walmart china presentation
DESCRIPTION
TRANSCRIPT
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?
0
50
100
150
200
250
300
350
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