Wal-Mart’s Domestic Model in China: a Success?
WAL-MART’S DOMESTIC MODEL IN CHINA: A SUCCESS?
When the firm goes into a new market it tends to see the world as a unified market. However, some national conditions may prevent the company from building the same competitive advantage through its successful domestic model. In studying the case of China, the CAGE framework of Ghemawat’s will be used to evaluate the distances between China and the US.
1 Cultural distance: Apart from the obvious language difference, many elements highlight distances between the two populates. Chinese customers consider shopping in commercial centres as leisure. Thus, they are used to comparing product’s prices and are not very loyal.
They are attracted by promotional offers, which results in impulsive purchases. In addition, they live in small places and they prefer to buy fewer products more frequently, increasing the service cost per costumer. In comparison an American will go shopping less often and spend more money. Besides, fresh high quality food means alive in China, raising the providing and storage costs. Finally, shoplifting is a more common practice and can reduce sales by 5%.
2 Administrative and political distance: Wal-Mart is in China since 1996 and has had a slow expansion due to many regulations and long administration processes. However, since
China entered the WTO in 2001, it has opened up, but the distances with the US is still marked. Strong protectionism for local companies still exists. They are taxed less, supported by the government, and their model is based on the EDLP strategy, thus increasing the strong pre-existing rivalry with major foreign chain stores in China. In 2004, Wal-Mart was only the sixth foreign chain store in terms of sales. The firm also received condemnations for being too hard on Chinese suppliers and workers. Finally, a law in China requires a labour union, whereas in the US, Wal-Mart would prefer to close a store than to tolerate a union.
3 Geographical
When the firm goes into a new market it tends to see the world as a unified market. However, some national conditions may prevent the company from building the same competitive advantage through its successful domestic model. In studying the case of China, the CAGE framework of Ghemawat’s will be used to evaluate the distances between China and the US.
1 Cultural distance: Apart from the obvious language difference, many elements highlight distances between the two populates. Chinese customers consider shopping in commercial centres as leisure. Thus, they are used to comparing product’s prices and are not very loyal.
They are attracted by promotional offers, which results in impulsive purchases. In addition, they live in small places and they prefer to buy fewer products more frequently, increasing the service cost per costumer. In comparison an American will go shopping less often and spend more money. Besides, fresh high quality food means alive in China, raising the providing and storage costs. Finally, shoplifting is a more common practice and can reduce sales by 5%.
2 Administrative and political distance: Wal-Mart is in China since 1996 and has had a slow expansion due to many regulations and long administration processes. However, since
China entered the WTO in 2001, it has opened up, but the distances with the US is still marked. Strong protectionism for local companies still exists. They are taxed less, supported by the government, and their model is based on the EDLP strategy, thus increasing the strong pre-existing rivalry with major foreign chain stores in China. In 2004, Wal-Mart was only the sixth foreign chain store in terms of sales. The firm also received condemnations for being too hard on Chinese suppliers and workers. Finally, a law in China requires a labour union, whereas in the US, Wal-Mart would prefer to close a store than to tolerate a union.
3 Geographical