Wal-Mart pulls out of joint venture, but not out of China - Wal-Mart Stores Inc

Discount Store News, Feb 5, 1996 by Richard Halverson

BENTONVILLE, ARK. - Although dropping its Thai joint venture partner for China, Wal-Mart remains committed to expansion in China, taking its involvement to the highest levels of China's central government.

Wal-Mart is going "full speed ahead" on China, ceo David Glass told Peter Monash, an international retailing consultant for the chain.

But instead of negotiating for store approvals at the local level, as it did for its first stores, Wal-mart is talking directly with the State Council, China's cabinet, to build two stores. They would probably be in Shanghai and involve a local joint venture partnership for each store, as Chinese law requires.

China's top leadership, therefore, would be giving its blessings to the new stores, Monash said.

Wal-Mart is seeking new national partners to further build expertise, said Jay Fitzsimmons, senior vice president of finance for Wal-Mart.

In announcing the split with its Thai partner, Bob Martin, president and chief executive of Wal-Mart's international division, said, "The joint decision benefits the Chinese consumer by expediting the retail development of each company.

"Support and assistance of the central government has been key to, our progress and has been instrumental to Wal-Mart's long-term commitment to the People's Republic of China.'

With growth slowing in the United States, expansion in Asia has long been a goal of Wal-Mart's.

With the approval of local authorities, Wal-Mart, along with its previous Thai partner, CP, will open later this year its first Chinese supercenter and Sam's Club in Shenzen, across the border from Hong Kong.

Wal-Mart and CP will continue to own jointly the first units, along with their Chinese partners.

Wal-Mart and CP must retain their two local partners for the Shenzen stores since Chinese law forces foreign retailers to take a national partner for each new store.

In addition, under the separation agreement with Wal-Mart, CP is taking over the supercenters now under construction in Shanghai and Shenyang. Moreover, Wal-Mart is bailing out of the three Value Clubs in Hong Kong that it owned in partnership with CP. All three miniclubs of 10,000 sq. ft. to 20,000 sq. ft. are doing poorly and are playing second fiddle to Grandmart, a locally owned club chain that appears to be more successful.

The Hong Kong Value Clubs "are no great loss to Wal-Mart," Monash said.

The split between Wal-Mart and CP stemmed from the issue of control over store sites and merchandise, U.S. industry sources said. Value Club was a CP concept.

Control of the new stores Wal-Mart plans would be kept in the hands of Chinese investors, the Journal of Commerce reported, and the proposed new stores would be allowed to import and export goods. Currently, foreign-run stores approved by local authorities may only sell Chinese goods.