Executive Summary
Walmart is a massive company, having achieved the status of one of the largest businesses in the world despite its relatively short history compared to many other companies. It offers excellent value to customers, employs numerous people worldwide, and generates profits for shareholders. However, these positive qualities are accompanied by a poor reputation for its treatment of workers and suppliers. This report uses Walmart to analyze the changing social perception of businesses in the United States. It finds that the company no longer fulfills the role expected of it by society, as people’s expectations have changed. In terms of ethics, the paper concludes that Walmart adopts the old approach of prioritizing stockholders and takes advantage of its dominant position in its relationship with suppliers and employees.
The final finding is that the firm’s public relations strategy fails because customers ultimately pay for the cost savings achieved by underpaying these two categories. Overall, Walmart’s commitment to an outdated ethics model that disregards important stakeholders already harms its international operations and may adversely affect its sustainability in the future unless it makes changes.
Introduction
Walmart is a large and highly successful retail chain that operates across the United States as well as in numerous countries worldwide. It offers products to customers at low prices and provides many employment opportunities in the communities where it operates. However, despite its popularity with buyers, the corporation has an overall negative reputation in the United States due to the many concerns associated with its ethics.
The assertion that the company does not treat its employees well frequently emerges, with low pay, unpaid overtime, discrimination, lack of medical assistance, and the hiring of illegal aliens being cited as examples. These issues mostly result from a business orientation that prioritizes stockholders and customers over employees and suppliers. This case study will use Walmart as an illustration for the overall role of businesses in communities and societies, their ethics, and their responsibilities.
The Role of Business in Society
Walmart’s presence in a location is associated with both advantages and disadvantages for the people there. On the one hand, it provides an outlet for the local manufacturers of goods, particularly food, to sell their produce. It also creates an opportunity for people who have low qualifications to work and potentially advance to better-paid positions. On the other hand, people usually do not want to work for the company and are forced into their jobs by the circumstances. It is possible to assert that the company is aware that many of its workers cannot afford to leave and thus considers it unnecessary to cater to their needs. As such, Walmart’s employees work in poor conditions but are forced to perform under threat of being fired. However, the company’s negative influence is not limited to its treatment of workers.
Walmart’s low prices and broad selection of goods make it a very powerful competitor to most other stores, which explains its popularity nationwide. As such, it tends to reduce the number of customers that go to smaller stores, potentially pushing them out of business. As a result, local jobs are lost, and suppliers lose potential outputs for their goods. As Kullberg and Braekkan (2018) state, Walmart uses this increased bargaining power to sell their wares at low prices that cut into their profit margins. As a result, the functioning of local producers is also affected by Walmart’s presence, with them having the choice of making little income on their product or not selling it locally. As a result, they have to cut costs, potentially firing people and offsetting the retail chain’s job creation.
With that said, it is possible to argue that Walmart is fulfilling its social role by providing customers with low-priced goods and demonstrating profits that satisfy the company’s shareholders. In theory, the company will be able to remain functional as long as these two stakeholder categories benefit from its existence. However, like Beatty, Samuelson, and Abril (2015) note, approaches are currently emerging that posit that a business should take all of its stakeholders into consideration. Since the interests of different parties often conflict, such conduct would mean sometimes taking the side of the employees over that of the shareholders and similar potentially financially damaging practices. Upon initial inspection, it appears that doing so would be ethical but against the business’s interests. However, it is possible to make the case that attempting to create a balance between all stakeholders is beneficial to the organization in the long term.
As mentioned above, the presence of a disruptive business such as Walmart in an area will negatively affect many other companies there. As a result, they will operate worse and possibly have to close eventually due to their continued unprofitability. As a result, Walmart may run out of suppliers eventually and have to move in goods from elsewhere. Its costs would increase, as a result, offsetting whatever benefits resulted from its initial low-price contracts.
Moreover, since the presence of Walmart would complicate the creation of any new businesses by constricting their outlets, there would effectively be no way for the company to source locally unless it changed its policy. Even then, once local producers go out of business, it can take a considerable amount of time for new ones to emerge. It is better to avoid letting local shops close by offering them better rates and saving costs in other departments.
Another argument against lowering the amounts of money Walmart pays to its suppliers and employees would be that in doing so, the company reduces the purchasing power of its customers. Walmart is a popular shopping destination, and there is a high possibility that its suppliers would express their increased income through larger volumes of purchases. With its current model, Walmart extracts wealth from the regions where it operates and moves it to the shareholders. However, local resources are not endless and may eventually run out, which makes the relationship highly unhealthy and ultimately unsustainable.
By returning money to the local economy, Walmart can stimulate it and use the accumulation of additional wealth. Its profits would likely not decrease much, but its sustainability would increase considerably, and it would benefit itself as well as the community.
The issue of sustainability pervades Walmart’s other practices, as well, as they appear to be oriented against it. Its employment model relies on the ideas that there are not many alternate positions available to many people and that there would always be an adequate supply of people looking for a job. If one of these assumptions is no longer true, the model collapses, as Walmart can no longer staff its facilities.
Investors recognize the volatility of this model, and, as a result, the relatively young Amazon is valued much higher than Walmart despite its far lower sales (Kenney and Zysman 2019). If Walmart had created loyalty in its shareholders, it might have been able to combat the e-commerce platform. However, since its only appeal was the prices, many customers saw the lower figures on Amazon and switched to it.
Overall, Walmart represents the old business paradigm of focusing on the bottom life to the exclusion of everything else. It has found a business model that has kept generating profits for the past half-century and used it without deviation for all that time. One can argue that, as the company is one of the largest in the world and still generates massive revenue, its approach is appropriate, and it fulfills the correct role in society.
However, during the course of its operations, it has created a significant negative reputation that may lead to issues in the future. It may be possible to improve the business’s model to retain the advantages while avoiding the problems it creates. Alternately, changes may be necessary out of concern for society’s changing opinions and the decrease in sustainability that Walmart’s unchanging attitude can establish as a result.
If the expectations of the public and the performance of businesses differ significantly for a sufficiently long time, people will begin looking for alternatives. Rubin and Carmichael (2018) note that customers worldwide have high expectations of businesses and use their newfound Internet-based abilities to investigate them, but they trust small companies much more than large ones. In the case of Walmart, people may begin making the conscious decision to support local stores by shopping there, even though products cost more there. To restore the public’s trust in it and stay sustainable, firms should follow the social trends and begin actively contributing to communities and society as a whole. Historically, businesses have been vehicles of progress in various areas, and now, they should turn their capabilities to improving lives wherever they operate.
The Ethical Responsibilities of Business Managers
As is mentioned above, the primary responsibility of a business manager is to generate profits for stockholders. There is an aspect of self-interest in this approach, as well, as upper management often holds part of the firm’s shares or is rewarded with a percentage of the profits. When viewed from a utilitarian standpoint that only considers the company and its owners, Walmart’s approach is appropriate.
It aims to maximize the well-being of the company and its shareholders, which is arguably best achieved through the exploitation of every resource available to the company. However, the increasing adoption of managerial ethics has led to the emergence of the concept of ethical responsibilities to customers, employees, and suppliers. This section will analyze the relative importance of each of these categories as well as their overall relationship with the company and shareholders.
Customers are a vital stakeholder category, possibly more important to the company than the stockholders. Ultimately, people who own the business’s shares are tied up in their relationship with it. Both parties will lose money if stockholders try to sell all of their shares, possibly in massive amounts. However, a customer’s relationship with a company is generally not as close, particularly in Walmart’s case. Some companies integrate with their buyers closely because the latter cannot buy the same or similar product anywhere else, as exemplified by Apple. However, Walmart sells generic goods produced by others, which can be mostly replaced by other grocery stores, competing shop chains, e-commerce platforms, and specialized shops for specific tools. Moreover, all of these platforms have some advantages over Walmart already, making it easier for customers to switch.
Without customers, Walmart’s revenues would drop, and it would be unable to meet its obligations to shareholders. As such, the company must fulfil its ethical responsibilities to buyers who shop there. Walmart recognizes this fact and demonstrates its commitment to an excellent relationship with low prices and careful vetting of products. It has an extensive customer service system and generally provides a pleasant experience to visitors.
As a result, Walmart is a popular destination in the communities where its stores open. With that said, as mentioned above, public perceptions of a business’s ethical responsibilities are changing. If Walmart no longer fits the customers’ view of a company that deserves support, fewer people will start going there. As such, it is critical to the business’s sustained growth and continued revenue improvement that it demonstrates its commitment to customer ethics.
As mentioned above, in Walmart’s business model, employees take a secondary priority. They are underpaid, receive lower benefits than in competing companies, and work overtime without being paid for it. The reason for this treatment is likely that Walmart considers most of its employees, particularly those in lower-ranked positions, easily replaceable. If or when they cannot continue working or refuse to keep doing so in these conditions, the company can hire new people, as training them will be cheaper than paying current workers. While overtly unethical, this attitude is difficult to change in the case of the retail giant due to its dominant market position.
Customer attitudes may be able to improve Walmart’s state, as people who are aware of its practices generally do not consider them acceptable. Otherwise, Walmart is unlikely to change its policies, as they are effective as long as there is no outside pressure.
Generally, the question of employee treatment is not viewed in terms of ethics but rather replaceability in the context of the job market. It is reasonable to treat skilled and rare professionals well, as it can be challenging to find other people who can fill the same position and train them. At the same time, there is no reason to retain an employee by increasing their pay when it is easier to hire a new one that will cost less. However, a new paradigm has emerged recently that emphasizes employee engagement and highlights its effects on productivity (Taylor and Woodhams 2016). It is not vital for a company such as Walmart to treat its staff well to remain in business, though other firms may have different situations. However, in almost all cases, a business can improve its performance by treating workers ethically.
Similarly to employees, suppliers are generally replaceable in Walmart’s case. It may not be as simple and easy to adopt a new source of goods, as in doing so, the company would likely incur higher transportation costs. As a result, its prices would rise despite the low-price contracts it can obtain from suppliers. Walmart is aware of this tendency, and, as such, it tries to maintain long-term relationships with its sources. However, as the largest outlet in many of the areas where its locations exist, the company has a dominant position in the making of supply contracts. As a result, it can push prices down to the detriment of the supplier and does so freely. This behavior is often seen as unethical, as Walmart does not contribute to a mutually beneficial relationship and forces other companies to adapt to its needs or close.
Overall, many of the same ethical considerations apply as with employees, with higher incentives making suppliers more likely to cooperate. However, supplier relationships are critical for sustainability, particularly in terms of loyalty. Competing retailers and e-commerce platforms such as Amazon create methods for manufacturers to connect with customers other than Walmart. Currently, the corporation’s position is dominant, and suppliers are forced to go it or be at a massive disadvantage. However, they have no loyalty for Walmart and will switch as soon as a viable alternative emerges.
The company cannot control the emergence of such businesses, and so, it has to work on improving itself to remain competitive in this scenario. Sustainability demands the minimization of risks, and establishing ethical, close relationships with suppliers is a vital part of such an effort.
With the considerations above applied, it is possible to construct a framework of relative importance between the four critical stakeholder categories for a company such as Walmart. Customers are the most important aspect of its success, followed by shareholders, who have the potential to ruin the business but have little incentive to do so. Employees and suppliers are similar to each other in their ability to affect the company, but their influence varies significantly. Currently, they do not have a significant impact on Walmart’s operations due to the company’s ability to replace them easily and their reliance on it.
Different businesses may feature much stronger supplier power, particularly in the case of workers with rare skills or suppliers of unique goods. Nevertheless, even in Walmart’s case, ethical behavior with regards to each of the four stakeholder categories has the potential to benefit the company significantly through direct increases in productivity or the alleviation or risks and improved sustainability.
Walmart and the Importance of Ethics
Walmart is an excellent demonstration of the reasons why business ethics has to be practiced consciously. The company did not have to follow moral standards to succeed and extracted several significant benefits out of its unethical practices. Ultimately, a sound understanding of the market and the forces within it is more important to financial success than acting in the best interests of all of your stakeholders.
Walmart knows that it can pressure its suppliers and workers to the benefit of customers and stakeholders and does so freely. As a result, it can offer low prices that other companies find challenging to match. For most of its existence, buyers appreciated this trait and made the company what it is nowadays. However, circumstances are changing, and the business model that disregards ethics may not be viable any longer.
Walmart’s market power, which enables much of its practices, comes from its size and dominance in areas where it operates. Suppliers and employees do not have many other places to go and have to cooperate with Walmart as a result.
However, the store chain can replace employees easily and use other suppliers, though it would naturally prefer to retain its current ones. As such, it can negotiate better terms without considering the continued well-being of its stakeholders. These parties would form a negative opinion of Walmart as a result, but would not be able to share it effectively. However, with the emergence of modern communication, especially social networks, the multitude of people’s bad experiences with the chain is becoming public. As a result, people are becoming increasingly exposed to the negativity that has grown to surround the company.
Suppliers and disgruntled employees now have a voice beyond their immediate circle of acquaintances, and the media can collect stories across the nation. The result is that, while most Americans still shop at Walmart regularly, the company’s reputation is controversial at best and remains so despite its continuing public relations campaign (Malloch 2017). The company is still growing, as many customers choose to disregard ethical concerns in favor of convenience and low prices.
However, the situation may change in the future, especially if viable competitors to the business emerge. Companies with better value offers will likely take away large portions of Walmart’s customer base, even if their ethics are also in question. It is also possible that businesses that have comparable or slightly worse prices but excellent ethics can take away many buyers.
However, most importantly, it is critical to understand that new businesses will often struggle if they try to copy Walmart’s business model. The company’s international expansion attempts are an excellent example, as Walmart attempted to implement the same model there as in the United States. According to Muñoz, Kenny, and Stecher (2018), the company has had several successes and failures in the endeavor based on “supplier relations, site access, labor regulation, and local consumer cultures” (p. 3).
Its reputation preceded it, and many people were opposed to the establishment of the chain in some locations. Labor unions, in particular, were aware of its treatment of workers and worked to ensure that the same situation as in the U.S. did not occur. As a result, despite its vast resources, which would not be available to a new firm, Walmart could not make its model work everywhere it went.
Despite its massive size, Walmart has been less successful in its expansion throughout the world than many other well-known American brands, such as Nike, McDonald’s, or Apple. The reason is likely that its poor ethics have become an essential part of the company in terms of both reputation and operations. Dyer et al. (2018) highlight how Nike and Apple have also had ethical scandals in the past but found ways to address them and show improvement. Their strategies are also legitimate from a business standpoint, if possibly unethical, and they can change for the better. Nevertheless, Apple and Nike products are sold in most or all countries in the world because the focal point of their reputation is excellence rather than exploitation.
The case of McDonald’s is particularly pertinent, as it is another vastly successful international brand that also runs stores and is a popular target of criticism with regard to ethics. It has had to deal with nutrition complaints, environmental concerns, worker exploitation claims, and animal welfare accusations but managed to improve its reputation through a sustained ethics improvement campaign (Crane and Matten 2016).
The difference between McDonald’s and Walmart is that the former is open to responding to concerns and changing its business model to suit the new societal norms. Unlike the retail giant, the fast-food chain acknowledges its responsibility to all of its stakeholders and improves all aspects of its performance. Meanwhile, Walmart’s tendency to only target consumers and stockholders while dismissing employees and suppliers is the reason why its public relations campaigns are ultimately ineffective.
Walmart is too used to its old business model, where these two categories pay for its low prices, to change it. In doing so, it would lose its primary competitive advantage, the ability to maintain its cost leadership. With Walmart’s only remaining strength being the convenience of having stores nearby in most locations across the United States, services that can offer comparable benefits, such as Amazon, can take its sales away. It should be noted that many other successful retail businesses, such as Target, have succeeded in the United States without encountering this problem.
As such, Walmart may be able to change its business model to incorporate better ethics and remain successful in the current market. However, it is afraid to do so due to the massive changes in most aspects of its operations that will be required and the uncertainty involved in the process.
However, in this practice, the company omits some fundamental factors that indirectly affect customers. As is mentioned above, most Americans shop at Walmart for their daily needs. This category likely includes many of its suppliers and employees, whose income is adversely affected by the company’s policies. These people also have less money to spend in other local businesses. Overall, Walmart takes money away from the community and makes it poorer as a result. As people in the community are also the people who shop there, it is possible to assert that customers are ultimately who pays for the chain’s low prices. They have grown to recognize the fact implicitly over the years and now visit Walmart out of necessity rather than brand loyalty. As such, until Walmart introduces explicit ethical initiatives that improve local communities noticeably, its reputation is not going to improve.
Conclusion
Walmart is a large employer in the United States and a popular shopping destination for many Americans. However, the company is known for its numerous unethical practices, particularly with regard to employees and suppliers. The company refuses to adapt to the modern societal demands toward businesses, which require them to be drivers of change for the better. Walmart’s orientation is a result of its current priority system, where customers and stockholders are much more important than suppliers and employees due to the replaceability of the latter. Other companies, particularly those that work with rare components or require high-skilled employees, can have different situations.
Regardless, a company should commit to all four stakeholder categories to maximize its success, as Walmart’s international performance shows. Customers indirectly pay for its disregard of the two less important categories, and their recognition of the fact makes the improvement of Walmart’s reputation an extremely challenging task.
Reference List
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