Distribution critical to Wal-Mart China strategy

The world's largest retailer finds itself at something of a crossroads in the world's most populous nation. Wal-Mart's expected acquisition of Chinese grocery chain Trust-Mart will give the US giant unprecedented scale, catapulting it ahead of Carrefour to become the largest foreign retailer in the mainland.

But several questions marks remain over Wal-Mart's international strategy. At present, over a fifth of its US$316 billion in total sales are generated outside the US; Wal-Mart would like that proportion to be closer to a third.

But progress has hardly been smooth. Its UK subsidiary continues to underperform, while high-profile pullouts have occurred in Korea and Germany.

In China, meanwhile, Wal-Mart is attempting to become a national retail chain in a country with no cohesive national distribution system. Clearly, the rewards are huge, with the mainland retail market estimated to be worth US$750 billion by 2008. And distribution is just one worry. Already the company has given in to unionisation demands from the state-run All-China Federation of Trade Unions, a notable climbdown from its anti-union US stance.

It has also made key strides in honing its offering for the unique characteristics of the Chinese marketplace, where consumers do not want to buy a carboot-load of supplies at each visit.

But Wal-Mart is one of the most financially successful companies the world has known, so few doubt the seriousness of its Middle Kingdom aspirations. A number of foreign players, in addition to the already-ensconced Carrefour, are eyeing the China market, and competition is expected to intensify. Tesco recently announced plans to launch its first branded store in Beijing, as the first step to branding all of its 42 jointly-owned Chinese hypermarkets.

With retail sales growing at a 13 per cent clip per year, there may be a big enough pie to satisfy several international companies. Given Wal-Mart's appetite for domination, of course, a slice will not be sufficient ?unless it is the biggest slice of them all.