Analysis of Wal-Mart’s Strategy and Business Model for Expansion into China.
Business organizations in the modern world face an ever-increasing challenge to compete for a share of the global market. Advances in transportation, communications, and technology make it possible for a company to build a device in one country out of components made in a dozen other countries and sell it anywhere in the world. To survive in this business environment, businesses must devise strategies that minimize the risks associated with global expansion and maximize the return. A successful global strategy brings growth and a larger share of the market. A failed strategy can seriously affect growth and, in some cases, force the business to close. The key to a successful strategy is to understand the differences within each market. It is also important for the business to adapt its domestic model so as to best utilize the business’ strengths in response to those differences. The market within the United States is relatively homogeneous and stable. The global market and markets within other nations are just the opposite. Distance matters in the global market. With distance comes a wide variety of cultural, administrative, political, geographic, and economic differences. [i]The strategy that embraces these differences will succeed. The purpose of this paper is to review Wal-Mart’s domestic business model and identify the factors contributing to the success of that model, identify the unique characteristics of the market in China and how these characteristics compliment or work against the strengths of the domestic model, evaluate the success of Wal-Mart’s strategy and the application of its domestic business model in China relative to the models used by its primary competitors, and recommend changes to Wal-Mart’s strategy and business model to improve Wal-Mart’s competitive edge in China and other Asian nations.
Wal-Mart’s Domestic Model and Strategy
Wal-Mart’s domestic business model and strategy, as applied to the market in the United States and Canada, is based on the following principles:
Exceptional pricing and customer service, combined with equally exceptional cost savings and operational efficiencies.
Locating stores in small towns deemed too small for their competitors to serve but that had a homogeneous client base with the means to support the stores.
An unrivaled distribution and logistics management system coupled with an excellent transportation and communications network.
A stable and cohesive government structure in which all competitors were able to operate according to the same rules and regulations.
The ability to leverage all of these factors to reduce prices for consumers and generate profits for the company.
Sam Walton, the founder of Wal-Mart, built the company on the belief that superior pricing was a cornerstone of a successful business. Wal-Mart built its entire marketing strategy on the idea of offering “Every Day Low Prices” (EDLP) rather than periodic sales. This was a successful move to undercut the competition and secure a larger share of the retail market. The strategy worked and drew millions of customers into Wal-Mart each day. Walton was passionate about matching or beating his competitors, so much so that it was widely held that he would shop at his competitors to check their prices – then call his managers and reduce his own if he found them to be lower. Wal-Mart also instituted the “Roll-Back” program designed to reduce prices on bundled merchandise, items that would normally be purchased together. These marketing campaigns and strategies, when combined with quality products, built Wal-Mart’s reputation as the place to shop for the best prices, regardless of a customer’s income level.
Sam Walton understood that in the United States, pricing alone was insufficient to...
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