Wednesday, April 13, 2016

Blue Ocean Strategy, Wal-Mart, and China

In analyzing blue ocean strategy, disruptive technology, and emerging markets, I wanted to understand more about the transplantation of strategies that successfully created blue oceans. I ultimately found a case about Wal-Mart attempting to transplant its successful retail strategy in China.

In The Coherence Premium, Leinwand and Mainardi (2010) note that Walmart achieves "maximum efficiency" by integrating the following four capabilities: "aggressive vendor management, expert point-of-sale data analytics, superior logistics, and rigorous working-capital management." This allowed Wal-Mart to deliver on its "Everyday Low Prices" guarantee, thereby creating a new retail model that captured a majority segment of the retail market. In this way, Wal-Mart initially created an "uncontested market space that made the competition irrelevant" (Kim & Mauborgne, 2004). Wal-Mart also proved that "large R&D budgets are not the key to creating new market space—the key is making the right strategic moves" (Kim & Mauborgne, 2004). Accordingly, much of Wal-Mart’s success in the United States can be attributed to (i) its largely uncontested rise in securing rural—and eventually urban—markets (generally an "uncontested market space"); (ii) low costs during inception as a result of rural targeting; (iii) its eventual negotiating power with regard to suppliers; (iv) company-controlled shipping and logistics management; (v) centralized, rapid replenishment through the use of distribution centers; and (vi) a domestic business environment allowing financial prudence and cost control (Farhoomand, 2006).  

Yet, the conditions that allowed Wal-Mart to achieve near-complete control from the point of purchase to the point of sale did not exist in China. Significant government regulation, market disparities, unpredictable expenses, deficient technical and civil infrastructure, business irregularities, and unanticipated consumer habits complicated Wal-Mart’s attempts to implement its proven system (Farhoomand, 2006). Hundreds of domestic and international firms struggled to dominate a limited—albeit growing—market, and the company had little competitive advantage beyond existing international infrastructure and an ostensibly-proven business model (Farhoomand, 2006). Wal-Mart had largely succeeded in the U.S. and other Western countries because it created a market around dependably-low prices and customer care. This market needed to be rebuilt in China among a sea of carbon-copy competitors, and Wal-Mart had no strategy beyond “business as usual.”

Ultimately, a highly-efficient model works only as well as the environment allows; conditions in China could not support Wal-Mart’s system despite its success in North America and Europe. Accordingly, Wal-Mart managers’ firm belief “that consumers were alike everywhere around the world in searching for quality products at great prices and desiring to be treated well” served as a disadvantage in that it prevented the company from looking at the Chinese market as a unique entity requiring a unique approach (Farhoomand, 2006).

In this sense, Wal-Mart might have succeeded sooner by instead implementing a discovery-driven planning approach—that is, an approach that leverages "plans for learning" rather than "plans for implementation" (Christensen, 2006). Like Christensen describes with HP, Wal-Mart instead made broad assumptions based on previous (and generally non-applicable) business plans. The company could have "[felt] its way into the market…, redirecting their program if necessary and building upon what they learned on the way"—much in the same way it did in the United States during its inception (Christensen, 2006).

Admittedly, this applies considerations regarding disruptive technologies generally to the idea of blue ocean strategy and strategy transplantation, which might be incorrect. 

References:

Christensen, C.M. (2006). The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail. Boston MA: Harvard Business School Publishing.
Leinwand, P., & Mainardi, C. (2010). The Coherence Premium. Harvard Business School Publishing.
Farhoomand, A. (2006). Wal-Mart Stores: “Every Day Low Prices” in China. Boston, MA: Harvard Business School Publishing.

Kim, W.C., & Mauborgne, R. (2004). Blue Ocean Strategy. Boston, MA: Harvard Business School Publishing. 

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