Walmart Entrance To China
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Wal-Mart is coming under pressure in the US, where localities often attempt to derail its expansion. But in China, associates (Wal- Marts term for employees) are ready to sing more cheers as the Arkansas-based retail giant prepares to open a host of new stores.
Globally the company expects to add more than 5.5m square metres of retail space in 2006, which is an increase of more than 8% on the estimated current fiscal year-end square footage. China is a major component of that strategy. This year, Wal-Mart plans to add 12 new locations in China to the 24 Chinese cities it already serves. It already has a presence in Shenzhen, Kunming, Fuzhou, Dalian, Xiamen, Shantou, Dongguan, Harbin, Changchun, Shenyang, Changsha, Beijing, Nanchang, Jinan, Qingdao, Tianjin, Nanjing, Nanning, Wuhan, Guiyang and Taiyuan.
“In the US, the growth opportunities are limited,” explains Joe Hatfield, senior vice-president of Wal-Mart Stores and president and CEO of Wal-Mart Asia, while touring fDi through a Supercenter in Guangdong province. But in China, with its 1.3 billion people and 8% gross domestic product (GDP) growth, the business potential appears unlimited.
In 2005 alone, the mega retailer celebrated openings in Shanghai, Chongqing, Beijing and Taiyuan. It has been in China since 1996, when it opened its first Supercenter in Luohu district, Shenzhen. Now its operation includes 40 Supercenters, three Sams Clubs and two Neighborhood Markets.
“We employ about 26,000 associates in China today,” says Mr Hatfield. “We will grow to over 40,000 associates one year from now.”
Targeted philosophy
Wal-Mart knows exactly what it is doing: it emphasises an “every day low prices” philosophy, and maintains a low-price structure through aggressive buying and smart distribution. It makes the concept work well in China, where it has already invested up to Rmb1.6bn ($198.3m) and paid more than Rmb1.4bn in taxes.
In 2004, Wal-Mart topped the China Business Competitiveness Index among commercial and trade companies and was the only retailer on the list. That same year, it ranked eighth among the most admired companies in China in Fortune magazines China edition.
But competition in China is tight. “Local players like Renrenle have done extremely well,” Mr Hatfield acknowledges. “We do a good business and they do a good business. They are a well-run company and so are we. But we feel competition does not drive anyone out of business; it only makes you better.”
Wal-Mart knows that to stay on top, the company must be compliant with all government imposed standards and requirements. This includes full co- operation with tax bureaux, inspection processes and fire prevention measures, which can vary widely between cities and provinces. Employee housing and medical benefits are also factored in.
“We work closely with officials,” says Mr Hatfield. “In setting up the stores, everything has to be approved by the Chinese government, beginning with the joint venture. When we go into a city, we meet local officials such the mayor and the party secretary to get their support at the provincial, city and district level – all the way down the chain. It is critically important to have good government relations. We employ corporate affairs people