Cultural Differences and Need For Adaptation from Walmart's Failure in China

LESSONS TO BE LEARNED REGARDING CULTURAL DIFFERENCES AND THE NEED FOR ADAPTATION FROM WALMART'S FAILURE IN CHINA
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“Lessons to Be Learned Regarding Cultural Differences and Need For Adaptation from Walmart's Failure in China”
1.0. Introduction
1.1. Background
Founded in 1962 by Sam Walton, Walmart is a large chain of retail stores having its headquarters in the United States. After considerable success stretched over more than three decades, Walmart opened its maiden store in China in 1996 in Shenzhen. The company replicated its standardized business model in China and witnessed significant success during the initial years, creating an impetus to expand its chain. The company kept expanding its network in China to carry forward the momentum of success flowing from its success in other international markets (Halan, 2021). However, after a few years of growth, the company entered a phase of persistent decline that continued through to 2021, when it eventually started withdrawing from China by closing its store at a pace of closure of four stores per week (Halan, 2021). From 2005-2006, the company has never been able to gain its foothold and compete against its nearby competitors in China (Shin et al., 2020). It failed to create the same impression as it did in western and a few other Asian markets.
1.2. Rationale for the study
The cultural contrast between the western world, where Walmart experienced tremendous growth, and China warrants a significant debate since it coincides with the difference in Walmart's performance across these markets. Hence, it is hypothesized that the failure is considered attributable to the cultural clash between two markets, and the idea gains much of its strength from the fact that Walmart proceeded with a standardized business model (Abal Medina et al., 2020). The insights into the role of cultural differences in Walmart's fiasco in China hold significant implications for entrepreneurs dealing with and the learners of international business (IB).
1.3. Aims and Objectives of the Study
The study is aimed to evaluate the extent to which cultural differences between the US and China contributed to Walmart’s failure in China. This broad aim is crunched down into the following key objectives:
* To assess the critical aspects of cultural differences between the US and China
* To identify the aspects that closely relate to the operations of Walmart in China
* To assess the role of each aspect in contributing to the failure of Walmart in China
* To produce a set of recommendations based on the insights gleaned from the study
1.4. Conceptual Framework
The study is underpinned by Hofstede's model of cultural dimensions, which helps build an understanding of the cultural landscape of each country. The study leverages Hofstede Insights, a platform that compares any two (or more) countries based on their score for each cultural dimension within Hofstede's model. The study has focused only on the dimensions most relevant to the case.
2.0. Data Collection-Literature Review
The discussion about the failure of Walmart to materialize its plans in China surrounds several arguments, with most of them rooted in cultural domains. For instance, Yuan et al. (2021) have noticed that the US retail chain failed to dive into the peculiarities of Chinese consumer behavior. Whereas the "everyday low price" formula resonates with the western audience, Chinese consumers are more inclined toward the solutions tailored to their needs. Walmart's shelves were plagued by homogeneity. Consumers did not feel empowered since the choice was limited and the products were not in line with the local Chinese taste. This gap between customer expectations and actual provisions set Walmart up for failure.
These arguments are supported by Chuang et al. (2011), who conducted a thorough analysis to probe the failure of two giant retail chains, Walmart and Carrefour, in China. Based on their findings, the researchers believe that cultural barriers combined with structural issues in China inundated both these brands. Specifications associated with Chinese consumer behavior necessitated Walmart to build a solid and real-time interaction with the suppliers to accommodate the changes and achieve considerable flexibility in its provisions. However, poor communication infrastructure state-wide inhibited its potential, which, combined with the reluctance to adapt, caused Walmart to collapse.
It is important to note that the debate about cultural differences and the Chinese market is not solely focused on products but also on organizational culture. There is a wide-held argument that China's reliance on expats was considerably attributable to its inability to win Chinese customer loyalty. At the same time, its near competitors took a fair lead in that regard. The company's managers within its sales departments adopted a western-oriented approach to marketing and sales. As the argument goes, hiring managers from the local population could have helped bridge the empathy gap between Walmart's servicescape and consumers (Chan, 2011). Hence, the rigidity in its approach to human resources is considered attributable to its inability to create brand equity and resonate with the local consumers in China.
Besides, a deep inquiry suggests considerable consumption culture heterogeneity even within China. The local market players, such as Sun-Art, which has taken the failure lead over Walmart in market share, were able to grasp these cultures better thanks to their years of prolonged exposure to them. The Chinese consumption culture comprises three essential components: shopping, consumer, and location preferences. The local players understand how to best adapt to these cultures to resonate with Chinese consumers. For instance, Sun-Art acted wise by blending the glimpse of Chinese street within the theme of its stores. It created an exceptional aesthetic value and enabled the brand to create a better sense of connectedness than Walmart (Yuan, 2021). It shows that the local retailers outthought Walmart due to its limited knowledge and experience in the Chinese market. Besides several years in the market, it did not act upon the lessons from how its competitors gained superiority.
In the same vein, Jacobs (2018) reveals his experience visiting a Walmart store in China. The author has also taken a few snaps to serve as evidence of the factors contributing to Walmart's inability to pick up in China. Jacob states that everything from location to product labeling made Walmart appear a low-quality retailer. Upon the entry, the author frowned at its entrance's bleak appearance, which he describes as "a bit dingy" (Jacob, 2018). The visitor saved the following image to substantiate his suggestion:
(Jacob, 2018)
As he went farther inside, he could figure out the root causes of the store's lack of prominence. For instance, upon the entrance, the attendant shouts the day's promotion to attract the attention of cost-sensitive consumers. Furthermore, the ceilings are low, and the lighting is too dim to add charm to its ambiance, as shown below:
(Jacob, 2018)
Keeping the findings of his visit in view, Jacob blames his positioning strategy of Walmart for its poor alignment with the Chinese consumers' needs. Jacob further argues that Chinese consumers are least attracted to the low price strategy. They want the foreign brands having their presence in China to be quality-oriented. Consumers seek high-end products for which they are willing to pay extra. However, Walmart appeared to be the opposite and inconsiderate of the Chinese consumers due to its poorly aligned positioning strategy (Jacob, 2018). It shows that Walmart has to undergo a considerable overhaul of its marketing strategy to improve its position in China.
The discussion also involves the cultural discrepancies associated with the human resource practices, which affected the operational viability of the company. For instance, unions have lost their robustness in the US, and membership is steadily declining. The impact of individualistic culture is evident in the US human resource practices, where individual contributions are considered deserving of rewards and recognition, and power distance is minimal (Chang & Hu, 2020). However, in China, the situation is the opposite. Instead of American-styled centralization, the Chinese employees and management cultures are characterized by decentralization. Since social institutions are well-established and collectivism is the organizing principle of Chinese society, deterrence to unionism is seen as a violation of fair business practices. For the same reason, Walmart has repeatedly faced scandals in China for exploiting workers' rights (Li & Liu, 2018). However, it is also important to note the moderating impact of the traditional animosity between China and the US while considering the influence of workers' groups. The government in China usually deters unions from obstructing t...