Walmart, Inc. is the world’s largest wholesale and retail chain originated in United States. The main regions of activity are the USA and Mexico, Canada, South America, the UK, South Africa, Japan, and China (John, 2015). Walmart was built on a simple foundation which is EDLP (Every Day Low Prices) business model. The basic principle of the company is to place on their shelves a huge variety of products and sell them at the lowest prices. Thus, each visitor can find for themselves almost any product despite the fact that its price will be almost the lowest among other stores.
Multinational hypermarkets were established only recently in China, but have developed very quickly. Walmart entered China in 1996, “drawn by the promise of big profits from the country’s fast-growing middle class” (Camillio, 2008). For many years, Walmart has declared China one of its most successful markets. However, in August of 2014, it was announced that the results of the company’s work in this country were among the worst.
The retailer giant faced a lot of issues with identifying Chinese costumers’ likings because they aren’t constantly price driven. They are leaning more towards tailor-made products and a shopping atmosphere that reflects local preferences. While Walmart’s strategies to adjust to local tastes haven’t been successful, local retail chain Sun-Art has been awfully prosperous. By imitating Walmart’s business model and having better understanding of consumer behavior they won over Walmart’s shoppers. Though China is not the main contributor to Walmart’s revenues, “the market is of vital importance to the company from long term perspective; the retailer is missing out on a substantial growth opportunity and it needs to come up with some formidable strategies to vitalize its Chinese business” (Forbes, 2014).
Table 1 Information on Western retail chains
As it can be observed from the table above, Walmart has been quite engaged in Chinese market with a market share of 10.4% second only to the French international retailer, Auchan. However, 401 stores (as of 2012) seem be very negligible compared to the thousands of stores that they have worldwide. Therefore, the research question is how should Walmart adjust its management strategy to solve the existing issues and adhere to China’s consumer culture?
2. Theoretical framework
One the articles that help to identify the existing issues of Walmart in China is “Wicked Problem” by Camillus (2008). By assessing given data it is obvious that Walmart is facing wicked problems which can be defined as an issue that cannot be resolves with traditional tools and procedures. Given articles includes ten properties of wicked problem:
“1.there is no definitive formulation of a wicked problem; 2.wicked problems have no stopping rule; 3.solutions to wicked problems are not true or false, but good or bad; 4.there is no immediate and no ultimate test of a solution to a wicked problem; 5.every solution to a wicked problem is a “one-shot” operation; 6. wicked problems do not have an exhaustively describable set of potential solutions, nor is there a well-described set of permissible operations that may be incorporated into the plan; 7.every wicked problem is essentially unique; 8.every wicked problem can be considered to be a symptom of another problem. 9.the existence of a discrepancy representing a wicked problem can be explained in numerous ways; 10.the planner has no right to be wrong.” (Head & Alford, 2015, p. 714).
Another article that was found rather helpful in explaining Walmart difficulties in China is “Why good management ideas fail: the neglected power of organizational culture” by Schneider (2006). This paper offers following fundamental reasons: “all organizations are basically living, social organisms; culture is more powerful than anything else in the organization; system‐focused interventions work, component‐centered interventions usually do not; interventions clearly tied to business strategy work, interventions not clearly tied to business strategy do not”. Schneider also point out four core cultures: control, collaboration, competence, and cultivation.
It is well known fact that choosing the right strategy is a crucial part of company’s journey that will determine future direction which the company has to take, and the way that the company can succeed. Strategy can be developed in different ways, and to date, there are as many as ten schools in strategic management: design school, positioning school, entrepreneurial school, cognitive school, learning school, power school, cultural school, environmental school, and configuration school (Mintzberg& Lampel, 1999). In the “Reflecting on the strategy process” by Henry Mintzberg Joseph Lampel, the authors present a comprehensive study of the main provisions, strengths and weaknesses of each of the schools of strategy and finally combine them showing a systematic view of the strategy of the organization.
In order to conduct an analysis on challenge that Walmart deals with in China, the design schools of thought is used since it corresponds to the required broad approach to the research question. The design school model mainly focuses on the assessments of the external and internal factors, threats and opportunities in the existing environment, strengths and weaknesses of the organization. This paper explores the internal capabilities and external possibilities of American retailer following with potential solutions that will allow Walmart fill in the existing breaches in strategic operating.
In order to properly evaluate performance of Walmart and provide the critical analysis and related recommendations to its strategy in China SWOT model and Hofstede’s cultural dimensions theory are used. With the help of SWOT analysis, a systematized portrayal of a specific situation is gained. On its basis, conclusions are drawn: whether a company is evolving correctly, what are the risks and the prospects of the company. Hofstede draws attention to the dimensions of cultures which are a framework that helps to evaluate a specific culture to assist decision-making.
By using the SWOT analysis method, and searching relevant data of Walmart, it is possible to conduct the following information.
- Economies of scale;
- Successful supply chain management;
- International presence and recognition;
One of the biggest advantages is the economies of scale which Walmart obtains due to its size. As a leading player in the field of retail, the company’s volume provides it with huge efficiencies that it uses to keep costs low. Its size allows Walmart to perform its own purchase operations more efficiently. This factor provides the company great bargaining ability with its suppliers, thus enabling Walmart economies of scale (Morning Star, n.d.). Next important asset of Walmart is supply chain management. With decades of developing, Walmart establishes a desirable supply chain management with closely zero inventory and advanced information technology system. Walmart’s objective is to reduce costs in process operations as much as possible, therefore that can leave more interest for consumers. The third strength that can be derived from the analysis is Walmart’s international presence. Walmart has a global brand which is known around the world because it operates in 27 countries (Forbes, 2019).
- Strategic alliances with other retailers;
- E-commerce and digitalization;
- Rapidly increasing middle class;
Expanding the overseas markets can bring a lot of opportunities. Working with local companies can offer new possibilities for development for the Walmart in the local markets. The local players bring local expertise while Walmart provides international practices and implementation expertise. One of the main expansion moves made by Walmart in China was its acquisition of the Taiwanese retailer Trust-Mart for $1 billion (John, 2015). The second opportunity of Walmart paves its way into technological field. Walmart acquires some of the major e-commerce giants thus enabling them to sell its products through digital channels (Pratap, 2019). The second opportunity will help Walmart to achieve a faster growth by putting emphasis on e-commerce and digitisation. And, finally, the third opportunity lies in China’s growing middle class market. According to McKinsey & Company (2013), 76 percent of China’s urban population will be considered middle class by 2022. This trend shows that there’s a possibility for Walmart to grow in the middle class segment.
- Organizational culture and HR problems
- Negative brand image
One major weakness that Walmart has is its organizational culture. Throughout its existence, Walmart has tried to decrease its operational costs in order to grow its price advantage by sacrificing the employee well-being. Consequently, it has negatively affected employee satisfaction. Despite the fact that Walmart has increased the wages, the HR environment and corporate culture still needs to be readjusted. Walmart China needs to provide its employees with security and satisfaction and improve its relations the government of China. The second weakness of Walmart is negative brand image obtained due to multiple failures. EDLP strategy, which has paid the retailer rich dividends in other international markets, did not suitably pay off in the Chinese market. Also, there was a crackdown by Chinese government following accusations of distributing meat products that were “adulterated and mislabeled” (John, 2015). Walmart’s Nanning store, there were accusations that Walmart used expired eggs to prepare food for customers (BBC News, 2012). In another incident, officials accused Walmart’s Dazhou stores of selling pork ribs from diseased pigs (BBC News, 2012).
- Competitive pressure
- Trade Relation between US and China
One of the Walmart’s biggest threat is competitors like Metro, Tesco, Carrefour and Sun-Art. These rivals have the similar business model as of Walmart in terms of it low cost strategy. Also, increasing social threats from local groups that think Walmart’s presence threatens the livelihood of small business owners, since they lose to Walmart regarding price and selection. The other threat for Walmart is existing political climate which can negatively influence Walmart growth strategies. This might cause trade complications which can hinder the possibility of Walmart to grow in China.
Through SWOT analysis, the further understanding of various aspects of the company is obtained. There several conclusions that can be derived from the analysis: they need to understand Chinese laws and regulations in a fast manner in order to adjust to local culture and system; the necessity to strengthen Walmart’s primal advantage, which is their economies of scale, thus appeal to more customers shopping in the Walmart due to their low cost.
4.2 Chinese consumer culture analysis
In this part of the paper the culture of Chinese customers analyzed with the help of Hofstede cultural dimension is discussed. By employing the information from factor analysis, Hofstede describes the effect of a society’s culture on the individual values and their behaviors. Hofstede used the following parameters which are continuums of behavior (Hofstede Insights, n.d.):
- Power distance (degree of participation in decision-making concerning all);
- the acceptability of uncertainty;
- masculinity-femininity (masculinity-femininity);
- time horizon of future orientation (short — long).
By exploring Chinese culture through the lens of cultural dimensions, it is attainable to acquire a good overview of differences of Chinese culture relative and US, Walmart’s motherland.
Table 3 Cultural dimensions comparison: China vs USA
o Power distance
Power distance dimension shows that inequality is present between the individuals in society, which represents the attitude of Chinese culture towards these inequalities among people. According to Hofstede Insights “the subordinate-superior relationship tends to be differentiated and there is no resistance against power abuse by superiors; people are influenced by formal authority and sanctions; people should not have aspirations beyond their rank” (Hofstede Insights, n.d.). Power Distance is defined as “the extent to which the less powerful members of institutions and organisations within a country expect and accept that power is distributed unequally”. In comparison, the US Culture describes power as “the degree to which a person is able to influence other people’s ideas and behavior”.
Individualism is “the degree of interdependence a society maintains among its members” (Hofstede Insights). It is connected to how humans perceive themselves in terms of “I” or “We”. As it can be observed in the table above, China is a highly collectivist culture where people work toward group interests and not themselves. Employee commits to people in the organization not to the organization. Individual’s relationships is more important than task
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