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Multinational enterprises often have to pay additional costs due to differences in social culture and systems between countries, and the difficulties encountered by multinational enterprises are called "foreign disadvantages" in management. Walmart has been in China for more than 20 years, during which it has also carried out a series of attempts such as localization reform and digitalization, why has the influence of external disadvantages lingered? This paper attempts to analyze the causes of the external disadvantages of leaders from the perspective of their background and internal management system, and to find the answers behind them.
Text / Xiao Yanxue, Huang Ting, Zhu Xin
In 1996, Wal-Mart saw the huge potential of the Chinese market, and like Carrefour, Metro and other foreign giants, it entered China with full confidence and looked forward to doing a big job in this vibrant land. However, Wal-Mart, which has always been dominant in Europe and the United States, has failed to continue its myth in China, not only losing to Carrefour in the early days, but also being challenged by local competitors in recent years.
In the field of international business, multinational enterprises often have to pay additional costs due to differences in social culture and systems between countries, and the difficulties encountered by multinational enterprises are called "external disadvantages" in management science. Looking back on Wal-Mart's more than 20 years in China, the impact of foreign disadvantages has lingered. Although Walmart has also made a series of attempts to localize and digitalize during this period, the Chinese market is changing rapidly, and Walmart China is still unable to keep up with the needs of the environment and overcome external disadvantages. Why did Walmart's foreign disadvantage persist for more than 20 years? This paper attempts to analyze the causes of the external disadvantages of leaders from the perspective of their background and internal management system, and to find the answers behind them.
Initial Pioneering Period: Transplanting the home country model and missing market opportunities
Fascinated by the American model
In the nineties of the last century, with the deepening of China's reform and opening up, China's economy ushered in unprecedented rapid growth, and a number of foreign capital also concentrated in China at this time, Wal-Mart is one of them. Compared with local retail enterprises, foreign-funded enterprises have more abundant capital, richer management experience, more advanced technology and more advanced brand concepts. In the face of China's newly opened huge market, the strategy of retail enterprises to actively expand the market can undoubtedly seize the opportunity in terms of geographical location, resource support, consumer mentality and other aspects.
However, Wal-Mart China has been expanding slowly in the decade of 1996~2006 and has been in a state of strategic loss for a long time. This is not unrelated to its superstitious belief in the expansion model of the United States, that is, the strategy of "from point to surface" and "rural areas surrounding cities". Before 2006, Walmart only entered 22 provinces, municipalities and autonomous regions, and the first Beijing and Shanghai stores did not open until 2005, and Guangzhou was slow to enter the same period.
In the United States, Wal-Mart's "point-to-surface" expansion method is to set up stores in each county on a state-by-state basis, and only then expand to another state after the entire state market is saturated, which makes Wal-Mart gradually expand from one county to one state and one region, and then cover the whole United States, and eventually expand to the world. This method can better play its back-end distribution advantages, but the disadvantage is also obvious, that is, the speed of seizing the market is too slow. In this process, Wal-Mart's strategy of "rural areas surrounding cities" is also reflected, that is, giving priority to small suburban towns rather than large cities, which is closely related to the population distribution in the United States because of the effectiveness of this strategy in the United States. According to the U.S. Census Bureau, about 82 percent of the U.S. population lives in the suburbs, while only about 18 percent live in urban centers, and this trend of moving from urban to suburban has intensified in recent decades. After entering the Chinese market, Walmart has adopted a similar expansion method.
But it is clear that this model of expansion will be easily replicated in China, because it runs counter to China's urbanization process.
In recent decades, China's rural residents have continued to flock to cities, and the urbanization rate of the population has been rising, and the retail dividends brought by urban development have been the first to be seen in mature first-tier cities such as Beijing, Shanghai and Guangzhou, and the special economic zones and emerging industrial cities, provincial capitals and regional central cities have benefited in turn. However, Wal-Mart's business layout in China is in the opposite order, and in the early days, it deployed in some second-tier cities in southern China, such as Dongguan and Xiamen, until 2001, when it gradually entered Guiyang, Changchun, Nanning and other provincial capitals. In the other first-tier cities of Beijing, Shanghai and Guangzhou, Wal-Mart has not entered for a long time, which has the consideration of economies of scale in the supply system and the insistence on management control. In the face of relatively strong local governments in first-tier cities, Wal-Mart insisted on self-operation and was unwilling to relax management control, resulting in its delay in entering Guangzhou, which is only more than 100 kilometers away from Shenzhen. At the same time, most Walmart stores choose to set up in relatively remote urban suburbs and communities. For example, when the Honghu branch opened its first store in Shenzhen and Sam's Club in Shijingshan, Beijing, it was located in a relatively remote area of the city. In order to make the most of its logistics advantages, Walmart has taken a single-point entry and gradual rollout path, similar to its strategy in the United States, carefully concentrating its business expansion on the edge of Shenzhen and second- and third-tier cities in southern China such as Xiamen and Dongguan for a considerable period of time, with 11 stores in Shenzhen alone.
In 1995, Carrefour wisely chose Beijing and Shanghai as its first stops in the Chinese market, and shocked Chinese consumers with a new retail model: open-rack shopping, free parking services, fresh and quality goods, and relatively low prices, all of which brought customers a new shopping experience. In 1996, Carrefour entered other first- and second-tier cities in China, including Shenzhen, Dongguan, Chongqing, Tianjin, Shenyang, Wuhan and so on. In most cities, Carrefour has prioritized the prime position. Carrefour's site selection criteria are also closely in line with the population distribution, requiring an average of 100,000~200,000 residents in the basic business district of 5~15 kilometers of the store, and at the same time, it must have convenient transportation, which not only ensures market demand but also is conducive to the company's long-term development.
In addition, Carrefour's way of expanding stores is also significantly more flexible, before China's accession to the WTO, Carrefour's senior management frequently came to China, actively participated in the investment promotion conferences of various cities, and closely cooperated with the needs of the government. Joint ventures with local companies and active participation in various procurement meetings held by local governments are undoubtedly more attractive to local governments that value attracting investment. Correspondingly, Carrefour was also more likely to obtain support from local governments, which allowed its expansion plans to be implemented quickly, and even allowed it to enter some cities where the retail industry was not fully opened at that time, which once caused complaints from local retail enterprises.
"My own people" do not understand the Chinese market
The external disadvantages encountered at this stage are not unrelated to the leaders of Walmart China. The first leader of Wal-Mart China, Zhong Haowei, is a typical Wal-Mart internally cultivated leader, is Sam Walton's "apprentice", in the 70s has joined Wal-Mart in the United States, before taking charge of China affairs, Zhong Haowei has worked in Wal-Mart for about 20 years, Wal-Mart's genes and American culture are deeply rooted in this leader.
When he led Walmart China, he tried his best to inherit the business philosophy of Wal-Mart, the headquarters of Wal-Mart, and tried to completely copy the American business model, hoping to replicate the success in China, and did not care about Chinese culture, ignoring the cultural differences between the two markets. For example, in terms of buying habits, Chinese consumers like to stock up on large quantities during promotional periods, while Walmart in the United States pays more attention to daily low prices and quality. Therefore, in the Chinese market, frequent promotions and promotions are more attractive to consumers. However, Zhong Haowei always believes that Wal-Mart China should also restrict the entry of promoters like the United States, and do not use frequent promotions to attract customers, which can control supplier costs. However, it is contrary to the demand characteristics of the Chinese market.
The selection of "one's own people" to China was not unrelated to the strategic thinking of Wal-Mart's top management at that time. David Glass, the former CEO of Wal-Mart, once declared in an interview with Fortune magazine that China is "the only place in the world where Wal-Mart's business model can be replicated", which shows that Zhong's series of actions to copy and replicate the United States in the Chinese market are in line with the expectations of the American parent company. However, this approach is obviously not suitable for the Chinese market, because there are great differences between China and the United States in terms of economic development level, cultural concepts, consumer purchasing habits, etc., and ignoring these differences and sticking to the original business philosophy will make external disadvantages prominent and difficult to achieve the expected goals.
Business development period: localization of anticlimactic and snake-tailed
Localization exploration failed to persist
During the period of 2006~2011, China's economy continued to grow, although the global financial crisis in 2008 had a certain impact on China's economy, but under the government's active stimulus policy, the retail industry still maintained a relatively stable growth, and the per capita consumption level also continued to increase, showing the development potential and resilience of the Chinese market.
During this period, Walmart also faced competition from local retail companies. Local retail companies have sprung up rapidly, such as Yonghui Supermarket, Wumart Supermarket, BBK Supermarket, etc., which have taken Wal-Mart and Carrefour as their learning objects, absorbed their advanced operational experience, and at the same time expanded rapidly to compete with them. With the intensification of competition, the retail market in first-tier cities tends to be saturated, and the second- and third-tier markets have gradually become the strategic focus of retail enterprises.
At the same time, consumer spending, the growth of the middle class, urbanization and other factors have contributed to the growing market size of the retail industry, and Walmart China, which has copied the American model, is increasingly disconnected from domestic consumers. Wal-Mart's development in China has lagged behind Carrefour, which has made Wal-Mart's executives begin to realize the importance of localization. During this period, Walmart's performance in the United States declined due to the subprime mortgage crisis, and the U.S. headquarters decided to carry out localization reforms in China, hoping that China could become its overseas market growth point.
Walmart China has changed its store opening strategy, increased the speed of store opening, and pursued the number of stores in an all-round way. Through the acquisition of many stores, the number of Walmart stores increased dramatically, from 76 to more than 300. At the same time, Walmart adjusted its sales methods, focusing on the consumer experience, and began to require suppliers to send a large number of promoters, so the stores became lively. Walmart has also become more frequent in its promotions, which is not in line with their usual "low cost every day" strategy, but caters to the buying habits of Chinese consumers.
On the back-end, Walmart has delegated purchasing authority and made product selection more localized. Wal-Mart's previous centralized procurement and general warehouse distribution model in China has been broken, replaced by regional procurement, with the headquarters only connecting with large suppliers, and the regions and stores carrying out the nearest supplier distribution model. This has led to a more localized mix of products in different regional stores, with local specialties such as rock sugar gourd in Beijing and hot dry noodles in Hubei starting to appear in stores. In order to support the business changes, Wal-Mart has also made significant adjustments to its organizational structure, replacing the top leaders of core procurement, operations, real estate development and other departments, establishing a regional system, setting up regions such as North China, East China, South China, and West China, and delegating the power of the headquarters to the regional directors.
However, with the advancement of localization reform, a series of new problems have erupted in Walmart China in the past five years. For example, due to the excessive pursuit of store speed, the decentralization of procurement authority and the use of local supply methods instead of centralized procurement and distribution in the organization, a lot of rent-seeking problems have been triggered, resulting in low store efficiency and transportation efficiency, and at the same time increasing procurement costs. Due to zoning management, quality control can also not be taken into account, and even food safety problems have occurred, such as the Chongqing Green Pork Gate incident. Due to the rapid change of internal processes, there are many loopholes in the connection of the internal process, and even the hidden dangers in the lease contract are also buried.
The rapid expansion has also led to a large amount of cash being tied up. In the five years from 2006~2011, Walmart China's business only achieved profitability in 2008. Wal-Mart headquarters began to ask China to cut costs, but the top management in China raised the sales performance indicators of each store, which is actually reducing resource investment and increasing performance requirements, which makes the contradiction more and more prominent. During this period, Walmart's gross profit margin fell seriously, and even the proportion of employee bonus payments was only about 40% of the target at one time.
In the face of emerging problems, Walmart China changed its management and began to overturn its localization strategy, readjust its procurement system, and reverse the practice of decentralization of procurement authority. After more than a year of structural adjustments, Walmart has centralized its 29 regional procurement centers in one procurement center at its headquarters in Shenzhen, returning to "centralized" unified management. At this point, the vigorous localization reform has ended, and the operation mode and organizational structure have been adjusted back to the original model.
On the other hand, the competitor Carrefour, while implementing localization, gave full decentralization, and each branch was responsible for its own profits and losses, and adopted a model of store operation and procurement consolidation for management. Although the store manager is usually French, and the division chief and some of the section managers are French or managers from Taiwan, the assistant to the section manager and ordinary employees are newly recruited from China, and the full authorization makes the operation of the store highly localized. At that time, Carrefour implemented a flat management with the store manager responsibility system as the core, and the store manager had complete autonomy in personnel and product policies, and the division chief and section chief were not only responsible for managing product procurement, but also responsible for store operations, and had considerable authority. This empowerment motivates employees from top to bottom, and at the same time, Carrefour's culture encourages employees to perform their duties with the mindset of managing their own company when performing their job responsibilities. Therefore, Carrefour's localization not only stays at the strategy of commodities and promotions, but also provides a suitable soil for localization and helps Carrefour successfully occupy a considerable share of the retail market in major cities in China at the beginning of this century.
Localized leaders are subject to the management system
Before joining Walmart China, he had experience in consulting, records, FMCG and other industries, but he had never held a position in the Wal-Mart system, and was a person who had never been "baptized by Wal-Mart culture". Compared with the non-Chinese leaders trained internally, this foreign parachuted Chinese leader is more likely to accept the differences from his home country, jump out of the cultural and experience framework of his home country, and use subversive thinking and methods to carry out localized changes.
Chen Yaochang changed the store opening strategy, increased the speed of Walmart's store opening, comprehensively pursued the number of stores, and began to carry out localization reforms. Based on his Chinese cultural background, he has a keenest insight into the needs of Chinese localization, and clarifies the importance of localization of sales methods and category selection, so he vigorously transformed Wal-Mart China from a centralized organization to a regionally decentralized organization through drastic reforms, and also decisively adjusted the incumbents in core positions and delegated procurement authority. He changed Walmart China's product selection and sales logic, which is more in line with the consumption habits of the Chinese market, localizing product procurement, adding products with local characteristics, and increasing promotional links in stores. During the period of Walmart China's acquisition and integration, the Walmart China team found that although Walmart had been more in line with the so-called ethical standards of the company in terms of supplier fees and back-office rebate terms in the past, it did not actually get fair price terms. As a result, Walmart began to learn from Carrefour, asking suppliers to provide more fixed fees, back-office rebates, and gross margin make-ups. These measures have greatly promoted the localization process of Walmart China.
However, even with the decentralization of purchasing authority in China, Walmart's headquarters still adopts a centralized system in other aspects. Although the leaders of China have some power in making decisions about the operation of the local market, they are constrained by the matrix management of the headquarters. In addition to Operations and Procurement, other functions, such as Vice Presidents of Real Estate, Human Resources, Legal, Public Affairs, and Information, are required to report to their respective functions at headquarters at the same time. Walmart was impatient to explore the change of international business strategy, and the parent company would ask for short-term profits even if it partially authorized local localization attempts, but the rapid expansion in China took up a lot of capital, and the financial situation did not meet the expectations of the parent company, so the headquarters cut expenses. However, leaders in China are in dire need of proof of performance and are constantly improving performance metrics as the headquarters cuts costs. The imbalance of resource input and output expectations eventually intensified the internal management problem, which led to the resignation of the Chinese leader and the return of the headquarters to the original structure and system.
E-commerce development period: embracing the Internet
China's fast-paced retail market
In 2012~2016, the number of online shoppers in China grew explosively, Internet giants competed for traffic, and the emergence of mobile payment made mobile e-commerce begin to enter the field of depth, profoundly affecting the traditional retail industry. According to the National Bureau of Statistics of China, in 2012~2016, China's e-commerce sales increased sharply, from 8.1 trillion yuan to 26.1 trillion yuan, with an average annual growth rate of more than 50%. Over the same period, e-commerce sales in the U.S. grew relatively slowly, from about $1.3 trillion to about $2.7 trillion, an average annual growth rate of about 13 percent. Compared with the key e-commerce data of China and the United States in 2016 (see Table 1), China surpassed the United States in terms of e-commerce sales, mobile e-commerce sales, the number of online shopping users, and cross-border e-commerce transaction value. This fully demonstrates the huge potential and strong growth momentum of China's e-commerce market.
The rise of e-commerce is driving seismic changes in China's retail industry. Chinese consumers' consumption habits have been reshaped, and channel choices and payment methods have changed. At the same time, cross-border e-commerce has developed rapidly as Chinese consumers' demand for overseas goods has increased. E-commerce has also brought brick-and-mortar retailers to the challenge of declining physical performance, forcing brick-and-mortar retailers to rethink their store strategies. Although Walmart maintained a gross profit margin of more than 24% and a net profit margin of about 3% during this period, its revenue growth rate showed a fluctuating downward trend under the impact of e-commerce.
The effect of mergers and acquisitions of e-commerce enterprises is not good
In 2012, Walmart gained control of the first store, a move that gave Walmart a clear first-mover advantage at the time, as its offline competitors such as Carrefour and Metro had not yet launched full-fledged e-commerce sites in China, while its main competitor in the United States, Amazon, had already opened Amazon's China website through mergers and acquisitions. Yihaodian and Walmart complement each other's advantages, the former has excellent founders and technical teams, and is in a promising emerging field; The latter has a world-leading supply chain, a large number of offline stores, and strong To B distribution capabilities. Therefore, the combination of the two was highly anticipated by the industry at the time.
However, the actual effect of this convergence has backfired. From the financial data, in 2008, the overall sales of No. 1 store was 4.17 million yuan, and the number increased 11 times in the second year, reaching 46 million yuan, and by 2011, the sales of No. 1 store reached 2.72 billion yuan, becoming one of the top ten e-commerce brands in China. However, after being acquired by Walmart, the market share of the No. 1 store has been declining year by year. As of June 2015, No. 1 had the sixth-largest market share in the Chinese market, with a market share of only about 1.5 percent. In the first quarter of 2016, the market share of the No. 1 store fell below 1%.
During this period, Walmart took a series of "online" initiatives, including the launch of the Walmart App, the provision of O2O services in more than 80 stores in Guangdong and Fujian provinces, and the launch of a nationwide cross-border e-commerce service "Global eShopping" on its app. However, the effect of these measures is not significant.
Traditional retail thinking restricts the development of e-commerce
At the helm of Walmart China during this period was the fourth leader, Gao Fulan, who has a wealth of experience in the retail industry, which gives him a deep understanding of traditional retail. In the era of the rise of e-commerce, he pioneered the strategy of fresh food is king, that is, through more frequent consumption and higher price elasticity of fresh food to attract consumers to offline stores to experience and consume, and then drive the consumption of other goods to improve profit margins. This strategy is still used by many retail companies today. However, due to Gao Fulan's single retail background, although Wal-Mart ostensibly embraced the Internet, it still followed the traditional retail style and did not realize that this style of play was inconsistent with the Internet style at that time.
On the one hand, there is the difference in the focus on the data. E-commerce mainly relies on "information flow" to drive sales, and customers generate a large amount of information through behaviors such as searching for products, browsing pages, comparing prices, commenting on products, and sharing links during the shopping process. In contrast, traditional retail focuses on the logistics of commodities, mainly focusing on the data of commodity purchase, sale and inventory.
On the other hand, there are differences in scale expansion models. Traditional retail mainly adopts an additive strategy, expanding its reach by gradually opening physical stores. The business logic of traditional brick-and-mortar retail enterprises is to reduce costs and improve merchandise turnover through efficient operations, so as to achieve immediate profit growth, and the expectation of profitability is more immediate. In contrast, e-commerce adopts a multiplication strategy, quickly covering a wider consumer group through the expansion of online platforms, and quickly seizing the market through capital investment. Profit is not the most important thing for e-commerce today, as long as you can continue to find investment to support market expansion and get enough traffic, you can ultimately amplify the value of your business and achieve long-term profit growth. Taking JD.com as an example, JD.com was established in 1998 and has been in a state of loss for a long time since its establishment, with a loss of 1.7 billion yuan in 2012 and a loss of 9.4 billion yuan in 2015, and it was not until 2019 that JD.com began to make a profit. In 2012, JD.com's trading volume exceeded 60 billion yuan, and by 2015, this figure had grown to 462.7 billion yuan, establishing its status as an industry giant. This loss-making business model is seen by many as a manifestation of "Internet thinking", that is, by sacrificing short-term profits in exchange for the rapid growth of market size, and the growth of many e-commerce companies has also verified its effectiveness. However, this logic of thinking is incompatible with Walmart's traditional retail thinking logic.
After Gao Fulan led Walmart to acquire the No. 1 store, he paid more attention to the profitability of the No. 1 store rather than the rapid enclosure, and asked the No. 1 store to run a growth trajectory of reducing losses within three years. Wal-Mart's personnel in charge of investment and mergers and acquisitions made it clear at the first meeting after the acquisition of the No. 1 store that the goal in the future is to reduce losses. After the acquisition, Walmart set nearly strict indicators such as gross profit and product safety for the first store. When it comes to warehousing investment, Walmart's conservatism is also evident. In 2011~2015, the total number of SKUs of self-operated goods in No. 1 store has reached 3 million, but the storage area of No. 1 store in the country is less than 300,000 square meters, and most of the warehouses of No. 1 store are leased rather than owned, which also restricts the automation level of the supply chain of No. 1 store, resulting in the utilization rate of warehousing automation facilities in No. 1 store is not high. The real competitiveness of e-commerce lies in the low cost of customer acquisition and strong warehousing and distribution capabilities, but under Wal-Mart's goal of reducing losses, the categories expanded by No. 1 Store and the third-party platform built in the early stage can only be applied to a limited number of regions and users, and the competitive advantage of No. 1 Store can only be reflected in Shanghai.
Digital Age: Exploring New Retail Models
Exploration of community store model under omni-channel retail
In 2016, China's retail industry was in full bloom, and omni-channel retail gradually became the general trend. Local retail enterprises are actively building their own e-commerce platforms to provide online shopping and offline pick-up or online shopping and offline experience, and improve operational efficiency and service quality by introducing technology, data analysis and supply chain optimization, so as to achieve seamless connection between online and offline. The omni-channel model of offline experience, online purchase, offline new acquisition, and online repurchase has obvious advantages, merchants find consumer demand online, and offline is responsible for the delivery of the last mile from the store to the consumer, and meets consumer demand through offline instant distribution network and after-sales service, thus forming a perfect closed ecological chain. During this period, Walmart China cooperated with JD.com to gain online traffic exposure, while also actively promoting its own digital transformation. Walmart has gradually built a comprehensive customer reach and delivery network through multiple channels, such as physical stores, front-end warehouses, Walmart/Sam's Club apps, JD.com flagship stores, Walmart mini programs, and third-party home delivery services.
In response to this general trend, in 2017, Walmart began to build community stores and try a new retail model. In the planning of the community store format, the community store format tries to combine physical stores with independent apps or third-party logistics (such as JD Daojia) to provide an omni-channel shopping experience. The community store mainly provides a full range of products represented by fast-moving consumer goods and fresh food, and provides rapid delivery services within 1~2 kilometers in as fast as 30 minutes. In addition, the community store also provides convenient services such as home appliance maintenance, home appliance cleaning, housekeeping services, and express delivery to meet the daily service needs of surrounding consumers in the last mile such as shopping and catering. Compared with ordinary community convenience stores, the area of community stores is between 200~300 square meters, which is relatively large, but it is relatively small compared with standard supermarkets. It is worth mentioning that this format is the first of its kind in China, and it is not a successful practice in the United States.
However, the performance data of the community store has not been able to meet expectations, and the operating costs remain high, even if the internal resources are inclined to provide independent team support, the operating costs are still not controlled. Finally, in 2021, Walmart closed all its community stores, and the exploration of community stores finally failed.
It is difficult to obtain the support of headquarters resources for exploration
The main leader of this period was Chen Wenyuan, the seventh leader of Wal-Mart. Prior to joining Walmart, Chen's career experience spanned a variety of industries such as government, strategic consulting, and fast food chains, and his multiple backgrounds enabled him to break through the limitations of traditional retail thinking and bring many forward-looking attempts to Walmart China.
In 2016, Walmart China and JD.com reached an investment and cooperation, and Sam's Club and Walmart officially settled on JD.com. This move broke the situation of Walmart's previous lack of information circulation, realized the sharing of customer information, and also took advantage of JD.com's online traffic. Since then, Walmart has successively launched more than 200 stores on JD Daojia, and set up special pick-up areas in the stores to cooperate with the development of Daojia's business. This has enabled the store's online and offline business to develop rapidly with the help of external technical strength and supply chain advantages.
Under Chen's leadership, Walmart has also launched a number of groundbreaking measures. For example, through cooperation with start-ups, we can get more innovative ideas and solutions to accelerate the company's digital transformation process. In terms of business format, he has insight into the decline in the demand for commodity SKUs in hypermarkets under the impact of e-commerce, but due to the large area of existing hypermarkets, continuing this model will inevitably increase cost pressures such as site selection and decoration in the future. Therefore, he broke the format of hypermarkets and Sam's in one fell swoop, and proposed to focus more on the needs of customers, hoping to gradually transform the community store, and at the same time try to introduce more advanced smart devices from the US headquarters to subvert the operation, which is undoubtedly a more daring and innovative attempt than the leaders with retail backgrounds.
However, Chen Wenyuan's expectation of technical support from the parent company did not receive a response, at a time when local new retail benchmark companies such as Hema Xiansheng have widely applied advanced technologies such as the Internet of Things, artificial intelligence and big data analysis in their operations. Although Wal-Mart has a strong supply chain, due to technological protection and policy differences between countries, the scientific and technological achievements developed by Wal-Mart in the United States have not been introduced into China. Many of the advanced machines that Walmart is using in the United States cannot be introduced into Chinese stores, such as drone delivery in the United States, which can cover 90% of the population within 10 miles of the store, but cannot be introduced due to China's airspace control and privacy protection issues. The shelf replenishment robot in the United States can scan the shelves every 90 seconds to accurately identify the goods that need to be replenished, which is twice as efficient as manual work, and the smart shopping cart in the United States can help shoppers automatically browse the shelves inside the supermarket, find specific goods, and check out at one time instead of scanning the barcode one by one, reducing queuing time and consideration time.
However, Walmart's core technical team to support the international department was arranged in India, and the local team was more responsible for operation and maintenance, which created a technical gap compared with the Internet companies with booming technology in China at that time, and Chen Wenyuan's vision was difficult to implement. Therefore, even if Walmart China's leaders can break through the traditional thinking and actively adapt to local changes, it will be difficult for Walmart to make a big impact in China without technical support from its headquarters in the digital era.
Why are external disadvantages lingering?
In the past 30 years, Wal-Mart has been facing the impact of external disadvantages, which means that external disadvantages do not exist only in the initial stage of the company. Why does Wal-Mart continue to suffer from external disadvantages?
From the perspective of external factors, China is a rapidly changing emerging market, which has undergone great changes in just a few decades, from the beginning of the semi-closed market to the increasingly open market, from the rapid growth of the economy to the rapid expansion of the market and the intensification of competition, and then to the rapid development of e-commerce and digital economy, the rapidly changing market requires market participants to have higher flexibility, for each stage of the environment changes, Wal-Mart has to re-familiarize and adapt, which leads to the external disadvantages in different forms in this long period of time.
From the perspective of internal factors, Walmart's China strategy is not adapted to the Chinese market environment. An important reason for this misalignment is the mismatch between China's regional leaders and their strategies. From the perspective of the source and cultural background of the leaders, the leaders with the cultural background of the host country parachuted in from outside are obviously more sensitive and quick to understand the local culture, so as to accelerate the localization process, on the contrary, the leaders trained within the headquarters are more likely to copy the model of the home country to solve problems. In emerging markets that are highly susceptible to external shocks and rapid changes, sticking to industry thinking is easy to expand external disadvantages, on the contrary, leaders with multiple industry backgrounds are more able to break through the industry framework and adapt to the external environment more flexibly.
It should be noted that even if the leaders and the strategies they choose are compatible with the requirements of the environment, the parent company must have a management structure, strategic objectives and timely resource support to help overcome external disadvantages. During both the business expansion and digital transformation periods, Walmart has appointed Chinese leaders who are more familiar with the local market environment, but their localization attempts have not been satisfactory, largely due to the constraints of the headquarters or insufficient resource support. Attempts at localization under Chen Yaochang were constrained by the management system of the headquarters and conflicting strategic goals, while the exploration of the community store model under Chen Wenyuan's leadership was difficult to obtain technical support from the headquarters. Unfortunately, after the failed attempt, the company reverted back to the original model, resulting in the external disadvantage has been delayed.
About the Author | Xiao Yanxue: MBA, School of Management, Sun Yat-sen University;
Huang Ting: Lecturer of Jiangxi Applied Vocational and Technical College;
Zhu Xin is a professor at the School of Management, Sun Yat-sen University.
Editor-in-Charge | Gao Jingyang ([email protected])
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