Since its inception, Wal-Mart has experienced tremendous growth to become a dominant player in the retailing business worldwide. However, Wal-Mart operations have received ferocious attacks as some critics blame it for hurting the American economy. The debate has revolved around Wal-Mart low prices strategy and its’ decision to import supplies from China in order to maintain this status quo.
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On one hand, Wal-Mart has been blamed for costing the American worker million of jobs every year, because by opting to import from china, most manufacturing companies have been shoved out of business(Fishman 112).Contrastingly, Wal-Mart has received support from Adam Smith proponents that low prices benefits everyone in the economy (Schell par. 2).
Against this backdrop, this essay will explore the key factors behind Wal-Mart extraordinary success and its’ effect on economy, the American worker/consumer and its contribution to U.S vs. China relations.
To begin with, Wal-Mart’s success has been attributed to two key factors; information technology and globalization. The rise of information technology has been recognized as a powerful force in promoting retail chains operations (Fishman 118). Consequently, information technology has turned out to be a key advantage for Wal-Mart success elevating it over its rivals and facilitating its effectiveness as a retail chain (Fishman 120).
Apparently, for a retail chain to be effective in its operations, the logistics, inventory, and distribution controls have to run in sync. Wal-Mart exploitation of technology is quite complex. It has a tailor made information network that sends alerts to suppliers about stock movement in the various stores to ensure prompt replenishment (Fishman 121).
Secondly, Wal-Mart interest in the global markets has been beneficial. By utilizing globalization opportunities, Wal-Mart has succeed to expand its’ operations outside United States (Schell par. 4).
The question whether Wal-Mart with its low prices is a monster or a savior is a two sided coin. On one hand, Wal-Mart has adopted numerous strategies to ensure that they maintain lower prices for basic goods. Consequently, the stores have become significant to the less affluent in America because with their low income they are able to afford goods that would otherwise be unattainable.
However, in order to maintain this trend, Wal-Mart have had to explore China market for its supplies since obtaining the same from United States manufacturers would be costly.
Consequently, this has compelled various industries in the United States to close down leading to massive loss of jobs. The above situation, has fueled the big debate whether Wal-Mart strategy is good for America not forgetting that it also provides jobs though its’ wages has been under great scrutiny (Schell par. 6).
The above question is quite elusive, and a no or yes answer might be inadequate. On this note, to assist in understanding whether Wal-Mart is a blessing or a curse in America, it is imperative to explore the pros and cons of providing low prices both in the short term and the long term.
Although the low prices slogan has been criticized for various reasons, the fact remains that Wal-Mart has succeeded in keeping inflation under control. Inflation has been an economic headache through the years, however, Wal-Mart have managed to keep prices low, although the strategy has ended up yielding undue disadvantages (Fishman 124).
In economic terms, the law of supply and demand is responsible for regulation the price of goods. However, Wal-Mart has taken up this role by applying imaginary price ceilings, thus ensuring that cost of goods do not go beyond a certain limit (Baumol & Blinder 81).
On the other hand, price ceilings are disadvantageous to small and emerging businesses because they are unable to compete when the prices are set below their overhead costs. After a series of losses, most of them end up closing down (Baumol & Blinder 82).
This translates to massive loss of jobs leading to high levels of unemployment. Consequently, if Wal-Mart succeeds in shoving competitors out of business, it will begin operating as a monopoly and the big question is whether it will still provide low prices as a monopoly (Baumol & Blinder 84).
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Arising from this debate is the significant question whether the American worker and the American consumer are one and the same entity. On one hand is the American consumer who prefers shopping at Wal-Mart because of low prices, while on the other hand is the American worker would suffer from low wages and unemployment because of Wal-Mart outsourcing and low pricing strategy.
This implies that, the interests of the American workers and the desires of the American consumer will always conflict because, while the American as a worker demands high wages from Wal-Mart as the employer, the American as a consumer also demands low prices for goods.
Apparently, it would be impractical for Wal-Mart to strike a balance between this two entities, thus conflict is inevitable unless an economically viable solution can be devised.
Initially, the United States perceived the free trade agreement with China as beneficial because American manufacturers would sell their products to the mass market in China. However, Wal-Mart has been blamed for reversing this situation by elevating the U.S-China trade deficit to over $227 billion in 2009 because of its massive imports from China (Schell par. 10).
Despite of this shortcoming, the Wal-Mart China relationship is good for the America because the Chinese will also gain confidence buying from American manufacturers. However, the tricky issue is whether they can manage to produce low cost goods to cater for the low purchasing power of Chinese consumer.
The fact that Wal-Mart is a significant entity in the American economy is not disputable. Amidst the hard economic times, Wal-Mart may turn out to be the best option to most low end consumers. Thus, it becomes almost impossible for any checks and balances to be effective without hurting the interests of the masses.
Although pricing is not all that matters to business, Wal-Mart influence is not likely to diminish in the near future owing to its success in preventing inflation. Therefore, as long as Wal-Mart can sustain the low prices, the federal and state regulators are unlikely to act because its’ benefits to American economy outweigh the consequences.
Baumol, William & Alan Blinder. Macroeconomics: principles and policy. United States: Thomson South-Western, 2006. Print.
Fishman, Charles. The Wal-Mart Effect: How the World’s Most Powerful Company Really Works–And How It’s Transforming The American Economy. New York, NY: Penguin Books, 2006. Print.
Schell, Orville. “How Wal-Mart Is Changing China.” The Atlantic, 2 Nov. 2011. Web.