WALMART IN CHINA

1. Overview of the Company

History of Wal-Mart
The company which today is known as Wal-Mart was founded by a renowned American
retailer by the name Sam Walton. Sam, after ending his military service in 1945, moved with
his wife, Helen, to Newport, Arkansas, where he gained retail experience (Walmart
Corporate). It was during this time he opened his first retail store- Waltons 5&10.
Following the success of Waltons first dime store, Sam left Newport for Bentonville in 1950,
where he eventually opened the first Wal-Mart in Rogers, Arkansas, in the year 1962
(Walmart Corporate). Having recorded over $12.7 million in sales in 1967 (Walmart
Corporate), the company became officially incorporated in 1962 as Wal-Mart Stores, Inc.
Wal-Mart Inc. operates through its the Every Day Low Price business strategy.
In 1991, Wal-Mart through a Mexican retail company by name Cifra opened its first overseas
Sams Club in the North America country. Thereafter, operations of Wal-Mart were expanded
into Canada in 1994. Following the series of success, Wal-Mart opened its first stores in
Shenzhen, China, in the year 1996 (Walmart Corporate). In China, Wal-Mart operates
hypermarket, Sams clubs, and Neighbour stores formats.
Wal-Mart International Objective
Wal-Mart is currently in operations in 28 countries worldwide with over 11,500 stores under
70 banners (About Walmart Stores, Inc.). Wal-Marts operations span China, Japan, Canada,
India, United Kingdom, Brazil, Africa and elsewhere with headquarter in Bentonville, United
States where it employs over 1.5 million associates at over 1500 stores and clubs nationally
(Walmart Corporate).
Wal-Mart offers retailing and e-commerce services in its 28 countries of operations covering
sales of groceries, bakery, deli and dairy products, electronics, apparels, toys, beauty products
etc. In the 2016 financial results, Wal-Mart posted revenue of over $480 billion, consequently
becoming listed in the top of Fortunes top 500 companies (Walmart Corporate).
Concept of Multinational Corporations (MNCs)

As defined by Lazarus A., a multinational corporation is a business venture that operates in

more than two countries (LAZARUS, A., 2001). An MNC is the organizational form of
Foreign Direct Investments (FDI) into a foreign country. A multinational corporation has also
been defined as one with overseas subsidiaries (HARROD, J. W.). MNCs can vary based on
their activities or the number of countries of operations. Following the definition, Wal-Mart
Inc. is clearly a multinational corporation as its operations span 27 countries besides its home
operations in the United States.
2. Host Country Analysis
China
Within the last three decades, china has risen to become a major economic power in the
world. Following the economic reforms by China in 1979, its GDP growth stood at over
10percent yearly. Prior to the 1979 reform, Chinas GDP growth was put at an annual growth
rate of 6.7 % between 1953 and 1978. (MORRISON, W. M., 2015).

Judging by the

purchasing power parity (PPP), China is the worlds largest economy in manufacturing,
merchandise export and imports, foreign exchange reserve holding.

A number of US

companies are in operation in the booming Chinese market to sell their products, and also
leverage on the cheap labour that abounds in China. Chinas economy when measured using
nominal exchange rates, had a gross domestic product (GDP) size of $ 10.4 trillion as of
2014, with a per capita GDP of $7,589 as estimated by the International Monetary Fund
(IMF) in the same year (MORRISON, W. M., 2015).
According to the Michael Porters Diamond Model, the first attribute the first attribute is the
factors that prevail in the country. The country factor conditions can be broadly categorised
into human resources, material resources, knowledge resources, capital resources, and
infrastructural resources. The human resources further consist of qualifications and cost of
labour while the material resources consist of space, natural resources, and vegetation.
(RECKLIES, D., 2015). (ADJABENG, S. O., 2013), has identified the determining factors
that affected Wal-Marts Foreign Direct Investment (FDI) in China as being the market,
labour cost, tax, and infrastructure.
Amongst the determining factors that influenced Wal-Marts FDI in China was its desire to
increase its retail market size in relation to the growing China population. Wal-Mart has been
favoured by the growing number of rich middle class and the price consciousness of the
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Chinese market. Consequently, it deployed an everyday Low Price strategy to conquer the
Chinese market. Generally, for marketing seeking Multinational Corporations like Wal-Mart,
the market size and growth potentials are always among the determining factors that affect
Foreign Direct Investment decisions. It can be inferred, therefore, that Wal-Mart prior to its
1996 entry into China, have been attracted by the market size and growth potentials of China.
Wal-Mart was able to overcome earlier entry problems due to the Ownership advantage (i.e.
the companys abilities and expertise). This clearly conforms to the Dunning Eclectic
Paradigm. Wal-Marts successful internationalisation in China was also significantly
determined by the everyday Low Price and everyday Low-Cost strategies that it deployed to
great effect.
The Chinese business environment of which Wal-Mart, is a part of, is clearly indicated in
Figures 1 to 3. The trend and nature of retail investments are as shown in the three figures
from 2006 to 2011. After the effect of the economic downturn in 2008, the attractiveness of
the retail market as of 2009 is also captured.

Figure 1: China Retail Investment Volume 2006-2011

2: Proportion of Retail Investment Reached New High

Figure 3: Distribution of Investment in 2011 by Product Type

3. Entry Strategies of Wal-Mart in China

As stated by Bishop, an entry strategy is a mode through which a company enters a foreign
market, and how it makes its products and services available to the customers in the foreign
country (YUE, L., 2007). The entry strategy chosen by the foreign firm is very important to
its success. As reported by Johnson et.al., the Uppsala models visualizes internationalization
as happening sequentially, and also affected by an increased commitment and market
knowledge (CHO, HYEON JEONG, 2012). The internationalization process can be affected
by a lack of experiential learning and knowledge between a domestic company and its foreign
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host. Commitment decisions and internationalization can be affected by knowledge level as

well as commitment to foreign markets as espoused by the Uppsala model.
Wal-Mart officially entered China in the year 1996 (Walmart Corporate). Before its entry,
Wal-Mart waited for openness in policy, following the increase in the number of experimental
cities where non-Chinese firms were allowed to operate by the Chinese government. This was
because the government of China had put restrictions and regulations which prevent foreign
businesses from operating unless it entered into a partnership with a Chinese company, with
the Chinese company owning over 51% in the joint venture (YUE, L., 2007). As a result,
Wal-Mart before its formal entry had gone into partnership with Shenzhen International Trust
& Investment Company Limited in 1995. It was afterwards that Wal-Mart opened its first
outlets in Shenzhen, China. Wal-Mart Inc. has had success as the largest retail stores. WalMart adopted a joint venture as its entry strategy which allowed it gained adequate
knowledge of the Chinese market and other country factors from its local partner. Wal-Marts
success was in part due to its ownership advantage in business expertise and know-how of
retailing, and the valuable knowledge it acquired from its partnership.
China, being the most populous country in the world, presents huge retail market
opportunities. Between 1990 and 1995, prior to Wal-Marts entry, China recorded annual
retail sales growth of 11% (GOVINDARAJAN , V. and Gupta, A. K., 2002), which was
fuelled by rising demand for consumer goods and economic recovery. Wal-Mart
experimented with a variety of strategies to determine which had the greatest appeal to the
Chinese market. One of the entry strategy used by Wal-Mart was the opening of the Shenzhen
supercenter, which combined a supercenter with warehouse clubs. Wal-Mart also tried
various products merchandise to determine the one that had great appeal and suits the
Chinese culture better. Consequently, Wal-Mart began selling a lot of perishable goods that
the Chinese found appealing.

Regulations in China pose great challenges for foreign

businesses. Another factor that posed a challenge to Wal-Marts low price model was the low
middle-level disposal income in China. Consequently, Wal-Mart adapted its marketing
strategies to suit the Chinese consumers pattern of buying in small quantities while also
paying attention to language differences in the labelling of products and branding.
Multinational Corporations (MNCs) like Wal-Mart view entry into China as not just an
opportunity to expand and grow their businesses, but also an opportunity for supporting the
over 1.3 billion population of China. Wal-Mart aims to become a top player in the retail
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sector- this has informed its decision to acquire Trust-Mart (MUN, Y. L. and Yazdanifard, R.,
2012). Wal-Marts proposed $1 billion takeover of Trust-Mart is seen as its largest efforts at
expanding its operations in China (GEREFFE, R. and Ong, R.), with Trust-Mart recording
over $1.7 in sales in the year 2005. Apart from utilizing the acquisition strategy in China,
Wal-Mart is also utilizing the offshore sourcing strategy in China. Wal-Mart uses China to
source for its product. As a result, it has become the largest export channel of products from
China to the United States and elsewhere. Wal-Mart does not operate a manufacturing plant
in China nor does it have any direct control on manufacturing processes and supplies. This
strategy enables it to maintain its everyday low price that has become its core philosophy.
Wal-Mart is able to exercise it high bargaining power while also maintaining its high
ownership advantage. The high point of the strategy is that Wal-Mart is able to purchase
cheap products from China which it can sell at higher prices to the United States and
elsewhere. The expansion plans by Wal-Mart has faced challenges from the government of
China. The ACFTU had threatened Wal-Mart and other MNCs to allow employees to set up
branches of the union in their companies or else face being sued. Even though the action may
greatly benefit the china government, Wal-Mart will be faced with limited options in handling
employee benefits and resolutions of grievances among employees.
4. International Business Impacts and Contributions:
Wal-Mart has embarked on a global campaign to cut down the environmental impacts of its
operations in China and elsewhere. Prior to before now, in the 1980s and 1990s, Wal-Mart
had attempted to initiate a few green products and eco-friendly stores. The environmental
initiatives by Wal-Mart in China have signalled other corporations to embrace sound
environmental practices. Though it has been modest, but it continues to make laudable
achievements in this regard. The global economic downturn which impacted Wal-Marts
profit margin had a hand in the stalling of the programs. Through its sustainability program,
Wal-Mart is aiming to reduce waste, encourage reuse, increase organic based products,
support farmers, use more renewable energy, and to cut its energy footprints. Through its
organic and green product initiatives, Wal-Mart sources much of its food from Direct Farm
Program which it established in the year 2007 (SCHELL , O., 2011). Wal-Mart has found it
difficult dealing with Chinas worsening industrial pollution problems. To this end, it enlisted
the help of NGOs to train and monitor workers in the factories of its suppliers.

Currently, Wal-Mart is the largest private employer of labour with over 2.1 million workers.
Since it began buying made in china products in 1993, Wal-Mart has grown its operations in
china to include over 300 stores and over 90,000 people employed (KROLL, A., 2012). In the
supply chain of Wal-Mart, there are over 30,000 local Chinese factories which are charged
with production of 70% of goods that is sold by Wal-Mart.
Wal-Mart has recorded sales of $7.5 billion in the Chinese market, a figure which accounts
for over 2% of its yearly revenues (SCHELL , O., 2011). The amount of sales in China has
continued to increase in the last 10 years. As mentioned before, over 30,000 Chinese partners
are responsible for over 70% of goods sold by Wal-Mart which is worth nearly $420 billion
dollars yearly (SCHELL , O., 2011). China has become very decisive to the supply chain of
Wal-Mart. Consequently, Wal-Mart relocated its global headquarters which was formerly at
Hong Kong to Shenzhen, China. The partnership between China, the most populated market
in world, and Wal-Mart, worlds largest retailer, has helped to fulfil the mutual needs of each
partner. China aids Wal-Mart in fulfilling its growth needs through the provision of supplies
while Wal-Mart helps Beijing in meeting the ever increasing needs of its budding consumers.
UN Global Compact
Wal-Mart was known for its resistance to employees efforts to form trade unions in its areas
of operations in China and elsewhere. This was clearly a violation of the 3 rd principle of the
UN Global Compact principles, which mandates businesses to uphold the right to freedom of
association and collective bargaining (The Ten Principles of the UN Global Compact). WalMart employees in China have had to act following an order by President Hu Jintao in setting
up its first branch of the All-China Federation of Trade Unions (ACFTU) in Wal-Mart office
in the south-eastern city of Guangzhou (NBC NEWS, 2006). The ACFTU represents the
interests of Chinese workers in a single company or sector but not the whole industry. The
ACFTU seeks to protect the legitimate rights of the Chinese workers, and also serve as a
mediator in promoting a cordial relationship between a management and its employees.
Another area Wal-Mart can do better is in the environment footprints of its operations as it
had come under series of criticisms from environmental activists for releasing millions of
tons of Carbon dioxide (CO2) into the atmosphere. Wal-Mart has also been slated for the
waste generated through the consumption of its products. The problem is always exacerbated
due to Wal-Marts size. 2011 reports showed that Wal-Marts waste usually disposed in
landfills were cut by over 80% while also increasing locally grown produce by over 90%
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(KURTZLEBEN, D., 2012). Despite the efforts, Wal-Marts operations still leave a
detrimental impact on the environment.

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