Wal-Mart In China

1.1 Why has Wal-Mart been successful in the US?

Many attributed Wal-Mart's success to its well-known model of selling brand-name products for less. The secret of success lay in a unique combination of culture and strategies at Wal-Mart that set it apart from its competition. To give customers what they wanted, Wal-Mart rightly focused on two major value drivers - price and service.

⦁ Price (Every Day Low Price)

"Every Day Low Price" was the unshakable crux of the value that Wal-Mart offered to its customers. The objective of this strategy was to offer the same merchandise as other local stores, but at 20% less. Experts estimated that Wal-Mart saved shoppers at least 15% on a typical cart of groceries.

⦁ Service (Customer is Number One)

If EDLP was the crux of Wal-Mart's value offered to customers, then its hallmark was the services they received there. The three cardinal beliefs Wal-Mart's founder relied on for attracting and keeping customers were providing great customer service, showing respect for the individual and striving for excellence.

Providing quality goods at a low price in a friendly environment seemed to be an open secret, or even common sense to anybody who contemplated on the success factors in running a retail establishment. But while Wal-Mart kept its success story alive, many others failed. Behind this success was a model that the leadership of the company transported from one store and another, one state to another and one country and to another.

1.2 What are the sources if its competitive advantages?

Small-Town Locations

A key strategy in Wal-Mart's early days was opening discount stores with a sizable spread of assorted merchandise in small, one-horse towns. Once Wal-Mart opened a store, the town could not support another store of similar size. Thus, Wal-Mart saturated its market and effectively barred new competition from entry. Besides, locating stores in rural backwaters also reduced costs due to lower land and real estate prices.

Cost Control

Relentless cost control was one of the company's core capabilities and the principle of frugality had stayed at the heart of the company's culture since its early days.

The goal was to drive down the price of their products to the lowest they could possibly be.

Partnership with Suppliers

Wal-Mart could leverage its huge purchasing power in its negotiations with 68,000 suppliers. Some described a supplier's relationship to Wal-Mart as a love-hate relationship. With that lower price, Wal-Mart could sell more, and consequently increase the size of business with the supplier. Wal-Mart saw this as a win-win partnership.

Unrivalled Distribution and Logistics Management

Sam Walton strove to create a distribution system that could ensure a short time to market and low inventory levels. Moreover, to achieve shorter lead times, Wal-Mart created distribution centres. Purchasing was centralized, and suppliers shipped merchandise to the distribution centres. And, David Glass, Walton's successor, convinced that the use of technology would give Wal-Mart great efficiency in the supply chain arrangement and a distinct competitive advantages. As early as in the 1980s, Wal-Mart started using computers to track and analyse sales data and transmit orders to suppliers by electronic data interchange(EDI), It also pioneered the use of bar codes through which it collected valuable market intelligence.

Wise use of technology provided Wal-Mart with real-time insight into merchandise forecasting, planning, producing and shipping, and substantially improving efficiency and productivity.

A Culture That Reduced Agency Costs

Wal-Mart had grasped the art of motivating its employees from all levels to perform their best. It was the first retailer to start profit-sharing plans for rank-file workers, and not limit these merely to executives.

2. What are key challenges facing Wal-Mart in China?

Intensifying Competition

The industry was crowded with both internationally renowned retailers supported by deep pockets and management expertise, and domestic players boasting better knowledge of local consumer preference, both opening new shops at a brisk pace to snap up prime locations and expand their territories. The growth in the number of stores far outpaced the growth in overall sales, resulting in high store density