Walmart and Globalization

Success Through Globalization

• Wal-Mart’s success comes primarily from globalization.
• Beginning in the late 1970's, Wal-Mart began its search for cheap imports. Yet, its main rivals (JC Penny, Kmart, etc.) started importing their products before Wal-Mart. What gave Wal-Mart the comparative advantage over the other chain stores was its use of computers. It allowed Wal-Mart to be more organized and more efficient than its competitors. Using computers Wal-Mart knows what product was selling where, how much of it was being produced, where it was available, and then communicated all this information to its suppliers around the world.
• Wal-Mart’s dependence on offshore sourcing continued to increase during the 80's and 90's but was limited to a degree because of the company’s “Buy American” campaign.
• To cover up their foreign investments, Wal-Mart set up the Pacific Resources Export Limited to help buy their imports.
• Wal-mart finally gave up their “Buy American” campaign when were exposed by the media.
• Around this time, China encouraged foreign investors by changing restrictions on foreign businesses in order to develop their economy. Also, the city of Shenzhen didn’t tax foreign businesses.
• A combination of devaluing China’s currency and the increase in foreign investment caused the explosion of China’s economy.
• Wal-Mart was one of many companies to capitalize on the low cost of production in China. By 1992, Wal-mart’s annual growth rate was at 40 percent.
• The next strategic decision that moved even more of Wal-Mart’s suppliers to China was encouraging competition between brands in their own stores. They offered cheap generic brands to compete with the name brands. American manufactures were forced to move to China in order to compete with low prices. Today, many companies put their name brand on goods their company didn’t make in order to gain the marketing edge of their brand. They also are forced to only use manufacturing companies in China that are pre-approved by Wal-Mart.
• Wal-Mart is the largest importer of Chinese goods
• Foreign products make up all of Wal-Mart low opening price goods.
• Though imports Wal-Mart is able to offer its guaranteed low prices and still increase its profits.
  • "Wal-Mart gets its economic power because it is a gateway to the consumer. The demand for Wal-Mart stores is what provides China and other countries in Asia with their access to the most powerful capitalist economy in the world. - Professor Gereffi, Duke

Wal-Mart’s Economic Power

• Wal-Mart has been able to change the way business works. In the past, a manufacturer makes a good and then sells that good to whoever will pay the most for it. Wal-Mart has enough power that they can dictate prices and products to the manufacturer.
• “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 the smaller manufactures 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.” – Brink Lindsay, Economist at the Cato Institute
• Since Wal-Mart has this power with manufacturers and all their manufactures are foreign; Wal-Mart plays a big role in shaping the global economy. After all, Walmart has behind it the buying power of everyone who shops at one of the biggest chain stores in the world.