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Wal-Mart Bulks Up China Expansion Strategy

Wal-Mart Stores Inc. has teamed with CITIC Pacific Co. Ltd to ramp up its expansion plans in China. Wal-Mart will open hundreds of stores there in the next five years with backing from its Hong Kong-based partner.

CITIC will own a 35 percent stake in the venture that it will purchase from the Chinese government. Wal-Mart owns the other 65 percent. It is the first time Wal-Mart will team with another private firm in China. Up until Jan. 1, foreign firms were prohibited from owning 100 percent of retailing ventures, so Wal-Mart had to work with the Chinese government. CITIC will invest billions of yuan to help Wal-Mart expand from its current base of 40 stores.

The venture will cover Shanghai and the east coast provinces of Zhejiang and Jiansu. Wal-Mart has different partners in the other regions of China.

Wal-Mart is attempting to gain greater market share in China's $240 billion retail market. It will compete with international chains such as Germany's Metro AG, France's Carrefour and Britain's Tesco Plc., which will be able to compete more easily now that the foreign ownership restrictions have dropped.

Expansion in China will enable Wal-Mart to maintain its ambitious growth strategy, especially in light of the growing backlash to the chain's proliferation within the U.S. It's plans call for as many as 250 new Supercenters within the U.S. this year. But analysts are skeptical that Wal-Mart will be able to keep that pace going indefinitely in the U.S.

The concept "is going to have to reach the saturation level before too long, and that's a problem because there's no way they can keep up their revenue growth without adding stores," one broker says. So Wal-Mart will either have to look to grow even more internationally or else invade new sectors of the retail industry, such as opening pharmacies or even banking or car rentals.

Growing in China will also give Wal-Mart a greater presence in the country where up to 80 percent of its 6,000 suppliers are now based.

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