Free-trade economics as the driving force for economic globalization
Wal-Mart Stores Inc. is one of the largest retail stores in the United States. It operates a chain of warehouses and various departmental stores in numerous locations worldwide. According to 2014 Fortune Global 500 list, it is one of the largest stores in terms of revenue. In addition, it is one of the largest retail employing company with the largest number of employees. Wal-Mart has been influenced at all levels of expansion in various countries by globalization. It is one of the largest running retailers in the world with over six thousand stores in 27 countries. About 40% of its revenue comes from investment from other countries.
For Wal-Mart, it would have been so difficult to establish various stores in numerous countries without embracing liberalization and technology. It is due to advancement in transport, supply chain, logistics, and outsourcing its activities to various countries with low cost of operations, that allowed expanding.
According to (Pitbull et al., 2014), globalization is the spread and expansion of business beyond borders. It has a significant impact and risks in the world economy. It has also affected markets’ economic dynamics in businesses operating globally. Areas such as logistics, ICT, advancements in transportation are a major risk areas or barriers that hinder a business to expand globally.
The reason why some businesses can operate globally better than others is due to their ability to take advantage of the opportunities that the new market presents. This proactive approach, together with forces of globalization makes a business to succeed globally. Advancement in technology coupled with technological innovations enables these businesses to prosper globally.
Moreover, the businesses operating globally can face strong growth more than others due to their cost and operational efficiencies. This factor enables these businesses to manage better their supply chain and operate a well-managed logistics system. Due to this level of efficiency, such businesses can pass the cost saving to their customers in terms of affordable prices, as Wal-Mart does.
The advantages of globalization are that a business benefits from the advancement in technology, efficient supply chain and logistics and economic liberalization. In addition, globalization at any time can be localized to fit the location and time needs. Also, the global competitive advantage is only attainable through economies of scale and scope. For businesses that are not operating well globally, they ought to adopt cultural and local adaptation and relocation.
Wal-Mart made its first corporate acquisition in 1977, after expanding its stores into Illinois. The store took ownership and started operating Mohr-Value stores operating in Illinois and Missouri. Later on in 1978, the store acquired Hutcheson Shoe Company after which it started branching out into various new markets in the world.
Through the acquisition of PACE Membership Warehouse, Sam’s club was established. Later on, Wal-Mart acquired Woolco Canada that afterwards was changed to Wal-Mart Canada. Wal-Mart used this as a tool of penetrating the Canadian market. Also, in 1993, Wal-Mart did an acquisition of McLane Company that was later sold to Berkshire.
Another Wal-Mart Stores major acquisition happened in 2011. The Store made an acquisition of 51% of Massmart Holdings. The acquisition was extremely important since it gave the store access to the African Countries such as Ghana, Botswana, South Africa, Lesotho, Namibia, Uganda, Tanzania, and Mozambique. The approval to operate in this African Countries was received by the government in 2012.
The store made a major investment in 2001 together with Central American Retail Holding Company (CARHCO) that is a joint venture. In 2005, Wal-Mart stores made an acquisition of a third interest about 33% of interest in CARHCO from one of the joint partner. In 2006, an extra investment took place raising its total share from the venture to 51%. This particular investment made Wal-Mart to convert its name to Wal-Mart Central America. The reason behind the investment was to penetrate the Latin America Market.
Wal-Mart has a great impact on small retailers when it comes to Foreign Direct Investment (FDI). Wal-Mart faces a major setback when establishing its stores in India since India could not allow FDI. India rejected FDI in wholesale trading and single brand retailing of retail goods. The forces of globalization together with economic liberalization have greatly enabled Wal-Mart to launch new products into the markets. In addition, through acquisitions and mergers, the store can establish a new product line in the new markets depending on the prevailing tastes and preferences.
Entry of Wal-Mart stores into a new market causes a massive retail competition. This happens because the entry causes a high volume store median sales to decline by 40%. Several studies have shown that, the effect of Wal-Mart Stores operating in new markets is largely felt in smaller towns than larger ones, particularly in urban areas.
Moreover, opening of Wal-Mart stores also has a positive effect on small and growing enterprises. Although Wal-Mart stores operate under fairly low prices that make smaller stores to shut down; the store in return offers great opportunities to smaller stores to expand too. Indeed, the creative destruction process of Wal-Mart does not usually have a negative impact on the smaller stores in the new markets.
From research, when a new Wal-Mart store is opened in a new market, more than a hundred jobs are created in those countries within the short period of time. After a while, half of the jobs disappear due to the closure of other retail shops operating in the same area as Wal-Mart (Bianco, 2011).
One of Wal-Mart’s major projects was regarding the installation of solar. This project was the store’s long-term goal of using clean, renewable energy for its entire distribution and retail facilities. Currently, Wal-Mart has over 190 installed while others are undergoing construction.
Country such as Lesotho, Uganda, and Malawi have benefited from the establishment of Wal-Mart stores. This happens because the store offers food discounts that have benefited the welfare of people living in these countries. The portion of a population that is poor has also benefited from the existence of discount in Wal-Mart stores.
Countries such as Ghana, Botswana, South Africa, Lesotho, Namibia, Uganda, Tanzania, and Mozambique have received high labor productivity after the launch of Wal-Mart store. Also, the store helps many shoppers to save some amounts of cash. In contrast though, Wal-Mart stores have destroyed the local economy in the various new markets they venture. This happens because they charge extremely low prices comparing to other existing retailers that cannot charge as low.
By utilizing economic globalization, Wal-Mart has become extremely successful in all its operations, especially managing it supply chain. It can maintain a good relationship between the retailers and suppliers. Through globalizing it supply chain, Wal-Mart has become particularly efficient in all its operations.
Wal-Mart is the largest retail with many shops across the world. Since it was founded, the store has made major acquisitions in the world. Wal-Mart has been able to enter different markets and dominate because it is embracing liberalization and technology. In addition, improved transport, logistics, supply chain, and outsourcing its activities to areas where labor is cheap also contribute to the success of this company.
Bianco, A. (2006). The Bully of Bentonville: How the high cost of Wal-Mart’s everyday low prices is hurting America. New York: Currency/Doubleday.
Pitbull, Paul, S., Brown, C., Ryan, J., Ne-Yo, Angelides, C., Molly, H., Leitte, C. (2014). Globalization.