Analysis

Posted: January 4th, 2023

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Analysis

Walmart wishes to enter Taiwan as part of its international expansion strategy. To facilitate the choosing of the best mode of entry into Taiwan, SWOT, PEST, and country screening analysis are conducted for Walmart and Taiwan.

SWOT analysis

Table 1. SWOT analysis for Walmart

	Beneficial	Detrimental
Internal factors	Strengths Well-established and longstanding brand with recognition in the United States and around the worldLargest retail company in the world with huge financial muscleLarge, well-established, and efficient international sales, distribution, and supply chain networksOffers as wise range of products and private label brandsRobust e-commerce growthWell-managed everyday low prices (EDLP) pricing strategyHuge bargaining power over suppliers and competitors	Weaknesses Business model that can be copied easily by competitorsVery low profit marginsPoor reputation in the management of human resources and numerous litigationsUnable to compete against high-end specialty retailers
External factors	Opportunities Improving human resource practices to enhance competitiveness in the labor market and avoid litigationsExpansion into developing economies in Africa, Asia, Latin America, and eastern EuropeLeveraging the rapid growth of e-commerce around the worldAcquisitions and strategic alliances using its huge finances and strong brand recognition Improving product quality while maintaining the low pricing strategy to meet the needs of increasing health-conscious consumers	Threats Changing consumer lifestyles towards healthy livingFierce competition from small and large rivals, like Amazon, Alibaba, Costco, Carrefour and local e-commerce startupsOngoing US-China trade wars Increasing costs of labor and raw materials Cultural differences with locations outside English-speaking western countriesSusceptible to global economic downturns like the ongoing covid-19 pandemic

Sources:         Russel (par. 5)

                        Yoder, Visich, and Rustambekov (234)

                        Su (par. 4)

Hsu (para. 5)

Export Enterprise (pars. 1-8)

Trading Economics (par. 1)

PESTLE analysis for Taiwa

Political factors

The political status of Taiwan is complex, controversial, and unresolved because of the different perceptions from the People’s Republic of China (PRC), the international community of nations, and the citizens. To the Chinese, Taiwan is part of the People’s Republic of China and is therefore referred to as Chinese Taipei. However, to the Taiwanese, Taiwan is a sovereign state called the republic of China (ROC), which is a view held by 18 other countries across the world. More importantly, although the United Nations and the United States consider Taiwan as a de factor state, it places Taiwan in a complicated and disadvantaged position when dealing with foreign countries and having diplomatic relations. However, the United States has always supported Taiwan unofficially, and used this relation to spite China, especially during the ongoing covid-19 pandemic. Notably, the Taiwan Allies International Protection and Enhancement Initiative (TAIPEI) Act, which was signed into law by President Trump on 26 March 2020 and seeks to strengthen ties with Taiwan, is beneficial for trading activities between the United States and Taiwan (Larus par. 1). However, the continued restrictions from the People’s Republic of China many hinder economic activities between China and Taiwan. Altogether, the political uncertainty surrounding the country in the international space threatens foreign investors.

Economic factors

Taiwan is famed for being one of the four Asian Tigers because of its rapid growth. Therefore, the country enjoyed a high GDP per capita of $24,828 (nominal) and 55,078 (ppp) in 2019, providing the citizens with the disposable income needed to pursue modern lifestyles. The country’s economy has been growing at a stable rate of 2.7 %, but is expected to plunge to -4.0% in 2020, mainly due to the effects of the ongoing covid19 pandemic (Economic Enterprises par. 2). Nonetheless, the country is ranked 77.3 out 100 and 14 out of 82 in economic freedom and business environment respectively.  

Social factors

Taiwanese are concentrated in urban areas and increasing adopting modern lifestyles, such as living singly and eating out. Despite having an oriental culture that has Japanese and Chinese characteristics due to the longstanding influence from both countries, the Taiwanese have embraced some western lifestyles from the influence of the United States. For instance, people in Taiwan have developed modern western tastes, such as consumerism, as seen from the high concentration of convenient stores across the urban areas in the country (Su para. 3). However, the Taiwanese business environment is still characterized by collectivism and communitarianism, with hierarchical order, high regard for family bonds, and adherence to Confucianism, being prominent. In this regard, guanxi plays a critical role in business engagements in the country (Wang and Chen 111). Moreover, embracing the western culture has popularized English in the cities to supplement Mandarin and Hakka, thus narrowing the language barriers.

Technological factors

Taiwan is technologically advanced, considering that technological innovation and manufacturing is the mainstay of the country’s economy. Internet penetration and the use of mobile devises and social media are high, with internet usage standing at 96.2 % of the country’s population. In turn, e-commerce is becoming increasingly popular as businesses adopt B2B and B2C strategies to match customer demands.

Legal factors

Taiwan has a fast developing legal and regulatory regime to help the country integrate into the global economy. The country uses the civil law system, manly, although foreign laws are accommodated in business transactions, provided they are negotiated beforehand. The country has maintained a low and steady unemployment rate of 3.8 %, although this could rise to 4.4 % in 2020 due to economic effects of the coronavirus pandemic. Similarly, the minimum wage is $796.32 and rising, making the labor market more expensive compared to that of other countries in the region, such as Thailand and Vietnam, where it stands at $310 and $189, respectively.

Environmental factors

The country has experienced rapid environmental degradation as it underwent rapid industrialization. Massive deforestation, rapid urbanization, and pollution from the steel and petrochemical industries, which are largely owned by the government, are responsible for the deteriorating environment. However, increased environmental activism and the engagement of highly qualified lawyers, is facilitating the development of rules and regulations to conserve and protect the Taiwanese environment. The environmental protection agency (EPA) is a quasi-ministerial agency that oversees the protection of the environment across the country (Grano par. 14). However, environmental protection competes with political interests and economic development, with the effectiveness of the well-developed legislative being diminished by poor enforcement.   

Country screening analysis for Taiwan

Taiwan is compared to the Russian Federation as the benchmark country, which Walmart has been considering due to its improving economic conditions, changing consumer preferences, and huge population. Indeed, Russia has been in Walmart’s radar for a long time and it is yet to overcome its caution despite other retailers having ventured into the expansive nation (Kiselyova par. 1). Tables 2 summarizes the analysis of Taiwan while table 3 present the findings from the country screening analysis of the Russian Federation.

Table 2. Analysis of Taiwan

Variable	Metric	Weight	Rating	Partial sum
Benefits
Size of economy	GDP per capita (ppp) in 2019 was $55,078	0.15	9	1.35
Projected economic growth rate	3.5 % in 2021	0.15	5	0.75
Costs
Corruption	28th least corrupt out of 180 countries in 2019	0.05	8	0.40
Infrastructure	Metro rail, road network	0.05	7	0.35
Legal costs	Ease of doing business ranking and score (position 15 with a score of 80.9)	0.05	7	0.35
Risks
Social unrest/antibusiness trends	No of riots in 2019 (none, just protests)	0.10	8	0.80
Economic mismanagement	No of prosecutions (No cases)	0.05	5	0.25
Failure to safeguard property rights	Number of violations (No cases)	0.05	5	0.25
Retail industry
e-commerce penetration	96.2% internet penetration in 2018	0.10	9	0.90
Competition level	Number of retailers (high concentration of convenient stores – 1 for every 2,500 people)	0.10	5	0.50
Market size	Country  population (23.6 million people in 2019)	0.15	2	0.30
Overall attractiveness	6.20
Maximum score  (Totals )	1.00	10	10.00

Table 3. Analysis of Russia

Variable	Metric	Weight	Rating	Partial sum
Benefits
Size of economy	GDP per capita (ppp) in 2019 was $29,642	0.15	5	0.75
Projected economic growth rate	3.5 % in 2021	0.15	5	0.75
Costs
Corruption	137th least corrupt out of 180 countries in 2019	0.05	2	0.10
Infrastructure	Metro rail, road network	0.05	7	0.35
Legal costs	Ease of doing business ranking and score (position 28 with a score of 75.8)	0.05	5	0.25
Risks
Social unrest/antibusiness trends	No of riots in 2019 (none, just protests)	0.10	8	0.80
Economic mismanagement	No of prosecutions (No cases)	0.05	5	0.25
Failure to safeguard property rights	Number of violations (No cases)	0.05	5	0.25
Retail industry
e-commerce penetration	81% internet penetration in 2018	0.10	8	0.80
Competition level	Number of retailers (low concentration of retail stores except in Moscow and St Petersburg)	0.10	3	0.30
Market size	Country  population (145.9 million people in 2019)	0.15	5	0.75
Overall attractiveness	5.35
Maximum score  (Totals )	1.00	10	10.00

Key:    Rating of variables is scored from 0-10 (0 = lowest score, 10 = highest score)

            Partial sum is weight * rating

The size and growth rate of the economy, and the population were weighted the highest (0.15) when analyzing countries due to their significant influence on the retail industry. In this regard, many people with higher disposable income are likely to shop more, thus benefiting retailers. In turn, the costs and risks of doing business were weighted the least (0.05) due to the medium to low threats they presented retailers in the countries and the low likelihood of disrupting the retail activities therein.

Taiwan scores 6.20 compared to Russia’s score of 5.35 out of the possible 10 points using the country screening tool. Taiwan’s attractiveness due to its high internet penetration, ease of doing business, and large per capita GDP, which is tempered by the political uncertainties, small population, and extremely high competition in the retail sector. In turn, Russia’s high population and low competitiveness in the retail industry do not overweigh its lower per capita GDP, difficulty in doing business, lower internet penetration and high corruption index. The expansiveness of Russia with its diverse cultures, along with the poorly-developed infrastructure in the Russian countryside and the classic Russian bureaucracy weigh heavily against the attractiveness of the country (Wendlandt and Plis par. 20). Consequently, Taiwan is more attractive to Walmart than Russia due to mainly the high internet penetration, more conducive business environment, and geographic location.

Works Cited

Export Enterprises. “Taiwan: Economic and political overview.” Nordea Trade, May 2020, www.nordeatrade.com/en/explore-new-market/taiwan/economical-context. Accessed 20 May 2020.

Grano, Simona. “Environmental issues facing Taiwan.” Brookings, 9 November 2015, www.brookings.edu/opinions/environmental-issues-facing-taiwan/. Accessed 20 May 2020.

Hsu, Jenny W. “Alibaba tech brings RT-Mart from old to new retail.” Alizila, 20 June 2018, www.alizila.com/alibaba-brings-rt-mart-from-old-to-new-retail/. Accessed 20 May 2020.

Kiselyova, Maria. “Analysis: Cautious Wal-Mart missing out on Russia’s retail boom.” Reuters, 5 April 2020. www.reuters.com/article/us-walmart-russia/analysis-cautious-wal-mart-missing-out-on-russias-retail-boom-idUSBRE8340KT20120405. Accessed 30 May 2020.

Larus, Elizabeth Freund. “The TAIPEI Act: Well-intended but uncertain?” Taiwan Insight, 27 April 2020, www.taiwaninsight.org/2020/04/27/the-taipei-act-indicates-congressional-support-for-taiwan-but-implementation-is-uncertain/. Accessed 20 May 2020.

Russel, Cally. “Who are the 10 biggest retailers in the world?” Forbes, 9 January 2020, www.forbes.com/sites/callyrussell/2020/01/09/who-are-the-10-biggest-retailers-in-the-world/#436a00593802. Accessed 20 May 2020.

Su, Sonia. “Shrinking supermarkets: A recipe for success?” Taiwan Business Topics, 20 September 2018. www.topics.amcham.com.tw/2018/09/shrinking-supermarkets-a-recipe-for-success/. Accessed 20 May 2020.

Trading Economics. “Taiwan minimum monthly wage: 1978-2020.” 2020, www.tradingeconomics.com/taiwan/minimum-wages. Accessed 20 May 2020.

Wang, Chao-Hung and Kuan-Liang Chen. “‘Guanxi: competitive advantage or necessary evil?’ Evidence from high-tech firms in Taiwan science parks.” Review of International Business and Strategy, vol. 28, no. 1, 2018. pp. 110-127.

Wendlandt, Astrid and Maria Plis. “Wal-Mart eyeing Russia’s Lenta: Sources.” Reuters, 12 May 2010. www.reuters.com/article/us-walmart-lenta/wal-mart-eyeing-russias-lenta-sources-idUSTRE64B3XL20100512 . Accessed 30 May 2020.

Yoder, Samantha, John K. Visich, and Elzotbek Rustambekov. “Lessons learned from international expansion failures and successes.” Business Horizons, vol. 59, no. 2, 2016, pp. 233-243.