Rapid economic growth in China is bringing huge potential revenue to North American and European businesses and many are looking to China as a country in which to expand. Before moving into China, America’s biggest and most successful retailer had to learn its business all over again. ‘China will be as big and as successful a market for Walmart as the United States,’ said a Deutsche Bank retail analyst. However, this will not be easy as China’s retail market is dominated by domestic retailers and other foreign retailers who have gained ground quickly. In world terms, Carrefour is right up there with Tesco as a major multinational retailer. Carrefour, the French supermarket chain, one of Europe’s biggest public limited companies had dominated sales in China. Carrefour has developed close relations with over 400 suppliers locally and has spent a great deal of time researching the local market. It has also worked closely with local government agencies to ensure its entry into the region goes smoothly. The general manager of Central and Western China has announced that the supermarket will open two more stores in Chengdu this year and more in 2011.
Under these circumstances and domination of Carrefour, success for Walmart is not guaranteed, despite the careful analysis that Walmart did before making the big strategic move into China.
The company identified its strengths – such as huge economies of scale – and possible weaknesses – such as being seen mainly as a US retailer. It also identified the great opportunities offered by the retail market in China – with the world’s largest population and fastest-growing economy. There were obvious threats to success too – such as Carrefour’s expansion plans.
The management then focused their attention on the wider issues that would be important in China. These included political and legal differences with the USA, economic factors such as the yuan exchange rate, social and cultural factors that could determine demand for certain goods and the impact of technological change on retailing practices and consumer buying habits.
Despite all of this strategic analysis, according to Strategic Resource Group, ‘Walmart is being outmaneuvered by Carrefour because its executives have taken too long to understand the Chinese market and add stores.’ Perhaps one of the problems for retailers, even giant ones such as Walmart, is the possible lack of a core competence, other than substantial economies of scale that could allow them to differentiate what they offer to retail consumers.
Q1. Why do you think it is important to analyse the existing strengths and weaknesses of a business before taking strategic decisions?
Q2 Explain, from Walmart’s point of view, the strengths, weaknesses, opportunities and threats in the case of its expansion in China.
Q3 Explain why it would be important to consider the major differences between China and the USA before going ahead with this expansion.