International Business; Global Marketing
The Wal-Mart history and operational experience is the perfect explanation for the disadvantages and the advantages of the Foreign Direct Investment (FDI) in China (Roberts, 2013) and the investment climate scenario. The Wal-Mart is the biggest retail chain worldwide, and it has sales of approximately 374.5 million dollars and in China, the sales offered by Wal-Mart are diversified with the wide range of products it offers. The Wal-Mart in China is known as Sam’s club with over seventy branches in the country. Wal-Mart has diversified and expanded over the years since it has been favored by the regulatory and legal system in China that has changed. The Wal-Mart expansion in China creates a local base for serving markets that are close to China. There is need for Wal-Mart to adjust to the market in China. Wal-Mart also needs to leverage its competitive advantage source. The 2008 suggested strategy show that Wal-Mart had an objective of not only posing as retailing name but more than that in the Chinese market.
Currently, it seems that the envisioned opportunity by looking at the increased growth in the Chinese market, uprising the middle class and the markets that are still unexplored is undermined by the critical risks and challenges in this market (Bugaighis 2007, p.16). Some of these risks are;
Diverse Population
The Chinese encounter large variations in income, and this depends on the individual’s employment or their social status, the province that they reside in and if they come from a rural or an urban place. Some Chinese population are below the poverty line and thus have different habits of purchasing that present a new challenge to the Wal-Mart (Bugaighis 2007, p.410).
Very Many Players
There is explosion in the China retail market. The foreign companies in the retail market enjoy international backing and liquidity that are relatively strong. The local companies, on the other hand possess an advantage since they have in-depth knowledge of this local market. These local companies are quicker in the adaptation and the establishment of distribution systems that are cheap and widespread than the foreign companies (Bugaighis 2007, p.412).
Local Protectionism
The local government has a tendency of following the directions that are made by the central government. There is an existent local bias that is of great strength, and this local bias seems to oppose the foreign companies and support the local and state-owned companies. The state regulations that are for the foreign companies seem to be enforced rarely (Bugaighis 2007)
Infrastructure that is Backward
The infrastructure seems to be poor and one that is costly. The roads are still a long way in meeting the modern standards, and they are toll-based. The rail network usage in the distribution of goods from the port to the destination is inconvenient and slow. This slow and lag of time results in the extra costs of acquiring overnight storages. The IT Communications sector is also lacking in many areas in China on the connectivity and speed bit (Bugaighis 2007, p.419).
Bureaucracy and Regulatory Restrictions
At the beginning, the government of China confined the growth of retail stores to 3 stores per city and restricted to a few cities in the Southern China. Government has to approve each retail store branch. The Wal-Mart option an abiding to the regulations was risky in the sense that although it is right, their competitors broke these laws and were at a greater potential of expanding and being more popular among the Chinese(Bugaighis 2007, p.421).
Employees
There is a huge dissatisfaction, a huge turnover and low pay that cannot be easily compensated by stocks. The mandatory labor union in China is relatively more hostile to the brands that are foreign especially Wal-Mart than those that are local (Bugaighis 2007, p.422).
Economic Reforms Impact in China Impact the Business Environment Wal-Mart Will Face
Foreign Investment Enterprises
The push by China for the Foreign Investment Enterprises (FIEs) is great news since the China’s unionization of the Wal-Mart’s workforce in China. Wal-Mart has a staunch anti-union opinion in the U.S., but they suddenly conceded to the requests of unionization by the All-China Federation of Trade Unions (ACFTCU) (Bugaighis 2007, p.423). This happened after the fight that lasted for more than two years. The Wal-Mart allowed unionization in its stores in China. The Chinese Communist Party (CCP) and ACFTU’s pushed and compelled the Wal-Mart to unionize (Bugaighis 2007, p.425).
The legislative
The legislative changes indicate that the CCP had an intention with the law by Trade Union, and the Draft Labor Contract Law to give protection to the workers but without restricting the business excessively from enterprise management. As a result, the Trade Union has provided the ACFTU with competing masters, and this requires the Trade Unions to offer protection to the rights of workers but still remain loyal to the objectives of the Chinese Communist Party and encourage business (Bugaighis 2007, p.426).
The China One Child Policy
The citizens in China do not have the social safety net in contrast with the American citizens who hold high their pensions, Medicare programs and social security. This is attributed to their reliance on their children to offer them with support them as they age. One child policy makes it easier for the Chinese people to save up most part of their life. The Chinese seem to attune themselves more to value and the assurance of quality than the low prices offered by Wal-Mart.
The Amendment of the Trade Union Law (Yao & Blanchard, 2013) hardly allows workers to express their opinions through strikes. This minimizes the interruption of the business production. The FIE’s like Wal-Mart have no need to worry about the Trade Union in the perceived perceptions that they can create hurdles that are unnecessary to the negotiation management with the employees seem to encourage business (Bugaighis 2007, p.405).
The Potential Benefit of the Expansion of Wal-Mart in China
In 1994 Wal-Mart set an expansion strategy. They have succeeded in implementing the localization strategy. This was done by the conduction of procurement in China. The Wal-Mart was helped by the existent policy that was formed by the Chinese government which boosts the FDI in China. Wal-Mart was challenged by the large competition in the market of US, but the Chinese market is a solution for the company finally pulling out of the business jinx. The population of the US being 4% of the whole world and that of China are 19.4% (Borensztein et.al 2006, p.115). This population index is a representation of an image on the intensity of the benefits Wal-Mart attains as a result of investing in China.
Despite the setbacks that Wal-Mart has encountered in other international markets, it views China on the positive side by placing it as the new frontier that comes second to the market in the U.S. The retail market of the Chinese has a great potential and was estimated at 860 billion dollars and with a potential growth of up to a trillion dollar increase within a period of just three years and with an even greater potential to hit a jackpot of 2.4 trillion dollar whoop by the year 2020 (Borensztein et.al 2006, p.45).
References
Borensztein, E., De Gregorio, J., & Lee, J. (2006). How does foreign direct investment affect growth. Journal of International Economics. Amsterdam: North-Holland. (p.45), (p.115- 135).
http://dx.doi.org/10.1016/S0022-1996(97)00033-0
Bugaighis, Z. Z. (January 01, 2007). What Impact Will the Revised Trade Union Law of China Have on Foreign Business? Pacific Rim Law and Policy Journal, 16, 405-429.
<http://digital.law.washington.edu/dspace-law/bitstream/handle/1773.1/594/16PacRimLPolyJ405.pdf?sequence=1>
Roberts, D. (2013 October 24) Wal-Mart China Expansion Aims to Tap Urbanization. Businessweek. Retrieved from
<http://www.businessweek.com/articles/2013-10-24/walmarts-china-expansion-aims-to-tap-urbanization>
Yao, K & Blanchard, B. (2013 November 15) China unveils boldest reforms in decades, shows
Xi in command, Reuters. Retrieved from
<http://www.reuters.com/article/2013/11/15/us-china-reform-idUSBRE9AE0BL20131115>
