Swot Analysis of Wal-Mart in China
Wal-Mart in China October 31, 2011 The team is playing the role of management consultants in the case study of Wal-Mart stores in China. The team decided that a SWOT analysis was the best approach to the case in the beginning stages of the project. The SWOT analysis was designed as a tool that identifies the strengths, weaknesses, opportunities and threats of an organization. The method of SWOT analysis is to take the information from an environmental analysis and separate it into internal (strengths and weaknesses) and external issues (opportunities and threats).
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Once this is completed, SWOT analysis determines what may assist the firm in accomplishing its objectives, and what obstacles must be overcome or minimized to achieve desired results. Wal-Mart has been a leading retailer since Sam Walton first started the company in 1962. Sam Walton’s ability to use strategic thinking for Wal-Mart’s concept, “Every Day Low Prices”, launched the company to immeasurable heights. Although Wal-Mart is one of the world’s largest retailers, the company found it difficult and a long process to enter markets outside of the United States. SWOT Analysis Situation being analysed: Wal-Mart in China
Strengths * Financial stability * Experience * Supplier relationships * Every day low prices, Roll Back, and Special Buy * 10 foot rule| Weaknesses * Issues with transportation * US based operating strategy * Chinese government * Huge gaps in consumer needs * Inability to use Network system * Inability to use Supply Chain system * Other Foreign competitors * Workforce * Food needs| Opportunities * Flexible supply chain management * Logistics strategy * Technology levels * Financial matters | Threats * Lack of IT and roadway infrastructure in China * Income disparity in small-town locations * Disadvantages for adhering to government regulations * Local protectionism * Lagging global economy * High unemployment rates * Sluggish recovery in real estate sector * China’s economic structure shifting * Inflation risk * Pro-China protectionist barriers * Aging demographic * Rampant corruption * Widening income gap * Pollution| The use of marketing tools like “Every Day Low Prices”, “Roll Back”, and “Special Buy” help bring customers in the doors.
Sam Walton used to go into competitors stores and if he saw a product that was selling for less he would match the price or beat it (Farhoomand, 2006). Also, he used the three cardinal rules of providing great customer service, showing respect for the person, and trying for excellence (Farhoomand, 2006). One example, of Sam Walton’s influence, when he visited stores was to have every employee promise to that if they came within ten feet of an employee they would say hello and ask them if they needed help (Farhoomand, 2006). This model was transferred to all stores around the country and became a critical strength. Wal-mart realized to keep prices down they needed to have quality relationships with their suppliers.
They weren’t suppliers they were partners; to date, they have over 68, 000 suppliers with whom they work and negotiate production (Farhoomand, 2006). The partnerships are another critical strength they carry. The distribution and logistics management is the best in the world. The have 3000 tractors and 12,000 and have full control over all the movement (Farhoomand, 2006). They work on a 24 hour time table, operate within a days distance from the stores they need to deliver too, and have a 99% on time delivery record (Farhoomand, 2006). Sam Walton has been against union since the beginning. If he thought there would be a union problem within a certain area he would refuse to build, even if the area had great promise.
Instead, he created an open door policy for his employees, so they would feel free to come in and announce the issues they had and human resources would deal with it fairly (Farhoomand, 2006). Wal-mart also offers stock options and roughly 76% of their employees participate (Farhoomand, 2006). The army of employees that are loyal is strength. There are several different weaknesses for Wal-Mart in China, one is that China’s highway system is nowhere near as sophisticated as the United States or Japan (Farhoomand, 2006). This causes there to be much more time involved in moving supplies from the port to the distribution center and then to the stores. Additionally, Farhoomand states that the current highway system is extremely expensive due to a lot of tolls and other fines imposed by the smaller towns (2006).
Wal-Mart hoped to use their strategy of “Every day low prices” in China as well and that has backfired because of the high costs to operate, transportation fees, taxes, and small amount that consumers purchase. Also, in the rural areas the income levels make it almost impossible for the consumers to purchase items at Wal-Mart. Initially the Chinese Government was the root of most of the issues facing Wal-Mart however; the current problem is the small, local governments that impose their own rules. Due to satellite restrictions, Wal-Mart is not able to network into their operating system and supply chain systems. This causes issues in replenishing stock as most orders have to be handled by fax instead of electronic data interchange.
Sam Walton hoped that through stock options and profit sharing that their employees would be happy and not mind if they were not paid top dollar. This strategy works in the United States however, in China they are not eligible for profit sharing and the employees are not happy with low wages (Farhoomand, 2006). There are several competitors from European countries that have made a smooth transition into China unlike Wal-Mart. France’s Carrefour was able to get into cities that Wal-Mart had issues with because they went around the Federal law and worked directly with the local governments (Farhoomand, 2006). Finally, it is very important in China for fresh food.
In some cases this means that there are live animals in Wal-Mart because the consumers demand absolute freshness. This makes it almost impossible for Wal-Mart to use their regular suppliers and they are forced to use local suppliers where they may or may not be able to get the lowest price. Wal-Mart has the opportunity to streamline its supply chain management functions in China. In the states this function is essential to the survival of store operations. Which is what separates this retailer from any other in the world; the use of 3PL’s also makes moving products from one place to the other in a timely manner logistically sound. However in China innovation via automation in the manufacturing sector is either non-existent and or partially functional.
Wal-Mart has been instrumental in government relations and has participated in debates directly with the Chinese government to improve local and national distribution channels. Another major opportunity for Wal-Mart to further improve their global operations in China and reduce cost is financial matters. Business operations in China depend heavily on hard-copy paper flow. Which has historically added costs and extra manpower hours to the company’s bottom line, which also creates an opportunity for wide spread human error. Wal-Mart is steadily working on technology reform and modernization to better improve documentation flow and payment processing. There are many threats facing Wal-Mart in its growth in China.
First, a lack of IT and roadway infrastructure in China has posed barrier to the transportation of storage products (Farhoomand, 2006). Income disparity in small-town locations has also forced Wal-mart to place retail sites in urban areas with greater competition (Farhoomand, 2006). This competition has been exacerbated due to Wal-Mart’s policy of adhering strictly to government regulations while competitors ignore the same laws (Farhoomand, 2006). In addition, local protectionism has been a barrier, as site and distribution development is linked to local taxation (Farhoomand, 2006). The lagging global economy has led to “high unemployment rates, slow development of emerging industries, and sluggish recovery in the real estate sector” (Xinhua, 2010).
China is struggling with shifting its economic structure “to build a consumer-led economy,” and inflation continues to be a risk in China, with inflation as high as 4. 4% in the last year. China continues to implement protectionist barriers that promote China-made, conceived, and designed products over international brands (Szamosszegi and Kyle, 2011). An aging demographic profile in China causes challenges to the country’s workforce. As the National Security Network notes, Yu Yongding, former high level Chinese official in charge of economic policy cites problems with China’s economy including “rampant corruption, a widening income gap, pollution and an overreliance on the export sector to produce jobs” (Farhoomand, 2006).
As the team analyzed this case as management consultants, we realized that Wal-Mart was trying to impose their will among the Chinese culture. At the time of Wal-Mart entering the Chinese market the company assumed that the Chinese consumers were not too different from the consumers in the United States and they expected the sales to reflect that assumption. The process change Wal-Mart was trying to implement was not matching the reality of the Chinese culture. Until recently the Chinese people’s income levels made it almost impossible for Wal-mart to profit overseas and China as a country was still in a developing state. Unlike the rural areas in the United States that basically built Wal-Mart, the low income in rural areas in China cast doubts on Wal-Mart China.
Wal-Mart is the world’s largest retailer so their strategic planning and innovative thinking is hard to question; however the company should have invested more time to analyse China’s economic, market, social and political issues before deciding to enter their market. Additionally, entering the market before China entered the world trade organization (WTO) seemed to be a risky business venture for any company. All restrictions concerning geographical expansion, product range and ownership structure were to be lifted and based on a timeline. It also may force the opening up of the distribution and logistics sector, giving foreign companies more control over wholesaling and distribution (Farhoomand, 2006). References Farhoomand, A. (2006). Wal-Mart stores: “every day low prices” in China. Asia Case Research Centre. The University of Hong Kong.
Hong Kong, China. National Security Network. (2011). The China economy challenge. Retrieved from http://www. nsnetwork. org/node/1837. Szamosszegi, A. , and Kyle, C. (2011). An analysis of State-owned Enterprises and state capitalism in China. U. S. -China Economic and Security Review Commission. Washington, D. C. : Capital Trade. Xinhua. (2010). China’s economy faces new challenges despite steady growth. Retrieved from http://www. chinadaily. com. cn/bizchina/2010-12/15/content_11703700. htm. Xinhua2. (2010). China economy’s biggest challenge is restructuring. Retrieved from http://europe. chinadaily. com. cn/china/2010-12/07/content_11664288. htm.