International Business Strategy
International Business Strategy
As the world is recovering from the impacts of covid 19, multinational businesses ought to adopt various strategies that will ensure competitiveness and enhance the safety of all stakeholders. In this case, many organizations have adopted the remote working strategy to reduce physical contact, thus ensuring that infections is much lower (Organization, 2019). Nonetheless, it is essential to note that a lack of an efficient business strategy often leads to the failure of many businesses. This means that the management ought to have an efficient strategy to attract a wider market coverage and accomplish its long- and short-term goals. In line with this, the report shall assess Walmart’s situation in China. Reports suggest that even as the company wished to expand its operations in China, all did not go well due to strategic issues (Jacobs, 2018). Therefore, the report will assess the strategic issues and provide relevant recommendations based on theoretical concepts.
Background of the Company
To assess a summary of the company’s background, Walmart was initiated by Sam Warton in 1962. The company encompasses numerous stores, and the first one is referred to as Warton’s Five Dimes (From humble beginnings. To redefining retail., 2021). The company offers a wide range of commodities, including dairy products, meat, bakery items, household commodities, beauty, and health aids. Since the company opened its first store, the company has had over 6500 new stores stationed in fifteen states around the world. It is important to note that the initiative of expanding the company’s operations in China began in 1994. The company sent a team of representatives to assess the feasibility of investing in China. The initial store commenced its operations in 1996 in Shenzhen. On the other hand, the last store was initiated in 2007, and the total number of stores in China was 81.
Microenvironment analysis (SWOT)
One of the many strength-spots of Wal-Mart in China is its partner in the expansion promotion. Walmart chose China International Trust and Investment Corporation (CITIC) alliance, a large company founded in 1979. CITIC has dependable knowledge and experience regarding the situation, and market condition. Therefore, it offers the best information for Wal-Mart to acclimatize its plan (Smithson, 2019). Furthermore, to insinuate the cost-effective plan, Wal-Mart employs a local procurement approach to stock its shelves. Factually, an estimate of 95% of the goods was bought locally. Also, Wal-Mart has established good relations with its suppliers within three to seven days.
Wal-Mart inspires its employees to work well; hence it offers career motivations to those employees who work well. Wal-Mart provides a training opportunity for its workers by sending them to the United States to attend training Programs. Lastly, since Wal-Mart was established, it has won many awards; Employee of the Year, No Fake Products, Best Performers in China, and Most Admired Company in China.
Although Wal-Mart in China has numerous strengths, it also has some falling spots, where it encounters some challenges in employing the recent technology. As a result, this impacts the effectiveness of goods distribution and affects the cost-effective plan not being done at best. Furthermore, Wal-Mart in China is not employing an aggressive expansion plan since, in 11 years, it accomplished to open 77 stores only.
Another weakness that hinders Wal-Mart is the lack of knowledge of market conditions and the situation in China. Lack of market experience prevents Wal-Mart from having an entirely owned company centered in China; thus, the returns will have to be split with others not like Carrefour that, since 2006, was able to work in sole-ownership.
Opportunities for Walmart (External Forces)
Opportunities for Walmart in China specifically concern expansion and refining business exercises. These opportunities are related to the economic condition globally. Moreover, the human resource conditions in Walmart in China depict problems that are opportunities for the company to develop. Walmart’s opportunities in this part of the analysis include; advancement and expansion in developing countries progress in human resources to establish competitiveness in the market and quality levels.
Walmart’s chance to grow in developing countries is centered on their elevated-growth economic condition. The opportunities in human resource practices, on the other hand, are associated with the condemnations on the employment exercises of the company. Improving these employment practices can draw highly valuable employees compared to other retailers. Its opportunity to enrich quality levels addresses consumer worries regarding the impact of using low-cost and low-standard products on their health.
Threats Facing Walmart (External Forces)
This portion of the SWOT analysis presents some ways of addressing Walmart’s threats to its business. The main threats to Walmart’s business are associated with variations in consumer views regarding the products they purchase and the retail market situation. The specific threats to Walmart business include healthy lifestyle trend, competition, and online retailers. However, the healthy lifestyle is both an opportunity and a threat. It is an opportunity for the company in the sense that I can advance its quality levels. It threatens the retailers’ business since various company products are viewed as not healthy. However, it is more of a threat since the company does not focus o healthy products in its stores.
Why Walmart has not historically been successful in China
It has never gained momentum in China
Although Walmart is the largest retailer, it has never obtained any meaningful momentum in China. It has had challenges in comprehending Chinese consumers since their purchasing decisions are not based on prices. Rather, they are biased towards hand-made products and a shopping environment that exhibits local preferences (Team, 2014). Also, Walmart’s plans to adjust to local taste haven’t been successful.
Shrewd Consumer Behavior Is Troubling Wal-Mart
China is a profitable market for wester retailers because of its vast population and increasing throwaway income. Walmart was among the retailers who took advantage of this growth opportunity by entering this market. However, the incapability to adapt to the local market has made it problematic for Walmart to obtain meaningful presence in China (Hult, 2016). The perceptive consumer buying decisions and dominance of competitors has destabilized Walmart’s attempts to expand in China. Moreover, Chinese consumers prefer authenticity and products quality.
Sun-Art Imitated Wal-Mart’s Business Model and Outwitted the Company
As Walmart has faced challenges to serve Chinese local taste, its local competitor Sun-Art has achieved much better with its native approach. Sun-Art has a better comprehension of Chinese consumers hence it gives them a competitive advantage over Walmart. Since Chinese buyers are acquainted to purchasing their products at native outdoor markets, Sun-Art provides this experience by selling their products in outdoor market. This combination of street and super market has been drawing Chinese buyers to Sun-Art.
Macro-Economic Environment Isn’t in Wal-Mart’s Favor Either
Even though Walmart has made some advancement in China, it has been rough. The current decline in Chinese economic growth has greatly pressed on the sales of the company. while Chinese economy has speedily grown in the last 10 years, its growth decreased substantially. As a result, China’s GDP decrease as China’s salary growth is declining and considerably affecting consumer expenditure and retail sales. Additionally, government economic programs are affecting Walmart’s sales.
Wal-Mart Is Focusing More on Improving Store Productivity
While Walmart’s sales in China are not increasing, it is contemplating to improve its productivity. The retailer is looking to establish a strong basis for comparable store sales improvement and lower operating expenditure. Walmart is planning to close under-performing stores in various regions, which will negatively impact its income growth but opening new store in profitable regions will offset this effect. Additionally, with less underperforming stores, Walmart will be to make more income from China.
Market segmentation Analysis
Over the last twenty years, foreign direct investment has been a super source of external funding. China is evidently one of the most suitable countries to carry out an investment and utilizing an efficient business strategy. The country has attracted over 200 of the biggest 300 companies globally (Cui, 2019). As much as organizations have put in place nationwide frameworks for distribution purposes and experienced impressive expansion in sales, other companies such as Walmart have not been successful on the same. it is also important to note that a number of organizations have opted out of the Chinese market due to unfavorable business conditions.
The Chinese market has undergone a lot of reforms due to actions by the government. In line with this, the country has been experiencing a tremendous growth in the GDP. China is also among the fastest growing countries in the world since it has superior technology in producing goods and services. The living standards and the per capita income of China are also on the rise. This depicts an increase in the aggregate demand of locally produced goods and services due to the increase in the purchasing power. China is also characterized by a population of over 1.2 billion people hence depicting the likelihood of having a larger market share for international enterprises.
The market segmentation of China can be divided based on high-, middle- and low-income earners. Since the economy has been on the rise, most low-income earners have been pushed to the middle-class stage. Reports suggest that the middle level income earners form approximately 50.8% of China’s working population. These are individuals who neither earn too high nor too low. In this case, over 700 million falls in the middle-income levels (How Well-off is China’s Middle Class?, 2018). Having more people in the middle-class category offers a lot of opportunities for Walmart. Since the middle earners have a higher purchasing power, the organization can produce goods at a fair price to ensure that the target audience is able to afford the commodities. In addition, Walmart’s management can consider introducing other essential commodities at a fair price. However, the challenge in this class is that it must find ways of ensuring that the production costs of the commodities are not too high since they will lead to an increase in price that will eventually discourage middle income consumers.
On the other hand, research suggests that low-income earners in China for a proportion of 36.7% of the total population. This population is in the poverty line level and only spends on basic needs such as food, shelter and clothing. This means that the group can only consume a small percentage of the goods sold in Walmart’s stores. Since their purchasing power is quite weak, the company faces the challenge of producing goods at a cheaper price. This can only be done by reducing the cost of production. If this cost can be reduced, then the company can cover both the low-, middle- and high-income earners.
Finally, the high-income earners are about 13% of the working-class population. The purchasing power for this group is higher hence they not only spend in goods to cater for their basic needs but also luxury commodities. Having more people in this market offers the opportunity for increasing marketing and inventories of classy items such as jewelry, automotive parts, hardware goods, fitting appliances and electronics. The company shall realize more sales and profits. However, the challenge is stiff competition from companies in the same industry such as amazon. In addition, focusing on more luxury commodities that are expensive would discourage low- and middle-income earners who are also part of the target market.
Market positioning strategy for Walmart
Market positioning refers to a tactical action whereby an organization establishes and maintains the brand. It is important to note that market position is normally according to the goods and services produced (Jansen, 2021). In addition, the analysis of the market segmentation based on the income has shown that different groups have different purchasing power. In line with this their consumption of goods and service are not the same. For instance, the high-income earners tend to consume not only basic commodities but also luxury goods. On the other hand, the low-level income earners only focus on purchasing necessary basic needs. Therefore, Walmart need to position itself according to the income levels of its target customers.
The middle-income segment is composed of the largest proportion of the overall working-class population of China (50.8%). The Chinese government perceives individuals earning between $7250 to $62500 per year as middle-income earners. This category neither earns too much nor too low. Their purchasing power is regarded as fair since they can consumer both basic goods and luxury goods. Walmart on the other hand must position itself according to the types of goods that it produces. In other words, the market positioning should be in line with the products that are likely to get consumed by individuals in this class. This class of people can consumer products ranging from groceries, electronics, a bit of automotives, family apparel, less expensive jewelry, garden items, and sporting goods. For instance, it is so unlikely that middle income earners consume more of home fitting commodities since a remarkable percentage do not own homes. The company should therefore position itself as the leading firm in the delivery of affordable groceries, electronics, automotives, family apparel, jewelry, garden items, and sporting goods. To do this, they must stress on reducing operation costs to ensure the group purchases such products at fair price.
On the other hand, the low-income level is comprised of approximately 36. 7% of the total working population in China. This category learns between $730 to $3650 per year. It is important to note that despite having low income, this category also forms part of Walmart’s target market. The group focuses on consuming goods that satisfy their basic needs including food, clothing and shelter. This means that it is very unlikely for individuals in this category to demand luxury goods. This group is likely to consume goods ranging from; groceries and other food products, gardening tools, health and pharmaceutical products. In this segment, the company should position itself as the leading dealers in fresh foods, and other basic products including health. The demand of these products is higher as compared to other market segmentations.
The high-income segmentation comprises approximately 13% of the total working population. This group earns more than $18250 per year. The group is capable of consuming both basic goods and luxury products. The group is likely to consume goods such as expensive jewelry, automotives, pet supplies, sporting commodities, electronics, hardware, home furnishings, health and beauty aids. Therefore, Walmart ought to position itself as the leading quality dealers in such items.
Conclusively, since the largest percentage of the Chinese market is comprised of middle- and low-income earners, the company should target this category. Since the group is price oriented, the company ought to ensure efficiency by reducing operating expenses to keep prices healthy and attractive to the consumers.
Barlett and Ghoshal’s theory of international strategy
In this section, we shall provide recommendations for Walmart’s strategy in China using the Barlett and Ghoshal’s theory. This framework assesses the various methods of managing business operations across the borders. It is essential to point out that this theory emphasizes on two primary factors that can be considered as far as the management of international business is concerned. the factors include the pressure to adhere to the local market situation and the impending cost gains as a result of being globally incorporated (such as research economies if scale, production and marketing). The Barlette and Ghoshal framework is as depicted below;
Source: (International Business Strategy, 2017).
The aspect of local responsiveness is related to the business considerations. In this case, the management of Walmart ought to focus on necessities and requirements of the local consumers. It is important to note that satisfying the needs of the local people will ensure that the company maintains its competitiveness. Therefore, Walmart will be able to survive the Chinese local competition.
On the other hand, in the cost pressure, an organization should consider the expenditure implications of differentiating its commodities in various global markets. In line with this, a company ought to decide whether it will differentiate its commodities or sell in the same brand. In addition, this aspect requires the business to consider whether it will utilize the same branding and marketing techniques in other countries as well. The two individuals conducted a survey for 250 managers in 9 global enterprises and they established that there are 3 basic models that successful MNCs utilized. The principles are as discussed below;
The multination corporation is characterized by having a decentralized structure that is entirely concerned with the local market. In other words, the strategy is to operate based on the local market demand. For the case of Walmart, the sale of goods and services will be entirely according to the taste and preferences of Chinese people. If Chinese people are not in love with the junk foods provided, they should engage in selling healthy and affordable foods that can be consumed by customers in all levels of income.
The global corporation
This type of strategy aims at attaining optimum economies of scale through centralizing business operations. Notably, global corporation leads to organizations sharing services and infrastructure. This brings about a lot of tactical decisions steered by functional priorities and expertise. Therefore, brands become progressively universal and homogenous in the local market. Industries that apply this strategy include raw material, equipment, and heavy machinery.
This strategy involves more of centralization than in a multinational corporation. However, the model is characterized by a lot of local sovereignty than in the global framework. In this case, the primary role of the center is to ensure that there is sufficient transfer of technological ideas through the divisions. Industries that need this strategy include textiles, publishing, printing, and light machinery.
Conclusively, Walmart should utilize the multidomestic strategy whereby the company needs to be concerned with the requirements pf the local market. From the analysis, we established that the company failed to successful since they didn’t understand the requirements of the local people. For instance, they engaged in selling junk foods while the locals are fond of acquiring natural healthy foods, the company also opened stores whereas the locals prefer to shop in open markets. In this case, the operations of Walmart were not in line with the culture of the Chinese locals. To solve this, the company need to operate according to the cultural practices of Chinese people by providing healthy foods and setting up open markets.
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