Walmart is one of the largest multinational retail corporations in the world, with its headquarters located in Bentonville, Arkansas, USA. It was founded in 1962 by Sam Walton, and since then, it has grown into a retail giant with over 10,500 stores in 24 countries. Walmart is known for its “Everyday Low Prices” strategy and its extensive product range, which includes groceries, electronics, clothing, household items, and more. Walmart has a strong presence in the United States, with more than 4,700 stores across the country. It is the largest private employer in the United States, providing jobs to over 1.5 million people. However, Walmarts growth is not limited to the United States; it has expanded its operations globally, with a particular focus on emerging markets. China, on the other hand, is the worlds most populous country, with a population of over 1.4 billion people. The Chinese market is attractive to multinational corporations due to its large population, fastgrowing middle class, and the countrys position as the worlds secondlargest economy. Chinas retail market has been growing rapidly over the past few decades, and it is expected to continue growing in the coming years. This growth has attracted many foreign companies, including Walmart.
FOREIGN TRADE UNIVERSITY SCHOOL OF ECONOMICS AND INTERNATIONAL BUSINESS -000 - MIDTERM ASSIGNMENT Topic: The cultural aspect of China’s business environment: A case study of Walmart Group: Group Subject: International Business Class code: KDOE307 Lecturer: Ph.D Nguyen Hong Hanh Hanoi, May 2022 Table of Content Introduction CHAPTER 1: CHINA’S BUSINESS ENVIRONMENT .4 1.1 Macro environment analysis - PESTEL model 1.1.1 Political and legal environment 1.1.2 Economic environment 1.1.3 Social environment .5 1.1.4 Technological environment 1.1.5 Environment 1.2 Micro environment analysis – Porter’s Force model 10 1.2.1 Competitors 10 1.2.2 Threats of New Entry 10 1.2.3 Customer Power 10 1.2.4 Supplier Power 11 1.2.5 Threats of Substitutes 11 CHAPTER 2: CULTURAL ANALYSIS OF CHINA’S RETAIL MARKET 12 2.1 Overview of the retail industry in China 12 2.2 Overview of analysis dimensions in China (Hofstede model) 13 2.3 Cultural challenges faced by US Retail Companies in China 15 2.3.1 Language barriers 15 2.3.2 Different Consumption Culture 15 2.3.3 Cultural Differences in Communication and Marketing Strategies 17 2.3.4 Different Management Culture 17 CHAPTER 3: WALMART IN CHINA 18 3.1 Background information of Walmart's Entry into China .18 3.2 Problems encountered by Walmart in China 19 3.2.1 Differences in consumers’ preferences .19 3.2.2 Differences in consumption habits .20 3.2.3 Differences in attention to price 20 3.2.4 Differences in retailtainment preferences 21 3.3 Walmart’s cultural adaptation strategy in China 21 3.3.1 Successful adaptation 21 3.3.2 Ineffective adaptation 22 3.4 Lesson learned from Walmart 23 3.4.1 Identification of key lessons learned from Walmart in China 23 3.4.2 Discussion of how these lessons can be applied to other markets 24 CONCLUSIONS 26 REFERENCES .27 Introduction Walmart is one of the largest multinational retail corporations in the world, with its headquarters located in Bentonville, Arkansas, USA It was founded in 1962 by Sam Walton, and since then, it has grown into a retail giant with over 10,500 stores in 24 countries Walmart is known for its “Everyday Low Prices” strategy and its extensive product range, which includes groceries, electronics, clothing, household items, and more Walmart has a strong presence in the United States, with more than 4,700 stores across the country It is the largest private employer in the United States, providing jobs to over 1.5 million people However, Walmart's growth is not limited to the United States; it has expanded its operations globally, with a particular focus on emerging markets China, on the other hand, is the world's most populous country, with a population of over 1.4 billion people The Chinese market is attractive to multinational corporations due to its large population, fast-growing middle class, and the country's position as the world's second-largest economy China's retail market has been growing rapidly over the past few decades, and it is expected to continue growing in the coming years This growth has attracted many foreign companies, including Walmart Walmart has shown a keen interest in the Chinese market, which is the largest consumer market in the world with a population of over 1.4 billion people Walmart's entry into China was not an easy one, as the Chinese market is vastly different from the American market Walmart had to adapt to China's unique culture, consumer behavior, and business environment to succeed Despite the challenges, Walmart has made significant strides in the Chinese market Today, it operates over 400 stores in China, making it one of the largest foreign retailers in the country Walmart has also made efforts to source products from China, which has helped it to reduce its costs and improve its profit margins Walmart's entry into the Chinese market is a fascinating case study for anyone interested in international business It highlights the importance of cultural adaptation, market research, and strategic planning when entering a new market In this essay, we will examine Walmart's entry into China, the challenges it faced, and the strategies it used to succeed in this complex and dynamic market CHAPTER 1: CHINA’S BUSINESS ENVIRONMENT 1.1 Macro environment analysis - PESTEL model 1.1.1 Political and legal environment - China's legal system is heavily influenced by Confucianism and the government As China is a one-party socialist republic with a centralized political system and the political system in China is a single-party system, China has been deeply dependent on the government The Communist Party of China, also called the Chinese Communist Party, dominates the national government Since 1949, China has been completely a communist country The global economy has, however, compelled the Chinese government to adopt increasingly capitalist economic policies Also, Confucianism - a major system of thought in China existing for over 2,500 years, concerned with the principles of good conduct, practical wisdom, proper social relationships - originated from China, and has still affected China's political system - There are strict regulations and restrictions on foreign businesses To operate a business within China, foreign investors must incorporate a foreign-invested enterprise (FIE) in China and obtain a business license for it, issued by the local government The incorporation of an FIE must be reported to or be approved by and registered with the Chinese authorities, including the State Administration for Market Regulation (SAMR), Ministry of Commerce (MOC), other local authorities (for example, tax authorities and foreign exchange authorities) Therefore, foreign businesses operating in China must comply with a complex and ever-changing set of regulations and laws - To deal with conflict between home and abroad, China has gradually integrated into the pattern of international economics, and has been committed to building a harmonious society and enhancing the capacity of sustainable development China pays more attention to guide the enterprises to focus on workers, consumers, communities, environments and other stakeholders, and to advocate enterprises to fulfill the social responsibility 1.1.2 Economic environment - China is the world's second-largest economy with a rapidly growing middle class GDP growth of China has an average of over percent per year, and more than 800 million people have lifted themselves out of poverty since China began to open up and reform its economy in 1978 Over the same period, there have also been significant improvements in access to education, health and other services, leading to China becoming one of the strongest economies in the world China’s high growth based on low-cost manufacturing, investment and exports has largely reached its limits and has led to social, economic and environmental imbalances Besides, China’s middle class is booming as in 2000, about 3% of China's population was categorized as middle class By 2018, more than half of China's population — 707 million people — had entered the country's middle-income bracket, according to the Center for Strategic and International Studies (The middle class is defined as those spending between $10 and $50 a day) - There is a high demand for foreign goods and services in China As domestic consumption in China and the access to international brands is rapidly growing to meet this demand, China has gradually become a key growth engine of the global consumer market Due to a common belief that imports are hard to counterfeit and tend to have higher quality Chinese consumers prefer to buy imported goods, especially for some specific products such as food, cosmetics and baby products (In the past, tainted Chinese baby formula resulted in some infants’ death) Chinese demand is also high because Western products are perceived as having higher quality Chinese brands have had a lot of negative PR for the last few years It leads to the fact that even now when Chinese producers have improved, the damaged reputation remains - China has a unique business culture that prioritizes relationships and connections, also known as guanxi Every business transaction in the Chinese market begins with a personal relationship between the parties involved In Chinese business culture, this is referred to as Guanxi This refers to the social networks, linkages, and powerful connections that constitute the basis of any formal or business interaction It plays a huge role in business interactions in China and is often a necessary element for creating opportunities that would have not been available otherwise 1.1.3 Social environment - Chinese culture is based on Confucianism Confucianism is a philosophy that originated in China during the Spring and Autumn period in the 6th - 5th century BCE There are core elements in Confucianism: Moral Person (Junzi), Human Morality (Ren, Yi and Li), Relationship (Guanxi) and Face (Mianzi) Confucianism emphasizes collectivism, hierarchy, the importance of education, family values, social harmony, and respect for authority Confucianism has greatly influenced Chinese culture and hence not only Chinese modern life but also the business environment even today For example, in Taobao, a Chinese online shopping platform launched in 2003, organizational culture has played an important part in its success Each employee received a nickname based on a character from one of Master Jing's novels on the day they were hired by Taobao From then, everyone will call them by their martial art monikers By doing this, Taobao embodies the harmonious spirit of Confucianism: In employees' eyes, they are sisters or brothers so the amount of conflict and misunderstanding tends to be minimal The same method was applied with Sinyi The company concentrates on the rewards for team performance, showing care about the strong connection between individual's contribution and team's achievement - There is a strong focus on building relationships and trust through networking and personal connections Guanxi, or developing close personal ties with those from whom one might anticipate (and who demand in return) particular favors and services, is a guiding principle in Chinese culture Family is the most important, but close friends, classmates, and neighbors can also be included in the inner circle For a relationship to form, it is necessary to have both a solid professional reputation (trust from the head) and a personal connection (trust from the heart) Chinese relationships take time to build, which is why your Chinese business partners choose to keep some information from you or communicate with you nonverbally - Business etiquette and protocol are crucial in China, including exchanging gifts, using proper titles and forms of address, and respecting hierarchies In China, business requires personal relationships and trust; Therefore, it is important to make a good impression by being modest, patient, and polite, respecting the elders and people in higher ranking positions Besides, Chinese business etiquettes are significant to focus on, such as meeting etiquette, chatting etiquette, dining etiquette, seating etiquette at a Chinese dinner and gifts etiquette - The concept of “one for all, all for one” advocated by Wal-Mart is adapted to the traditional culture of China Chinese culture is influenced by Confucian culture profoundly, it pays attention to interpersonal relationships which have been applied to the political and economic fields Additionally, Chinese people emphasize “love”, follow “righteousness”, and perform social responsibilities and obligations clearly and actively 1.1.4 Technological environment - China is a leader in technology, particularly in areas such as artificial intelligence and 5G technology According to a report by Harvard Business Review, China is quickly closing the once formidable lead the U.S maintained on AI research Now more Chinese researchers than American ones publish articles on AI and obtain patents In addition, AI adoption is high in China in finance, retail, and high tech, which together account for more than one-third of the country’s AI market China has also surpassed the United States as the leader in the telecom networking space China’s largest telecom giants, Huawei and ZTE, account for 41 percent of the global 5G infrastructure market China aims to emerge as a global leader in three strategic technologies by 2049: artificial intelligence (AI), quantum information science (QIS), and biotechnology - The government has implemented policies to promote innovation and development of the technology sector The government has prioritized the development of its domestic information and communications technology (ICT) sector In recent years, national security has become an increasingly important consideration for ICT, serving as justification in industrial policy to phase out foreign technology in favor of domestic alternatives In December 2021, China’s Central Commission for Cybersecurity and Informatization issued the 14th Five-Year Plan for National Informatization, a lengthy document addressing a very wide range of policy and development goals for 2021–2025 In 2021, the digital economy reached US$7.1 trillion (RMB 47.94 trillion), ranking second after the United States - The Chinese population is highly connected to technology, particularly through the use of mobile devices and social media According to a report by DataReportal, there were 930.8 million social media users in China in January 2021 The number of social media users in China increased by 110 million (+13%) between 2020 and 2021 The number of social media users in China was equivalent to 64.6% of the total population in January 2021 As for mobile devices, China has the world’s largest smartphone market with more than 900 million active smartphone users as of January 2022 The most popular social media platforms in China are WeChat, Sina Weibo, Douyin (TikTok), and Kuaishou Figure: Share of internet users of the leading social media in China as of 3rd quarter 2022 (Source: Statista) 1.1.5 Environment - China is the world's largest polluter and has faced significant environmental challenges due to rapid industrialization and urbanization China’s environmental crisis, the consequence of decades of rapid industrialization, not only threatens the livelihoods and health of 1.4 billion people living in China but also the global fight against climate change Its carbon-intensive industries have caused China to suffer from notoriously bad air pollution as well as additional environmental challenges, including water scarcity and soil contamination And, like the rest of the world, China will face increasingly harsh consequences of climate change in the coming decades, including flooding and droughts China’s economic growth - national gross domestic product (GDP) has increased by 10 percent on average annually for more than a decade - has greatly accelerated its emissions In the past ten years, China has emitted the largest amount of greenhouse gases rather than