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Opportunities and Challenges Wal-Mart Faces Expanding Their Territory to China

      I.                 Introduction

The Wal-Mart discount department store is not known as a membership club, but it has a distinctive way of promoting business. Wal-Mart offers ‘everyday low prices’, so no expensive forms of advertisement is needed. While most international firms are retail chains in their home countries, they have yet been able to form nation-wide chains in China. The fact that they have different business partners in different Chinese cities has made it difficult for them to form any nation-wide chain (Turner, 2003). Within urban centers, location strategies of foreign retailers have been changing. Early entrants of the new format retailers tend to locate in urban fringe close to highways. Examples are the American Wal-Mart and Sam’s Club in Shenzhen, the German Metro in Shanghai, and the Dutch Makro in Beijing. This is a typical location principle in Western countries. In China, however, peripheral locations have not been able to attract the crowds of shoppers that are needed to support the businesses, mainly because car ownership is still low even in large urban centers. Internationalization of retailing has mixed impacts on the host country. On the positive side, Chinese consumers have benefited from wider selection of goods, lower prices and better services. Foreign retailers have also brought capital, new operation concepts and merchandising technology. Nowadays, almost all the new retail formats that have been developed in the Western economies can be seen in China. They are operated not only by foreign retailers but also by Chinese retailers. On the negative side, foreign retailers have introduced competition, which poses threats to the existence of some local retailers (Dawson, 2003). Wal-mart is an international chain of discount department stores. This paper wants to analyze the opportunities and challenges Wal-mart faces expanding their territory to China.

    II.                Opportunities

Global sourcing strategy has been conceived of as a set of alternative ways of serving foreign markets. In fact, many firms simultaneously use a mix of multiple sourcing strategies in marketing their products. Multiple sourcing generally requires a high level of coordination between parent firms and their foreign affiliates when setting corporate product policies and production schedules on a global scale. More than 80 percent of the firms that do business in various parts of the world have a parent company policy of developing either standardized products worldwide or standardized products worldwide with some specific adaptation for some markets, if necessary. A high level of product standardization within the corporate system facilitates the parent and its foreign affiliates' coordination of their worldwide production schedule in a way that the market can be served from various sourcing locations, depending upon the level of demand for the product (Rao, 2001). Global sourcing appears to be strongly supported by standardization of the core components and the product. Standardization of core components enhances the firms’ economies of scale and scope and thus their ability to integrate the resources of various countries into a global sourcing strategy. Despite a small degree of components sourcing and product assembly in developing countries, the products sourced from the developing countries enjoyed high market performance (Kotabe, 1992).

A form of global sourcing strategy is the use of Global merchandising centers.  Global merchandising centers will help Wal-Mart to have an efficient delivery of products in China and will help Wal-mart to create a bridge between sourcing and merchandising. Global merchandising centers can help Wal-Mart achieve a global array of products that can be sold at China.  An opportunity for Wal-Mart is to leverage global scale to lower costs of goods. Global merchandising centers will assist Wal-Mart to leverage global scale. Global merchandising centers will force businesses in foreign markets to lower the rates of their products; this in turn will create lower cost for goods. Since China has a market that thrives on products that have low prices, Wal-Mart has an opportunity to gather low priced commodities from local and foreign suppliers. Wal-Mart can develop a good following in China by selling products that have low prices compared to the traditional products that they sell. An opportunity for Wal-Mart is to accelerate the delivery of goods to its markets. The use of global merchandising centers can help the firm make sure that the speed of delivery of goods in China will be fast. An opportunity for Wal-Mart is to improve the quality of products. Wal-Mart should request the suppliers to have their products duly tested before it can be distributed to its markets. Before any product would be released in China, the company needs to have a product tested for quality assurance.  Moreover an opportunity for Wal-Mart is to make use of E-commerce to market the products and create a good relationship with the Chinese market. Wal-mart can create an online store exclusively to China so that it can test the market and know the demands of the clients. Lastly Wal-Mart has an opportunity to set the standards for the performance of the personnel in China. Wal-Mart needs to make sure that the personnel that will work in the branches in China will have a high standard of performance. Wal-Mart needs to make sure that the personnel in China would be considered as models for other personnel in China regardless of the industry or company.

   III.                Challenges

1.    Culture

a.    Language

The language in China will play a big part in the success of Wal-Mart’s expansion in that market. Since only a small number of people fully know how to speak English it would be difficult to transition with such language. Wal-Mart can either learn Chinese or teach English to its Chinese clients. Development of indigenous Chinese approaches or approaches consonant with indigenous thought are essential to furthering the understanding of Chinese culture and management. The elements that constitute the index of possibilities may be employed eclectically and in many combinations. There is no correct or best way to combine these elements in an anti foundational approach. All of these possibilities, however, have one thing in common: namely, a purposive, strategic move away from the imbalance of scientific hegemony and toward the balancing of science with the humanities (Alon & Shenker, 2003). The Chinese have a substantively different indigenous philosophical inheritance. Taoism as a model of a Chinese worldview is oriented toward Virtue rather than Truth, toward gray rather than black and white, toward Buddha and not Aristotle. China is now in a transitional period from a centrally planned to a market economy; it is bound to merge with the world market. This merging is an interactive process. China must adjust to the world and the world must adjust to China. In China, not all joint ventures or wholly owned foreign companies are successful. Some fail before they really start. Some Westerners find it very hard to understand many things in the country. When Chinese businesses venture out of the country, they will also have to be adaptive. Adaptation is largely concerned with such cultural variables as traditions, customs, mores, the managerial philosophy of the society, and the mode of thinking of people in the society (Selmer, 1998).

b.    Power distance, masculine and individualism in the respective area

Dimensions Statistics/ Geert Hofstede Cultural Dimensions

The values expressed by different cultural dimensions may be more or less important to different cultures. Different cultural dimensions may, at times, conflict in terms of the preferences they imply. For example, egalitarian cultures are uncomfortable with status differences. Collectivist cultures avoid making one person the focus of attention. Hence, a culture that is both hierarchical and collectivist may clash internally, making it important to understand when and under what circumstances hierarchical attitudes and behaviors will dominate and when and under what circumstances collectivist attitudes and behaviors will dominate. However, exploring only a single cultural dimension at a time would not make such issues and potential contradictions obvious (Greenberg, 2003). Simply comparing the position of two cultures on the dimensions, rather than the profile of dimensions, may produce a rather impoverished view. By taking the more complex view, experts may better understand the implications of culture in conflict, and how different cultural dimensions may interact with one another. Like norms, cultures also may be more or less crystallized. The greater the agreement or consistency in the culture on each cultural dimension, the more the culture is crystallized (Greenberg, 2003).

In cultures where there is more variation, attitudes and behaviors derived from the cultural dimension may be less consistent, and there may be identifiable subcultures that may conflict with one another, and in which people who are different may be more able to fit in, as they have a variety of subcultures from which to select. It may also be the case that in more diffuse cultures, behaving outside the norm is more acceptable and might even be encouraged. In highly crystallized cultures, one would expect to find more consistent attitudes and behaviors, and perhaps less acceptance of differences. Depending on the crystallization of the culture, one might expect to find very different results when comparing the benefits or detriments of diversity and the benefits and detriments of conflict (Earley, 1997).Power Distance will play a part in the success of Wal-Mart in China. The company needs to make sure that the difference between the rich and poor in China would not affect their sale. It is vital for Wal-Mart to provide goods that will be adaptable to the needs of the rich and poor in China. Individualism would not play a part in the success of Wal-mart in China. People in China prefer to consume in groups and has a collective taste for a good. Masculinity would play a part in the success of Wal-Mart in China. People in China have the tendency to be assertive, materialistic, self centered, and focused on individual achievements thus it is vital for Wal-Mart to satisfy such characteristic of the Chinese.  The goods of Wal-Mart in China should not stain the masculine culture of the Chinese.  Uncertainty avoidance would not affect the success of Wal-Mart in China. Uncertainty avoidance seems to be given less attention in China thus Wal-Mart should not be wary of such characteristic.  Long term orientation would affect the success of Wal-Mart in China. Long Term orientation involves the culture of persistence; putting some sort of order to a relationship particularly its status and observing how the order behaves; the culture of thrift and the culture of having a sense of shame. The culture involved in long term orientation can affect the behavior of clients in China.  If the Chinese determined that one of the culture involved in the long term orientation is violated or tarnished by any product then that will turn them off towards the company and its goods.  

2.    Political

What challenges China Wal-Mart will face after its first union is allowed?

Wal-Mart in China would have to face an increase in demands from the personnel after the first union is allowed. Wal-Mart in China would need to follow the rules and demands set by the union. Wal-Mart would need to give the demands of the personnel in accordance to union agreements. Wal-Mart would need to be prepared for demands like higher wages, more employee benefits, additional leaves, insurances and allowances. While the privatization of smaller state owned enterprises has to some extent led to the decline of trade union presence and power in the newly privatized firms, trade unions have not made significant inroads into the rapidly expanding private sector, although progress has been made in union representation in foreign-invested enterprises. More generally, the trade unions are facing fresh challenges under the new form of employment relations in China in which a worker constituency becomes more diverse and the conflict of interest between labor and management/proprietor more evident, with a rising imbalance of bargaining power to the disadvantage of the former (Peerenboom, 2007). Trade union organizations in China need to adopt a strategy and role that are more commonly adopted by their Western counterparts to articulate labor interests. They need to be more strategic and operate within a network that reaches well beyond the workplace level. They need to play the monitoring role, the negotiating role, the training role and the advisory role. These are the tasks that prove to be increasingly challenging even for their Western counterparts as a result of reduced state intervention, rising management opposition and intensifying global competition. A net consequence of this has been the global trend of the declining power of trade union organizations in various substantive forms between countries (Cooke, 2003)

What challenge will China Wal-Mart face if the Labor Contract Law is enforced?

If the Labor contract law is enforced in China Wal-Mart would have to make changes in its employee policies and traditions. Wal-Mart would need to make sure that the policies would be in accordance with the labor contract law. Wal-Mart would need to specify the procedures in hiring and dismissing personnel. Wal-Mart would need to set the procedures and codes of conduct to what the labor contract law states. Wal-Mart cannot practice the procedures and policies they use in other countries.  To hire employees, foreign investment enterprises (FIEs) must conclude collective labor contracts with trade unions or individual labor contracts with staff and workers. In a labor contract, the parties must stipulate the terms of employment, including hiring, dismissal, or resignation; tasks of production or work; wages, awards, and punishment; labor insurance and welfare; labor protection; labor discipline; duration of the contract; conditions for modifying and terminating the contract; and the rights and obligations to be executed by both parties. After its conclusion, a labor contract or its subsequent revision must be submitted to the labor-and-personnel department of the provincial, autonomous-regional, or municipal government for approval (Lo & Tian, 2005). According to the Labor Law, an employment relationship is to be established by a labor contract. However, a labor contract will be void if it violates any laws or administrative regulations, or if it is concluded by means of fraud or duress. Individual workers may sign labor contracts, but the trade union, or the elected representatives of staff and workers, may conclude a collective contract on behalf of the entire workforce. A collective labor contract must be submitted to the labor-administration department; if the labor-administration department raises no objection within 15 days of its receipt, the collective contract will become effective (Guthrie, 1999).


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