Analysis of Sam’s Clubs China Entry Strategy Essay Example

accessible, traffic will not be sufficient for business survival.

Although many key success factors, such as building and maintaining strong customer relationships, are universal across all businesses, certain factors can vary depending on the country or market. For instance, warehouse clubs in America focus on offering minimal services to keep costs low, while warehouse clubs in Hong Kong must prioritize convenience and service to succeed. In Hong Kong, the market environment differs greatly from that of the United States due to limited land for development and astronomically high land prices. Prime locations in Hong Kong can cost up to 130 percent more than comparable locations in New York.

The scarcity of space for expansion in Hong Kong results in a majority of its inhabitants residing in tight living spaces, where even families of five may live in 400 square-foot apartments with limited storage and small refrigerators (Herndon p. 11). This situation has caused Wal-Mart to construct their Value Club stores in less prominent areas due to the expensive land costs, unlike their Sam’s Club stores in the United States that are located in easily reachable and busy zones.

The sizes and product assortments of warehouse clubs differ significantly between the United States and Hong Kong. American warehouse clubs typically have a size of around 100,000 square feet and offer a selection of 4,000-5,000 items. In contrast, Hong Kong warehouse clubs are about 20,000 square feet with only around 1,000 different products available. Additionally, most American shoppers at warehouse clubs own a car for transportation while only four percent of the Hong Kong population does.

Compared to the United States, the market for warehouse stores in Hong Kong is

significantly different due to specific conditions. The majority of Hong Kong residents have considerably less storage space than Americans, which makes it impossible for them to store bulky items that warehouse stores typically sell. Moreover, due to an extensive reliance on public transportation, it is challenging for individuals to transport large bulk products.

Both American and Hong Kong shoppers are concerned about prices. However, while low prices attract customers to bare-bones warehouse clubs in America, Hong Kong shoppers value convenience, quality service, and store atmosphere more highly. This means that simply offering lower prices is not sufficient to win over many Hong Kong consumers who may factor in high transportation costs. (Hendon p. 1; Herndon p.

11). Hong Kong residents have easy access to small grocery and retail stores in their apartments and residential blocks, unlike the majority of Americans who need to drive to their nearest store for shopping. The marketing environment in Hong Kong is affected by cultural differences, where shopping is done on a daily basis by housewives, as opposed to the weekly shopping habits of most Americans. Bulk items that are convenient in America are not necessarily helpful in Hong Kong due to space constraints.

According to Herndon (p. 7), the Chinese culture values pride, making it shameful for them to dispose of any disliked products, a contrast to Americans. Additionally, Hong Kong shoppers perceived the product selection at Value Club differently due to a lack of familiarity with 70% of the American brand items. The substantial differences between the Hong Kong and American markets could have been addressed by Wal-Mart if they had implemented a distinct approach from their successful American

strategy.

According to Herndon (p.11), the warehouse club cannot be directly transferred to Hong Kong market without modifications. Prior to constructing any stores in Hong Kong, Wal-Mart should have utilized Charoen Pokhand's knowledge of the Asian competitive landscape. Joint ventures involve combining the core strengths of each company to create a more efficient entity. Although Wal-Mart is a global powerhouse, translating their American business model to Hong Kong was unsuccessful as it did not align with consumer demands. Charoen Pokhand, on the other hand, is one of the largest business conglomerates in Asia and thus, understands the preferences of the consumers in that region.

Wal-Mart faced a major issue in Hong Kong where their product selection did not cater to the local market. Majority of the products featured in the Value Club stores were American brands that triggered reluctance among Hong Kong consumers to purchase, especially in bulk. For a more profitable outcome, Wal-Mart needed to refine their inventory by including products that were more appealing to Chinese shoppers. Wal-Mart acknowledged their shortcomings in Hong Kong and corrected them in mainland China by offering a product range that aligned with the Chinese market. A report by Discount Store News contributor Teresa Andreoli pointed out that Wal-Mart's success in China was due to their emphasis on assortment, with locally sourced products accounting for approximately 85-90% of the inventory on opening day.

Herndon highlights the significance of stores expanding their product selection and reducing package size, but stresses that visits to the store are crucial for success. Wal-Mart's choice to position their stores away from public transportation routes had a negative impact on business as affordability of land

loses importance when customers cannot reach the store.

To enhance their success, Wal-Mart could have opted for more accessible store locations with parking facilities instead of enforcing the Value Club model on an unresponsive market. It would have been wiser to introduce their existing Wal-Mart outlets rather than attempting to impose the concept. Although Wal-Mart has witnessed significant growth in China, it is primarily due to its Wal-Mart stores and Supercenters rather than warehouse clubs which are yet to gain acceptance among Chinese consumers (Andreoli 1-2).

The content discusses two sources related to warehouse club buying. One is an article from Marketing News by Neil Herndon that describes how Hong Kong shoppers are not enthusiastic about Wal-Mart's value Club. The other source is a report from Mintel published in February 2005 about warehouse club buying in the U.S.The Mintel Market Research Reports database was accessed on September 12, 2007, and the link to the page is: ;http://libproxy. library. unt. edu:3224/sinatra/oxygen_academic/my_history/show;list=my_history/display/id=121119/display/id=151773/display/id=151702? select_section=121119;.