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Walmart in China Business report

Country background:

China is one of the world fast growing industry. It is considered as one of the

emerging economies which offer a lot of business and market opportunities

to the foreign investments. Because of its favourable economy, most of the

investors in the world in order to earn the high profits and to ensure the

growth and success of their investment make an investment in this country.

The country of China has the massive potential for the economic growth and

development offering the access to the large marketplace and the

considerable saving opportunities in the labour cost. Because of its effective

and low-cost labour force, it becomes one of the markets that offer the low

manufacturing opportunity to the companies (Fogel, 2010).

The country China is most attractive and favourable location in the world

especially for investors who require and seek for the secure and low-cost

investment opportunities. The China economy has grown and developed to

turn into one of the strongest powers and effective market. This rise in the

economy of China boosted the international business in the country. The

China legal system is also effective and improving day by day that foster the

economic and the foreign investment in the country. There are many reasons

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because of which the foreign investors of the world seek investment

opportunities and business in China. Out of all the factors, the three main

things that mainly attract the foreign investors are:

China’s growth and development potential together

The highly low labour cost of the market

Size and potential of the market

From many years reformation, the China economy changed its market from

the centrally planned one of the closed world economy to the manufacturing

and the exporting nation. With the high growth and much reforms in the

market, China becomes the number second largest market in the world place

after the US when its GDP is measured. The China value of the GDP is $23.19

trillion that is higher than all other world countries except the United States.

In the China economy, the GDP growth rate is approximately 7%. The major

sectors that highly contribute to the GDP of China are service and the

manufacturing the least contributing sector is agriculture. The major factors

that help the growth of China economy are effective and low-cost labour

force, highly advanced technologies, effective infrastructure, increase in

productivity and high investment opportunities (Bajpai, 2017).

The studies show that in China because of many factors like the political,

economic, social, and technological and the cultural the doing of the

international business is not much easy. The investors must analyse many

facts about the political, economic, social, and technological and the cultural

condition of China. Like the Walmart that we take in this assignment when

want to start its business must consider and analyse the PEST analysis.

As the Walmart is one of the American based multinational retail company

that operates the chain of departmental discount stores, hypermarkets, and

the grocery stores. The headquartered of the Walmart is located at the

Bentonville, Arkansas. The company Walmart was founded in 162 by the Sam

Walmart. The current chairman of the company is Greg Penner, and the CEO

and President of the Company are Doug Mcmillon. The company is the retail

store that offers the various products like footwear, jewellery, beauty and

health products, pet supplies, electronics, music and movies, furniture and

home appliances, home improvement products, clothing, toys, sporting,

fitness and health goods, craft supplies, grocery, auto, party supplies and

photofinishing etc. its revenue is approximately 500.34 billion USD in 2018

(Walmart, 2018). As they are planning to start their operation in China so

because of its diversified product portfolio and consumer products, it’s

highly essential for them to analyse the China market effectively in order to

reduce the failure chances and to enhance the chances of growth and success

in China market.

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The PEST analysis is one of the important management tools that assess

macro-environment factors. It’s usually conducted in the analyses of the

business success. This analysis supports the decision making process and the

other management procedure. For Walmart the China the major challenge

related to the business are:

Local differentiation

Attaining the strategic goals of the cost reduction

The firming up of the core competencies and expertise in certain

business activities and areas.

Demographic and social factors:

In China, the population is 1,379,302,771 out of this most of the population

means 48.51% population is of 25-54 years of age. The population growth rate

in the country is 0.41%. The literacy rate in China is 96.4%. More population

is female. As in China the population is much high and consist of more

female and youth that enhance the needs of the consumer's products and

beauty, entertainment products etc. so, because of this fact its favourable

market for the Walmart company. China is also the formal member of the

world trade organization (WTO) (Index Mundi, 2018). Therefore, the

entering in China economy is easy and beneficial for the companies like the

Walmart. And this factors helps in boosting the global economic

development and growth in the world market.

Political factors:

In China, the political condition is much stable, and the government also is

much supportive toward the foreign investment. As they offer many tax

benefits to the foreign investors that attract them to make an investment in

the country. Therefore, the political condition is highly favourable for the

investors to make an investment in China, so it’s beneficial for Walmart to

start its operation in China (BBC News, 2018).

Economic factors:

In many past years, the economy of China experienced the significant GDP

rate of growth. Some of the factor help in advancing this GDP growth in

future also. These factors are:

High export business

Skilled and abundant labour force

High saving rate

Potential urban advancement

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The high GDP helps in increasing the consumer’s purchasing power that

make it highly favourable for Walmart because of high purchasing power the

people highly become able to purchase the products of the Walmart. In

China, the labour cost is highly low, so it’s beneficial for the company like

Walmart to hire the employees from China and do business in China because

of this the operation cost reduces. But some factors like the high inflation

rate and the high prices of the property and high investment rate make the

critical so for these factors the effective strategies must be designed to reduce

their influence on business (Economics, 2018)

Cultural factors:

The Chinese welcome and honour others and ensure the team working. The

culture in China is highly friendly they are inveterate the gift giver and this

hope for the good and effective future business of Walmart in China

(Lunicheva, 2014)

Foreign investment:

China is a most attractive country for the foreign investors and multinational

companies from 2016 to 2018 this is mainly because if it’s good economic

position and the government policies regarding the foreign investment. The

government of China reduce the corporate taxes like tax exemption on the

dividend for certain period to attract foreign investment. Additionally, the

foreign direct investment benefits include the packages of the reduced tax on

income, land and resource use fees, export/import duties and funding

support for the set-ups (Nan, 2018).

Retail industry:

In China, the retail industry is considered as one most promising business

field in the near future. The market analysis shows that the increasing trend

in the China GDP will continue in next three year that increases the

purchasing power of people. In China, the contribution of the merchandise

trade is approximately 36%. The reduction in the export and increase in the

domestic market helps in satisfying the domestic need and also boost the

retail market in China. In China, the online consumption of the consumer

good increased from 0.6 to 12.4% in 2017. The retail market in China is highly

competitive and required diversified products. In retail trading, various

products include that are footwear, jewellery, beauty and health products,

pet supplies, electronics, music and movies, furniture and home appliances,

home improvement products, clothing, toys, sporting, fitness and health

goods, craft supplies, grocery, auto, party supplies and photofinishing etc.

The Walmart in China comes in the second with the overall volume of the

retail sale around Yuan 73.5 billion (Statista, 2018)

Country infrastructure:

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The infrastructure in China is highly advanced and developed over time. In

China, it’s the top priority of the government to advance the infrastructure

like having the modern transport, rails, telecommunication and the

electricity. It has the world largest network of the toll roads, and its network

of rail is essential for its transport and infrastructure policy that contributes

to its economic growth highly (KPMG, 2018).

Conclusion:

It is concluded that China is highly favourable market for the foreign retail

investors to invest in China because of its good economic condition, effective

retail market, advanced technology, good infrastructure, high consumer

purchasing power etc.

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