Business and Management

Extended Essay

Title – Walmart and JD.com’s Strategic alliance as a Growth Strategy

Research Question

To what extent the Strategic Alliance between Walmart and JD.com be a

strategy for increasing Walmart’s customer base in China?

Word Count: - 3987 Words

1
Content Page

Chapter 1 - Introduction .............................................. Error! Bookmark not defined.

1.1 About Walmart ................................................... Error! Bookmark not defined.

1.2 Walmart’s entry into China ................................. Error! Bookmark not defined.

1.3 E-Commerce Acquisition of Yihaodian .............................................................. 8

1.4 Methodology ........................................................................................................ 12

Limitations of the research ..................................................................................... 13

Business tools ........................................................................................................ 13

Chapter 2 - Strategic alliance with JD.com- The opportunity to achieve future Growth

success ..................................................................................................................... 14

2.1 Effective access to Chinese markets at Walmart’s footsteps .......................... 17

Chapter 3 - Impact, of the partnership with JD.com, on Walmart’s product, place,

promotion and processes....................................................................................... 20

Chapter 4 - A Competitive Advantage for Walmart ............................................... 24

Chapter 5 - Conclusion ............................................................................................. 29

Bibliography .............................................................................................................. 31

2
Chapter 1 - Introduction

This research addresses the decision taken by Walmart to enter into a Strategic

Alliance with JD.com to enable it to grow in China by increasing their customer base

due to improvements in the distribution network.

1.1 About Walmart

An American Multinational Retailing Corporation, Walmart, founded by Sam Walton in

1962 and incorporated on October 31st 1969, runs as a chain of Discount Department

Stores, Hypermarkets and Grocery Stores.1 Around 260 million customers visit the

company’s 11,695 stores in 28 countries.2

1.2 Walmart’s entry into China

Walmart entered China in 1996 by opening a Sam’s Club and Supercentre in

Shenzhen.3 Till date, the company has 439 retail units and 402 Walmart Supercentres.

Walmart operates China's Global Ecommerce headquarters, a Global Sourcing Office

and a number of stores.4

The objective was Growth in a country which had a large consumer market, offered

cheap labour and favourable government policies.5 Another reason was also due to

Walmart’s slow growth in terms of sales revenue in US, as the US retail market started

1
Corporate, Walmart. “About Us.” Walmart Corporate - We Save People Money so They Can Live Better., 24
Feb. 2018, corporate.walmart.com/our-story.
2
Corporate, Walmart. “About Us.” Walmart Corporate - We Save People Money so They Can Live Better., 24
Feb. 2018, corporate.walmart.com/our-story.
3
Cohan, Peter. “How Did Walmart Crack Open China?” Forbes, Forbes Magazine, 18 May 2012,
www.forbes.com/sites/petercohan/2012/05/18/how-did-wal-mart-crack-open-china/#4908a464706c.
4
Walmart. “About Us.” Our Story, corporate.walmart.com/our-story.
5
Hirst Tomas Hirst, Editorial director and co-founder, Pieria magazine, Tomas. “A Brief History of China's Economic
Growth.” World Economic Forum, 30 July 2015, www.weforum.org/agenda/2015/07/brief-history-of-china-
economic-growth/.

3
showing signs of decline from 1970’s to 1990’s which resulted in Walmart entering

China in the late 1990’s.

Figure 1:- Decline in US Retail Sales Growth from 1970 to 20006

Walmart’s entry into China was not as successful as the retailer expected it to be.7

This was evident from its share of sales revenue which was only 3% as compared to

its Global sales of $478.6 billion, in one of the largest consumer markets.8

6
Mackenzie, Ian. “How Retailers can keep up with Consumers.” McKinsey & Company, 6 Oct. 2013,
www.mckinsey.com/industries/retail/our-insights/how-retailers-can-keep-up-with-consumers.
7
Team, Trefis. “Why Wal-Mart Never Picked Up In China?” Forbes, Forbes Magazine, 18 June 2014,
www.forbes.com/sites/greatspeculations/2014/06/18/why-wal-mart-never-picked-up-in-china/#15dde7507fb8.
8
Services, Tribune News. “Wal-Mart Needs to Grow Overseas, and China's the Big Prize.”Chicagotribune.com, 1
June 2016, www.chicagotribune.com/business/ct-walmart-china-20160601-story.html.

4
The reasons were two-fold:-

1. Local competitors, such as Sun Art have affected the amount of store traffic to

Walmart’s stores in China.9 Being a local supplier, Sun Art could understand the

Chinese customer’s culture of buying products at local outdoor markets and

provides them with fresh produce. However, Walmart provides a typical big box

format in China, which customers didn’t prefer due to being perceived stale coupled

with late deliveries.10

In addition, Walmart’s slogan- “Everyday low prices” backfired in China as this

slogan created a perception among Chinese customers that products from

Walmart are of low quality.11 Sun Art, however, has been more successful in

understanding Chinese customer’s preference for quality over prices.12 Therefore,

Sun Art holds an edge over Walmart as far as perception of quality is concerned.

2. Walmart has also faced problems of poor transport system outside of main cities.13

This caused delays in shipping of products to the stores and led to higher expenses

for Walmart.14

As a consequence, the percentage of stores opened by Walmart in China between

2009 and 2016 dropped from, approximately, 18% to 7%15 as shown in Figure 2.

9
Soni, Phalguni. “Why Walmart Isn't a Heavyweight in China.” Market Realist, 18 Feb. 2015, www.
marketrealist.com/2015/02/walmart-isnt-heavyweight-china.
10
Team, Trefis. “Why Wal-Mart Never Picked Up In China?” Forbes, Forbes Magazine, 18 June 2014,
www.forbes.com/sites/greatspeculations/2014/06/18/why-wal-mart-never-picked-up-in-china/#15dde7507fb8.
11
Team, Trefis. “Why Wal-Mart Never Picked Up In China?” Forbes, Forbes Magazine, 18 June 2014,
www.forbes.com/sites/greatspeculations/2014/06/18/why-wal-mart-never-picked-up-in-china/#15dde7507fb8.
12
Team, Trefis. “Why Wal-Mart Never Picked Up In China?” Forbes, Forbes Magazine, 18 June 2014,
www.forbes.com/sites/greatspeculations/2014/06/18/why-wal-mart-never-picked-up-in-china/#15dde7507fb8.
13
Jacobs, Clayton. “Why Major American Corporations Have Struggled in China: Walmart.”ReadWrite, 25 Feb.
2017, readwrite.com/2017/02/25/why-major-american-corporations-have-struggled-china-walmart-il1/.
14
Jacobs, Clayton. “Why Major American Corporations Have Struggled in China: Walmart.”ReadWrite, 25 Feb.
2017, readwrite.com/2017/02/25/why-major-american-corporations-have-struggled-china-walmart-il1/.
15
Soni, Phalguni. “Why Walmart Isn't a Heavyweight in China.” Market Realist, 18 Feb. 2015, www.
marketrealist.com/2015/02/walmart-isnt-heavyweight-china.

5
 Figure 2:- Walmart’s store openings in China decline from 2009 to 201616- 201717

500
450
400
Store openings

350
300
250
200
150
100
50
0
2009 2010 2011 2012 2013 2014 2015 2016 2017
Years

Furthermore, around 2015, the Chinese store retailers were very largely impacted by

the Chinese ecommerce industry.18 According to Yee Man Chin, a business expert-

“Not only are shopping preferences changing but shoppers are now increasingly

preferring ecommerce”.19 This is because 82% of Chinese consumers, according to a

recent report by Oracle, stated product variety is a bigger priority than price.20

Chinese customers want access to large variety of products of good quality and are

16
News, Bloomberg. “Wal-Mart's China Revival Strategy Calls in JD.com and Drones.”Bloomberg Quint, 20 Oct.
2016, www.bloombergquint.com/global-economics/2016/10/20/wal-mart-s-china-revival-strategy-calls-in-jd-com-
and-its-drones
17
Wang, Simon. “Financial Results Continue to Improve in 2016, To Continue Differentiated Competitive
Advantages in 2017.” Wal-Mart China: Newsstand of Wal-Mart, 7 Mar. 2018, www.wal-
martchina.com/english/news/2017/20170222.htm.
18
Zheng, Sarah. “China's Traditional Retail Industry to Remain Weak as Shoppers Stay Home, Says
Fitch.” South China Morning Post, 10 Nov. 2016, www.scmp.com/business/markets/article/2044786/chinas-
traditional-retail-industry-remain-weak-shoppers-stay-home.
19
Zheng, Sarah. “China's Traditional Retail Industry to Remain Weak as Shoppers Stay Home, Says
Fitch.” South China Morning Post, 10 Nov. 2016, www.scmp.com/business/markets/article/2044786/chinas-
traditional-retail-industry-remain-weak-shoppers-stay-home.
20
Spelich, John W. “7 Key Differences between Chinese and Western Consumers.”Multichannel Merchant,
Multichannel Merchant, 13 Feb. 2017, multichannelmerchant.com/blog/7-key-differences-chinese-western-
consumers/#_.

6
less concerned about the prices21 and Ecommerce offers an abundance of products

to customers.22

In addition, in the first three quarters of 2016, while the retail sector grew 10.4%, the

increase in growth was mostly from online sales.23 The average shopping basket value

for Chinese hypermarket shoppers also decreased from 172.4 yuan in 2014 to 162.7

yuan in 2015.24

Figure 3:- Growing Ecommerce Industry in China25

21
Zheng, Sarah. “China's Traditional Retail Industry to Remain Weak as Shoppers Stay Home, Says Fitch.” South
China Morning Post, 10 Nov. 2016, www.scmp.com/business/markets/article/2044786/chinas-traditional-retail-
industry-remain-weak-shoppers-stay-home.
22
Spelich, John W. “7 Key Differences between Chinese and Western Consumers.”Multichannel Merchant,
Multichannel Merchant, 13 Feb. 2017, multichannelmerchant.com/blog/7-key-differences-chinese-western-
consumers/#_.
23
Zheng, Sarah. “China's Traditional Retail Industry to Remain Weak as Shoppers Stay Home, Says Fitch.” South
China Morning Post, 10 Nov. 2016, www.scmp.com/business/markets/article/2044786/chinas-traditional-retail-
industry-remain-weak-shoppers-stay-home.
24
Horwitz, Josh. “Walmart's Future in China Increasingly Depends on a Single Chinese Company.” Quartz, Quartz,
26 May 2017, qz.com/992623/walmarts-future-in-china-increasingly-depends-on-jd-com-alibabas-only-rival/.
25
Allen, Robert. “Top E-Commerce Trends to Inform Your 2017 Marketing Strategy.” Smart Insights, 7 June 2017,
www.smartinsights.com/ecommerce/ecommerce-strategy/top-ecommerce-trends-inform-2017-marketing-
strategy/.

7
To address issues of deliveries due to poor infrastructure and the growth of

Ecommerce industry in China, Walmart entered the E-Commerce industry through its

acquisition of Yihaodian.

1.3 E-Commerce Acquisition of Yihaodian

In 2015, Walmart acquired Yihaodian.com by buying out a 49 percent stake.26 This is

an example of External Growth which takes place when a business partners with

another business to increase either its sales revenue, market standing or profits.27

Yihaodian is a Chinese B2C online grocery business founded, in 2008, by Gang Yu

and Junling Yu.28 Yihaodian’s presence in online retail combined with Walmart’s

supply chain and local retail presence was to allow the US retailer to provide products

at lower prices to consumers and look to weave its offline and online presence.29

Having an existing distribution network in three major provinces: - Beijing, Shanghai

and Guangzhou and a team of 2,000 employees, Yihaodian was looked as a valuable

partner by Walmart for increasing revenue through faster delivery of products.30

Yihaodian had a USP of quick deliveries as it served their customers with 24 hour

delivery of essential products at economical prices.31 These qualities helped Walmart

26
Jourdan; Adam. “Wal-Mart Buys out China e-Commerce Firm Yihaodian in Online Push. Reuters, Thomson
Reuters, 23 July 2015, www.reuters.com/article/us-wal-mart-stores-china-yihaodian/wal-mart-buys-out-china-e-
commerce-firm-yihaodian-in-online-push-idUSKCN0PX0D220150723.
27
Hoang, Paul. “Growth and Evolution.” Business Management, IBID Press, 2014, pp. 1–595.
28
Wikipedia. “Yihaodian.” Wikipedia, Wikimedia Foundation, 17 Feb. 2018, en.wikipedia.org/wiki/Yihaodian.
29
Jourdan; Adam. “Wal-Mart Buys out China e-Commerce Firm Yihaodian in Online Push. Reuters, Thomson
Reuters, 23 July 2015, www.reuters.com/article/us-wal-mart-stores-china-yihaodian/wal-mart-buys-out-china-e-
commerce-firm-yihaodian-in-online-push-idUSKCN0PX0D220150723.
30
Global, Walmart. “Walmart Global ECommerce Announces Investment in Yihaodian, a Fast-Growing
ECommerce Business in China.” Newsroom, 13 May 2011, news.walmart.com/news-
archive/2011/05/13/walmart-global-ecommerce-announces-investment-in-yihaodian-a-fast-growing-ecommerce-
business-in-china.
31
Corporate, Walmart. “Walmart Global Ecommerce Announces Investment in Yihaodian, a Fast-Growing
Ecommerce Business in China.” Walmart Corporate - We Save People Money so They Can Live Better. 13 May
2011,corporate.walmart.com/_news_/news-archive/2011/05/13/walmart-global-ecommerce-announces-
investment-in-yihaodian-a-fast-growing-ecommerce-business-in-china.

8
not only address their problems of infrastructure as well as gave the opportunity of

growing in the E-commerce industry.

However, the E-Commerce industry in China is largely dominated by two major players

- JD.com and Alibaba with a market share of 26% and 56.6% respectively.32

Furthermore, Walmart’s acquisition of Yihaodian was limiting the US retailer’s

customer base to only three provinces (Shanghai, Beijing and Guangzhou) and

Yihaodian’s very meagre share in the E-Commerce market was not allowing Walmart

to spread into wider markets.

Figure 4:- Market Share of Yihaodian compared to other E-commerce firms in 201733

32
FGRT. “Deep Dive: JD.com-A Differentiated E-Commerce Platform.” Fung Global Retail & Technology, 3 Sept.
2016, www.fungglobalretailtech.com/research/deep-dive-jd-com-differentiated-e-commerce-platform/.
33
FGRT. “Deep Dive: JD.com-A Differentiated E-Commerce Platform.” Fung Global Retail & Technology, 3 Sept.
2016, www.fungglobalretailtech.com/research/deep-dive-jd-com-differentiated-e-commerce-platform/.

9
As a consequence of the initial success through E-Commerce and to continue this

growth further, in June 2016, Walmart announced a Strategic Alliance with JD.com.34

A strategic alliance is when two or more businesses cooperate in a business venture

for mutual interests.35 In a strategic alliance, synergies are gained from the different

members of the alliance who pool in their resources to benefit from each other’s

experience.36

The collaboration with JD.com enables Walmart to concentrate on cross border e-

commerce, logistic and supply functions and offline to online retail ecommerce

services for customers throughout China.37

On the other hand, inside a Walmart store in Shenzhen, JD.com will open a JD Home

store. JD’s offline store project, JD Home, provides electronic goods thereby adding

to Walmart’s product assortment.38

JD.com, Inc. is China’s biggest internet company by revenue and the country’s 2nd

largest online direct sales company.39

34
“United States.” Historical Dictionary of the Chinese Economy, by Lawrence R Sullivan, pp. 1–477.
35
Hoang, Paul. “Growth and Evolution.” Business Management, IBID Press, 2014, pp. 1–595.
36
Hoang, Paul. “Growth and Evolution.” Business Management, IBID Press, 2014, pp. 1–595.
37
Walmart. “Walmart and JD.com Announce Strategic Alliance to Serve Consumers across China.” Newsroom,
news.walmart.com/2016/06/20/walmart-and-jdcom-announce-strategic-alliance-to-serve-consumers-across-
china.
38
NASDAQ. “Walmart and JD.com Expand Strategic Cooperation.” GlobeNewswire News Room, 25 July 2017,
globenewswire.com/news-release/2017/07/25/1057519/0/en/Walmart-and-JD-com-Expand-Strategic-
Cooperation.html.
39
Walmart. “Walmart and JD.com Announce Strategic Alliance to Serve Consumers across China.” Newsroom,
news.walmart.com/2016/06/20/walmart-and-jdcom-announce-strategic-alliance-to-serve-consumers-across-
china.

10
 Figure 5:- Market share of the Chinese E-commerce industry in 201640

Through this Alliance, Walmart plans to serve customers across China through E-

commerce with JD.com’s assistance in several fields. As JD.com has the 2nd largest

market share in the Chinese E-Commerce industry, Walmart hoped that its customer

base increase much more as compared to the customer base offered by Yihaodian.

E-commerce is of paramount importance for any organisation as the purchasing

habits of customers are moving more towards online purchase rather than going to

off-line stores. This makes business through E-commerce a more viable option. Also,

the huge variety of brand availability and the ease of shopping involved in E-commerce

gives businesses a competitive advantage.

However, distribution of products, ensuring their availability and timely delivery makes

the Place an important area to delve into. For efficient distribution of products, it’s

40
Graziani, Thomas. “How to Use Tmall and JD.com to Enter China? A Simple Guide.”WalktheChat, 19 Nov.
2017, walkthechat.com/use-tmall-jd-com-enter-china-simple-guide/.

11
important that the firm’s distribution channels are supported by efficient transportation

networks and surrounded by their suppliers. Therefore, to explore the success of this

strategic alliance between Walmart and JD.com in increasing Walmart’s customer

base in China, the Research Question is:-

To what extent the Strategic Alliance between Walmart and JD.com be a

strategy for increasing Walmart’s customer base in China?

1.4 Methodology

The essay has been written by using data available through Secondary sources. This

research mainly concerns with the realities of the success of the strategic alliance in

increasing customer base and hence requires several statistics from different websites

as well as facts and opinions from the executives of both companies on the strategic

alliance.

The IB Business and Management textbook is used to collect various definitions and

to understand how to apply tools, such as Ansoff Matrix. A variety of newspaper

articles have also been used, such as NASDAQ. In addition, research papers from

Fun global retail have been accessed to understand about JD.com’s distribution

system. Industry experts on how the Chinese ecommerce industry is growing had

been delved into. Furthermore, blogs, written on Forbes, had been gathered to

comprehend Chinese customer’s buying habits and how this impacted Walmart. The

book; Historical Dictionary of the Chinese Economy had also been used to understand

and collect information about how foreign retailers, such as Walmart struggled in China

and how Walmart formed a strategic alliance with JD.com in China.

12
Limitations of the research

1. The book might be subjective and bias towards a particular argument, and

hence may be inaccurate.

2. The accuracy of the statistical figures present in newspaper articles, blogs,

magazines, research papers contain several perspectives and hence could be

misleading.

Business tools

1. Ansoff matrix41 is used to understand how successful would the strategic

alliance be in terms of accessing markets in China.

2. The VRIO analysis42 is used to understand whether with JD.com’s large

distribution network, Walmart gains a competitive advantage in China.

3. To determine how Walmart, with JD.com’s assistance, performs in the area of

promotions, place, processes and products, extended marketing mix43 is used.

41
Hoang, Paul. “Organizational objectives.” Business Management, IBID Press, 2014, pp. 1–595.
42
Kadlecova, Barbora. “VRIO Analysis.” ManagementMania.com, ManagementMania.com, 28 Nov. 2016,
managementmania.com/en/vrio-analysis.
43
Hoang, Paul. “The extended marketing mix.” Business Management, IBID Press, 2014, pp. 1–595.

13
Chapter 2 - Strategic alliance with JD.com- The opportunity to achieve

future Growth success

Ecommerce (electronic commerce or EC) is the buying and selling of goods and

services over an electronic network, largely the internet.44 Ecommerce business

transactions happen either as business-to-consumer, business-to-business,

consumer-to-business or consumer-to-consumer.45

It’s generally understood that forming a strategic alliance is the quickest and most

effective way for a firm to achieve its growth objectives.46 However, it’s not always very

successful for firms which will now be discussed.

To form a strategic alliance, Walmart sold Yihaodian to JD.com, in June 2016, in return

for a 5% stake (145 million shares) in JD.com.47 In October 2016, Walmart further

grew its stake, in JD.com, to 10.8% with a further increase, in February 2017, to

12.1%.48

Walmart’s decision to form an association with JD.com is because according to the

US retailer, JD.com will remain one of the top ecommerce players in China. This is

evident as JD.com has been increasing at a better rate, over a period of time, (evident

from the following two figures) in terms of market share due to their logistical

advantages. JD.com is extensively improving their logistics as, for instance, by the

44
Target, Tech. “What Is e-Commerce (Electronic Commerce or EC)? - Definition from WhatIs.com.” SearchCIO,
1 June 2016, searchcio.techtarget.com/definition/e-commerce.
45
Target, Tech. “What Is e-Commerce (Electronic Commerce or EC)? - Definition from WhatIs.com.” SearchCIO,
1 June 2016, searchcio.techtarget.com/definition/e-commerce.
46
Teacher, Universal. “Advantages and Disadvantages of Strategic Alliance.” Advantages and Disadvantages of
Strategic Alliance, 10 Dec. 2016, universalteacher.com/1/advantages-and-disadvantages-of-strategic-alliance/.
47
Young, Vicki M. “Wal-Mart and JD.com Form Strategic Alliance.” WWD, WWD, 20 June 2016,
wwd.com/business-news/financial/walmart-jd-com-form-strategic-alliance-e-commerce-sams-club-yihaodian-
10463051/.
48
Horwitz, Josh. “Walmart's Future in China Increasingly Depends on a Single Chinese Company.” Quartz,
Quartz, 26 May 2017, qz.com/992623/walmarts-future-in-china-increasingly-depends-on-jd-com-alibabas-only-
rival/.

14
end of 2017, JD.com is planning to cover 100% of the provinces in China and has

spent $2.5 billion on their logistics business49 to improve its last mile reach.50

JD.com’s (also known Jingdong) share of B2C Chinese e-commerce sales increased

from 21.2% to 24.7%, in 2016 from 2014. This is evident from the following figures:-

49
Browne, Ryan. “Chinese e-Commerce Giant JD.com to Raise $2.5 Billion for a Stake in Its Logistics
Business.” CNBC, CNBC, 14 Feb. 2018, www.cnbc.com/2018/02/14/jd-com-to-raise-2-point-5-billion-for-a-stake-
in-its-logistics-business.html.
50
Carnette, Jamal. “Why JD.com Is Your Ticket to Investing in the Growth of E-Commerce in China.” The Motley
Fool, The Motley Fool, 18 Nov. 2017, www.fool.com/investing/2017/11/18/why-jdcom-is-your-ticket-to-investing-
in-the-growt.aspx.

15
Figure 6:- Market Share of Chinese E-commerce businesses in 201451

Figure 7:- Market share of Chinese E-commerce businesses in 201652

Therefore, JD.com’s increase in market share will increase Walmart’s own potential

customer base. This is because, according to the coalition, Walmart’s shops will be

put as a desired retailer on JD.com’s O2O JV Dada, China’s most crowded delivery

51
Team, Trefis. “Here's Why Changing Market Dynamics Should Worry Alibaba's Investors. Forbes, Forbes
Magazine, 2 Dec. 2014, www.forbes.com/sites/greatspeculations/2014/12/02/heres-why-changing-market-
Dynamics-should-worry-alibabas-investors/#34e9ed2643e3.
52
Joe. “Why Amazon and EBay Lost in China.” Marketplace Pulse, Marketplace Pulse, 24 May 2017,
www.marketplacepulse.com/articles/why-amazon-and-ebay-lost-in-china.

16
service.53 An increase in potential customer base, is because JV Dada is a popular

platform and hence a significant amount of online traffic would be reaching Walmart.54

2.1 Effective access to Chinese markets at Walmart’s footsteps

To determine how successful Walmart would be in accessing markets, in China, with

JD.com’s assistance, the Ansoff Matrix55 is considered. Under the Ansoff Matrix, with

the Strategic Alliance, Walmart has adopted market penetration (selling existing

products in an existing market) and market development (selling existing products in

a new market).56

Figure 8:- Ansoff Matrix57

Market Development Diversification

Market Penetration Product Development

53
Walmart. “Walmart and JD.com Announce Strategic Alliance to Serve Consumers across China.” Newsroom,
news.walmart.com/2016/06/20/walmart-and-jdcom-announce-strategic-alliance-to-serve-consumers-across-
china.
54
Walmart. “Walmart and JD.com Announce Strategic Alliance to Serve Consumers across China.” Newsroom,
news.walmart.com/2016/06/20/walmart-and-jdcom-announce-strategic-alliance-to-serve-consumers-across-
china.
55
Hoang, Paul. “Organizational objectives.” Business Management, IBID Press, 2014, pp. 1–595.
56
Hoang, Paul. “Organizational objectives.” Business Management, IBID Press, 2014, pp. 1–595.
57
Hoang, Paul. “Organizational objectives.” Business Management, IBID Press, 2014, pp. 1–595.

17
Market penetration, a low risk growth strategy, because as Carol Fung, president of

JD.com’s Fast Moving Consumer Goods, states “JD.com will set up pickup points in

Walmart stores to give consumers more delivery address options and pickup

solutions”.58

Therefore, Walmart has given customers more delivery options within their existing

market. Hence, Walmart’s distribution channel in China improves along with fast paced

deliveries. To further infiltrate their existing market, in 18 cities across China, 134

Walmart stores have combined with the JD Daojia platform to deliver products within

2 hours.59 This infiltration has been effective for Walmart as their sales on the JD

Daojia platform have been increasing over a period of time. This is evident as, in

comparison to January 2017, sales have grown by more than four times in June 2017

on JD Daojia platform.60

Market development, a medium risk growth strategy, because Walmart now delivers

products to customers in remote areas within China, which Walmart earlier didn’t have

physical or online stores in.61 As a result, the US retailer’s potential customer base

increases. To further strengthen their online presence in China, Walmart introduced a

Sam’s Club Flagship store (operated by Walmart) on JD Worldwide, JD.com’s cross-

border platform. Walmart will store Sam’s club produce in JD.com’s warehouses and

use JD’s countrywide logistics which allows Walmart to have access to an extensive

58
Zhuoqiong, Wang. “JD and Walmart to Expand Strategic Links in China.” JD and Walmart to Expand Strategic
Links in China - Business - Chinadaily.com.cn, 26 July 2017, www.chinadaily.com.cn/business/2017-
07/26/content_30248015.htm.
59
JD.com. “Walmart and JD.com Launch New Offerings to Expand Choices for China's Online
Consumers.” GlobeNewswire News Room, 20 Oct. 2016, globenewswire.com/news-
release/2016/10/20/880948/0/en/Walmart-and-JD-com-Launch-New-Offerings-to-Expand-Choices-for-China-s-
Online-Consumers.html.
60
Com, JD. “Walmart and JD.com Expand Strategic Cooperation.” GlobeNewswire News Room,
"GlobeNewswire", 25 July 2017, globenewswire.com/news-release/2017/07/25/1057519/0/en/Walmart-and-JD-
com-Expand-Strategic-Cooperation.html.
61
Wahba, Phil. “Walmart Is Pushing Reset on Its Online Business in China.” Fortune, 20 Oct. 2016,
fortune.com/2016/10/20/walmart-china-ecommerce/.

18
untapped market, thus expanding their potential customer base.62 Operating in new

cities has been profitable for Walmart as in the third quarter, 2017, Walmart

International stated that in China their comparable sales grew 2.5% while their net

sales have grown 4.0%.63

However, Walmart still faces major competition from a bigger ecommerce giant,

Alibaba. This can affect the success of the strategies undertaken by Walmart through

the strategic alliance.

Figure 9:- Alibaba’s Dominance in the Chinese Ecommerce Industry64

62
China, Walmart. “Walmart and JD.com Launch New Offerings to Expand Choices for China's Online
Consumers.” Newsroom, 20 Oct. 2016, news.walmart.com/2016/10/20/walmart-and-jdcom-launch-new-offerings-
to-expand-choices-for-chinas-online-consumers.
63
Insight, Logistic Trends. “Has Walmart Finally Figured out China?” Logistics Trends & Insights, LLC, 20 Nov.
2017, logisticstrendsandinsights.com/has-wal-mart-finally-figured-out-china/.
64
Investments, LD. “Alibaba Positioned To Benefit from China's Cross-Border E-Commerce Growth.” Seeking
Alpha, 13 June 2017, seekingalpha.com/article/4081167-alibaba-positioned-benefit-chinas-cross-border-e-
commerce-growth.

19
Also, according to the partnership, JD.com will set up its electronic products in

Walmart’s Shenzhen stores.65 This can create stiff competition for Walmart’s own

products, in China, which can hamper their sales. This is because customers visiting

Walmart’s Shenzhen store will now also have access to JD.com’s electronic products.

As a result, Chinese customers may choose JD.com’s products over the US retailers

especially because JD.com is one of China’s top internet companies66, and hence

there is a certain level of trust in JD.com.

Furthermore, in the future, there is a chance that there are potential disagreements

and disputes between Walmart and JD.com over decisions made in the strategic

alliance.67 These disagreements can arise because both these companies are

originated from different cultures and therefore the way of doing things might be

different. This can pose a problem for the efficiency of the strategic alliance in terms

of carrying out decisions effectively.

Therefore, this tool shows that through this strategic alliance, Walmart will be able to

penetrate its existing markets and begin to operate in new markets which has allowed

the potential customer base to increase.68 However, Walmart is now not only facing

stiff competition from Alibaba but also competition from JD.com’s products which are

now sold in Walmart’s Shenzhen store. There is also a likely problem of conflict arising.

65
Retail, Fung Global. “Walmart and JD.com Expand Strategic Partnership in China.” Coresight Research, 26 Sept.
2017, www.fungglobalretailtech.com/news/walmart-jd-com-expand-strategic-partnership-china/.
66
Long, Danielle. “Can JD.com Become One of China's Top Internet Companies?” The Drum, 12 July 2017,
www.thedrum.com/news/2017/07/12/can-jdcom-become-one-china-s-top-internet-companies.
67
Hoang, Paul. “Growth and Evolution.” Business Management, IBID Press, 2014, pp. 1–595.
68
Com, JD. “Walmart and JD.com Expand Strategic Cooperation.” GlobeNewswire News Room,
"GlobeNewswire", 25 July 2017, globenewswire.com/news-release/2017/07/25/1057519/0/en/Walmart-and-JD-
com-Expand-Strategic-Cooperation.html.

20
Chapter 3 - Impact, of the partnership with JD.com, on Walmart’s product,

place, promotion and processes

Through the extended marketing mix69, aspects including: - product, promotion, place

and processes will be covered and how the strategic alliance addresses these areas

will be discussed.

Product: - According to the collaboration between Walmart and JD.com, the US

retailer has, on JD Worldwide, introduced a Walmart Global Store. On this cross-

border platform, Walmart gives Chinese customers access to a range of quality goods

imported by Walmart from throughout the world.70 Walmart aims at continuing to

broaden and put different types of items as it connects a larger number of goods from

its assortment in other markets to China.71 Hence, a variation of goods will help

Walmart meet Chinese customer’s preference for a range of products thereby

increasing their potential customer base.

Processes: - The two retailers have deployed a backbend system and a jointly

developed supply chain to integrate inventory management.72 This involves JD’s

proprietary order management system analysing data from both organizations stock

systems, when a customer makes an order on JD.com, to decide whether a Walmart

69
Hoang, Paul. “The extended marketing mix.” Business Management, IBID Press, 2014, pp. 1–595.
70
JD.com. “Walmart and JD.com Launch New Offerings to Expand Choices for China's Online
Consumers.” GlobeNewswire News Room, 20 Oct. 2016, globenewswire.com/news-
release/2016/10/20/880948/0/en/Walmart-and-JD-com-Launch-New-Offerings-to-Expand-Choices-for-China-s-
Online-Consumers.html.
71
JD.com. “Walmart and JD.com Launch New Offerings to Expand Choices for China's Online
Consumers.” GlobeNewswire News Room, 20 Oct. 2016, globenewswire.com/news-
release/2016/10/20/880948/0/en/Walmart-and-JD-com-Launch-New-Offerings-to-Expand-Choices-for-China-s-
Online-Consumers.html.
72
NASDAQ. “Walmart and JD.com Expand Strategic Cooperation.” GlobeNewswire News Room, 25 July 2017,
globenewswire.com/news-release/2017/07/25/1057519/0/en/Walmart-and-JD-com-Expand-Strategic-
Cooperation.html.

21
store or a JD warehouse is closer to the customer and accordingly ship the product.73

The retailers launched pilot projects (to experiment the success of this project) for

integration of inventory in six cities: Shanghai, Beijing, Shenzhen, Wuhan, Guangzhou

and Chengdu. This system has improved delivery efficiency for Walmart as now

Chinese customers receive their orders within two hours74, which helps build a high

potential customer base for Walmart.

Place: - As part of the strategic alliance, Walmart has been able penetrate its existing

market in 18 cities across China and expand distribution links in these cities. In

addition, Walmart can now deliver products to customers in new remote areas across

China75, which has increased their sales.76 This will also enable Walmart to reconsider

opening 30-40 new stores and revamping existing ones.77 However, the opening of

30-40 stores is a plan and whether it has happened has not been published.

Promotion:- From, July 20th 2017, customers are given the opportunity to scan a QR

code at over 400 Walmart stores across China to get different types of coupons for

usage at Walmart’s online stores on JD.com, throughout the 8.8 shopping festival on

8th August 2017. This festival helps expand Walmart’s ability to reach 99% of the

nation’s public which JD’s delivery network covers.78 The festival allowed Walmart’s

73
NASDAQ. “Walmart and JD.com Expand Strategic Cooperation.” GlobeNewswire News Room, 25 July 2017,
globenewswire.com/news-release/2017/07/25/1057519/0/en/Walmart-and-JD-com-Expand-Strategic-
Cooperation.html.
74
Analysis, Supply Chain. “Retailers.” Supply Chain Analysis, 26 July 2017,
supplychainanalysis.igd.com/retailers/walmart/news-article/t/how-walmart-and-jdcom-are-developing-their-
strategic-relationship/i/17220.
75
Wahba, Phil. “Walmart Is Pushing Reset on Its Online Business in China.” Fortune, 20 Oct. 2016,
fortune.com/2016/10/20/walmart-china-ecommerce/.
76
Com, JD. “Walmart and JD.com Expand Strategic Cooperation.” Globe Newswire News Room,
"GlobeNewswire", 25 July 2017, globenewswire.com/news-release/2017/07/25/1057519/0/en/Walmart-and-JD-
com-Expand-Strategic-Cooperation.html.
77
Wang, Simon. “Financial Results Continue to Improve in 2016, To Continue Differentiated Competitive
Advantages in 2017.” Wal-Mart China: Newsstand of Wal-Mart, 7 Mar. 2018, www.wal-
martchina.com/english/news/2017/20170222.htm.
78
NASDAQ. “Walmart and JD.com Expand Strategic Cooperation.” Globe Newswire News Room, 25 July 2017,
globenewswire.com/news-release/2017/07/25/1057519/0/en/Walmart-and-JD-com-Expand-Strategic-
Cooperation.html.

22
fan following on Sam’s Club Flagship Store on JD.com to reach around 700,000, which

increases the US retailer’s potential customer base.79 In addition, the 8.8 shopping

festival offers savings throughout all Walmart and JD.com’s channels. This event also

features a livestream broadcast where customers can share their experiences to earn

rewards.80 Similarly, other shopping experiences, offered by Walmart and JD.com

include the 18th June Anniversary Sale in 2017. This has also been profitable, over a

period of time, for Walmart as during JD.com’s 18th June Anniversary Sale in 2017,

Walmart’s sales on JD.com expanded four times in comparison to sales made during

JD.com’s Single’s Day shopping festival on 11th November 2016.81

This tool shows, in the above 4 aspects, Walmart is rest assured as the potential

customer base is increased through better distribution links and promotional

strategies.

79
NASDAQ. “Walmart and JD.com Expand Strategic Cooperation.” GlobeNewswire News Room, 25 July 2017,
globenewswire.com/news-release/2017/07/25/1057519/0/en/Walmart-and-JD-com-Expand-Strategic-
Cooperation.html.
80
NASDAQ. “Walmart and JD.com Expand Strategic Cooperation.” GlobeNewswire News Room, 25 July 2017,
globenewswire.com/news-release/2017/07/25/1057519/0/en/Walmart-and-JD-com-Expand-Strategic-
Cooperation.html.
81
Banner. “Walmart Amps up Strategy for Upcoming Chinese e-Commerce Festival.” Crowdz - Corporate Info,
26 July 2017, zsupplychain.com/2017/07/26/walmart-amps-up-strategy-for-upcoming-chinese-e-commerce-
festival/.

23
Chapter 4 - A Competitive Advantage for Walmart

The VRIO Analysis takes into account whether a resource or a capability is valuable,

rare, costly to imitate and organized to capture value and whether this can give the

firm a sustained competitive advantage.82 Competitive advantage is a distinctive ability

of a firm to utilize its resources efficiently, manage to improve customer value and put

itself ahead of the competitors.83

In the case of Walmart, the capability is JD.com’s large distribution network, which

Walmart now has access to.

Valuable: - Through the large distribution network, Walmart gains a competitive edge

over Alibaba. This is because with JD.com’s extensive logistic system, there is control

over the fulfilment process: JD.com has superior control over the process as all

fulfilment is done by the Chinese retailer itself unlike Alibaba, who relies on third-party

logistics providers.84

Furthermore, JD.com is positioned at number one in terms of delivery personnel and

delivery services, according to a survey taken by the China Electronic Commerce

Research Centre in 2016.85 Therefore, Walmart’s distribution system improves,

thereby addressing their infrastructure problem.

82
Kadlecova, Barbora. “VRIO Analysis.” ManagementMania.com, ManagementMania.com, 28 Nov. 2016,
managementmania.com/en/vrio-analysis.
83
Course, My Accounting. “What Is a Competitive Advantage? - Definition | Meaning | Example.”My Accounting
Course, 1 Oct. 2017, www.myaccountingcourse.com/accounting-dictionary/competitive-advantage.
84
FGRT. “Deep Dive: JD.com-A Differentiated E-Commerce Platform.” Fung Global Retail & Technology, 3 Sept.
2016, www.fungglobalretailtech.com/research/deep-dive-jd-com-differentiated-e-commerce-platform/.
85
FGRT. “Deep Dive: JD.com-A Differentiated E-Commerce Platform.” Fung Global Retail & Technology, 3 Sept.
2016, www.fungglobalretailtech.com/research/deep-dive-jd-com-differentiated-e-commerce-platform/.

24
Also, as of December 2016, JD.com’s distribution network covers 2,655 counties in

China, which converts to national coverage of 92%86, proportionally more than

Alibaba. This, as a result, provides the US retailer with a large potential customer base.

Rare: - JD.com has one of the most enormous fulfilment infrastructures of any e-

commerce company around the world.87 Therefore, apart from JD.com itself, Walmart

is the only other firm which has access to one of the largest distribution networks.

JD.com has the following unique characteristics in terms of their distribution network:-
88

1. 6,906 delivery and pickup stations

2. Over 65,000 full-time delivery staff

3. Seven fulfilment centres in seven major cities across China.

4. 256 warehouses

More importantly, JD.com’s own sales have been increasing from time to time as a

result of improvements in their distribution network89 which is evident as JD.com

announced that there has been a 39% increase in their revenues to RMB 83.7 billion

for the third quarter of 2017.90

Hence, Walmart’s sales would also increase in the future as they also have access to

JD.com’s distribution network.

86
FGRT. “Deep Dive: JD.com-A Differentiated E-Commerce Platform.” Fung Global Retail & Technology, 3 Sept.
2016, www.fungglobalretailtech.com/research/deep-dive-jd-com-differentiated-e-commerce-platform/.
87
FGRT. “Deep Dive: JD.com-A Differentiated E-Commerce Platform.” Fung Global Retail & Technology, 3 Sept.
2016, www.fungglobalretailtech.com/research/deep-dive-jd-com-differentiated-e-commerce-platform/.
88
FGRT. “Deep Dive: JD.com-A Differentiated E-Commerce Platform.” Fung Global Retail & Technology, 3 Sept.
2016, www.fungglobalretailtech.com/research/deep-dive-jd-com-differentiated-e-commerce-platform/.
89
Long, Danielle. “Chinese e-Commerce Giant JD.com Reports Best Ever Quarter with $12.6bn in Revenue for
Q3.” The Drum, 14 Nov. 2017, www.thedrum.com/news/2017/11/14/chinese-e-commerce-giant-jdcom-reports-
best-ever-quarter-with-126bn-revenue-q3.
90
Long, Danielle. “Chinese e-Commerce Giant JD.com Reports Best Ever Quarter with $12.6bn in Revenue for
Q3.” The Drum, 14 Nov. 2017, www.thedrum.com/news/2017/11/14/chinese-e-commerce-giant-jdcom-reports-
best-ever-quarter-with-126bn-revenue-q3.

25
Costly to imitate: - The local Chinese governments have played a major role in

allowing JD.com to develop a large-scale distribution network. The Shaanxi provincial

government has allowed JD.com’s drones to conduct hundreds of low-altitude routes

within a 300 kilometre radius with area as large as 11,500 square miles.91

However, it’s important to consider that all Chinese firms, such as Alibaba, can

replicate these qualities of distribution as this option is available to anyone.

This is evident as in response to the association between Walmart and JD.com, in

2017 Alibaba spent $2.9 billion on Sun Art retail group, China’s largest hypermarket

chain.92 Spending on Sun Art allows Alibaba to take advantage of Sun Art’s ability to

connect virtual and offline worlds, boosting online orders while gathering valuable

customer purchasing data. Alibaba is betting that moving into ecommerce will rope in

large number of different shoppers and expand its own network into relatively

untapped Chinese remote areas.93

Therefore, Sun Art can not only allow Alibaba to penetrate into lower-tier cities but the

simple purpose of Alibaba’s spending on Sun Art is to beat Walmart in China.94 As a

result, in the future, this move by Alibaba can hamper the growth of Walmart in China.

91
Lin, Jeffrey. “In China, an e-Commerce Giant Builds the World's Biggest Delivery Drone. “Popular Science, 24
May 2017, www.popsci.com/jd-com-builds-worlds-biggest-delivery-drone#page-2.
92
Tong, Frank Nov. “Alibaba Spends $2.9 Billion to Try to Beat Walmart in China.” Digital Commerce 360, 20
Nov. 2017, www.digitalcommerce360.com/2017/11/20/alibaba-spends-2-9-billion-try-beat-walmart-china/.
93
Tong, Frank Nov. “Alibaba Spends $2.9 Billion to Try to Beat Walmart in China.” Digital Commerce 360, 20
Nov. 2017, www.digitalcommerce360.com/2017/11/20/alibaba-spends-2-9-billion-try-beat-walmart-china/.
94
Tong, Frank Nov. “Alibaba Spends $2.9 Billion to Try to Beat Walmart in China.” Digital Commerce 360, 20
Nov. 2017, www.digitalcommerce360.com/2017/11/20/alibaba-spends-2-9-billion-try-beat-walmart-china/.

26
Organized to capture value: - Walmart is efficiently taking advantage of the large

distribution network as with JD’s assistance the American retailer is delivering

products to customers across China within 2 hours, on the JD Daojia platform.95

The US retailer is also accessing untapped remote areas in China96, through the large

distribution network, thereby increasing Walmart’s potential customer base.

Therefore, given that JD.com’s distribution network is valuable, rare, costly to imitate

but only to an extent as other firms also have the option of expanding their distribution

network and organized to capture value, this gives Walmart a sustained competitive

advantage in the field of distribution.

This helps address the infrastructure problem that Walmart faced and hence allows

them to grow in China by increasing their customer base due to improvements in their

distribution network.97

95
NASDAQ. “Walmart and JD.com Expand Strategic Cooperation.” GlobeNewswire News Room, 25 July 2017,
globenewswire.com/news-release/2017/07/25/1057519/0/en/Walmart-and-JD-com-Expand-Strategic-
Cooperation.html.
96
China, Walmart. “Walmart and JD.com Launch New Offerings to Expand Choices for China's Online
Consumers.” Newsroom, 20 Oct. 2016, news.walmart.com/2016/10/20/walmart-and-jdcom-launch-new-offerings-
to-expand-choices-for-chinas-online-consumers.
97
NASDAQ. “Walmart and JD.com Expand Strategic Cooperation.” GlobeNewswire News Room, 25 July 2017,
globenewswire.com/news-release/2017/07/25/1057519/0/en/Walmart-and-JD-com-Expand-Strategic-
Cooperation.html.

27
 Figure 10:- VRIO Analysis of Walmart’s distribution network

Yes

Valuable Competitive advantage

Yes Competitive advantage

Rare

To an extent Temporary advantage

Costly to imitate

And

Yes
Is the firm organized to capture value? Competitive advantage

Yes
Sustained competitive advantage

28
Chapter 5 - Conclusion

In conclusion, the Strategic Alliance with JD.com allows Walmart to grow in China by

increasing their customer base by improving their distribution network.

This alliance takes advantage of the growing ecommerce industry quite effectively

which is evident because as discussed in the VRIO analysis, in select cities, Walmart

has launched a two hour delivery service for consumers making orders on JD Daojia.98

This has been successful, over a period of time, as in comparison to January 2017,

sales have grown by more than four times in June 2017 on the JD Daojia platform.99

Through the VRIO analysis, this coalition has allowed Walmart to gain a competitive

advantage over Alibaba100 in distribution by allowing the US retailer to have access to

JD.com’s expanding distribution network. However, there is also an issue as, in 2017,

Alibaba spent a lump sum amount on Sun Art to deliver products to customers in

remote areas.101 This can pose problems for Walmart future growth in China.

The Ansoff Matrix discusses that JD.com will be keeping its own electronic products

in Walmart stores. This can create stiff competition for Walmart’s products and, in the

future, may hamper the company’s sales.

Nevertheless, to a large extent, the association between the two firms will be

successful for Walmart increasing their customer base in China as in areas such as

98
China, Walmart. “Walmart and JD.com Launch New Offerings to Expand Choices for China's Online
Consumers.” Newsroom, 20 Oct. 2016, news.walmart.com/2016/10/20/walmart-and-jdcom-launch-new-offerings-
to-expand-choices-for-chinas-online-consumers.
99
Com, JD. “Walmart and JD.com Expand Strategic Cooperation.” GlobeNewswire News Room,
"GlobeNewswire", 25 July 2017, globenewswire.com/news-release/2017/07/25/1057519/0/en/Walmart-and-JD-
com-Expand-Strategic-Cooperation.html.
100
Kolakowski, Mark. “Why Amazon Is Losing to JD.com and Wal-Mart.” Investopedia, 11 Aug. 2017,
www.investopedia.com/news/why-amazon-losing-jdcom-and-walmart/.
101
Tong, Frank Nov. “Alibaba Spends $2.9 Billion to Try to Beat Walmart in China.” Digital Commerce 360, 20
Nov. 2017, www.digitalcommerce360.com/2017/11/20/alibaba-spends-2-9-billion-try-beat-walmart-china/.

29
logistics, the company has seen massive improvement which has translated into

improving their distribution system and, hence, increasing the potential customer base.

Walmart’s new belief shows the company’s understanding in China giving growth

opportunities: - “What we’re seeing is that customers want it all: They want to save

money, they want to save time, they want to access the merchandise they want and

sometimes be surprised by a new item, “They want to do it on a mobile device. They’ll

get all of that”.102

102
Bloomberg. “Wal-Mart Plans to Crack Chinese Market by Delivering Within Hours.”Bloomberg.com, Bloomberg,
19 Oct. 2016, www.bloomberg.com/news/articles/2016-10-20/wal-mart-s-china-revival-strategy-calls-in-jd-com-
and-its-drones.

30
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