Maoming, Wuhu and Loudi. They're Chinese cities so far in the boonies that Lonely Planet doesn't even mention them in its travel guide. But Wal-Mart has found them.

The American mega-retailer is making an aggressive push into China's smaller markets as economic growth spreads to the hinterlands. Only three of the 30 outlets Wal-Mart opened in China last year were in what it calls major cities: Shanghai, Beijing and Shenzhen. The rest were in provincial capitals or other smaller cities.

The expansion is a key part of Wal-Mart's attempt to gain a bigger foothold in what could become the world's largest retail market. Faced with saturated markets at home, Wal-Mart and other Western retailers are increasingly looking to emerging economies such as China to drive sales growth.

"I think the capacity for growth in China might exceed that of the United States, if you look at it in the long term," Terrence Cullen, Wal-Mart's vice president of development in China, said in an interview in his office in Shenzhen, the southern boomtown across the border from Hong Kong.

Wal-Mart said its China sales rose 32.2 percent in the second quarter, while international sales overall were up 16.9 percent.

But experts warn there are risks in the Chinese market. People are not as well-off, so it's harder to turn a profit. Local suppliers may be less reliable, a concern in a country plagued by quality scandals.

Moreover, the big-bang growth strategy - opening stores across China - requires a bigger investment than the gradual expansion the company pursued during its early days in the US.

Two of the newest stores are in Loudi, a steel and mining town of 4 million people in central China. It's just down the road from Shaoshan, the birthplace of late Chinese leader Mao Zedong.

In many nations, Loudi would not be considered a "smaller market." But it is by the standards of China. Wuhu, in eastern China, has 2.3 million people, and Maoming, in the south, has 6.8 million.

The need to satisfy sharply different regional tastes is one of the challenges Wal-Mart faces in smaller markets, said Dean Xu, professor of strategy and business at the University of Hong Kong.

Wal-Mart will have to source many goods from local suppliers, potentially raising quality issues. "If there is one incident, it can ruin your company's reputation," Xu said.

(Shanghai Daily October 20, 2008)