Presented To: Presented By:

Miss Memoona Zareen Zaeem Dilshad 598

M.Yasir 596
Ali Zubair 599
Israr Ahmad Baig 556
M.Ramzan 1169
Mirza Ghulam Awais Baig 1160
M.Munir 1170
Kashif Ali 1156
Sajid Sattar 1154

SUCCESS MODEL OF WAL-MART

Wal-Mart Stores: "Everyday Low Prices" in China
Although Wal-Mart, the world's largest company by revenue, was into its 9th year of operations
in China, its stores were still losing money. It had created a miracle in the U.S. retail industry by
revolutionizing the sector's business model and successfully implementing its model through
innovative practices that enabled it to sell national brands at "Every Day Low Prices". The
challenge Wal-Mart faced was whether it could transport its successful model to win in a market
with many differing characteristics which threatened its low-cost structure and which could
nullify its competitive advantage. Concerned with the application of established domestic
business models in international expansion. Also sheds light on other globalization issues such as
market entry strategy, localization vs. standardization, the effect of regulation changes on the
competitive landscape, and firm performance.
Small Town Locations
A key strategy in Wal Marts early days was opening discount stores with a sizable spread of
assorted merchandise in small and one-horse towns.First, it avoided direct competition with
strong players since larger companies such as Kmart believed that population under 50000
would not be able to support a large store in long run and so Wal-Mart was able to grow below it
competitors radar.
Relentless Cost Control
From the very beginning, Wal Mart operated on the principle that saving was as important as
pricing. Although Wal Mart was the worlds number one company in terms of sales, its
headquarter had remained in Bentonville, Arkansas.
Partnership with Suppliers
Wal-Mart despite its folksy and small town image, was regarded as one of the toughest amd
shrewdest negotiations in the world. Its negotiation is with 68000 suppliers, which it was not shy
to use. In the early 1990s, a 20-inch box fan cost US$20.
Unrivalled Distribution and Logistics Management
During Sam Waltons era, when technology did not play a major role in business management.
At the beginning Sam Walton acted as his own distribution system, driving miles in his pick-up
truck to manufactures and returning with it fully loaded. Wal-Mart had 3000 tractors and 12000
trailers.
WALL MART FAILURE IN CHINA
Wal-Mart - the world's biggest retailer - has struggled to establish itself in China. However, the
world's second-largest economy must still remain an attractive and strategically important
opportunity for Wal-Mart, particularly given its need to find better growth and returns to offset
maturing performance in the US.
This FT article (and accompanying video below) describes how Wal-Mart is is refocusing its
growth strategy in China by using its Sam's Club chain to target affluent Chinese consumers in
the main Tier 1 and Tier 2 cities.
Wal-Mart already operates 400 traditional supermarket stores in China. However, it recently
announced plans to close a number of those stores due to losses. Wal-Mart has admitted to a
hasty approach to expansion in China which has led to poor returns.
The Sam's Club format is quite different. If you have shopped at Costco in the UK then you will
be familiar with the concept of a warehouse-style membership club.
Like Costco (the world's leading warehouse wholesaler) Sam's Club sells most of its
merchandise in bulk and directly off pallets. The clubs are arranged much like warehouses, with
merchandise stocked in warehouse-style steel bins.
This format therefore plays to one of the most important social and economic changes in China
in recently years - the growth of car ownership.
Wal-Mart has opened 10 Sam's Club locations in China, targeting the increasing number of
affluent, car-owning consumers living in or near Tier 1 and Tier 2 cities like Beijing, Shanghai
and Shengzhen. From the video it looks like the format is proving successful with Chinese
consumers. Has Wal-Mart finally found a winning formula in China?
Chinas focus on innovation not imitation
The extracts below will add weight to any argument that foreign mobile companies will struggle
to succeed in the Chinese market.
Shenzhen, once a fishing village is now referred to as Chinas Silicon Valley. It is home
to Huawei, Lenovo and ZTE (three of the five largest mobile handset companies in the
world) and a further 6000 handset manufacturers.
China produces more than half of the 2.5 billion phones sold around the world annually.
China now spends around $300bn (182bn) a year on R&D, compared with a US spend
of $450bn, and it is estimated to surpass Europe by 2018 and the US by 2022.
In the interview with Shi Lirong, Global President of ZTE (now the most innovative company in
the world, filing 50,000 international patents last year), he lays out his three-pronged strategy of
customer-focused innovation, recruitment of the best staff from around the world and the
development of business partnerships.
Chinas pollution whats the solution
Much has been shared in the news about Chinas pollution levels, which broke records in
December of last year. On days when it is bad, visibility is minimal, planes are grounded, you
can taste it in the air and are advised not to go outside or do any exercise that might cause you to
breathe more than normal.Mother Nature Network has provided 9 ways China can work on
improving the smog problem, they are:
1. Speed up the adoption of electric cars
2. Introduce car sharing schemes
3. Publish data on pollution levels
4. Invest further in clean energy
5. Further increase the use of electric bikes
6. Support new urbanism
7. Better (cleaner) cooking stoves
8. Push energy efficiency
9. Shuttering of inefficient factories
Challenges in Chinas retail market
It currently seems that the opportunities envisioned by looking at Chinas high growth
market, uprising middle class and still unexplored markets are being undermined by the
serious challenges this market entails. Following is a brief description of some of those
challenges.
Diverse population the Chinese people experience some huge differences in income,
depending on their employment and social status, province they live in, and whether
theyre from an urban or a rural place. Some of the population is very poor and perhaps
have different purchasing habits that pose new if not impossible challenges for retailers.
Too many players the China retail market is now exploding. Foreign companies in the
market enjoy relatively strong liquidity and international backing while local companies
have an advantage in their in-depth knowledge of the local market, being very quick to
adapt and establish wide spread and cheap distribution systems.
Local protectionism - Local governments are always following directions given by
central government. There seems to be a strong local bias against foreign companies and
for local and state-owned companies. State regulations against it are rarely enforced.
Backward infrastructure - infrastructure is lacking and costly roads are still not up to
modern standards and are usually toll-based, distribution from port to destination by rail
extremely slow and often require overnight storages. IT communications still far behind
in most areas on both speed and connectivity.
Regulatory restrictions and bureaucracy at the beginning - confining growth to 3 stored
per city, and only a few cities in southern China. Government had to approve each
branch. Walmart abided to regulations while competitors bended those.
Employees relatively unsatisfied, high turnover, low pay could not be compensated by
stocks, Chinas mandatory labour union relatively more hostile towards foreign brands,
especially Walmart.

Wal-Mart Strategies Fail in China
Workers making shoes, Christmas lights, tools, curtains and paper boxes sold at Wal-Mart stores
labor in illegal and degrading conditions. China Labor Watch's latest investigation of five Wal-
Mart supplier factories reveals that not a single factory has implemented Wal-Mart's basic
standards, and a total of 10,000 workers included in the report suffer serious rights abuses.
"This is not about a single factory, but about Wal-Mart's inability to implement its standards,"
says CLW Executive Director, Li Qiang. In the report, CLW attributes this failure to ineffective
auditing and a pricing structure that forces factories to sell goods at unsustainable prices. As the
world's largest retailer, Wal-Mart leverages its massive product orders to purchase goods at low
prices, and workers suffer the financial burden.
As Wal-Mart gears up for holiday sales, workers at all five factories work at least 3 hours of
overtime/day, for 100-140 total hours of overtime/month, and one factory routinely schedules
overtime through the night. Two of the factories illegally underpay overtime wages at rates as
low as $0.44/hour, and two withhold wages from workers who fail to meet production quotas.
Workers' low wages are further undermined by excessive fines and unpaid days off or maternity
leave, and some workers cannot even purchase social security!
Worker abuse extends beyond paychecks. Workers at two factories are denied gloves on the
grounds that it will slow production. Dormitory conditions are so poor that at one factory, there
is no running water in the bathrooms. Canteen meals are extremely poor and workers often
complain of hunger pangs, and one factory forbids workers from leaving the factory to eat.
Worst of all, two of the factories have rules forcing workers to lie to Wal-Mart auditors, forcing
workers into silence as Wal-Mart turns a blind eye to sweatshop conditions.
Violations at these randomly selected factories represent poor conditions across Wal-Mart's
supply chain in China. Wal-Mart has already pledged to remediate these five factories. But with
tens of thousands of Wal-Mart supplier factories in China, CLW does not seek a piecemeal
approach to factory remediation. Rather, CLW urges Wal-Mart to address its systematic failure
to purchase goods made in legal conditions, according to its own basic standards.
1. Lack of Local Consumer Insights
Destination Categories : Food, Food, Food. Asian consumers cook almost everyday and
their food requires freshness. Walmart food was not fresh enough handcuffed by their
operation strategy of 'No promotion' and 'Inflexibility of operation'
Assortment : Same products. Nothing excite local consumers. Why do we need to go?
Value Equation : Cheaper price may mean lower quality. Universally true, but it may
play stronger in Asian countries. Worth to think about why store brand is not yet
developed in Japan and South Korea.
Shopping Experience : It is more than buying stuff. Consumer's desired experience was
finding treasures in an unique environment. Failure to deliver THE experience
2. Failure in Targeting : Should have targeted upper classes vs. lower income consumers like in
U.S. At its infancy of modern retail like it was in South Korea when mom and pop stores are still
dominant, WalMart Hyper store format is very new and high class experience. Expectation gap
among its target(potential) shoppers due to failure of right targeting and adjustment its offerings
and shopping experience.

3. Competitive Disadvantage : WalMart's competitive advantage of 'Every Day Low Price' was
not stronger vs. local competitor. You can buy same things at same price in other places. Why
bother to go to WalMart? Its own strategy of 'EDLP' prevented it from being competitive in core
categories that drive traffic and create store image.

4. Local Regulation : WalMart's U.S. operation without Union vs. Union in Germany. Failure to
cope with this.

5. Core Strengths (Logistics and Supplier management through scale) could not be built in a
smaller market. Massive buying power and sophisticated logistics system through SCALE is
core competitive advantage to offer same branded product at cheaper price. It failed to do so
when market is small especially like South Korea.



SWOT ANALYSIS


STRENGHTS:
Every-Day Low Prices (EDLP)
Customer is Number One
Small Town Locations
Relentless Cost Control
Partnerships With Suppliers
Unrivalled Distribution and Logistics Management


WEAKNESSESS:
Focus on Innovation not Imitation
Chinas Pollution
Shoplifting
Lack of Local Consumer Insights
Failure in Targeting
Value Equation

OPPORTUNITIES:
Strong Management
Fresh Products
Improved Quality of Products
Improved Operations and Customer Services
Open Stores in Sams Club Units
Provide Job Facilities

THREATS:
Low Prices leads to Customer Dissatisfaction
Not Many Stores Helped Competitors
Company Competes with Target and the Other Companies Offer the
Lowest Prices.