INTRODUCTION:
Walmart is one of the largest retailers of groceries, pharmaceuticals, medicines, and home entertainment products such as movies, and children action figures. Walmart works on the principle of always providing “lowest possible costs” to the customers. The slogan used by the company since its inception is “Low Costs – Always”. Walmart has been able to live up to its name and has always provided goods at cheaper rate than its competitors and other retailers in the country. Currently, Walmart is present in many countries around the world. Some of the prominent countries where it is present are the USA, the UK, China, and other parts of Europe.
Walmart is a truly global company which full aware about its corporate social responsibility and at the same time it using modern technology to modernize its operation and streamline its processes through business process reengineering. The company has achieved great success around the world, and plenty is on its way as company enters the fast growing economy of the world, i-e China.
China is ruled by the communist party and it is considered that it is not ruled very well. However, the country never fails produce economic and business friendly policies for the new and existing businesses. China has experienced a period of economic revolution like no other country in the world. It is economically very strong and by every passing year it getting more robust. Technology is also enjoyed in China with a major part of the population having an access to internet and the businesses making use of modern technology to reach out to far flung markets.
Socially, there is widespread corruption in China and this is tough for businesses in China. Despite having an 86% literacy rate, China has not been able to become one of the most civilized nations of the world. (Channey and Martin, 2010)
There is also an abundant labor in China. This has helped businesses in China a lot. Walmart will also enjoy great success if it enters China as the labor is very cheap and abundant in this part of the world.
It is also worth looking at some of the major macroeconomic indicators to determine the challenge that Walmart is facing in China and what can be done to improve the situation and where does the company needs to enhance its expertise, core-competencies and skills.
GDP GROWTH RATE:
GDP growth rate, or gross domestic product growth rate shows the growth in the total value of goods and services produced in an economy over the last year. For example, if the good produced last year were $100, and this year the production has increased to $110, then we’ll say that the GDP of an economy has grown by 10%. Using the similar concept, the graph clearly shows that the economy of China is growing faster than the economy of the United States of America. The presence of Walmart in China will be more beneficial as it will be able increase its business fast in China. Hence, Walmart has more chance of income growth, sales growth and volume increase in China as compared to the United States of America. This is an opportunity for Walmart China and a good sign for Walmart as whole. Their presence n China should be considered as an important part of their overall portfolio. Hence, an increase in the business in one country is going to benefit the profitability of the entire business. The graph is showing a declining trend toward 2008-2009, this was due to the financial crises. Overall, the growth of China has been around 3 times the growth of the USA’s GDP.
GDP Per Capita:
The table above is an important determinant of purchasing power in two countries. The table clearly shows that an average American can spend $10 for every average Chinese spending of $1. This is an important and powerful factor. It shows that the business in the USA is more fruitful due to high purchasing power of the people. The people in the United States of America can spend more money and hence Walmart is likely to generate more money from their business in the USA as compared to their business in China. It also means that despite low GDP growth rate in the USA, the general public is richer and Walmart is likely to get major chunk of their business from the United States of America. In other words, despite low growth rate, it is very important for Walmart to treat their USA segment of the business very carefully as it is very important market. This segment will generate bulk of the sales for the company despite low GDP (Gross Domestic Product Growth Rate).
Inflation Rate:
The inflation analyses are very important in determining the future course of action. The inflation rate in the USA is more stable as compared to China. Over the period of past 10 years from 2000-2011, it can be seen that the inflationary shocks are greater in China and more stable in the USA. The low rates of inflation and stable rates will help Walmart in planning for its future. The shocks experience by China is going to make life more difficult for the management of Walmart. The managers in the China division will need to close on these inflationary shocks and should try to predict them for their future business planning. It will help them to forecast and control their supply chain. Since slow growing inflation and rising rates is a motive for business to work harder, the USA economy is continuously experiencing inflation in the region of 1.5%-2.5%. Hence, it can be concluded that the economy of the United States of America is more conducive for business and Walmart will enjoy greater success in terms of business profitability and marketing planning in the United States of America than in the volatile market of China.
Unemployment Rate and Cost of Doing Business:
The Unemployment rate of a country can tell two things. First of all it tells the state of an economy and secondly it tells the overall purchasing power that people. We can clearly see that China has been more successful in keeping the unemployment rate down. This again is an important piece of statistic. It tells Walmart, that it will do well in China since there are more people employed. Walmart target SEC A, SEC B+, and other middle class markets. More people employed mean the presence of more people in this segment. Hence, Walmart will have more people to serve in China and chances of more growth and sales. Although, the GDP per capita is greater in the USA, the employment statistics show that China is a winner in terms of the ability of people being able to purchase goods and services from Walmart. Walmart offers low costs to its customers, hence it is very popular in middle, and upper middle class families. This is very encouraging for Walmart. If it is operating in both the USA and China, and jobs in the USA are being lost due to China taking up the overall manufacturing business, then Walmart will cover its sales from China. For example, the unemployment of the manufacturing workers will result in an increase in employment for the China’s manufacturing workers, and since it is present in both countries, it will not be affected very much. If it was present only in the USA, it would have hit the company harder, as it implies loss of purchasing power and loss of sales.
Interest Rate of Discount rate is also referred to as the cost of doing business. Again the USA government has done well as compared to the Chinese government. The equilibrium is achieved in the USA’s loanable funds market through a policy of keeping the interest rates very stable. On the other hand, China seems to be experimenting with the changes in the interest rate. In the last few years, the real interest rate level of China has gone to negative showing that the inflation in the country is greater than the interest rate or the discount rate that is being commanded by the central and commercial banks of the company. However, Walmart can benefit from borrowing funds from China even if it needs funds for the American segment of its business. The funds are more freely and cheaply available in China as compared to in the USA. This will help Walmart in reducing its costs of borrowing money and making use of money at cheaper rates. It will not only increase the profitability of the company, but it will also allow the company to be more flexible in meeting its long term and short term funding and debt requirements. The presence of a company in two or more countries is meritorious and the case Walmart proves just that. Often notice worthy trends in both the countries is that the interest rate level in both countries is facing a downward trend. This will increase the overall purchasing power of people and Walmart is going to experience an increase in sales in both countries. In China, the interest rate level is lower than in the USA, and hence the magnitude of this increase in sales is going to bigger than that of China.
General Balance of the Governments:
The government general balances of public debt as a percentage of GDP shows how much money is the government pumping into the economy. The United States of America is constantly pushing 60% of the GDP value in the economy constantly. Again, the trend of China is very fluctuating. It seems that China is experimenting with the numbers to find out the ideal percentage of public debt and has yet not been able to achieve the equilibrium. This is an important discovery. The purchasing power of people in the United States of America is high because of the government initiative of always spending more money in the economy. On the fiscal side, the USA government has always adopted an expansionary fiscal policy. The government of China has yet not been able to settle on one single policy yet. This means that Walmart USA can continue to get high volume of stable business, whereas there will be fluctuation in the Chinese division.
EXCHANGE RATES:
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Source: (IndexMundi, 2014)
The table above clearly shows that the currency of China has appreciated over the past few. It was due to the pressure put on China by the United States of America and International Monetary Fund (Economist, 2014). This has done two things for Walmart. Firstly, it has increased the value of FDI of Walmart in China. FDI or Foreign Direct Investment is the money invested by Walmart in China for building its assets such as property for stores, vehicles and purchasing building for offices. The impact of increase in Yuan would be the increase in the overall investment of Walmart in China. The second impact of increase in Yuan will be that people will now prefer imported goods as local goods will automatically become expensive. This will reduce the business for Walmart in China. At the same time, it will increase the business of imported goods. Hence, Walmart needs to streamline its operations in order to make sure that they are well prepared in case of future exchange rate shocks are experienced (Yu, 2014). The net impact of these shocks is both negative and positive. It increases the value of investment in a foreign country, but at the same time it decreases the business volume. The best option for Walmart is to remain price competitive in order to make sure that it is not hurt by future changes in the exchange rate.
BALANCE OF PAYMENT:
The limited data above and the two graphs clearly show that China is a net exporter, whereas the United States of America is a net importer. In other words, the value of exports of China is greater than its imports, and the value of exports by the United States of America is less than the value of imports. It means that the purchasing power of people in China will increase in the long run as there is a constant injection of funds in the Chinese economy from an external sector. This is another important finding because it tells us that there will always be more money in the hands of Chinese people in than the Americans as there is a leakage of money from their economy. Walmart has a portfolio of investment in both countries, and as a result it is likely to remain unaffected by the scenario as the decline in sales in one country is always offset by an increase in the sales in the other country. This shows that the management of Walmart has planned very carefully before their proposed expansion to China. They knew that the USA is a net importer, and they target a net exporter like China in order to make sure that their position is safe and hedged as both markets are likely to have a negative correlation. (Van Horne and Wachowicz, 2008)
CONCLUSION:
It can be concluded from the above discussion that China is ideal for every business, and Walmart is no exception. However, Walmart is coming from the US, and has a different culture, but in China things will be a lot different. Not just the economy will be different, but the overall social and political environment will be different. The company and management will need to adapt to the changes and difference in the environment in order to succeed and do as well as they are doing in the USA.
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