Environmental and Competiveness Analysis of Wal-Mart China

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Environmental and Competiveness Analysis of Wal-Mart China……………………………. 2

  1. Introduction……………………………………………………………………………………………… 2
  2. PESTLE analysis……………………………………………………………………………………….. 2
  3. SWOT analysis………………………………………………………………………………………….. 3
  4. Critical thinking about the market situation: Competitive advantage of Wal-Mart China 5
  5. Conclusion……………………………………………………………………………………………….. 5

List of Reference…………………………………………………………………………………………….. 7

Environmental and Competiveness Analysis of Wal-Mart China

 

1.        Introduction

 

Wal-Mart Stores, Inc. was founded by American retail legend Mr. Sam Walton in Arkansas in 1962. For the past half of century the firm has served customers and is currently the world’s largest private employer and retailer, occupying the top position of the Fortune 500 list for a number of years (wal-martchina.com 2012). With the successful operation worldwide, since 1996, the giant player has been vividly penetrating in the Chinese retailing market though the achievement has been widely doubted. This study will be focusing on finding out the reasons behind the lack of competitiveness behind this result.

 

2.        PESTLE analysis

 

PEST analysis stands for “Political, Economic, Social, and Technological analysis” and describes a framework of macro-environmental factors (Waters 2006). PESTLE framework expands the PEST by adding Legal and Environmental factors. It is necessary for any study to first look at the macro environment of Wal-Mart China before discussing about the detailed strategic unsuccessfulness of the company in the Chinese market segment.

 

PESTLE elementsEvaluation
PositiveNegative
Political factorsLong time based and well controlled political stability; Absence from wars and severe conflicts with other nations for past decades;Regional political instability; Possible wars, e.g. between China and Japan because of the territory issues
Economic factorsHigh economic growth rate in term of annual GDP growth; Opening market;Increasing cost of labor, materials and other economic inputs
Social and cultural factorsChinese customer’s preference of low priced consumer goods;Different cultural system from that of the western countries;
Technological factorsRapid technological development; 
Legal factorsEnhanced legal development;Unique Chinese legal systems;
Environmental factors Lack of relevant regulations (taftlaw.com 2009);

Table 1 PESTLE analysis of Wal-Mart China

 

Based on the analysis the general macro environment of China, we can see that the macro business environment is suitable for the development of a business and also support the potential rapid growth because of the political stability and fast economic growth. Nevertheless the worrying factors such as the lack of relevant legal regulations and unique legal system would make the operation in the market come with higher level of uncertainty and is subject to potential risks.

 

3.        SWOT analysis

 

The method of SWOT analysis is to take the information from an environmental analysis and separate it into internal (strengths and weaknesses) and external issues (opportunities and threats) (investopedia.com 2009). It is significant to learn the strengths, weaknesses, opportunities and threats because it builds up a comprehensive image about the company’s position as well as its current base of competitiveness or lack of competiveness status. As in the case of Wal-Mart China, it is important to analyze its strengths, weaknesses, opportunities and threats of the company because the analysis of the macro business environment alone is far from being sufficient to explain the difficult situation faced by the company, nor to mention the business environment is actually good enough as many business have their fast development in China.

 

SWOT elementsEvaluations of Wal-Mart China
StrengthsStrong finance support; Matured management in human resource; Experiences in retail industry; Established brand; High brand awareness in China; Unique business culture;
WeaknessesSmall retail outlet number; Strong competition from rivals; Higher prices than in some product categories compared to some local products;
OpportunitiesRapid changes in the society; Trend in turning to a western style society in China;
ThreatsPersistence of customer shopping behaviors (people may still not comfortable with the Wal-Mart style retailing because of the cultural factors);

Table 2 SWOT analysis of Wal-Mart China

 

With the SWOT analysis above, we can see that the major reason behind the slow growth of Wal-Mart China is within the company itself. As of March this year, there were 370 outlets under the brand of Wal-Mart in China in 140 cities (wal-martchina.com 2012). In another word, there are less than three outlets in a single city where the company operates. The small number of outlets is not only the reasons of the slow growth but also the result of the incorrect strategies. And speaking about the advantages that the company current owns, as a global and industrial leader, the advantages such as Strong finance support; Matured management in human resource; Experiences in retail industry; Established brand; High brand awareness in China and Unique business culture are all obvious.

 

4.        Critical thinking about the market situation: Competitive advantage of Wal-Mart China

 

According to Christian Kneer (2005, p. 5), Wal-Mart’s competitive position historically has been based on the unique interaction of its logistics and distribution system, the corporate culture as well as the timely communication with both the customers and employees and also the good management of human resource which is famous around the world. For example, for the past decade, Wal-Mart has ranked high on Fortune magazine’s list of “most admired companies” (Daft 2011).

 

Also based on the view of Michael Porter in its famous generic strategies which outline the three main strategic options open to organization (Griffin 2010), there are only three options: cost leadership, differentiation and focus. As for Wal-Mart, while both cost leadership and focus are not practical to be adopted, differentiation would be recommended.

5.        Conclusion

 

With the analysis above, we see that Wal-Mart’s slow growth in China is more closed to its strategy and its choice as not to get adapted to the China market but to insist on its global strategy and business mode. Now it should follow the differentiation strategy to re-shape its business strategies.

List of Reference

 

Daft, R. L. 2011. Management. New York: Cengage Learning EMEA.

 

D’Angelo, J. 2010, Spa Business Strategies: A Plan for Success. New York, NY: Cengage Learning. p. 226

 

Griffin, R. W. 2010. Management. 10th edn. New York: Cengage Learning.

 

Griffin, D. 2010, Business with a Purpose: Starting, Building, Managing and Protecting Your New Business. United States: Easy Brain Lab Inc. p. 127

 

investopedia.com 2009. Definition of ‘SWOT Analysis’. Accessed on 21 Aug 2012 [online] available: http://www.investopedia.com/terms/s/swot.asp#axzz246ypzXkH

 

Kneer, C. 2005, The Wal-Mart Success Story. Germany: GRIN Verlage, p. 5

 

Porter, M. E. 1980, Competitive Strategy: Techniques for Analysing Industries and Competitor, New York: Free Press

 

taftlaw.com 2009. China’s New Labor Contract Law and Its Implementing Regulations.Accessed on 21 Aug 2012 [online] available: http://www.taftlaw.com/news/publications/detail/465-china-s-new-labor-contract-law-and-its-implementing-regulations

 

wal-martchina.com 2012. Walmart China Factsheet. Accessed on 21 Aug 2012 [online] available: http://www.wal-martchina.com/english/walmart/index.htm

 

Waters, D. 2006. Operations strategy. New York: Cengage Learning EMEA.