How Walmart Inc can successfully enter Singapore market


Academic Paper, 2020

30 Pages, Grade: A

Difrine Madara (Author)


Excerpt


How Walmart Inc can successfully enter Singapore market

Executive summary

Singapore is the most developed economy in the Southeast Asia region with a GDP per capita of more than $90000. The country has a well developed retail sector buoyed with strong consumer base, high disposable incomes, high literacy rates and its strategic location. This presented a review of macro environment, competitive and SWOT analyses of the Singapore’s retail industry to determine how Walmart Inc can successful enter the market. The review found that the strength of Singapore lies on its favorable business laws and regulations, business-friendly tax rates and high disposable incomes among Singaporeans. Singapore is also highly developed in terms of physical infrastructure and serves as one of the busiest air traffic and sea port hubs in the world. The high disposable income and economic freedom makes it hugely attractive for retail business like Walmart.

Stable political climate and socio-cultural diversity also attracts new businesses to the country. However, the study found that corona virus pandemic and high labour and rental costs posed the biggest threats to Singapore retail industry. Nonetheless, the paper suggests adoption of franchising market entry strategy as the most appropriate. Franchising is the most appropriate approach due to low costs and reduced risks of failure. To be successful, the retailer must select a franchisee of good reputation and with a shared vision. Lastly, Walmart can select a franchisee and prepare to enter Singapore market after country opens up for business in the aftermath of the current pandemic.

Introduction

Globalisation is a complex process involving rapid social changes that transpire simultaneously across multiple dimensions in the world including politics, communications, physical environment, culture and economy (Keegan & Green, 2016). Due to these social changes, firms are increasingly diversifying their geographical scope to respond to changes in their markets and hedge risks. Establishing in different countries could help businesses to gain a competitive edge over others in the industry. For instance, global expansion allows firms to pursue new growth opportunities which do not exist in the domestic market and also exploit intangible assets such as brand equity, technology and skills among others (Scheide, Straubhaar, & Winkelmann, 2015). This paper explores how Walmart Inc can successfully expand into the Singapore market and maximize on opportunities in that market.

Market overview: Singapore

Singapore is a sovereign city state and an island nation located in Southeast Asia. The island is situated on the southern tip of the Malay Peninsula or the southernmost extremity of the Eurasia continent. The nation borders both Malaysia and Indonesia. The country has a population of 5.8 million people as at 2019 (Singapore Company Incorporation, 2019). However, more than 30 percent of people in this country are expatriates and international students. Buddhism is the most practiced religion in the country followed by Christianity. Singapore is a high income market economy that relies heavily on entrepot trade. Singapore is recognized as one of the Asian tigers alongside Hong Kong, South Korea and Taiwan but has so far surpassed the rest of the southeastern Asia countries in terms of GDP per capita (GuidemeSingapore, 2020). Globally, Singapore economy is considered one of the freest, most innovative and competitive countries. According to 2015 Index of Economic Freedom, Singapore was ranked as the most decade and easiest place to do business. Economist Intelligence Unit rated Singapore as the most expensive city in 2016 (CNNMoney.com, 2020). Among the developed countries, Singapore has traditionally had one of the lowest unemployment rates.

Singapore main trade partners are its Southeast Asian neighbours with China and Malaysia being the top two trade partners. Other main trade partners include Japan, Indonesia, Taiwan, South Korea, Saudi Arabia and Switzerland among others (Kamath, 2016). Companies in the United States and Europe consider Singapore as one of the best export hubs in the world due to favorable tax codes, lack of corruption, English speaking population and strong intellectual property protection. Some of the fastest growing industry sectors in Singapore include aviation and defense, ICT and digital technologies, energy and health care (Ahad M. Osman‐Gani & Ser Toh, 1999). Major infrastructure projects such as construction of Singapore Changi Airport Terminal 5, Singapore’s Next Generation Port Vision for Tuas Terminal, Deep Tunnel Sewerage System Phase 2 and redevelopment of Singapore’s oldest and largest hospital, renamed the Outram Campus and Community Hospital enhances the island’s position as a top business destination in Southeast Asia for companies from numerous sectors (Trade Chakra, 2020).

Business overview: Walmart Inc

Walmart Inc is an American multinational retail operator headquartered in Bentonville, Arkansas operating discount department stores, grocery stores and hypermarkets around the world. Sam Walton found the company in 1962 and it was incorporated on October 31, 1969 (Walmart, 2020). Walmart Inc engages in both wholesale and retail business and offers a wide range of merchandise and services at low prices. The business segments operating under Walmart Inc include Walmart U.S., Walmart International and Sam’s Club. The Walmart U.S segment is divided into brands such as Wal-Mart, Walmart Neighborhood Market and e-commerce operations while Walmart International manages hypermarkets, warehouse clubs, supermarkets and grocery stores outside the United States (Ahad M. Osman‐Gani & Ser Toh, 1999). Today, Walmart operates 11503 stores and clubs in 27 countries under 55 different names. Some of these names include Walmart in the United States and Canada, Best Price in India, Asda in the United Kingdom and Seiyu Group in Japan among others. According to latest financial information, Walmart is considered to be largest company in the world by revenue with US$514.405 billion according to the 2019 Fortune Global 500 list (Walmart, 2020). With 2.2 million employees, the company is also the largest private employer.

Industry sector: Retail industry

Retail industry generally encompasses activities involved in the selling of goods to customers and fulfilling their needs and expectations. When meeting the needs of the customers, retailers should ensure customer convenience, ease of access, convenience of size, value chain and other associated services such as delivery (McNett, 2015). As a country whose entire population lives in urban cities, the retail industry is very vital for sustainability of the city economy. In the recent past, the growth of the Singapore’s retail industry was associated with economic and social developments and population growth. Singapore also has a very high purchasing power. Currently, Singapore has more than 22000 retail establishments accounting for more than $42.5 billion of its GDP. The retail sector is largely made up of hypermarkets and supermarkets (Singapore Company Incorporation, 2019). French retail giant, Carrefour is the largest international retailer in Singapore. However, local supermarket chains such as Jason’s Supermarket and Tanglin Marketplace also command a significant market share.

Personal goods retailers make the largest proportion of the retail industry in Singapore accounting for 31.8% of all retail trades while general merchandise retailers account for 28% (Oktarina, 2020). Rising disposable income and consumer confidence are the main drivers of retail industry in contemporary Singapore. Despite having low population, high per capital income assists in the retail sector growth (Chohan, 2020). Singapore market is attractive to international retailers due to low entry barriers. Nonetheless, firms entering this market must be aware of the stiff competition posed by the domestic small and medium sized enterprises (Startup Decisions, 2015). The retail industry also faces the problem of high cost of doing business due to high prices of property and low productivity.

Why Singapore

Singapore is an economic epicenter of Asia. The city state is highly regarded as the regional business hub due to its advanced infrastructure, open business policies, and use of English as the official language, political stability and protection of intellectual property rights (Iswaran, 2015). Singapore is highly competitive and is considered the best place to do business globally. As a result, several multinational companies and small and medium enterprises have chosen to set up in the city. Apart from being an established reputable financial and regional trading center, it also hosts the world’s busiest port due to its strategic location and forward looking economic policies that has enabled it to become the gateway to Asia. Geographically, Singapore sits at a unique convergence of the West and East while the diversity of its population makes it an attractive destination for international businesses (Gollain, 2011). As a former British colony, the legal and financial measures resemble those in the UK and US. Singapore also benefits from its strategic position, network of trade agreements such as ASEAN Free Trade Area (AFTA) as well as extensive air connectivity.

Economic Environment Analysis of Singapore

Singapore’s economy is a vibrant free-market economy that continues to develop rapidly. The country’s GDP per capita is the highest in ASEAN. The GDP OF Singapore as of 2018 was $323.9 billion with a GDP per capita of $94,105 GDP Per Capita (World Bank, 2020). That is, Singapore is a high income economy. High income status translates to high disposable incomes for its citizens. Due to this, Walmart can benefit from a high personal consumption levels. This means that Walmart could experience massive increase in revenues by investing in Singapore due to high demand for household goods. At 3.91 percent, Singapore has one of the lowest unemployment rates in the world. Singapore’s corporate tax is a flat tax of 17 percent. The low tax regime makes Singapore an attractive destination for international businesses. As a result, it is one of the largest recipients of foreign direct investments (FDI). The fast growth of Singapore is attributed to a corruption-free environment supporting various business sectors and making the country one of the most competitive in the world.

Price stability is another factor that influences a country’s ability to attract new businesses. In the last five years, Singapore has had an annual inflation rate of 0.5 percent. In February 2020, the rate fell to 0.3 percent which is one of the lowest globally (Trading Economics, 2020). Low inflation rate means that Walmart will be able to predict future prices, wages and costs more accurately. Stability of low inflation rates means that the company can take riskier investments leading to higher growth in the long-term. In 2019, Singapore scored 89.4 in terms of economic freedom. This score meant that Singapore was the freest country globally and within the entire Asia-Pacific region (Index of Economic Freedom, 2020). To Walmart, investing in Singapore would mean that it enjoys equal treatment under the law just like any other domestic company. The country is open to a company like Walmart that has 100 percent foreign ownership. Furthermore, Walmart will easily access funds as there already several local and international banks that operates in Singapore.

Singapore’s economy is also highly diversified with sectors such as tourism and pharmaceutical also contributing significantly towards the GDP (Grabowski, 2012). Nonetheless, one cannot ignore hindrances to continued growth of Singapore economy such as shortage of labour, rising labor costs and decline in productivity. Despite these challenges, Singapore is ranked the 14th largest export economy in the world with its top exports including integrated circuits, semiconductor devices, refined petroleum, diamonds, gold, broadcasting equipment and computers etc (CNNMoney.com, 2020). The main importers of Singapore products are China, United States, Hong Kong and Indonesia. Recent economic survey indicated that the total value of Singapore’s export and import sector was 326.2 percent of GDP with a low applied tariff rate of 0.1 percent. In 2019, Singapore was a net exporter with export value standing at 153,315.500 SGD mn while import value standing at 121,377.500 SGD mn (Singapore Company Incorporation, 2019). Since 1981, Singapore has adopted a monetary policy that centers on management of the exchange rate. The primary objective of this policy is to ensure price stability which the government views as the basic foundation for sustainable economic growth. Singapore’s exchange rate is therefore relatively controllable using direct interventions in the foreign exchange markets. Through this, the government ensures that the exchange rate is stable and predictable. This approach shields companies operating in Singapore from dangerous price fluctuations and sustain their revenue making abilities (Haak & Haak, 2008). Due to this, Singapore has a stable and very low inflation rate. Walmart entering Singapore’s market means that it will also benefit from the stable exchange rates.

Singapore is a highly industrialized economy with the industrial sector contributing 25.2 percent of the GDP and employing 16.5 percent of the entire workforce (World Bank, 2020). The industrial sector is dominated by the electronics and petrochemical subsectors. Other important industrial subsectors include logistics, biomedical sciences and transport engineering. Elsewhere, service sector employs 82 percent of the population and contributes 70.4 percent of the GDP (CNNMoney.com, 2020). The main subsectors in the service sector include transport and communications, financial services, business services and trade. Port of Singapore is one of the most important ports in the world due to its strategic location and the fact that it is a regional commercial hub. The ranks second only to Hong Kong in terms of transshipment traffic (HE, 2011). Nevertheless, agricultural sector is almost non-existent except for cultivation of vegetables and fish for aquariums. Singapore also does not have mineral resources. The good performance of the country’s service and industrial sectors is also attributed to its human capital. According to World Bank Human Capital Index 2019, Singapore was ranked the best country in terms of human capital development (IMF, 2020). With strong funding from the government, Singapore has been able to strengthen the nimbleness and flexibility of its workforce through provision of continuing education.

In the two decades, Singapore has become the home to all the top industry players around the world due to both its proximity to the emerging markets and its geographical location at the heart of Southeast Asia. Singapore is well connected to the region with frequent inbound and outbound flights making business operations convenient and easier (Koning, 2017). As the country is heavily reliant on trade and FDIs, the country has invested in structural reforms that enable it to effectively engage with other trading nations and sustain or enhance its market accessibility. One way of doing so is by building strong free trade area (FTA) network which allows for the country’s economic space expansion and improve its long-term economic viability (Keegan & Green, 2016). Since it signed the first FTA under the ASEAN Free Trade Area (AFTA) in 1993, Singapore’s FTA network has expanded to include 21 bilateral and regional FTAs and 41 Investment Guarantee Agreements. The country is still negotiating more FTA agreements with several countries around the world. The primary role of these FTAs is to facilitate business and trading across borders and reduce the operational costs that Singapore firms incur internationally. These FTAs have also been vital in assisting Singapore-based businesses in strengthening their cross-border trade through elimination of import tariffs and provision of preferential access to the markets (Keong, 2008). FTAs have also eased investment rules and opened up more government procurement opportunities to Singapore-based companies.

Alongside multinational trade negotiations such as WTO, FTAs is one of the most effective tools used to support trade liberalization efforts (King, 2008). Some of the most common FTAs that Singapore have joined over the years include Agreement between New Zealand and Singapore on a Closer Economic Partnership (ANZSCEP), Japan-Singapore Economic Partnership Agreement (JSEPA), Singapore-Australia Free Trade Agreement (AUSSFTA) and US-Singapore Free Trade Agreement (USSFTA) among others. ANZSCEP was signed in 18 August 2000 and has led to elimination of considerable tariffs for most of the Singapore’s top exports to New Zealand. The FTA also gave Singapore companies and professionals equal and non-discriminatory access to New Zealand government tenders. JSEPA came into operation on 5 November 2002 while AUSSFTA became effective on 17 February 2003 (Lee, 2008). The two agreements opened up Japan and Australian markets for Singapore exporters in the plastic, transport equipment and pharmaceuticals as well as companies in the services sector. On 1 January 2004, USSFTA became effective. USSFTA covered areas such as movement of people, intellectual property protection, environment, and trade in goods and services and customs procedures among others. The FTA also stipulated procedures for dispute resolution. The US goods were also guaranteed zero tariffs and unfettered access to the Singapore market.

Singapore has attractive tax laws. The relatively low tax rates make it possible for foreign business entering Singapore market to make money. Singapore’s tax laws affect business bottom line through significant savings and exemptions. Due to low personal tax rates to Singaporean residents, the cost of goods from domestic suppliers is relatively low. Singapore is also considered to have some of the lowest corporate tax rates in the world. These low corporate tax rates of around 17 percent also make it attractive for foreign companies to relocate to Singapore (Lam & Ramakrishnan, 2019). Furthermore, non-resident corporations are exempted from taxes for the first three years. Moreover, the government of Singapore has Double Taxation Avoidance Agreements which protect suppliers from accumulating taxes on revenues from overseas trading activities. Singapore tax system is also considered a repatriation system as it allow businesses to repatriate funds back into the economy tax-free as a way of enticing currency back to the country (Petrakis, 2014). For instance, taxes do not apply for money being sent from a registered business partner. In a nutshell, Singapore offers an economic environment conducive for a retailer such as Walmart due to high disposable income which means high purchasing power. Walmart will also benefit from low tax rates and access to customers from various countries due to several FTAs that Singapore is a member.

Socio-cultural environment analysis of Singapore

Socio-cultural factors refer to shared values, attitudes and norms which are important for the society’s competitiveness (Keegan & Green, 2016). Previous studies indicated that socio-cultural factors impacted on a nation’s competitiveness by influencing the entrepreneurship, international cooperation, productivity and innovation. Singapore shares many of the socio-cultural values and norms with most of the southeastern Asian countries. For instance, the city state follows traditional family values though younger generations are increasingly following western culture and values. Singapore is also ethnically and culturally diverse. Ethnically, Singapore society can be divided into Malays, Chinese, Indians and expats from several countries around the world. The majority of Singaporeans are practicing Buddhists (70 percent). However, significant proportion of the population is Christians and Muslims. As a result, lifestyles of Singaporeans have remained multi-cultural with every ethnic community maintaining a unique way of life and living harmoniously (Plunkett, 2005). Due to influx of foreigners in the recent times, Singapore society has become cosmopolitan with people being amiable and courteous to each other.

Singapore is relatively similar to western nations culturally as its citizens tend to work hard to fulfill materialism desire. The materialism desire forms a big part of Singapore’s business customs and consumption values (Plunkett, 2005). As such, Singaporeans are hugely motivated by profit-making ventures. This means successful brands like Walmart would enjoy support when it enters the market. According to Lee and Ahn (2016), materialistic societies are big spenders. In this regard, Walmart could leverage on the above average spending of the people in the country. According to Hofstede’s cultural dimensions, Singapore had a score of 74 on power distance. This is attributed to the dominant Chinese Confucian background in the country (Hofstede Insights, 2017). This implies that there are unequal relationships among people in the society. That is, managers get directions from their bosses while employees wait to be told what to do. With a score of 20 on individualism dimension, Singapore can be said to be a collectivistic society. This means that people often look after each other in exchange for loyalty. Singapore scores 48 on masculinity dimension which is a cultural aspect that shows that there is empathy and sympathy for the underdog. Girls and women are encouraged to work hard and realize their goals. Walmart would therefore be able to access a highly diverse workforce.

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Details

Title
How Walmart Inc can successfully enter Singapore market
College
Kenyatta University
Course
International Marketing
Grade
A
Author
Year
2020
Pages
30
Catalog Number
V961652
ISBN (eBook)
9783346311597
ISBN (Book)
9783346311603
Language
English
Keywords
walmart, singapore
Quote paper
Difrine Madara (Author), 2020, How Walmart Inc can successfully enter Singapore market, Munich, GRIN Verlag, https://www.grin.com/document/961652

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