1. Due to the differences between the US and China markets, Wal-Mart should not replicate its original domestic model to China completely. In the US, it gained success by setting up stores in rural towns instead of city centres to avoid competition. It expanded its scale to achieve economies of scale, and provided “Every Day Low Prices” by minimizing the cost through effective supply chain management. However, if the same model is applied in China, many problems would emerge. In the rural area, due to the low income level and different consumption pattern, the sales would be insufficient to support a large supermarket.
Besides, transportation and infrastructure were underdeveloped without proper management. Local governments were in favor of local companies because of private and fiscal benefits and set up ad hoc barriers to bar foreign retailers. In nationwide expansion, it suffered from the regulations on the number of stores per city and the setup of unions, the lack of information-technology network to support its communication and supply chain management and the differences in consumer behaviors.
These made the entrance of Walmart extra difficult and hindered it from enjoying the success by replicating the domestic model. As the expansion was restricted, as a result, Walmart could not enjoy the low cost from economies of scale and lost its leading edge on supply chain. The above factors made Walmart very difficult to build the same competitive advantage in China with its successful domestic model.
2. Firstly, Walmart should consider customization in two aspects. Firstly of all, it should customize to the Chinese consumption culture and pattern, for example, developing a labelling system to ensure the freshness of food and having a pre-cooked food section to take care of the working class like dual-working couples. Secondly, it should customize its service and products to the social and economic trend. It can conduct more marketing researches and sales data analysis (e.g. POS data) to gain a deeper understanding of the rapid changing customers’ needs and market trend.
For instance, with the rise of middle class with higher purchasing power, they may look for food with higher quality and safety standards, such as organic food and green food. Secondly, it could use third part logistics (3PL) to reduce the cost and solve the obstacles set by the local governments to the foreign companies. Even though Walmart was very strong in logistics in its home market, the situation it faced in China was very different from the US. It can learn from the 3PL providers on the local way of problem solving and develop its localized strategies for the future.
Thirdly, it can increase the flexibility in the partnership with suppliers. Walmart is well-known for leveraging its huge purchasing power to press for the lowest price. Yet, in China, where everyone puts heavy emphasis on Guanxi, this strategy may damage the relationships in the long term. Lastly, it should uphold its value to provide good customers service and reinforce corporate social responsibility to create a connection with customers.
For example, it can have some environmentally friendly policies and give special discounts to elderlies to show its care and commitment to the society. It should also build a good relationship with local governments. In conclusion, instead of focusing on expanding the scale like in the US, Walmart should put its efforts in seizing the market with the right strategy which fits the unique China market.