On March 04, 2004, Wal-Mart Stores
Inc. (Wal-Mart) held its Board of Directors’
annual meeting in China. It
was an indication of the importance
the company accorded to its Chinese
operation. Although Wal-Mart had
entered China way back in 1996, it
had adopted a slow expansion approach
in the country. However, in
the early 2000s the company began to
realize that China had the potential to
replicate its US model of massive
growth due to a huge population of
over 1 billion and an increasing per
capita disposable income3. The members
of the Wal-Mart board wanted
the company to “get a lot more aggressive”
4 in its expansion in China. Wal-
Mart planned to increase the number
of its stores in China from 48 in 2005
to 90 in 2006.
Industry observers pointed out
that China was a unique market for
Wal-Mart. The company sold goods
worth $940 mn and purchased to the (EDLP). At the same time, it had also
successfully localized its offerings to
Chinese consumers with significant innovations.
However, s pointed
out that it had not been all smooth sailing
for Wal-Mart in China; it had got
over a lot of hurdles. They predicted
that Wal-Mart would not be able to rest
easy as there would be plenty of challenges
in the future as well.
Prior to July 1992, foreign investment in the form of joint ventures or wholly foreign-owned enterprises
was totally prohibited in the retail and wholesale sector in China. In July 1992, the central government,
on an experimental basis, allowed foreign investment in retailing through establishment of joint ventures
in Beijing, Shanghai, Tianjin, Guangzhou, Dalian, Qingdao, and the five special economic zones (Hainan,
Shenzhen, Zhuhai, Shantou, and Xiamen).
In June 1995, the central government listed retail and wholesale sectors in the Directory for Foreign
Investment, although under the “restricted” category, to encourage foreign investment in the sector. By
year-end, the provincial and state governments had approved up to 300 joint ventures. In mid-1998 the
central government disallowed local government approval and asked foreign-invested joint venture companies,
which had taken such approval, to restructure to conform to the 1992 provisions or to close down.
In June 1999, the central government issued much more liberalized provisional rules on foreign investment
in retailing and wholesaling. The rules allowed foreign retailers to establish joint venture, cooperative
retail, or wholesale companies in central government administered cities, the five special economic
zones, and the capital cities of provinces and autonomous regions with certain restrictions.
The stake of the Chinese partner in any newly established wholesale joint venture had to be at least 51%.
Specific requirements as per sales and assets were also to be followed by these joint ventures.
Franchising and other forms of indirect chain-store formats were prohibited. Foreign commercial joint
ventures were not allowed to act as a commodity import or export agent and commercial joint ventures
were allowed to import products they sold, limited to 30% of their total yearly sales revenue.
Post 2004
Foreign retailers may wholly own their Chinese subsidiaries and open stores at any geographic location
of their choice without government permission. With the restriction on number of stores having been
lifted, foreign retailers could open unlimited number of stores. Also foreign retailers do not have to meet
any minimum criteria for sales, capital or assets, to enter the Chinese market. Foreign companies are
allowed to source global brand merchandise locally without any stipulation to export the goods purchased.
Foreign retailers are allowed to run all distribution activity inclusive of transportation, wholesaling,
and retailing.
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