The Effect of China's new Economics Reform to Walmart's Market Expansion to the Country
Walmart has recently announced plans for expansion to China. Already a retail giant in the U.S., they now hope to tap into a growing and potentially lucrative new market. However, such expansion is not without risks. Doing business in China is a much different environment than doing business in the U.S. Furthermore the Chinese government has announced plans for a series of ambitious new reforms that add to the level of uncertainty and may change the business environment for international firms.
Case Assignment
Read the following two articles and do some of your own additional research on Walmart and the new enviornment in China:
Roberts, M. (October 24, 2013). Walmart China Expansion Aims to Tap Urbanization, Business Week,http://www(dot)businessweek(dot)com/articles/2013-10-24/walmarts-china-expansion-aims-to-tap-urbanization
Yao, K., Blanchard, B. (November 15, 2013) China unveils boldest reforms in decades, shows Xi in command, Reuters,http://www(dot)reuters(dot)com/article/2013/11/15/us-china-reform-idUSBRE9AE0BL20131115
After researching these issues, write a four to five page paper answering the following question:
How will economic reform in China impact the success of Walmart's expansion plans?
In your answer, consider the following issues:
A. The risks involved in expanding to China
B. How specific aspects of China's economic reform will impact the business enviornment that Walmart will face
C. The potential benefit of Walmart's expansion to China
Helpful Tips:
- Please first read in-depth the background materials for module 1.
- Identify key concepts in the background materials write a list, and study them
- Read the case in-depth and conduct additional research, if necessary
- Develop arguments by applying the concepts of international business from the background materials to Walmart's expansion plan in China
Case 1 Assignment Expectations
- Answer the assignment question directly
- Stay focused on the precise assignment question, don't go off on tangents or devote a lot of space to general background materials
- List supporting references and cite sources in proper format
Use appropriate writing style in essay form (organization, grammar, & spelling- see Writing Guidelines)
THE EFFECT OF CHINA’S NEW ECONOMIC REFORMS TO WALMART’S MARKET EXPANSION TO THE COUNTRY
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Introduction
Walmart is the largest grocery retailer in the world established in 1962. Walmart, which is also regarded as the highest valued grocery globally, deals with a broad range of fresh food products. In its initial stages, the Company confined itself in US where it received intense competition from similar firms. The intense competition in the American market mandated the company to think of expanding and look for “greener pastures” in places where competition was not as high. By 1995, the company had already penetrated in 50 states of the U.S. The company decided to venture the global market in 2000 owing to their market saturation in America. As of 2012, Walmart stores were operating in such countries as Costa Rica, Canada, Argentina, El salvado, Honduras, Japan, India, Nicaragua, Puerto Rico, UK, US, Brazil and Chile (Zook, 2012).
According to Robert, (2013) Walmart is also focused on entering China market as part of its global expansion strategies. In fact, it has already drawn a plan of adding more than 110 stores in the next three years in order to increase its market base in the country. According to the company’s CEO, Mr. Doug McMillon, this decision was reached after seeing the potential for growth in the country. This according to him, is depicted by a large population, which could in turn provide a huge market base plus the constant economic growth in the country. The purpose of this paper is to evaluate the anticipated risks and benefits of Walmart’s market entry to China owing to the newly introduced market reforms in the country.
The Risks Involved for Walmart In China Market
One of the effects of the newly introduced market reform in china is the liberal policy of the markets. In other words, the government will not be taking much focus on what is taking up in the market; rather, the market is left to regulate itself (Yao, and Blanchard, 2013). Among the demerits of this form of a market system is that infrastructural systems such as rails, roads, electricity, street lighting and so on may not be maintained or improved. This is because businesses or companies are not be obligated to do the same. Again, failure of regulation may make some firms to employ dirty illegal schemes in order to outdo their competitors. Walmart will find this aspect challenging working in a business environment with poor legal and infrastructural standards. This is because they rely on efficient transport system for transporting their goods to reach the destinations in fresh conditions.
Another aspect to be noted is that free trade policy will ultimately lead to an increased number of market players owing to removal of restrictions. This therefore means that although Walmart had moved from US due to intense competition, they must be ready to face the same issue in the new country of its expansion. Further, this policy will encourage dumping of goods which will subsequently cause the prices of goods to be low. Companies will be forced to sell their commodities at prices which may be below the cost of production if they want to keep on operating. Owing to these factors, the future of Walmart in China market does not look very promising.
How the Reform Impacts China’s Business Environment
As we have already noted, the reformation will see government control of the market system in China cease. Therefore, the market forces of demand and supply will not be affected by any policy. This me...