1.

Background information of Wal Mart

1.1 Background information of Wal Mart Global
In 1945 Sam Walton opened his first variety store in Newport, Arkansas, then in 1962 the fisrt Wal Mart was launch also in Arkansas with his brother James Bud Walton which was their first independent store. Waltons success lies under his very strong ego drive which could be manifested in three guiding principles: respect for individual employees, service to customers (exceed their expectations) and strive for excellence (Thompson & Martin 2005, p. 440). In addition with the continual innovation in term of supplier management and adopting new technologies in the operation management and etc, the Wal Mart Global has long established itself as the market leaders in the global retail industry.

1.2 Background information of Wal Mart China

Wal Mart entered the Chinese market and opened its first Supercenter and Sams Club in Shenzhen in 1996. Wal Mart China firmly believes in local sourcing. Meanwhile, Wal Mart is committed to local talent development and diversity, especially the cultivation and full utilization of female staff and executives. 99.9% of Wal Mart China associates are Chinese nationals. Currently, Wal Mart operates a number of store formats in China including Supercenters, Sams Clubs, and Neighborhood Markets. As of August 5, 2010, Wal Mart had 189 units in 101 cities, and created over 50,000 job opportunities across China (Wal-martchina.com 2011).

1.3

Corporate culture of Wal Mart

Sam Walton worked his way up from the shop floor to become the founder of the worlds biggest retailer. At that time he had l earnt many lesions, learnt from success, failure and most of all by observing other retailers around the world. During the time between the 1970 and the 1980 he managed to expand his business from 32 stores with a turnover of 31 million US dollar to 276 outlets with annual sale worth 1.2 billion US dollar (Antoni 2002, p. 6). Sam Walton had therefore shaped greatly the content of the corporate culture of the company even in today. Sam Walton taught his secret of success via the following ten simple rules which are also the core of the company culture of Wal Mart as following (Powerhomebiz.com 2011):

No. 1: Commit to your business. Believe in it more than anybody else.

No. 2: Share your profits with all your associates, and treat them as partners. No. 3: Motivate your partners. Money and ownership alone arent enough.

No. 4: Communicate everything you possibly can to your partners.

No. 5: Appreciate everything your associates do for the business.

No. 6: Celebrate your success. Find some humor in your failures.

No. 7: Listen to everyone in your company and figure out ways to get them talking. No. 8: Exceed your customers expectations.

No. 9: Control your expenses better than your competition.

No. 10: Swim upstream (powerhomebiz.com).

2.
2.1

Situational analysis
Market size

According to an early report released by AT Kearney entitled with Global Retail Development Index (GRDI) 2011 which assesses the state of the retail industry in 30 developing countries in the world and their rank based on a number of factors, including risks of business, population and wealth that is associated with the retail industry. The report finds out that the size of Chinas retail market is curren tly estimated at U.S. $ 2.1 trillion, or nearly 50 percent of the U.S. retail market. The growth of retail industry itself continues to show positive direction, where there is an increase of about 15 percent between 2009 and 2010 (Dnewsglobal.com 2011). Statistics from the consulting firm Monitor Group show that by sales, Wal-Marts megastores gained only 5% market share in 2010. The retailers operating revenue in China was US Dollar 7.5 billion during the year 2010, accounting for merely 2% of its worldwide revenue which totaled USD420 billion (Monitor.com 2011).

2.2 PEST analysis of Peoples Republic of China

PEST analysis stands for Political, Economic, Social, and Technological analysis and describes a framework of macro -environmental factors used in the environmental scanning component of strategic management. It is a part of the external analysis when doing the market research and gives a certain overview of the different macro environmental factors that a company needs to take into account (Griffin 2010, p. 127).

2.2.1

Political analysis

Since the beginning of 1979 which marked the official kickoff of the economy reform and opening up policy that boosted the economy with a focus on developing market economy in a socialist country, stability has been an overwhelming priority for the Chinese central government. As summarized in the figure above, the political stability according to the World Bank (2003), even though the political stability of China can not match up with the main developed countries such as the United States, Czech and Germany, but its performance in term of political stability had been quite better than other developing countries such as India. In addition, the year on year changes were rather stable as well.

Table 1 The political stability indicator for the selected countries from 1996 to 2002

Source: World Bank 2003

2.2.2

Economic analysis

Since economic reform started, Chinas real output as measured by the gross domestic product in constant prices has grown at an average rate of 9.6 per cent per year which is a remarkable record (Chow 2007, p. 60). Economies generally attribute much of Chinas rapid economic growth to two main factors: large scale capital investment (financed by large domestic saving and foreign direct investment) and rapid productivity growth (Morrison 2009, p. 5). Though the economy of China has been growing even during the global economy crisis that influence the world economy deeply from 2008 to 2010, there are risks that need to be taken into consideration, for example, with the recent breaking of the asset bubble, the International Monetary Fund warned that Chinas biggest commercial banks face systemic risks if a combination of credit, property, currency and yield curve shocks that could be withstood in isolation were to occur together. Though not predicting an imminent disaster, the IMF made clear China needed to act quickly because it is vulnerable to destabilizing asset price booms (Huffingtonpost.com 2011).

2.2.3 Social and cultural analysis using national cultural dimensions

Professor Geert Hofstede conducted one of the most comprehensive studies of how values in the workplace are influenced by culture. He analyzed a large data base of employee values scores collected by IBM between 1967 and 1973 covering more than 70 countries, from which he first used the 40 largest only and afterwards extended the analysis to 50 countries and 3 regions. In the 2010 edition of the book Cultures and Organizations: Software of the Mind, scores on the dimensions are listed for 76 countries, partly based on replications and extensions of the IBM study on different international populations (Geert-hofstede.com 2011).

Chart 1 Chinas cultural dimension compared with that of US and Malaysia

Source: Geert-hofstede.com 2011

From the above chart we can conclude three major features of the Chinese culture that could have significant implications to the business s marketing decisions. Firstly, the power distance if 80 which is similar to other Asian countries (Malaysia is even higher) and it doubles the digit of that of the United States suggesting the equalities among the people are widely acceptable. Under such situation, there could implications to the business management such as using the autocratic decision making which is more efficiency and effective rather than the democracy ways; secondly, by having a very low score in the Individualism dimension, it suggests that people in China usually focus on we rather than I and therefore the group demand and group interest would be critical to be met and protected while sometimes the individual demand could be sacrificed. One important implication is that it will be more critical to study the group consuming behavior rather than the individual behaviors because they tend to think of the group needs; thirdly, one more feature of the Chinese culture is the great China has the highest score in term of long term orientation (LTO) which is 118 among all the surveyed countries (Geert-hofstede.com 2011), this suggests that the Chinese people have strong persistence and they tend to focus on what they can get in the far away future rather than the current interest, therefore with a high LTO result, it is more understandable that people tend to save money and buy low priced consuming products while saving up to pay for the education charges of the children.

2.2.4

Technological analysis

With a great deal of direct government investment in the fundamental construction and education and research and academic cultivation, the technological power of China is undergoing one of the fastest growing period in the history. While technological development is rapid and still continues in a fast speed, there are still some problems need to be addressed. For example, currently, the supply chain in China faces lots of problems, including nonstandard supply chain equipment, low truck availability, long loading time and too much hand balling. As a result, operational expenses in Chinas supply chain or logistics in China account for 18.3 percent of the GDP, compared with 6 percent in Germany and 5 percent in France in 2010 (Chinadaily.com.cn 2011).

2.3 Porter (1979)s five forces analysis of the Chinese retail industry
Porter (1979) developed a model to analyze the environment based on mapping five competitive forces in order to better understand the rules of the competitive game and to help companies to find a position in the industry with greater clarity. The five forces are: Threat from Potential entrants, bargaining power of suppliers, rivalry among the current competitors, bargaining power of customer, threat from substitute products/services (Rahman 2007). And it is believed that the competition level for the specific industry determines the level of the competitiveness of the collaborative network to define the expectation of attractiveness, profit and collaboration of the particular industry (Camarinha, Afsarmanesh & Ortizp 2005, p349).

Figure 1 Porter (1979)s five forces analytical framework

Source: Maxi-pedia.com 2011

2.3.1

Threat from potential entrants

The seriousness of the threat of entry depends on the barriers present and on the reaction from existing competitors that entrants can expect. If barriers to entry are high and newcomers can expect sharp retaliation from the entrenched competitors, obviously the newcomers will not pose a serious threat of entering. Michael E. Porter (1998, p.24) in his famous book, On competition, listed out six major sources of barriers to entry which include: economies of scale, product differentiation, capital requirement, cost disadvantages independent of size, access to distribution channel, government policy. The threat from potential entrants in the retail industry in China is medium for two major reasons: firstly, there are increased investors and global competitors that are attracted by the China markets fast growth and profitability future; secondly on the other hand, because of the economy of scale advantage that Wal Mart China is currently enjoying, it is not easy for an outsiders to open large number of outlet in China in a short period of time. Therefore, threat from potential entrants in the retail industry in China is in a medium degree.

2.3.2

Bargaining power of the suppliers

Bargaining power of the suppliers refers to the ability of providers of inputs to determine the price and terms of supply. Suppliers can exert power over firms and industry by raising prices or reducing the quality of purchased goods and services, so reducing profitability of the given industry (24xls.com 2005). Bargaining power of the suppliers in Chinas retail industry is in a low level for two major reasons: fir stly, the economy scale of the suppliers is usually small and could not be compared to that of the Wal Mart China; secondly, as the worlds largest production center, there is already intense competition among the suppliers of many product lines.

2.3.3 Rivalry among the current competitors

The rivalry among the current competitors is in a middle degree for two key factors: as mentioned above, there is an increase of about 15 percent between 2009 and 2010 (Dnewsglobal.com 2011) in the Chinese retail industry, when the market is growing fast, the existing competitors would tend to focus on the business expansion which provides with them more opportunities and they have to lower the price too much and engage in the price war which reduces revenue; secondly, the number of large scale super market and shopping mall is not large and also because of the large area of China, the direct door to door competition has been reduced largely.

2.3.4

Bargaining power of customer

In general, industries are more attractive when buyers (the customers) have little power to set the terms and conditions under which they will buy. Powerful buyers put pressure on industry profits. Buyers are particularly powerful when: a) Purchasers are large, relative to suppliers; b) The products or services offered are undifferentiated (Venturenavigator.co.uk 2007). The bargaining power of customers in the Chinese retail industry is low for two main factors: firstly, the buyer in the retail industry is usually individual customers who are too little relative to the suppliers like Wal Mart China; on the other hand, the product lines and choices are so many in the majority of the retail products that are for

sale on the shelves of Wal Mart China like any other large supermarkets, therefore bargaining power of customers in the Chinese retail industry is low.

2.3.5 Threat from substitute products/services

Threat from substitute products/services in China is medium for two key factors: as traffic jam becoming one of the usual problems in the major medium and large cities of China, for example in 2010, a massive traffic jam in China has slowed vehicles to a crawl for nine days near Beijing, vehicles, mostly lorries bound for Beijing were in a queue for about 100km (62 miles) because of heavy traffic, road works and breakdowns (bbc.co.uk 2010), therefore, the transportation for shopping could even become a problem which drive people to turn to the substitutes such as the internet shopping; secondly, the Chinas e-commerce is growing fast as a substitute of the large scale chain shopping stores. Online sales in China, the worlds largest web market, rose 22 percent in 2010 as price -sensitive consumers turned to the Internet for cheaper products amid rising inflation, an industry report said earlier in the beginning of 2011 (physorg.com 2011). As a result, Threat from substitute products/services in China is in a medium degree.

2.4

Customer analysis

Figure 2 Pace of Life Project

Source: richardwiseman.com 2009

A study carried out in the early 1990s demonstrated that pedestrians speed of walking provides a reliable measure of the pac e of life in a city, and that people in fast-moving cities are less likely to help others. Using identical methods to those employed in the previous work, the present day research teams discovered that the pace of life is now 10% faster than in the early 1990s. The biggest changes happened in Asia with the pace of life in Guangzhou (China) increasing by over 20%, and Singapore showing a 30% increase, resulting in it becoming the fastest moving city in the study (Richardwiseman.com 2009). And as a matter of fact, city like Guangzhou with a fast living pace is not special and cities like Zhenzheng, Beijing, Shanghai, Tianjin and many other large and medium sized cities, people living and working in these cities are under great pressure to stand out or else life would not be easy for them. This increasing living pace also has hints to the business of the Wal Mart China which should locate the shopping center in a good location that it could serve as many target customers as possible and also the average shopping time should be minimized through a better and more efficient design of internal layout and decorations.

National Bureau of Statistics released data in the middle of 2011 show that there was steady growth of Chinas urban and rural incom es. In the first half year, Chinas urban residents per capita household income 12,076 yuan .Among them, the per capita disposable income of urban residents 11,041 yuan , up 13.2 percent after deducting price factors, the actual growth of 7.6%. In the average urban household income, the nominal wage income increased 11.5% year on year and transfer income increased 9.9%, operating net income increased 31.2%, property income growth of 20.4% (Chinafinancialdaily.com 2011). With the increasing dispensable income, it is believed that people are more and more focusing on the quality of the products especially the food relative products in which many safety issues had happened in China.

2.5

SWOT analysis

SWOT Analysis is a useful technique for understanding the business Strengths and Weaknesses, and for identifying both the Opportunities open to the company and the Threats that faced by the company. And by understanding the weaknesses of the business, the management can manage and eliminate threats that would otherwise be missed. More than this, by looking at the company and the competitors using the SWOT framework, the company can start to craft a strategy that helps distinguish the company from the competitors, so that it can compete successfully in the market (Mindtools.com 2011).

2.5.1
World famous branding

Strengths

Sufficient fund for further expansion

World class management skills and operating control systems

2.5.2
Different national culture

Weaknesses

Does not have closed relationship with the local governments

Small market share

2.5.3

Opportunities

Fast growing retail industry in China

Competition from the low cost low quality products made in China

2.5.4
Influence of the asset bubble

Threats

Threat from substitute products (e-commece)

3.

Targets and objectives

Wal-Mart Stores Mission Statement is simple: Wal-Marts mission is to help people save money so they can live better. (Wal-martchina.com 2011), and the Chinese division share this global vision in doing its business in China market.

In term of market share, the company will aim at achieving an 8.5% market share in the end of 2015 from the current 5%, since the China market in term of retail industry is growing rapidly with a speed of 15% to 18%, there for the annual growth rate required of Wal Mart China would be more than 35% in the coming four financial years.

4.
4.1

Market positioning
Market segmentations

China has its own revenue standard for defining its middle income group. According to Cheng Xuebin of the State Statistics Bureau, in 2005 the middle class revenue standard was defined as an annual income of 60,000 to 500,000 yuan. Based on this, just over 20 percent of households were in the middle class group (China.org.cn 2010).

4.2

Market positioning

For the case of Wal Mart China, it would position at the middle income class as well as the lower income class and it seems that the low pricing strategy would not fit too much well for the high income class in China who tend to have very different consuming behaviors and also they are small in numbers. With the set targets, the marketing plan must be adjusted to a very ambitious plan to achieve these marketing objectives.

5.
5.1

Marketing strategies
Porter (1980)s generic strategies

Generic strategies were used initially in the early 1980s, and seem to be even more popular today. They outline the three main strategic options open to organization that wish to achieve a sustainable competitive advantage. Each of the three options is considered within the context of two aspects of the competitive environment: competitive advantage and competitive scope. The generic strategies are: 1. Cost leadership, 2. Differentiation, and 3. Focus (Marketingteacher.com 2011). For Wal Mart, with the visi on that Wal-Marts mission is to help people save money so they can live better. (Wal-martchina.com 2011), there is no doubt that Wal Mart China will continue to adopt a cost leadership in the China division.

5.2

The 4Ps of marketing mix

The marketing mix principles (also known as the 4 ps.) are used by business as tools to assist them in pursuing their objectives. The marketing mix principles are controllable variables, which have to be carefully managed and must meet the needs of the defined target group. The marketing mix is a part of the organizations planning process (learnmarketing.net 2011).

5.2.1

Product strategy

In term of product strategy, as concluded above since the Wal Mart China would adopts a cost leadership in the coming four financial years, there are two major ways to achieve the target of cost control: on one hand, the company could reduced the product category by reducing the product choices and focus on supplying those produced in a standard form with cost leadership and advantages; another way control cost and increase the income is through producing the products under the brand name of Wal Mart China to further control the cost of the products. But what is for sure is that every product decision should be based on a comprehensive market study and research and is found to be workable.

5.2.2

Promotion strategy

In term of promotion strategy, three strategies are recommended: firstly, advertisement should be done intensively in the mainstream media and channel that the majority of the target audience (middle income and lower income families and consumers) such as the TV and the newspaper as well as the rising importance of the internet; secondly, the cost salesmen promotion should be assigned back to the product suppliers rather than the Wal Mart China and the shop could earn a zero profit from allowing such promotion just to let the suppliers to provide a lower and well control price based on the lowered cost incurred; thirdly, a very low cost way of doing the promotional activities is to expand the member based and carry out the regular member promotion activates and lock them up to the shopping of Wal Mart only.

5.2.3

Place strategy

Place strategy should be carried out with focus attributed to the following two things: firstly, as mentioned above, because people are living in a faster life pace, it is necessary for the company to locate the new outlet in the locations that balance the tradeoff between cost of lease and the convenience provide to the customers; secondly, the company would need to reconsider the size of the shops since there has been complaint about that it takes a lot of time to do a shopping in Wal Mart China, which is costly in term of time consumption; thirdly, the company could also redesign the layout of the shops to make them more suitable to the shopping habit of the Chinese consumers, and reduce t he customers average shopping time.

5.2.4

Price strategy

Three detailed pricing strategies are recommended: firstly, the company could use psychological pricing to apply the prices such as 8.8 and 18.99 which have special meaning for the Chinese consumers; secondly, the company could also price the product using competitive pricing in order to make the good price lower than the competitors, therefore regular check on the competitor pricing would be necessary; thirdly, the everyday low pricing as a trademark of Wal Mart should be adopted continually. The usage of the pricing strategy could be different based on different local cultural and also the different needs of the customers in different times such as the spring festival.