While Wal-Mart has done well based on a business strategy for dealing with market landscapes similar to the United States, the company has had difficulty earning profits in China where the business environment does not lead directly to Wal-Mart’s business model.
Wal-Mart’s business model is based on offering customers the best value for their money, cutting prices on items by forcing distributers to be more efficient and passing on the savings to the customers. The strategy of offering Every Day Low Prices (EDLP), as well as excellent customer service has the effect of earning customer loyalty in many of Wal-Mart’s target markets. One of the problems that Wal-Mart is facing in China is that customers in China, while they appreciate the low prices, are more willing to search for bargains before making actual purchases. The lure of low prices is not enough to gain a significant share of the market.
When Wal-Mart started growing their business, the company focused on small town locations that were underserved by the traditional big chain stores. They were able to grow because they avoided direct competition with other store and were able to cut costs on inventories by making many big stores all supplied by one big distribution center. While this model proved successful in many locations, the dynamics of the Chinese markets make such a model very difficult to implement. The small towns in China have too little income to support a big chain type store. The different parts of China have different demand for different types of goods making the central distribution center inefficient. The markets in China’s big cities are already saturated with competition.
In addition, many other cost cutting measures that proved successful in the United States have proved ineffective when transported to China. In the United States partnerships with suppliers, a strictly anti-union policy for workers, and networked inventory management has allowed Wal-Mart to keep costs low...
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