Background "China is the one place on the world where you could replicate Wal-Mart's success in the U.S." Davis Glass former CEO of Wal-Mart Stores said. However, reality indicates that Wal-Mart is facing many difficulties in Asia.

Wal-Mart and other foreign organizations are subject to a number of adverse situations and government restrictions. Some of those difficulties are: rigorous cost control in comparison to local companies, toll fees and charges, high transportation and distribution costs and lack of IT reliable infrastructure among others.

In addition, domestic stores have existed for long and enjoy support from the government. Many foreign chains exist in the market, and were performing better than Wal-Mart. As a result, Wal-Mart expansion in China was slow.

In this case, we will address the main issues that Wal-Mart China is facing and propose possible solutions and recommendations.

Issues/Problems
Currently, Wal-Mart is facing a range of challenges in China's retail market.

Chinese business environment is changing rapidly. In the last two decades, China’s retail industry and its distribution and logistical infrastructure have significantly decreased government regulation. Wal-Mart will need to identify what issues it will face in the short and long term to set up the new business vision and strategy in this market. The U.S business model will not be able to be implemented in the Chinese market since for instance U.S., Wal-Mart places stores in small towns to gain a competitive advantage.
China will not support such a structure. In this country, the economic growth has been concentrated exclusively in coastal regions supported by urban areas.
The U.S. business model also uses Wal-Mart’s distribution, logistics, and IT networks to gain economies of scale and competitive advantages. China does not have the infrastructure for Wal-Mart to gain the same scale economies and advantages.
Other issues Wal-Mart China faces are differences in consumer habits between American and Chinese consumers, increasing competition among foreign and domestic firms, and overcoming local protectionism obstacles.

Increasing Competition: There are too many domestic and foreign competitors in the China retail market. Local players have the advantage of knowing in depth the local market and their tricks; allowing them to adapt quickly and establish cheaper and flexible logistics and distributions systems.
Foreign companies in the market enjoy relatively strong financial support from others markets and demonstrated management skills.
Local companies are taking advantage of those above average management skills and they are learning the strategies of the foreign players, making it even more difficult for the foreign players to compete.

Cultural and Shoplifting issues: In the last two decades, the enormous growth in China had broadened the gap in wealth between rich and poor and between urban and rural populations.
Another important distinction are the geographic areas were the people live. The buying habits vary from the very different if they live in an urban to the rural area. Those preferences are very distant from the American ones. In addition, shoplifting by Chinese customers is more than 15 times (5%) compared to an international standard (0.3%).

Management Turnover and Associate Morale: The management turnover was high and it was hard to maintain employee's morale and satisfaction levels affecting the overall service.
Low salary remuneration could not be rewarded with stocks due to difference in policies in the US and China. China’s mandatory labour union is relatively more hostile towards foreign brands.

Infrastructural Deficiency: Lack of adequate and modern infrastructure is an important issue. Road and rail network are under development where Wal-Mart's distribution system depended. Usually toll fees could reach up to 10% of the total freight costs and often require overnight storages.

Lack of IT Network: One of the biggest obstacles is the lack of an information-technology network with suppliers, making purchasing and distribution difficult. There are many restrictions on information management, which makes it difficult to replicate the distribution and supply systems of the US in China
For example, IT communications did not allow Wal-Mart to use the successful satellite system. These IT deficiencies make it costly and inefficient to transmit information, leading to ineffective inventory logistics.
Others issues such as remote distribution centers, insufficient buying power from small towns and poor transportation make it difficult to employ the same Wal-Mart U.S model.

Alternative Solutions to Address the Issues/Problems

Presently, Wal-Mart has many options to choose from the newly deregulated Chinese market.
One alternative is to leave the Chinese market and focus on different markets. Wal-Mart already had step back form different countries such as Germany, South Korea, and Japan after incurring on big losses trying to apply the American model. China has been showing similar trends so far.
The number of competitors in China is growing and Wal-Mart is feeling the impact of that increased.
During regulation, Wal-Mart was restricted to open many new stores per city, affecting inevitable Wal-Mart growth. However, the Chinese market has been moving toward deregulation and this is can create an important market potential for Wal-Mart expansion. Another option is to change their currently strategy and start to develop Wal-Mart stores in rural parts of China. While most signs point toward the development of business operations in urban areas first, rural areas of China can give Wal-Mart less competition around and more exclusivity.

Domestically owned supermarkets dominate the food market in China because of their ability to leverage the existing distribution system and adapt to local consumer preferences. If Wal-Mart acquires some of the supermarket chains in rural areas and can model down their distribution centers to achieve economies of scale with less than 120 stores per distribution center, this option may prove very profitable.
China’s western and interior regions account for 42% of China’s GDP, whereas the coastal region accounts for 58% of GDP (Exhibit 14) in a smaller territory. It will be risky to take this strategic movement into the rural areas.

A third alternative is to continue Wal-Mart's expansion by replicating its American business model. Wal-Mart had successfully implemented U.S model in several countries. Some of these foreign countries include: Mexico, with over 650 stores, Brazil, with over 100 stores and Puerto Rico with over 70 stores (Exhibit 4). With Chinese government deregulated market, many of Wal-Mart's expansion obstacles will be lifted, and Wal-Mart would be able to duplicate its U.S. business model.
With some control and bans lifted, along with improvements to information technology, Wal-Mart could see significant improvements in its cost structure and achieve scale performance.

Solutions and Recommendations
After reading and analyzing the case Wal-Mart should focus on expand their Chinese business.
Wal-Mart China will need to find alternative ways to turn core competencies into competitive advantages and customize certain aspects of its business model to accommodate the Chinese marketplace.
If Wal-Mart is able to develop and redesign their strategy to accommodate and satisfy Chinese consumers, then Wal-Mart would be profitable operated in China.
The site selection and store format is crucial. Increase number of smaller shops can be built, instead of the US model of "giant" Walmart

One of Wal-Mart major advantage in the U.S. came from its high efficient and modern distribution and information technology systems. In the U.S. Wal-Mart uses advanced logistics and communication to control supply of products and related costs. In China, the infrastructure is not as advanced as in the U.S to successfully apply the system and procedures.

Wal-Mart should consider collaborating and invest together with the Chinese government to increase the ratio of expressways to land mass. Wal-Mart will not be able to gain the same competitive advantages in China it currently has in the U.S., at least not immediately. In terms of implementation, Wal-Mart China should customize its business model to the Chinese market. The Chinese consumer is different from the American consumer in the way they buy. Americans have cars and big storage areas in their homes, while the Chinese lack storage space and use bicycles for transportation. Due to these factors, the Chinese shop daily while Americans shop weekly. With the increased cost per customer Wal-Mart faces in China, Wal-Mart should consider altering its store format to one that allow it decrease the cost per customer.
Another important concern for Wal-Mart China is shoplifting costs; China suffered averages of 5.0% of sales compared to a 0.3% international standard. If Wal-Mart can save money by reducing the cost per customer; then Wal-Mart can hire more security associates. In addition to increased security, Wal-Mart can further address its shoplifting issues by investing more in its employees.
Wal-Mart China should take the opportunity presented to them with local purchasing consumer habits and adjust their strategies. By investing in Wal-Mart fresh goods distribution chain will help Wal-Mart to meet local consumer needs.

References
1. Ali Farhoomand, “Wal-Mart Stores: Every Day Low Prices in China”. University of Hong Kong. 2006.
2. Mello, J. (2011). Strategic Human Resource Management (3rd Ed.). Mason, Ohio: South-Western.