quantities
•Consumer target: Upper class
•Differentiation: requires membership, offers higher end products at higher prices, delivery service available
•Combines full line of groceries and general merchandise
•Consumer target: Middle-Upper
•Differentiation: offers huge variety of good quality
products at generally medium-high prices
•Offers various commodities, including food, home
appliance, textile and garments
•Consumer target: Middle class
•Differentiation: offers quality products at cheaper prices
Distribution: Why Walmart
Planned to Lose Money?
Walmart China replicated its US distribution center model building a center in Shenzhen in 1996 and Tianjin in 2003.
However, Walmart’s distribution centers didn’t keep costs down compared to decentralized local distribution.
Key problems:
• Road infrastructure in China
• IT systems of suppliers
• Insufficient scale of stores
• Interprovincial ‘corruption’
• Local food distribution still required
The Problem
Foresight:
Long-Run Success
How did the IT infrastructure in China grow?
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50
100
150
200
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400
450
00 01 02 03 04 05 06 07 08 09 10
# Internet Users in China
How did the scale of Walmart’s operations grow?
Why did Walmart not wait until the infrastructure was
ready to build their distribution centers?
Foresight:
Long-Run Success
1996 2005 2011
# Stores 2 43 >300
How does signaling work?
What does building distribution centers signal?
• Long-run commitment to China market
• Store expansion in nearby regions
Signaling:
The Role of Sunk Costs
Was it successful in scaring off competitors?
SHENZHEN TIANJIN
Why was it more successful in Shenzhen than Tianjin?
• Timing – Shenzhen distribution center was built
much earlier (1996 vs. 2003).
• Credibility
Signaling:
Success vs. Failure
Southern Stores
2005 2011
Walmart 20 73 (+39)
Carrefour 13 38
N & NE Stores
2005 2011
Walmart 20 37 (+7)
Carrefour 25 54
Believed they would be successful in the long-run and
give them competitive advantage.
Signal commitment to store expansion, which could
scare off competitors in that region by changing
payoffs, and China market.
Summary: Why Walmart
Built Distribution Centers
Application: The Role of
Sunk Costs
• Knowledge is power
• Position correctly
• Signaling
• Distribution network is key for an aggressive growth strategy
• Must anticipate where future demand will be greatest when deciding store location
• Western retail - Chinese style
Conclusion