Case 2Wumart Stores:China’s Response to Wal-MartGroup 4Erika Brag (20200) Anna Ohlsson (20313) Xin Guo (70397) Liang Wang (70404)

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Consultancy for Wal-Mart

Retail Industry in China

Retail sector predominantly state-owned before 1978

Reforms made retailing much more competitive

Besides overseas players, non-existing high quality and non-state owned Chinese retailers before Wumart

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Founded in Beijing,1994 Supermarket chain offering low price and good

value Largest market share in the city, 7th in the nation High growth rate, around 30% per year since

found Focus on developing on home market, regional

player Developed from an IT start-up to a dominant

regional retailer giant In 2004: Wal-Mart's annual sales reached $300

billion In 2004: Wumart’s annual sales reached $2.4

billion In 2005: Wumart had opened 503 stores

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WuMart Company Profile

Tangible assets in 2005: 503 stores in beginning of 2005 659 stores at end of 2005 Growth of 8% in number of stores from

2004 (Walmart: 30%) Wumart sales of $2,411million (Walmart:

$1,256million) Net sellable area Wumart: 202208 sqm Formats: hypermarkets (12), supermarkets

(47), Convenience stores (436), drug stores (8)

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Wumart’s resources and competitive advantage

Intangible assets in 2005:

In-depth customer understanding – preference, shopping habits

Early commitment to IT technology, POS, MIS, ERP

Company culture:” respect, a strong sense of responsibility and co-operation, innovation and learning, and great attention to details”

Brand image of reliability, quality and value for money

Relationship with state-owned companies and regional government

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Wumart’s resources and competitive advantage

Human resources: Higher motivation in privately-owned

company Familiarity and knowledge of chairman on

Chinas retail industry Employee talents with overseas study and

work experiences

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Wumart’s resources and competitive advantage

Organizational capabilities:Management: introduce overseas advanced management technology

Distinctive competence: Wumart’s format and it’s strong bargaining power with low cost and good value products High social status: active political participation and philanthropic work

Core competence: co-operational skills with regional government and state-owned companies

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Wumart’s capabilities and competitive advantage:

Inimitability-Relationship basis: good relationship with government and state-owned stores-Path dependency: brand equity, customer understanding, reputation in community

Substitutability: Wumart concept is not easy to substitute, they have differentiated themselves on the market by offering quality products at a 10% lower price

Expansion strategy: started by building supermarkets and convenience stores, then hypermarket on the base of loyal customers.

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Wumart’s sustainability on home market compared to international entrants:

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Consultancy for Wu-Mart

Limitations:-corporate expansion needs close relationship with regional governments -local customers in other regions would not recognize the Wumart brand name-regional consumer preferences, tastes, and shopping behavior would need to be understood-bargain power would be weakened and supply chain could be overstretched-need to find an adapted logistics system abroad (IT program…)-retail format abroad could be different

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Wumart’s transferability abroad:

Company culture can be copied:” respect, a strong sense of responsibility and co-operation, innovation and learning, and great attention to details”

Company management skills can be copied abroad.

Co-operation strategy with local stores can be copied to an extent. Depends on politics in country (state-owned or not)

Low price concept (negotiation with local suppliers)

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Wumart’s transferrable resources :

Challenges:

Capital, scale economics As the increase of IPO, people’s lifestyle

may change in the urban cities Urban and rural gaps, regional gap,

different perception of value No brand and customer basis abroad

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Wumart’s transferability abroad:

Opportunities: Enter the market in the friendly cities

(more flexible policy) Cooperate with local companies who are

seeking foreign capital and investment Start philanthropic work abroad to build

brand recognition and reputation Start business from catching Chinese

customers firstly (10% of Thai population, 4.5 ~ 6 million)

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Wumart’s transferability abroad: