Wal-Mart tries globalization again
Wal-Mart, in spite of reverses in countries like Germany, Argentina, and .South Korea, the retail juggernaut bought a major Chinese hypermarket chain in a $1 billion-dollar deal.
The company acquired is Trust-Mart, owned by private investors in Taiwan. The purchase will make Wal-Mart the #1 retailer in China, adding 30 stores to Wal-Mart's current holsings 66 and 20 in the planning stages.. The arrangement is that Wal-Mart will take over Trust-Mart's remaining 70 stores in stages over the next few years. That surpasses French rival Carrefour, which was also bidding for the Chinese chain. Of course, both of these have a small overall market share, but they do have a possible platform for growth. And the retail market in China is growing fast.
According to a Bloomberg wire story "Wal-Mart Plans to Double China Stores With $1 Billion Takeover", 10/17/06), "Wal-Mart wants to generate a third of its revenue and profit overseas, compared with a fifth currently." With stagnant operations in Japan and the UK, along with slower US growth. Wal-Mart really needs its China gamble to pay off big.
One of the great ironies is that Wal-Mart is making this buy just as China is ramping up its antitrust regulation. The fear of a foreign company and a potential market dominator may make getting approval for the buy harder sledding than it would have been a year ago, (And Wal-Mart has been in talks with Trust-Mart for longer than that.)
Even with the purchase (if it is approved by Chinese regulators), the road to retail domination in China will be hard. As a Wall Street Journal article ("Wal-Mart to Buy Grocer-Retail Chain in China",10/17/06) explains:
Penetrating China's market has been challenging because it is highly fragmented with tight profit margins and dominant local players, and getting approvals to open new stores can be a slow process. So foreign companies have been on the hunt for acquisitions.
