Challenges Wal Mart Faces Expanding To China Management Essay
Business operations across national borders are becoming the trend in the current era. And this trend continuously grows because of globalisation and multinational operation. In response to this globalisation issue, multinational corporations like Wal-Mart tend operate in other countries to have excellent advantage. According to Amponsah (2001) globalisation and the eagerness of a certain business organisation to operate across borders involves two dimension i.e. change in economic operations of various countries, and change in the participants of global economic operations. Numerous numbers of people believe that the globalisation of economic activities of every country would hasten the fight against poverty (Macarov 2003, p. 103).
But like other companies that are operating in local scale, Wal-Mart a multinational company also faces different opportunities and challenges in the foreign market. With this, this paper will be discussing the opportunities and challenges that Wal-Mart faces in venturing the Chinese territory.
A business venturing to a foreign market creates good opportunities. As for Wal-Mart venturing in China, a new foreign market like China might provide opportunities for new growth. Aside from this, Wal-Mart uses global expansion to lower costs of goods, accelerate speed to market, improve quality of products and of course to cut their overhead costs considering that China is a low cost country whereas the labour is cheap compared to other countries in the West (Walmartstores, 2010). The reason most MNCs are extending their business through other nations was to cut costs. Basically, this is a good opportunity for MNCs like Wal-Mart because of the cheap labour that developing countries offer. Like other MNCs, Wal-Mart can limit costs by sending some or all of its production facilities overseas. Although Wal-Mart are not claiming that they using the opportunity of global expansion to flee away from the protectionist rules of an importing nation, it is remains the motives of most MNCs. Basically, a corporation like Wal-Mart can evade high tariffs that thwart its goods from being competitively priced as they consider foreign direct investment. For instance, when the European Common Market put tariffs on stuffs created by outsiders, U.S. corporations took action by putting up European partners (‘Multinational Corporation’ 1998). Venturing in China is also a good opportunity for Wal-Mart to prevent competition considering that one of the effective ways of avoiding actual or impending rivalry from foreign firms is to acquire those (‘Multinational Corporation’ 1998).
Despite of the opportunistic feat of global expansion, Wal-Mart holds that they produce jobs, build prosperity, and develop equipments in nations that are in dreadful need of such growth.
Maddox (1993) asserts that business that plans to compete in global market necessitate development of administrative talents learned at the home office to allow the administrators to do their job in a cross-culture environment. Companies that are going global must be aware of the methods of choosing and coaching managers to become well accustomed to diverse environment, chiefly in the environment of the country in which they are assigned. For Wal-Mart case, their Board of Directors should consider the political, economical, and religious factors emerging in China. Aside form this, this should also consider the value systems and the references frame of Chinese consumers concerning the products and services that they offer. This may posed significant challenges in their spreading out to China. Thus, the similar facets value the interest of the administrators of Wal-Mart who will be put at their division in China. The Chinese lifestyle, culture and environment was far away different from Wal-Mart’s home country i.e. USA and other Western countries in which they manages.
In evaluating the culture of China as part of Wal-Mart’s business operation, Hofstede’s dimensions culture was used. Actually, Geert Hofstede is a Dutch organisational anthropologist who divided culture into four dimensions. According to Dahl, (2004), the culture can be divided to power distance, collectivism/ individualism, femininity/masculinity, and uncertainty avoidance. It is important to be aware and comprehend these cultural dimensions for these have an influence on the internal and external workings of organizations that operate on an intercultural level.
Power Distance. Power distance is described as “the amount to which the less powerful members of associations and administrations within a country expect and recognize that power is disseminated unevenly (Hofstede 1991, p. 28); more simply, it is concerned with how equal, or unequal, the people are in a specific society or nation. In China, they have high power distance i.e. 80 PDI, this means that there is significant amount of inequalities in power and wealth within China. As a result, it is quite likely that that society employs a caste system and does not permit significant development for its people (‘Geert Hofstede cultural dimensions’ 2010).
In the corporate-oriented context, firms with a high power distance employ a tall organizational structure because there is greater and higher rigidity in terms of hierarchy. Also, there is a large proportion of managerial employees to the overall human resource population, high job ranking for white-collar work, large compensation differentials, and low requirements for entry-level positions (Earley, 1997, p. 147).
Individualism versus Collectivism. Individualism is how a society sees accomplishment and personal connections, may it be independently or as a group. Furthermore, according to Hofstede (1991), individualism is a set of values that concern the relationship of a person to his or her collectivity in the society (as cited in Earley, 1997, p. 144). In China, the individualism was low i.e. 20 IDV which indicates that China is a nation with low individualism and has a collective nature wherein close bonds exist among the people (‘Geert Hofstede cultural dimensions’ 2010). Moreover, collectivistic people also perceive themselves in relation a societal and cultural context. This is a great challenge for Wal-Mart considering that their mother country United States has high collectivism as can be observed through the nature of their families. People who reside in such locations live in nuclear families, as oppose to highly collective Asian individuals who normally live with members of their extended families.
Masculinity versus Femininity. This dimension is about gender differentiation, or n particular, the amount of how a society relates the conventional view of man as a form of achievement, power, and influence. In countries with high masculinity, men manage the most important part of the social order and influence composition, while females are controlled due to male domination (‘Geert Hofstede cultural dimensions’ 2010). In China, they have high masculinity i.e. 66 MAS. Actually this is important for Wal-mart’s operation since it relates to achievement, industrial strife, high growth, aggression, work stress, and conflict. To be more specific, firms that are more masculine are fast-paced, aggressive, and focus more on development and growth over harmony and stability (Earley, 1997). On the other hand, a feminine-oriented company is more concerned on the social interaction and operations among human resources. Furthermore, such organisation has an understanding and nurturing character, which indicates that the core is on interpersonal execution and synchronization over own interest (Earley, 1997). For this reason, the wellbeing of the members is the primary apprehension since the main outcome of this is about the firm’s capability to institute the potential of an individual as part of interpersonal good in the group.
Uncertainty Avoidance. According to Hofstede, the degree to which the affiliates of a group experience jeopardy by doubtful or unidentified environment is called uncertainty avoidance. As seen in the index, China has low uncertainty avoidance which indicates that the country was less rigid when it comes to change, could handle risks, and have less rules and regulations, since they could effectively endure diverse opinions (‘Geert Hofstede cultural dimensions’ 2010).
For Wal-Mart, uncertainty may come from the internal and external environment. An organization’s response to such ambiguities, through the use of rules, rituals, and technology, affects its image of high or low uncertainty avoidance. This could be a great challenge for Wal-Mart since China won’t easily embrace the change they would bring in the country.
A Fifth Cultural Dimension. After additional studies which were mainly focused on Chinese managers and workers, Hofstede introduced a fifth cultural dimension, which is the long-term orientation. This focuses on how nations apply, or do not apply, long-term devotion to conventional, forward thinking principles (‘Geert Hofstede cultural dimensions’ 2010). Countries with high levels of long-term orientation recommend a strong work ethics and anticipate long-term rewards as a consequence of today’s hard work. Thus, long-term commitments are emphasized and traditions are respected (‘Geert Hofstede cultural dimensions’ 2010). This is a great challenge for Wal-Mart since they came from countries with low levels of long-term orientation that are capable to experience change because long-term customs and behaviours are lessened, and change is no longer hindered.
When it comes to political factor, the main disparity in the markets of West and China is the so-called orientation. As seen, most of the west nations are affluent while the China are practicing the Soviet Union economic strategy in which their economic practices are normally mandated by their government. Basically, the local officials of China have great control even though the market is available to foreign investors. As reported in Economy of China’ (2010), it was argued that Chinese firms should have at least 51% ownership and joint ventures control with foreign investors. Ramsay (2003) stated that it normally takes 2 to 3 months for business registration in China because their governments are putting up restrictions concerning foreign investment (p. 8). The difference in the economic orientation of China and Wal-Mart’s home country USA poses certain challenges to the leaders of said company. Actually, the said leaders are more familiar in the USA free market in which the investors, producers and consumers are free to transact their business and they also have the capablities to determine the currents stance of their economic activities. Secondly, China’s transitional economy. According to Alon & Shenker (2003) since the mid-1970s there are numerous international opportunities in China that heighted the growth of foreign investment and international joint venture. But despite of these opportunities, emerging problems also arises to MNCs whereas their mangers experience conflicts with Chinese managers. Because of cultural diversity Wal-Mart’s western manager will experience clash against Chinese managers. As an American, Wal-Mart’s managers believe that future conditions can be incorporated into the ready matrix which serves up as an investigative sculpt to channel decision making procedures. With respect to these diversities, the Western managers that are positioned in China may face differing management approaches with their Chinese contemporaries. Thirdly, USA and China differ in religious beliefs (‘Christianity-Protestantism’ 2010). Chinese are more philosophical and think that humans must track their fate by living in harmony with the human race and practicing social traditionalism (‘Religion in China’ 2001). Therefore, Western members would execute their functions based on their own decisions and choices while their Chinese equivalents would constantly try to stand by the regulations and search for outlooks of other members as they are more prone to look for traditionalism. These differences in idea of independence would make the leaders of Wal-Mart consider the outcomes and motivations of their manpower. Western members would be stimulated to do well if they are given adequate liberty at work while Chinese members may rather work in groups and have way in to continuous control. Alon & Shenker (2003) argued that the value of personal relationships with subordinates and supervisors is important but organizational chain of command should not dictate their relationships. Aside from this, the heads should have to be familiar with that the Chinese culture consigns much admiration to heads while Western natives have a preference to work alone most of the times.
The finest method to gauge triumph in international market is in the course of unvarying supervision and constant monitoring of the head office. With the said practice, the head office can determine the current status of the business in the foreign land. With this, Wal-Mart must be able to execute constant monitoring gauges in their operations and the performances of the employees and managers sent to China. As seen in usual cases, the failure of business venture may result in lost prospects, trimmed down production, and smashed up relationships while business venture success implies the achievement of the differing.Order Now