3. Introduction
Walmart Global
•Founded in US in 1960
•Fortune 500 company with 8400 units in 15 countries
•$300+ billion in revenues
Walmart China
•First store in 1996 in Shenzhen
•Currently operates 189 units + 100 Trust -Marts in
101 cities
•95% of the merchandise is sourced locally
4. Walmart US Vs Walmart China
Vs Carrefour China
Walmart Walmart Carrefour
US China China
Distribution x
E.D.L.P x x
Market Power x x
Location
Power
Govt. Relation x
5. Key Issues
Target Customer
•What to Sell
•How to Sell
•Sell to Whom
Distribution Centre
•Foresight
•Signaling
7. What to Sell?
• Grocery section accounts for more than half at
Chinese hypermarkets
Percentage of Sales by Product
Category
100%
80% 45%
69%
The others
60%
Grocery
40%
55%
20% 31%
0%
Wal-mart US Chinese
Hypermarkets
Source: Walmart Stores Inc. 2006 10-K Report; China Retail Annual Report
8. Example
Crocodiles Pig faces
Turtles Assorted Dried Reptiles
10. How to Sell: Quality over Price
• Does EDLP work in China?
• Local community stores have cost advantages
• Chinese middle-class are willing to pay for quality
– Better understanding of local market
– Backed by Deloitte report
– Food safety crisis in China
• Multi-national big names mean higher quality
in Chinese mindset
14. Sell to Whom
Vertical Differentiation: occurs in a market where several
goods can be ordered according to their objective quality
from lowest to highest
Example:
15. Vertical Differentiation
•Combines full line of groceries, general merchandise
and bulk quantities
•Consumer target: Upper class
•Differentiation: requires membership, offers higher end
products at higher prices, delivery service available
•Combines full line of groceries and general merchandise
•Consumer target: Middle-Upper
•Differentiation: offers huge variety of good quality
products at generally medium-high prices
•Offers various commodities, including food, home
appliance, textile and garments
•Consumer target: Middle class
•Differentiation: offers quality products at cheaper prices
17. The Problem
Walmart China replicated its US distribution center model
building a center in Shenzhen in 1996 and Tianjin in 2003.
However, Walmart’s distribution centers didn’t keep costs
down compared to decentralized local distribution.
Key problems:
• Road infrastructure in China
• IT systems of suppliers
• Insufficient scale of stores
• Interprovincial ‘corruption’
• Local food distribution still required
18. Foresight:
Long-Run Success
How did the IT infrastructure in China grow?
# Internet Users in China
450
400
350
300
250
200
150
100
50
0
00 01 02 03 04 05 06 07 08 09 10
19. Foresight:
Long-Run Success
How did the scale of Walmart’s operations grow?
1996 2005 2011
# Stores 2 43 >300
Why did Walmart not wait until the infrastructure was
ready to build their distribution centers?
20. Signaling:
The Role of Sunk Costs
How does signaling work?
What does building distribution centers signal?
• Long-run commitment to China market
• Store expansion in nearby regions
21. Signaling:
Success vs. Failure
Was it successful in scaring off competitors?
SHENZHEN TIANJIN
Southern 2005 2011 N & NE 2005 2011
Stores Stores
Walmart 20 73 (+39) Walmart 20 37 (+7)
Carrefour 13 38 Carrefour 25 54
Why was it more successful in Shenzhen than Tianjin?
• Timing – Shenzhen distribution center was built
much earlier (1996 vs. 2003).
• Credibility
22. Summary: Why Walmart
Built Distribution Centers
Believed they would be successful in the long-run and
give them competitive advantage.
Signal commitment to store expansion, which could
scare off competitors in that region by changing
payoffs, and China market.
25. Conclusion
• Knowledge is power
• Position correctly
• Signaling
• Distribution network is key for an aggressive growth
strategy
• Must anticipate where future demand will be
greatest when deciding store location
• Western retail - Chinese style
