Assesment of Wal-Mart's international expansion strategy Essay

Assesment of Wal-Mart's international expansion strategy - Essay Example These locations where Wal-Mart has a well-established or newly-established presence were the product of joint ventures, foreign direct investment for wholly-owned Wal-Mart cash and carry stores, and through intense acquisition strategies. Wal-Mart in China Wal-Mart chose an export-led growth strategy in China as well as foreign direct investment for wholly-owned Wal-Mart stores. One of the main reasons for selecting this particular entry strategy is the difference in currency value between the Yuan and the U.S. Dollar, especially at the time of market entry in the 1990s before China became its current industrialized entity. Chinese domestic firms, additionally, have significant credit restraints for business development that restricts international trade activities (Manova, Wei and Zhang 2010). Limited credit availability gives Wal-Mart a significant advantage as it can procure capital from its domestic operational environment (i.e. The United States) to perform expansion, improve op erations, and also ensure better procurement of international goods for sale in China. Limited credit availability in China gives Wal-Mart a significant competitive advantage as research data shows that exporting or foreign-owned businesses perform better than domestic Chinese firms (Manova, et al). Having access to more capital and credit gives Wal-Mart the ability to set lower prices as a means to outperform domestic firms operating in the same sales industry as Wal-Mart in China. Further, Chinese consumers are extremely price sensitive and a recent survey indicated that Chinese consumers consider pricing above all other factors when buying merchandise (Suessmuth-Dyckerhoff, Hexter and St-Maurice 2008). Chinese consumer willingness to defect to another brand is significant when prices rise by a mere five percent (Suessmuth-Dyckerhoff, et al). Wal-Mart is a well-established promotional leader in the United States and other Westernized countries, thus it has an immediate advantage i n talent expertise upon entry into a foreign market. Coupled with price-sensitive buyers, Wal-Mart can simply transfer its existing everyday-low-price model directly in the new region without significant costs of redesigning organisational structure or service delivery design. Long-run operational cost reduction is the methodology for entering China under direct investment in wholly-owned businesses due to environmental and social conditions in this country. Additionally, Chinese consumers learn a great deal about Western culture through media exposure and their personal travels which has led to a great demand for Western brands (Emmons 2002). This determined the export-led strategy for taking domestic product and flooding it into the Chinese market based on social demographic characteristics of the Chinese consumer. The high Chinese demand for U.S.-produced products is also supported by a vast global infrastructure for procurement needs, thus satisfying budget related to the supply chain. Furthermore, the political environment in China is growing ever-more favourable for foreign direct investment, such as reducing the tariff rates associated with foreign exports (Carbaugh 2009). Governmental restrictions and supplemental