Free «Going International: Wal-Mart Inc. Entry in China» Essay Sample

The Wal-Mart Stores have been especially successful in the United States since they were founded in the 1960s (Walmart 2015). The company has managed to employ a lucrative business model with the retail chain business. It has greatly contributed to their unparalleled success amongst the retail companies. Currently, Wal-Mart operates in close to 10,000 locations where they sell consumer goods at relatively low prices (Walmart 2015). This particular organization operates on a basis of customer satisfaction, where its employees are specifically mandated to cater for the needs of customers and ensure the following fact. They not only benefit from their shopping expedition, but also that they actually enjoy it. This way the company has been able to get such a large market share in an industry that features other large competitors like Costco and Aldi Stores among others. The high profit margins/large sales volumes trade-off has also worked to this organization’s advantage thus far. This paper uses the 12Cs framework analysing Wal-Mart Inc. entry in China.

The 12 Cs of China

In order to get into China, the Wal-Mart Stores have to consider a number of critical factors based on the 12 Cs model of the international market analysis. China is a unique country in so many aspects, with its culture being considerably removed from any western generalizations. The people of China are significantly different from any other country that the company may have operated in (Liu, Lovely & Ondrich 2010). It makes it very critical for them to understand all major factors of the Chinese market. The 12 Cs here include the country, culture, concentration, communication, channels of distribution, capacity, currency, control and coordination, commitment, choices, contractual obligations, as well as caveats.

Country

China is a relatively large nation with its number of legal and political considerations that have to be considered before setting up a shop. This country’s business environment is especially dynamic. There are various categories of regulations depending on the kind of business involved. For Wal-Mart, it can be noted that the retail industry is rather competitive; and in order to succeed the organization should regard a market entry strategy that will give them more control over their operations (Stiglitz 2006). The enterprise will also have to understand that while China is rather friendly in the imports department, there are other circumstances, in which they may have to face significant obstacles in importation and business customs. The country’s marketing and business infrastructure is important. Considering how advanced China is in terms of technology, it may be expected that its marketing is just as advanced as that of the US (Ferrell 2008).

Culture

The Chinese culture in its specificity affects every aspect of the Wal-Mart business including an ability to market the products effectively. It can be appreciated that the Chinese culture is very different from that of the US or any other western country, in which the organization has been operating. The language in itself presents a significant barrier to this business, such that the company will have to acquire some Chinese staff to manage their business in China and interact with their customers (Hammer, Edwards & Tapinos 2012). The norms in this country are significantly different apart from those in the US; and it might explain why the Wal-Mart Stores may need a Chinese angle in their business. Cultural competence may be applied in this case. However, it is likely to be insufficient since there are so many aspects of the Chinese culture that will be important to the success of this business (Luthans & Doh 2011).

Concentration

Most of people in China live in urban areas, although the country’s towns and cities are divided into tiers. In order to get into the Chinese market effectively, it is important to consider the possibilities in terms of venturing into different tiers, with the fourth tier towns being the least industrialized with more dependence on farming and other small investments. This tier system affects not only the population of a city at hand, but also the purchasing power parity of people in question. A major consideration here would be the disparities in the wealth distribution, with the top cities having wealthier population than their lower tier counterparts (Porter 2008). It means that the company will have to consider an entry strategy that will ensure they can get to customers in all relevant parts of the country.

Communication

It is a very critical C in a market where convenience plays a great role. The available communication media in China is rather up to international standards. It means that the organization can use the Internet in marketing and sales, just as it does in the US and in other parts of the world. With regards to language, it can be appreciated that learning Chinese at a language school is not enough to communicate effectively with China’s customers. It means that the organization needs Chinese associates as they get to learn this culture and be able to communicate effectively (Stiglitz 2006).

Channels of Distribution

The Chinese are particular people in terms of their social lives. They may appreciate a concept of westernization or modernization, but they are more comfortable interacting with those individuals who understand them and their traditions. In order to sell something to them, there will be a need to embrace indirect marketing channels that will mostly incorporate the Chinese side of business. As a retail chain, it means that Wal-Mart will have to commit with China’s business partners or associates who will interact with customers on their behalf. The best distribution strategy here would thus be direct, with the organization stocking stores but leaving partners to operate them. The goods will have to be transported by road, given China’s an extensive transport network. However, the imports will have to come in by sea.

Capacity

The Chinese consumer is considerably varied. The country’s Gini coefficient is currently at 0.73, it can be appreciated as follows. The state’s wealth rests in the hands of less that 1% of the national population (Chen 2012). It means that in order to operate and grow in China, there is a need to consider the capacity of consumers to afford the organization’s products and services (Chen 2012). Wal-Mart Stores is a discount store that means they are comfortable selling at low prices but mostly to people who buy in bulk. In China, the company will have to apply the differentiation to ensure that it is able to cater for the rich and the poor ones as well.

Currency

The Chinese currency has been appreciating for some time. If it continues in such a way, the American company may find this country rather expensive to venture into. The Chinese business community may appreciate the US dollar. However, as a retail chain, there will be a need to operate in the local currency. With the rigid business policies here, it could mean the following fact. The organization will be spending more than it is getting from the state. It is yet another reason for local partnerships as an entry strategy in this country.

Control and Coordination: there are various ways of doing business in China ranging from foreign investments, to representation and franchising, as well as partnerships. The key factor in considering how to get into this state would be the control that the organization will have over the Chinese business. The laws and regulations in this state are rather limiting. An only way to have the unlimited control is to enter as a foreign investment with little or no local partnership. The consequences here though would include limited activities with respect to the business. The partnerships limit the company’s control but allow it to grow significantly. Considering that, it is a highly competitive market that requires some interaction with the local population. It may be wise for the organization to partner with local investors who will be able to charm and win local customers based on their experiences in Chinese businesses.

Commitment

The Chinese people are, in this context, very similar to the rest of the world. Consumers generally like the assurance on the quality of products and services that they are spending their money on. The government or cultural commitment to quality and service though matters a lot. In China, business deals are mostly made on the basis of interpersonal relationships. It means that any foreign firm needs some local business people to enable them conduct business seamlessly within the country. They also need to be able to understand the cultural and political contexts of the Chinese nation if they want to optimize their performance in an environment being rather strict in terms of business regulations (Kolk & Pinkse 2005).

Choices

The question appears on what marketing mix strategies may be available for Wal-Mart in China. The basic answer here would be that the company will need to live up to the American standards given the American imperialism spreading far and wide within the Internet. It could be true due to modernization and westernization among other things. The pricing though may be a problem as the Chinese population is mostly considered poor, while the rich ones are far too rich to be ignored (Luthans & Doh 2011). The idea here is to ensure that the enterprise can sell to both market segments and make some profits out of it.

Contractual Obligations

Chinese businessmen rely on their interpersonal relationships to conduct business; and, in most cases, their contracts are more informal than formal. It means that the terms change depending on the state of the relationships (Maritz, Pretorius & Plant 2011). Moreover, the organization may need to offer financial services to help its customers in buying some of its products especially in the consumer electronics and furniture sections. With the nature of contractual obligations here, it may be better to let local investors take care of such aspects of the business.

Caveats

The most important consideration in the paper is the company’s reputation. Wal-Mart is a popular discount store with its large market share in the US and worldwide. As such, it can be appreciated that the company is relatively known in China as well. It is also known for its long term presence and sustainable business models that make them very attractive to their customers. Regarding the local risk, it can be noted that China is rather politically stable despite the intense social controls that the government imposes on its citizens. The economic status here is also rather reliable as it has had so many years of consistent and impressive growth. The challenge in this country will be regarding to how business is done. The interpersonal relationships, corruption, and power distance are set to create problems for this American business entering China.

Recommendation

Based on the 12 Cs of China, it can be appreciated that the best way for Wal-Mart to get into this country would be through a local partnership or franchise. In this way, Wal-Mart can sell its rights to a Chinese investor and only provide some guidance on how to ensure consistency in terms of quality and its philosophy (Harrison & John 2009). This kind of an arrangement will ensure that the Wal-Mart brand continues to be associated with discounts and high quality merchandize despite the Chinese being in charge. The main justifications for this can be seen in the country’s position with respect to contractual obligations, culture, currency, channels of distribution, and the state itself. A local business operator will have a better chance of establishing a financial system for customers in order to promote the organization’s sales in consumer goods (Hill, Jones & Schilling 2014). A local business is also in a better position to understand the Chinese culture and thus offer products and services being relevant and up to the expectations of the Chinese population. Another significant justification is that the appropriate channel of distribution for the retail chain is a retail outlet. In order to operate there is a need to be fully conversant with how business is conducted within a given nation. It means that in Wal-Mart’s case, having a local partner with a good understanding of the Chinese nation is a perfect thing. Regarding the country, the Chinese business laws and regulations are likely to favour the local business more than international one, thus making a partnership more lucrative than a foreign investment enterprise (Maritz, Pretorius & Plant 2011). Regardless of the limitations in the strategy with respect to control and coordination, it can still be appreciated the following fact. The organization will be able to maintain a good balance sheet with their Chinese business if they partner with a local investor.

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