Introduction
Businesses in various sectors face lots of challenges in the environment that derive influences from different aspects in the markets. Most of those problems emanate from the operations of the organization itself while others are from the external facets of the markets. The retail industry stands as one of the most sensitive sectors of the economy due to the diversity of the products and services that they offer. For example, a single retailer can sell the goods of different manufacturers that present varying conditions in the market. Consider the fact that the regulations of oil products differ from those of food.
International operations present a challenge for any organization with the retailers having more risks. The challenges arise from the diversity that a retail enterprise faces in dealing with different producers in varying locations and policy environments. The interest of this report is to investigate the impact of government policies and regulation on multinational retailers like Wal-Mart.
Secondary Purpose
The interest, in this case, is also the influence of government policies on the retail industry. There are also various challenges relating to the retailers that participate in multiple countries that also need a perspective. Wal-Mart is one of the retailers that handles stores in different nations and experiences some of the challenges dealing with policies (Burkitt and Banjo par. 1).
Findings
Burkitt and Banjo (par. 1) published an article in the Wall Street Journal about the regulations on food products that the Chinese government implemented and how they are affecting Wal-Mart. The primary challenge is that the retailers get to carry a majority of the responsibilities in China which is unusual in other markets where the producers handle the adherence issues. That points to the first challenge that retailers face in international markets that arise from the variations policy and regulatory nature throughout the countries of participating. The companies have to use a similar business model through each of the nations that have differing policy environments, and that presents a challenge in establishing consistency. An operation that is acceptable in one location may violate the laws in another area, and that diversity increases the risks of business performance.
In the Wal-Mart Case, the company presents worries that the Chinese government is providing laws that are against the standards in other countries such as the United States. According to Wal-Mart, the producers of the food products are responsible for the quality and not the retailers (Burkitt and Banjo par. 4). For example, the makers of flour products are responsible for ensuring that the packages they send to the retailers meet the quality standards in the market. Therefore, if they fail to measure up to the regulations, the manufacturers should handle all the legal responsibility that includes. However, the Chinese government burdens the retailers with the liabilities of any failures in the products to meet the regulatory requirements as is the new policy. That reflects the challenge that other businesses such as Wal-Mart face in the markets. One act that is adherent to the regulations in one country presents a risk of litigation in the second location.
The aspects of shifting policies show the second challenge that the retailers in international markets face regarding unstable production costs that they incur. The market conditions in the different locations also imply that there are variations in fiscal policies and even the levels of liability in the event of litigation. For example, one country may have low tax policy requirements than the second one. In another perspective, a nation may have frequent regimes of instability concerning the implementation of fiscal and monetary policies that have a significant influence on the production costs (Gamble 717). For example, a raise in taxes implies that the company has to spend more into the relevant settlements, and that brings up their operational investment. That further increases the risk of business as it presents a difficult in establishing a strategy to ensure that the retailer can generate steady revenues. The fiscal and monetary factors also impact the levels of demand in the markets and that further affects the operations of the retail businesses. In the Wal-mart case, the retailer has to spend a further cost of testing the food products to ensure they meet the standards, and that raises their operational expenditure (Burkitt and Banjo par. 13).
Some of the instabilities in economic performance levels in a country also derive an influence from the political environment of that economy. The politicians of a country contain a level of control over the economic policies of a country, and they are a significant influence on the implementations. The retail companies stand in the way of various challenges when there are unstable political regimes in a nation. Wal-Mart serves as a good example due to the problems it gets from the Chinese environment that is still in the stage of constant policy amendments to enhance business and consumer conditions. There have been issues where governments implement policies that hinder the multinational corporations to improve the competitive environment for local companies (Burkitt and Banjo par. 5). That is the same case that Wal-Mart is facing in the Chinese market with the new policies that seek to enhance food safety. Some local companies indicate that their enterprises have not received any inspection or fines for the products that they sell as is the case with Wal-Mart (Burkitt and Banjo par. 8). Such instances present difficulties for the multinational retailers as each of the countries that they operate in provides distinct conditions. Some of the decisions similar to the case of China derive from the political pressures on the authorities to enhance the environment for local entrepreneurs at the expense of multinationals. A majority of the international retailers operate in significant volumes of inventories, unlike some local enterprises. Enacting such daunting policies increase the risk of those multinational in generating losses due to the inability to sell a significant share of their inventory. Another potential for losses arises from the fact that those retailers have to incur further costs in implementing the extra procedures in their supply chain operations.
Legal litigation presents another significant challenge for the international retailers, and that is a risk that the shifts in policy increase. Companies like Wal-Mart rely heavily on consumer perspectives to be able to participate efficiently in various markets (Gamble 707). Legal battles affect the image that consumers have about such enterprises especially when it is an issue of product quality as that is the primary facet for the customers’ considerations. The diversity of the policies increases the risks that those companies face through various countries and would raise the likelihood of non-compliance. The involvement of the businesses in legal issues affects their public image and relations that are important in influencing customers. For example, Wal-Mart is in the forefront to fight down the new policies in China (Burkitt and Banjo par. 6). That may alter consumer perspectives in the sense that the company is not willing to comply with policies that increase quality. The consequence is that the customers may opt to purchase from local retailers, and that hinders the multinational from realizing their full revenue potential.
Significance of Findings
The information in the Wal-Mart case provides a perspective of the challenges that multinational corporations face in international locations. The diversity that exists in the policies of various nations presents a significant challenge in handling the risks that arise for the enterprises. The findings in this report indicate that some of the instabilities in the regulatory environment derive from the politics of that region. The biggest problem is that the multinational retailers are not in a good position to negotiate or control the effects of such events in the foreign locations. However, Wal-Mart presents a good example by engaging with the Chinese authorities to consult about the implementation of the policies. There are various risks for the company with a majority of them hindering the ability of the enterprise to compete effectively in international markets. The Chinese case also reflects the bias that exists in the implementation of the new laws regarding local and multinational corporations. Such issues give an undue competitive advantage to one side of the economy while hurting the other.
Works Cited
Burkitt, Laurie and Banjo, Shelly. “Wal-Mart Cries Foul on China Fines”. Wall Street Journal. 2014. Web. 4 Apr. 2016. < http://www.wsj.com/articles/SB10001424052702304157204579473272856969150>
Gamble, Jos. "Transferring organizational practices and the dynamics of hybridization: Japanese retail multinationals in China." Journal of Management Studies 47.4 (2010): 705-732. Print.
Appendix 1: Memo to Professor Linzer
Company:
The report contains information about the risks that retailers face when they operaten in more than one country. The report uses Wal-Mart as a case study in the Chinese market to provide a perspective of the issues. The report is directed towards retailing enterprises that seek to expand their operations to international locations. An understanding of the risks would provide the companies with essential knowledge that can facilitate strategic problem-solving.
