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ELDP

Agenda
The Walmart Way y The Success Model y China Market y Challenges Faced
y

Walmart way Competencies which made Walmart successful in US


Logistics and supply chain management Small town locations Keep cost low
IT enabled supply ordering Distribution centers located at less than 24 hours from all outlets High reliability with owned fleet of transportation

Start in small towns ignored by other retailers, become a monopoly and increase store density Keep retail costs low

Real estate costs were low in small towns Employees were paid through a stock and cash structure Used its bargaining power and operations expertise to reduce the cost of suppliers which were transferred to customers Disintermediation and minial agency costs

Customer loyalty

Multiple formats various points of reaching customers Loyalty programs Used the discount program to optimize inventory

What went wrong in China?


After 14 years, Walmart was 20th in Chinese retail and grew at 30% when average store growth was more than 40% Walmart way originated in US and was inseparably intertwined with US infrastructure and culture China is very different from the US Sam conquered
Fragmented top 100 retailers own 6.4% of market Wealth inequity No buyers in tier 2 cities

Competencies successful in US when applied to China?


Supply chain US : Road infrastructure, Concentrated markets China : Poor road connectivity, inter state laws, fragmented markets Maximize SKUs and sell more US : American mentality of buying in large quantity China : Frugal purchases Inventory management US : Large quantities of popular canned and packaged items can be maintained due to popularity China : Fresh means alive so inventory of large quantities is not possible Focus on smaller cities US : Buying patterns are similar due to lesser income distribution disparity China : Huge income disparity resulted in totally different buying patterns in rural areas, both in quantity and variety Disintermediation US : No unions or middle men China : Unions were connected to ruling class and the power of activists were high

Recommendations
When in Rome, do as a Romans do From Global to multidomestic strategy making Walmart China a SBU Walmart strengths to be tweaked to fit in China Delegate accounts and financial controls decentralized. One store per province will do accounts for all stores in that province; keep every government happy Reduce the inventory and align with Chinese taste Source locally, create long term suppliers and make them invest in IT and other cost saving infrastructure Explore freight options such as rail and water ways which are strong in China

Recommendations
Walmart has to grow to capitalize on its core competencies More freedom for growth in 2005 & 2007 Will be able to own its backend freight company completely Follow the Mexico model rather than US model for growth Acquisitions Create more discount stores, the best growth model in price conscious economies (China has none) China is growing and with wealth, consumer habits will change

The Walmart Way


Wide variety of products at lowest prices y Focus on two major value drivers : price and service y EDLP
y

Saved shoppers at least 15%on a typical cart of groceries Roll-back philosophy Special Buy offers Monitoring of competitor prices
y

Customer is number one


Exceed your customers expectations Provide great service, show respect, strive for excellence

The Success Model


y y y

Small Town Locations


Avoid comp, reduced costs, barred new entry

Relentless Cost control


A penny saved for customers is a penny earned

Supplier Partnerships
Large volumes at lowers prices Pressed to remove supplier inefficiency

The Success Model [contd] [contd]


} Distribution & Logistics } Short time to market, low inventory levels } Distribution centres : 62 centres for 85% sales (Hub and spoke) } Early commitment to technology EDI, satellite } Real time insight into supply chain activities } Reduced Agency Costs } Cross training of employees } Break barriers and establish links } Employees owned stock in Wal-mart } Close a store rather than unionise

Competitive Advantages
First mover advantage in small towns Robust distribution network Large volume sales higher bargaining power with suppliers y Pioneers in IT enabled Supply Chain
y y y

Lower inventories Reduced lead times Reduced wastage


y y

High brand image Leverage the above to provide lowest cost to the customer

The China Market


Direct State Control : low quality, poor service 1996 : Non state enterprises account for 72.6% of consumer good sales

1980 : State of two decades of reform

2002 : 16986 chain stores

China Market
y 7th

Largest retail market US$860 Bn in 2006 y Huge differences in urban & rural y Intensifying competition
International retailers with funds and domestic players with local knowledge Carrefour, Lotus, Tesco, Metro had presence
y

2004: Foreign retailers commanded only 3% of market share

Challenges Faced
Income Disparity y Local Protectionism y Infrastructural Deficiency y Regulatory Restrictions y Lack of IT Network y Chinese consumer behaviour y Fresh means alive y Shoplifting
y

Way Forward
y y y y y y y

Identify the urgent need to view China as totally different from other countries Forego the centralized approach and explore branch decentralization Modify stores to engage customers more, more focus on instore selling displays for impulse purchases Develop local suppliers at nearest distance to overcome infrastructural deficiency Engage in local development (eg Pepsi, Merck) to win over loyalty in unexplored areas Employee Chinese managers who can better understand the employee social fabric Partner or acquire local business houses to gain better credibility with the Chinese populace and access to prime space