Labour is an important factor that may determine the success or a failure of a company. It is especially true for organizations like Walmart, which rely on its employees both in operations and as an interface with customers. That is why the dynamics in the labour markets as well as the quality and availability of the labour force is a large determinant of the company’s success. Conversely, Walmart’s human resource strategy may have a profound effect on the employment situation in the country.
Economists typically identify three types of unemployment: frictional, structural and cyclical, which exceed the natural level of unemployment and usually result from market inefficiencies and the cyclical nature of economies (Rittenberg & Tregarthen, 2009). As the majority of people, who work for Walmart, do not require extensive education or training, the company is able to take advantage of the increasing unemployment in the country. Thus, frictional unemployment that related to the time it takes for the employees and employers to find each other can benefit Walmart, since many people seek a part-time job in Walmart stores, while looking for a more permanent employment. However, the company also suffers from market inefficiencies and information asymmetry, which leads to structural unemployment. This fact is related to the Walmart hiring campaigns that often rely on the word-of-mouth, thus capturing only a small number of potential employees (Walsh, 2010).
Structural unemployment arises from the mismatch between the skills of the available workers and employer’s expectations. This type of unemployment does not affect Walmart as much, since most positions in the organization do not require extensive knowledge or skills, therefore people can be easily trained to fit the jobs. Moreover, if the overall level of structural unemployment in the economy is high, the number of applicant for Walmart positions is likely to increase, since people, whose qualifications do not match the requirements of other employers, search for temporary employment in Walmart stores.
Cyclical unemployment is related to the cyclical nature of the economy in general. As Walmart is affected by economic contractions and expansions, it has to adjust its labour force accordingly. Thus, the company had to cut wages and layoff some workers during the recent global economic crisis (Beach, 2009).
The idea of employment can be viewed from a broader perspective to incorporate also external employees, who work for the company as a part of the outsourcing activities. Outsourcing is especially important for Walmart due to its constant aim to reduce costs and to achieve price-leadership. While the nature of retail business does not allow much outsourcing, since the company should be always in direct contact with the customers, Walmart could nevertheless benefit from outsourcing its manufacturing and back-office activities. The company has already undertaken several steps in this direction. Thus, most of the merchandize sold in Walmart stores has either been manufactured in China, or has some of the Chinese components. Moreover, the increasing number of Walmart IT projects and business applications are being done abroad (Mishra, 2009). This strategy does not only allow the company to reduce its labour costs, but also relates to its global strategy, thus achieving a more diverse labour force and facilitating knowledge and expertise exchange.
The criticism of outsourcing often relates to the fact that wages paid to the foreign workers do not contribute to the Gross Domestic Product (GDP) that is often used as a measure of the economy’s performance. Thus, for example, since Indian IT-specialists use the money earned from Walmart projects in India, the GDP of India, rather than that of the U.S., increases. However, outsourcing is often the “necessary evil” for American companies, such as Walmart, because it becomes the only way they can reduce their operating costs and remain competitive in the global market.
Although the slow economic recovery enhances consumer confidence, thus increasing consumption, the projections for Walmart performance in its most important market, the U.S., remain quite pessimistic. While the overall level of sales has increased across the U.S., some of the growth can be attributed to significant price-cuts initiated by the company. While such strategy is able to attract customers, who used to shop elsewhere, it has a negative effect on the company’s margins. Thus, despite an increase in Walmart’s sales, its operating income has declined to $6,387,000, 000 in the first quarter of 2012 (Forbes.com LLC, 2012). The strongest growth of the revenue and profits was observed in international businesses of Walmart, in particular in Mexico.
The increasing cost pressure is likely to create higher incentives for Walmart to outsource some of the activities to the low-cost destinations and to focus its attention on the international expansion. Thus, the company is trying to increase its presence in the Chinese market, where it can enjoy lower competition from established retail chains and higher profitability. The combination of outsourcing and internationalisation is likely to have a negative impact on the Walmart’s jobs in the U.S.
Labour force and employment have always been central to the strategies of individual firms and to the policies of the countries. Since Walmart is one of the major employers in the U.S., its employment strategy has a strong impact on the macro variables of the country. Therefore, it is crucial to understand and to evaluate the implications that outsourcing and international expansion of Walmart can have for the already high unemployment level in the U.S. In particular, since Walmart employment has been the “buffer”, which could provide temporary employment for people, who have become victims of structural and frictional unemployment in the economy, the effects of cyclical nature of the market may become more drastic for the U.S. economy as Walmart reduces its U.S. operations and hiring.
References
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Retrieved from http://chinadigitaltimes.net/2009/04/wal-mart-and-ernst-young-cut-
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Mishra, P. (2009, June 08). Wal-Mart to start outsourcing more to India the U.S. retailer is
considering TCS, Wipro and Infosys for $500 million outsourcing deal. Bloomberg
Businessweek, Retrieved from
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Rittenberg L. and T. Tregarthen (2009). Principles of Economics. Nyack, NY: Flat World
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Walsh, D. (2010). Employment law for human resource practice. (3 ed.). Mason, OH: South-
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