Wal-Mart: Save money, be better.

31 03 2011

Is the world better or worse off because of Wal-Mart?

When you think low prices and one-stop shopping, what do you think of? I, like  hundreds of millions around the world think of Wal-Mart. Established in 1962 by American businessman Sam Walton, Wal-Mart has created a name for itself as an economic powerhouse, with it’s 8,100 big box stores worldwide and 405 billion dollar revenue. But, like every other successful thing, with great fortune comes great criticism. Wal-Mart has been pinpointed by worker’s unions, political figures and store owners, but overall, I do think that the world  has greatly benefited from Wal-Mart.

The Good.

Wal-Mart is a great example of a winning combination of the things that make a business successful: adaptability, innovation and stretching the boundaries. They are one of the first businesses to successfully export labor overseas and use it to their advantage. It led the way for other companies (and even countries) to begin a new era of foreign investment, providing jobs worldwide and sparking a newer, cheaper way to produce any kind of good. With Wal-Mart’s innovation in outsourcing (importing goods from other places in the world at a much lesser cost), it has become one of the top importers of Chinese goods which improves foreign investments as well as promotes trade with other countries.

From a consumer standpoint, Wal-Mart provides thousands of goods to hundreds of millions of people. It seems pretty obvious that people would prefer to buy things for less than they would for more. Those with lower incomes prefer to shop at Wal-Mart and many people even make trips from far away places in order to shop. Even for those who don’t shop at Wal-Mart, other places will mark down their prices in order to compete against Wal-Mart, benefiting the customer either way.

Wal-Mart has also brought on new horizons for people who want their products on the shelf. Wal-Mart, a monopsony (perhaps a oligopsony), buys from 61,000 suppliers worldwide. By being able to harness such a high traffic store, suppliers are given the opportunity to put their products out into the eyes of millions and creates massive amounts of sales. This has made a symbiotic relationship that benefits both suppliers and Wal-Mart as well as the consumers, who are able to shop through a variety new and emerging products.

Did I mention they also give back? From a philanthropic standpoint, Wal-Mart is one of the top corporate donors in the entire world, giving back $296.2 million dollars (US) to charity.

Now, the bad.

Wal-Mart’s business structure is one of many things. To consumers, is classified as being in an oligopoly with other one-stop retailers such as Target, but has much more control over the prices due to it’s size and it’s economies of scale. They have also many suppliers overseas who produce their products at a much cheaper price. Because of it’s cheap production costs, it has the ability to bully other companies (even the larger Target and Zellers) and their prices with such a high market power and control over goods. This has driven a lot of criticism from owners of smaller companies because they simply cannot compete with these low, low prices, giving Wal-Mart the title of “category-killer”. But these assumptions are not entirely true, as a matter of fact, in many cases, it has been known to bring in economic prosperity to otherwise lesser cities.

In 2002, Ryerson University completed the first major study on the company’s impact on nearby small retailers, and found the opening of a new outlet is generally an economic boon for the whole area — attracting other retailers and driving up sales at nearby stores. In metropolitan areas, a new Wal-Mart was generally followed by an increase of $56.8 million in local sales, and the opening of 12.9 new stores. In rural areas, the commercial boost was $74.1 million and 16.7 new stores on average.

Steve Maich, Macleans Business

Additionally, it should be noted that we cannot blame Wal-Mart for what it has done. Wal-Mart got where it was (competing against the, at the time, largest retailer, K-Mart) by revolutionizing and coming up with new ways to gain a competitive advantage. How is it fair that we are blaming a company when it’s only fault is being successful and innovative? I believe that if anything, Wal-Mart is doing something good, as it promotes creativity in new businesses in order to find a way to gain competitive advantage. By closing the market to only the strongest of businesses, we’ll see a better and more efficient market that constantly strives to make new conveniences to the customer, or die trying.

Another common point of criticism Wal-Mart often takes is it’s under-paid employees and lack of benefits as well as the borderline ethics of their international suppliers. But why should Wal-mart be responsible for that? Being an employee at Wal-Mart is a low-paying and lackluster job only because it doesn’t have to be anything else. There are no credentials required, no education required and no skilled labour involved. Why, then, should people working there expect anything more than what they are getting? Because almost anybody can apply for the job, there will be thousands of applicants for the same position, and therefore it’s only natural that Wal-Mart lowers the wages for these jobs.  

In conclusion, Wal-Mart has taken a lot of flak in the past for things that it’s just not deserving of. As a successful business model, it cannot be liable for low-paying jobs or beating the competition. On the other side of the coin, it is a very powerful tool that helped pave the way for foreign investments, helps put suppliers into the global market, saves money for the customer and creates a more innovative and competitive marketplace for smaller businesses. Wal-Mart also promotes the hiring of the mentally handicapped as well as the elderly in many stores for those who are trying to be independent, a program that very few other stores have.

Wal-mart… do they like make walls there?

Paris Hilton

Resources:

http://www.flickr.com/photos/gdsdigital/4306320990/sizes/l/in/photostream/

http://www.macleans.ca/business/companies/article.jsp?content=20050725_109503_109503

http://www.slate.com/id/2144517/entry/2144705/

Advertisements




Decrease in rice prices

14 03 2011

According to this article, bumper crops of rice have been reported in Thailand, Vietnam, and India known as major growing countries. Also, good crops have been indicated in major consuming countries such as Philippines and Indonesia. This will increase the supply due to the large number of producers and the high production. As more countries produce more rice domestically, countries such as Philippines and Indonesia will reduce their imports. In addition, three benchmark prices for rice in Thailand, Vietnam and the United States have dropped by 8 percent in the past few months. Since there is a drop in the price of rice, as shown in the diagram below, it will result in an increase in the quantity demanded for rice.









Will World Simulation Round 3

11 03 2011

If this round you can once again expect to sell all the goods that you produce. This is the last cycle where this will happen.  Be sure to stay up to date on the latest happens in Will World before you make decisions.

Post your production levels here.

If you want to increase your reputation in the Will World business world you can show your economic expertise by modeling some or all of the following markets:

  • Raw Materials
  • Energy
  • Macs
  • Lyons

To model the world, create supply and demand graphs and show the changes to the markets between cycle 1 to cycle 2 to cycle 3.   Be sure to explain which determinants are causing shifts in the graphs.

Create your graphs and explanations in google docs and then share the link with me at msccuttle at gmail dot com.

Correct models will increase your reputation in Will World which can be very valuable in future cycles.

Next cycle you will be expected to produce a quarterly report so make sure you are tracking your revenue, expenses, assets and liabilities.

 





Coffee Prices and Supply

10 03 2011

Colombia’s Coffee Crisis

Room for Debate Discussion

Considering the elasticity of the supply and demand of coffee, model the current situation.





Rise in food prices

7 03 2011

http://thecitizen.co.tz/business/14-international-business/8878-un-agency-projects-increases-in-global-food-prices.html

Cost of Factors of Production

Increase in cost of wheat and crude oil

FOOD





A little Colbert to start the week…

7 03 2011

The Word – Economic Boom





The Future of Laptops

7 03 2011

According to this Globe and Mail article, PCs are losing the interest of the public.

Gartner Inc. cut it’s forecast for the sale of PCs in the future after global sales failed to reach the projected preliminary forecast. The IT-research company attributes their adjusted forecast to markets over the world exhibiting less demand for the traditional PC, particularly the ever-growing market of China. The company attributes this decline in demand to the tablet PC. Since the explosive launch of the iPad, consumers “appear to be hesitating” to buy traditional PCs, but instead await new tablet computers. This decline also comes amid the announcement of the launch of the new and improved iPad 2.0, the anticipated launch of Blackberry’s playbook, and the proclaimed “iPad Killer” – the Motorola Xoom. These are the newest and hottest “fashions” of technology that everyone wants to get their hands on.


Consumer taste’s are changing, and thus the demand of tablets rise, stealing customers from PCs. The less buyers there are the more the demand will drop. China’s giant population also contributes to the giant change in demand. More and more Chinese consumers are emerging in the middle class, with more money and buying power. Tablet computers definitely cost more than PCs do, but with the stronger spending power will cover the gap.

The manufacturers of PCs will lower the amount produced because they expect the price of PCs to drop. The seller’s expectations will lower supply so that they will not have a surplus in the future. IT companies also realize that these tablet computers will be the next big driving force in the sector and see it as a profit of another good. They will shift their resources to adapt to the changing market. This will also decrease the supply produced.

Also note that on the graph, demand is shown as decreasing more than supply. The reason for this is because most IT companies have not developed advanced enough tablet computers to sell competitively with market leaders Apple, Motorola, and Blackberry. They are forced to continue marketing their PCs until they are able to enter the tablet computer market.