Wal-Mart: How the Corporation Affects

Wal-Mart: How the Corporation Affects the American Economy

Wal-Mart is considered the largest retailer in respect to the global sales in the world. It is a discount chain originated from the U.S. Its stores are located in many towns and, according to the specificity of each location, Wal-Mart offers a wide range of products. The width of its "SuperCentres" is of 150,000 m2 which account for about four times an average supermarket. Also, the chain displays around 150,000 types of products which mean about six times the number of products that ordinary supermarkets carry.

Starting in 1962 as a national company operating only in U.S., Wal-Mart was expanded in 1991, when a SAM's Club opened near Mexico City. Sam Walton, the successful entrepreneur who founded the company saw his firm rapidly increasing worldwide. Currently, there are more than 2,660 units in fourteen countries. More than 500,000 associates reside in Argentina, Brazil, Canada, China, Costa Rica, El Salvador, Germany, Guatemala, Honduras, Japan, Mexico, Nicaragua, South Korea, Puerto Rico and the United Kingdom.

The expansion of the company was realized by a blending approach between building new stores and acquiring other already existing retailers. Regarding the global strategy and the local focus, the management asserts the following: "Despite obvious cultural and business challenges, Wal-Mart International has experienced success because of its ability to transport the company's unique culture and effective retailing concepts to each new country. The division makes a concerted effort to adapt to local cultures and become involved in the local community. Associates respond to customer needs, merchandise preferences and local suppliers. By serving each hometown in the same way, Wal-Mart International has realized significant growth with potential for much greater development worldwide" (Wal-Mart website).

Analyzing the expansion policy that Wal-Mart adopts, it is important to mention the fact that it does not operate similarly to other retailers. Instead of opening a store in the commercial area, the company chooses the outskirts. There, it can build a large store without paying enormous taxes (as in the case of the city centre). After opening the store, the company tries to attract the customers (instead of reaching them in the commercial centre). Wal-Mart displays low prices for different types of products, category-killers. Its promotional strategy is very successful in attracting the customers. By varying the products tagged with low prices it makes sure that it will target most of the population. These low prices do not affect the company's sustainability because it is able to operate on loss for a long time, due to its considerable amount of resources. Customers find the low prices attractive and, therefore, shift their expenditure from the old stores towards Wal-Mart."But every time a shopper saves 40 cents on a tube of toothpaste at Wal-Mart, a local shop loses a sale. Soon the financial reserves of small shop owners are depleted and local businesses start folding. According to an Iowa State University study, five years after the opening of a new Wal-Mart, stores within a 20-mile radius suffer an average 19 per cent loss in retail sales.[...]The formerly thriving towns and neighborhoods soon resemble ghost towns" (Wal-Mart Worldwide, The Making of a Global Retailer).

It has been shown that the new Wal-Mart shops are simply closing down most of the existing stores. The ones which are able to survive are those offering products which cannot be found inside the Wal-Mart chain. However, this is a temporary situation, as the enormous corporation tends to offer a continuously increasing variety of items. Because of its tremendous buying power, its distribution efficiency and low labor costs, the corporation is sure to own a competitive advantage. Nevertheless, the benefits that Wal-Mart brings to its customers are surpassed by the negative effects. According to this, many people lose their jobs; others must conform to lower salaries and overtime work. As the company goes stronger, employees' benefits go down. Labor unions are practically wiped out and people have no choice than to accept the firm's regulations.

Moving on, along with the impact had on the customers and employees, Wal-Mart also influences its suppliers." Wal-Mart wields its power for just one purpose: to bring the lowest possible prices to its customers. At Wal-Mart, that goal is never reached. The retailer has a clear policy for suppliers: On basic products that don't change, the price Wal-Mart will pay, and will charge shoppers, must drop year after year. But what almost no one outside the world of Wal-Mart and its 21,000 suppliers knows is the high cost of those low prices. Wal-Mart has the power to squeeze profit-killing concessions from vendors. To survive in the face of its pricing demands, makers of everything from bras to bicycles to blue jeans have had to lay off employees and close U.S. plants in favor of outsourcing products from overseas"(The Wal-Mart You Don't Know). Surely, many companies have already been outsourcing some of their services. However, Wal-Mart helps accelerating this process. Americans lose their jobs in favor of the Chinese population. "Wal-Mart, which in the late 1980s and early 1990s trumpeted its claim to "Buy American," has doubled its imports from China in the past five years alone, buying some $12 billion in merchandise in 2002. That's nearly 10% of all Chinese exports to the United States" (The Wal-Mart You Don't Know). "Despite Wal-Mart's $7 billion in annual profits, it continues to depress wages and working conditions in its factories in China. The pay rate for production work in its Chinese factories is 13 cents per hour (below China's 31-cent minimum wage), and the mandatory 13-to-16-hour workdays are enforced under horrific and extremely dangerous conditions. There is no health and safety enforcement, no medical treatment, and immediate dismissal if a worker cannot work due to illness, which often happens thanks to temperatures above 100 degrees in an environment saturated with toxic chemicals" (The Wal-Mart Crusade).

The company has achieved a major change. It has shifted the power from suppliers to retailers. Brink Lindsey, an economist at the Cato Institute, asserts: "We've definitely seen a shift in the balance of bargaining power between manufacturers and retailers. Back in the old days, manufacturing was a high-productivity endeavor; retailing and distribution was fairly low-productivity. And manufacturing was big and consolidated; retailing was small-scale and decentralized. And so manufacturers called the shots. Now, things are very different. You have large-scale retailing that's very high-productivity, that has a lot of bargaining power. And they can go to smaller manufacturers and call the shots and say, 'If you want to be on our shelves, you have to do it our way.'...Wal-Mart -- they're very demanding, and they've got a lot of bargaining clout to back up their demands" (Who Calls the Shots in the Global Economy?)

In addition to that, Wal-Mart is trying to control the information discharged about it. "Under assault as never before, Wal-Mart is increasingly looking beyond the mainstream media and working directly with bloggers, feeding them exclusive nuggets of news, suggesting topics for postings and even inviting them to visit its corporate headquarters. But the strategy raises questions about what bloggers, who pride themselves on independence, should disclose to readers. Wal-Mart, the nation's largest private employer, has been forthright with bloggers about the origins of its communications, and the company and its public relations firm, Edelman, say they do not compensate the bloggers. But some bloggers have posted information from Wal-Mart, at times word for word, without revealing where it came from" (Wal-Mart Enlists Bloggers in P.R. Campaign).