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Effects Of Globalization On Wal Mart

5153 words (21 pages) Essay in Management

5/12/16 Management Reference this

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Abstract

Wal-Mart has been termed as the poster child of globalization as it has been impacted by changes brought about by globalization at all levels of its expansion. Although the success of Wal-Mart can be attributed to its corporate culture, deeply held values, philosophies and management expertise, it is also true that the company has been hugely impacted by the forces of globalization in the forty years of its operations. Wal-Mart is not only the biggest retailer of the world; it would be ranked at par with Saudi Arabia if it had an economy of its own. 19% of Wal-Mart’s sales come from its international operations, and a Wal-Mart stores opens up every 38 hours. This nature of growth and Wal-Martization of the world would not have been possible without the forces of globalization firmly helping out the retail giant at every step. This could not have been possible without the economic liberalization, advances in transportation, technology, supply chain and logistics. This would also not have been possible without outsourcing to low-cost countries. Therefore, the success of The Wal-Mart Empire has been due to globalization, and in this paper we explore how globalization has effected Wal-Mart, and how it has helped to deliver the promise of ‘everyday low prices’ to millions of customers across the world.

Acknowledgements

I would like to extend my greatest gratitude to all those who helped in the making of this report. I am thankful to all, whose work has formed the literature of this report.

I am grateful to my instructor for the continuous support and guidance during the making of this report and throughout the course. I am fortunate and blessed, for the professional guidance from my instructor. I dedicate this report to my instructor whose guidance was instrumental in the shaping of this report and helped me in the execution of my ideas.

Table of Contents

Introduction

Globalization

Globalization has enveloped the world and affects all facets of life today. Before we launch into the effects of globalization on an organization, let us define what globalization is, in an economic context.

Globalization is the transformation towards a borderless world, where national and regional boundaries seem to have been removed, and the world has become a global village. This has been facilitated by the advancements in information and communication technology. This allows a greater movement of goods, people, capital and other resources across national borders with extreme ease, as never experienced before. The nations are engaging in economic and political integrations, like the E.U whereby all barriers to trade and investment have been reduced between the member countries. We may say that the economies and businesses have become integrated in a global network. The United Nations Economic and Social Commission for Western Asia refer to globalization as the reduction and removal of barriers between national borders in order to facilitate the flow of goods, capital, services and labor.

Globalization has wide spread and far reaching impacts on the world economy. Be it the job markets or the industrial sector, all have come under the fold of globalization .A country now produce according to suitable factor endowments and enjoys economies of other countries. World production is greater in open economies than when the economies engage in protectionism. Today we have worldwide production markets with consumers having access to both local and foreign products. There are greater sources of finances available with the emergence of worldwide financial markets. Health facilities are becoming a common commodity and standards of living are improving in general. Globalization is even impacting the world politics. Thus, we see that globalization has very much affected the economic dynamics of markets in businesses. However, we limit the scope of this dissertation to the effects of globalization on a particular organization i.e. Wal-Mart.

Globalization is the progressive expansion and spread of any business, beyond borders in respect to changing intense government and technology rules amendments in the late part of the 20th century .It has lead to just as much intense amendments in the aims and strategic plans of companies in the U.S. as well as in other countries. Although all entities understand that we are only at the start of what seems to be a transformational time from what we were to what we can and will become. In the latter part of the 20th century we had belief in what Freidrich Hayek (1988) termed as the extended order, that set of traditions and established values constituting the soul and breath of the socioeconomic setup. The “setup” conveyed to multinational companies what they were able to do and what they would not do and made their global push look legitimate. The layout of the model is a fair one in that , it has lead to amazing progress in the strengthening companies in the West and now it has started to be implemented in the East. However, it has its flaws one, people who defend it must carry out the beauty that tough competition has, individualism among consumers, and ethics involved in utilization of goods by consumers. No matter how much value they may have -and their value is alot-they are difficult to digest.

By the time the century ended, voices were being raised on the streets, it was being comprehended that some things were wrong. Some said that the existing paradigm was unfair; others believed that it was the cause of instability. It was perceived as something of a threat to the autonomy of an individual and identity taken collectively. Its requirements were that people rely on calculation instead of character with each other in all dealings. It was doing no good to the earth. Almost all of the criticism was not organized, but it was collecting around the five basic aspects of justice, order, virtue, sovereignty and identity. According to Karl Polanyi (1989) in The Great Transformation (1944), the society’s market as we have come to know it, where the functions of the market is involved in social behavior, only surfaced in the 19th century. Before that, distribution and production were ruled by ratios of affiliation and reciprocity instead of economical exchanges in which there was only self-interest. Before the start of the 19th century people supposedly made food, goods, and services in a reflexive response to social values which had the requirements of such behavior and in fear of becoming social outcasts, if they did not. They did not exist in horizontal buyer with seller relationships but in ‘vertical” systems in the society in which the elite class enjoyed allegiance from the classes below and gifted benevolence by the distribution of goods and food. While the model by Polanyi’s clearly showed that markets which had been overstated and exchanged have been all over the world for a long time-he suggested an ideal world, which earlier thinkers and poets were much taken to.

Goldsmith (1996) talked of the disappearing of the “old” and traditional order, in which a highly organized, stable agricultural system gave the gift of a “happy” rather than a “splendid” land. This semi-paradise, in his opinion, was rapidly decomposing, partially because of the globalization of production as products from “all over the world” made local producers go out of business.

Whatever the reality was to the village model of society, it started to deteriorate in the 19th century, and replaced by what Hayek termed as the “extended order”. Even if an individual is genetically made for tribalism as in villages and its certain unchangeable webs of norms and allegiances that are responsible for regulating production and distribution, Hayek presented the arguments that people would go for a splendid, rich life instead of a happy yet poor life if they can acquire it, and they have come to the realization that they can achieve it by sticking to learned values together with competitive behavior, property rights defense, investment and accumulation of capital, and the always extending nature of business beyond borders. This model of the paradigm economically as learned and converted into an institution was based on the 18th-century writings of Bernard Mandeville and was in sharp contrast with that of Adam Smith, who gave the argument that people are obviously inclined towards market exchange behavior which stands to be modified by a fellow’s feelings and inclinations of virtue. John Maynard Keynes (1964) added a very effective elaboration to the Smithian model by noticing that human beings also have a natural tendency for taking risks, guided by an inclination towards passionate optimistic approaches. The naturalist attitude of Smith and Keynes paved the way for government interventions to keep human inclinations from wondering off into inefficiencies or excessive outcomes. Since nothing can alter human nature, a bit of government interference would be harmless.

The Smith-Keynes model was effective in the middle of the 20th century, but by the end of the so called extended order seemed to have won. Government’s manipulative plans were considered a preferably avoidable complication to what was already a highly complicated yet understandable system, and leaders in nations which are developing begged for help in learning the techniques of the capitalist way, which had apparently lead to improvements in living standards. However, the greatest flaw in the extended order was that it progressed only because of its outcomes, not its first-time attractiveness. One of the critics who spoke on this, John Gray, put forward the argument that we must view the market economy “not as a state of natural liberty produced by deregulation, but as a subtle and complex institution, which needs recurrent reform if it is to be kept in good repair” (Gray, 1998). Here he made Hayek’s model stand on its head, giving the read the reason that the extended order was well learned and engraved in the society’s institutions, the government possessed the right to regulate its unpleasant aspects so that security, democracy, justice and other such desirable things would soften its unattractive parts.

Moreover, Donald McCloskey (1994) in The Rhetoric of Economics (1985) and other such writings of influence gathered that the processes of exchange in the market, should be considered a continuous series of conversations in a existence which is communal, filled with emotion and persuasion, interests and values, affiliations and calculations, and future-oriented behavior driven by customs. This type of existence is a lot like that of a village-at least a good-functioning village-where character and trust instead of expectations of gain usually dominate economical encounters

American companies now find themselves pressed between both past trends and expectations from the future. One of the changes that the corporations can expect is an increased emphasis on the localization of resources based on rules of fairness determined democratically, instead of merely being limited to exchange, so that each corporation can get her due. Advocates of justice like Ralph Nader and leaders of countless NGOs are utilizing the Internet to demand that economic outcomes should be “fair” for female workers, small farmers, those dislocated by global trade, indigenous peoples, the disabled, and just about anyone who even slightly fits the description of a “victim.” NGO leaders will seek to diversify the concept of private property as the right to dispose off assets, but a right which is constrained by concerns of justice. Thus a person who is the legal possessor of any private property, may be redefined to include abstract things like the ecosystem, a race, or a particular class. NGOs will demand compensation from MNCs for unfair infringements on those “people’s'” property rights. They will also bring forward the claim that workers in a country are supposed to “own” their jobs and that justice states that another country’s workers cannot take away jobs even because of global trade expansions.

Corporations should now also expect more frequency of critiques concerning the supposed chaos caused by capitalism and asks for a stabler world. This yearning for order is associated in numerous ways with European Third Position advocates, Asian Way enthusiasts, and radical environmentalists. The Third Position is also referred to as capitalism for welfare, social democracy, and the economy of the social market. People who supporter it want control on competition which is disorderly and labor markets, more inclusive models of corporate governance, reduction in the claims a company can make on the autonomy of a worker, and a focus on employee’s tenure of a job and high wages supported by extensive skills training financed by high taxes. Since the difficulties of this system are likely to dampen on innovation, corporate profit strategies of many companies may be forced to concentrate more on efficiency gains instead of development of new products.

The Asian Way, again guided in the decades in the very near future, by a reemergence of Japanese ideas. As soon as Japan emerges from its current economic problems, it will emphasize paternalism and immersing employees within different corporate modes of supposedly communal and stable existence. They will then turn to the government, seeking and getting support for schemes to keep prices high through regulatory practices and limits on enforcement of competition laws. As in the past, a rhetoric centered on the theme of “orderly markets” will attempt to persuade the public that American-style models are destabilizing and asocial.

Globalization unites to form a strong bond of legitimateness, concerns and morality for the amelioration of the people. Multinational companies are operating in parts of the world need to work hard to get a better position. It requires extensive efforts and dedication in whatever they do. First they necessitate consideration so people know about them and the second thing is acknowledgement for their business. Growth of assets and enterprise management leads to growth of capitalism that demands to deal with huge giants like the world trade organization and International monetary fund as they are a support for the free trade principles. The effect of globalization results in free trade and one currency where they can easily work things for common interest and it brings an overall better effect while talking about the economy. It is a time for MNCs to show their affection and adapt themselves to the business environment of the country where they are operating. The biggest example in this regard is set by IBM. It is an American company but it seems as it is national company of Japan. It is the result of thorough study of the culture, practices and devising policies that are aligned with the requirements of country they are operating in. The charter of multinationals is different as they are partially independent and they belong to association of the countries where they are operating. They are no more monitored by strict governance that made them do what they had to by going into different boundaries other than their parent company where first it started its operations.

Multinationals are facing multiple challenges in the current scenario. Economic paradigm is in favor of them as it gives them a chance to expand their business. There are many amendments in the internal structure of the organization as both the employee and the employers do the work in a unified form with America and the country where they are operating. Labor was exploited for the sake of own interest and tackling with humans was always a problem. In 20th century many conflicts of theories contradicted each other. The economic theory took work just as spare time fun and pleasure for the future. The management theory takes work as a reaction or response or an overall output. It refuses to take it as a procedure or input. Both the theories failed to gratify as they lacked inappropriate meanings and were incomplete. As per (Robert Dubin, 1976) he says it is not sufficient content and more needs to be done while talking about the Global Employee Management Practices of Multinational companies. In order to participate in globalization these theories need to be revised and redesigned as they do not fulfill human resource conduct. Global expansion is also a key characteristic; the best policy is to expand and take companies to such locations where the workforce has no problem in attending the office and award them recognition for their work.

The final group of order enthusiasists will be the Steady-State Way advocates among radical environmentalists. For them globalization and economic growth constitute threats to the natural order. A global citizen must be brought into being to support the ecosystem’s rights over individual or country rights, and “ecological commerce” must be supported. This will involve proposals for heavy taxes to penalize nonconserving companies and to support NGOs advocating the precautionary principle (in the absence of data on dangers, doing nothing is better than doing something) of risk management.

In the more just, stable world called for by critics of the extended order, a virtue ethics will be proclaimed for multinational corporations. This will not require dramatic changes, at least in lip service, in most societies, but the utilitarian ethics that burdened American business during the 20th century will come under strong attack. As Americans are beginning to reassert the demand of the Puritan Compromise that the business system develop and reward individual character and moral depth, and they will be joined to some extent by Europeans, Asians, and others uncomfortable with the current American practice of defining what is right and good as the result of a benefits-minus-costs calculation. Moreover, a return to virtue ethics in the United States-the ethics of the Founders-may solve the problem Americans will face as they globalize: a communitarian, ordered world of Global Villagers has no place in it for individualist autonomy-seekers endlessly calculating costs and benefits and launching “greater good” decisions that leave a good deal of destabilizing, community-threatening “lesser good” wreckage in their wakes. Americans committed to virtuous business practices stressing individual prudence, courage, dignity, diligence, and a respect for what most people can agree on as the right and good will not be thought of (as they are now) as valued but troublesome members of the global polity, no matter how much they talk of autonomy and freedom.

The people at workforce demand a job description where their roles are well defined and where they can get remuneration for their standard of work as people do not like uncertain decisions. Most people act adverse when they are reminded again and again by their managers. Such models have also failed to satisfy their Negro brothers from achieving significant results. As these models do not suit the people now a days and not even in past. Thus it results in chaos and communal violence of work. Many voices are raised to establish social and business institutes that can work for betterment of the relationship between employer and his employees. Westerners are looking forward for the betterment and the above stated model has all things which they desire for. Non western people do not have much expectation since they are not operational and functional.

The subject of everyone’s attention is to manage the workforce throughout the world. Employees not only want pay and want their boss to guide them. In addition to that they like to enjoy the work and the quality of life their manager can give them. Encouragement at work is must and extensively work must be done in this regard. The process

Work incentives and stimuli to evoke motivated effort will be needed, as they are now, in the globalized workplace, but greater emphasis will have to be placed on process issues. In many jobs employees will expect creative and challenging tasks fostering “flow” conditions in which workers experience a highly pleasurable sense of timelessness. Where possible, moreover, the frantic emphasis on change, so common today, will become muted, giving way to timeless rituals of toil and social engagement in the workplace. For both highly skilled and unskilled workers, then, the successful 21st century workplace, be it in New Jersey or Bali, will be-or ought to be-a more stable, ordered place in which people will feel secure in their individual and social identities yet comfortable in their employer’s manifest recognition of their common humanity and its concerns. We thus ought to see globalization driven by multinationals as a way of evoking order by reducing instability associated with mass migrations. Since most U.S. corporations for one reason or another tend to be, with some lapses, free of corrupt practices and treat their workers fairly, we ought to see them as fostering virtue and justice. And since these companies approach people as individuals yet are exquisitely sensitive to community and culture issues, we ought to associate the U.S.-led march of global capitalism with autonomy and identity. All of the things the Village model advocates want-order, justice, virtue, and identity-already are coming along quite nicely. Emerson suggested that a world of commerce would evolve into a commerce plus world, and it’s happening. We all should be giving three rousing cheers for the extended order.

Reason for choosing Wal-Mart

“In business, there is big and there is Wal-Mart” (Business Week, 2003). Wal-Mart indeed is a ‘Cathedral of Consumption’ [1] like McDonalds, Coca-Cola, Walt Disney or Apple, and enjoys unprecedented levels of global success.

Charles Fishman in his book ‘The Wal-Mart effect’ explains how Wal-Mart is not just a store, a huge company or a phenomenon any more. It is so huge that it touches lives of billions of people around the world. Wal-Mart is expanding its international reach, and establishing its stores in different countries. Wal-Mart not only impacts its suppliers and customers, but also the lives of the workers and economies of the countries where they locate. ‘Wal-Mart reaches around the globe, shaping the work and the lives of people who make toys in China, or raise salmon in Chile, or sew shirts in Bangladesh, even though they may have never visited a Wal-Mart store in their lives'(Fishman, 2006). Therefore, Wal-Mart is a company, which has truly been affected by globalization around the world.

Wal-Mart is so big that its wide ranging influence touches global businesses, local communities, inflation rates, wages etc. The reason of choosing Wal-Mart as an organization effected by globalization is the sheer scope and span of its operations:

Wal-Mart is the world’s largest retailer with net sales of $405billion in 2010.

Wal-Mart employs over 2.1million associates worldwide

Wal-Mart has 8500 stores in over 55 countries which include Argentina, Brazil, Canada, China, Costa Rica, El Salvador, Germany, Guatemala, Honduras, Japan, Mexico, Nicaragua, Puerto Rico, South Korea and the United Kingdom.

Retailers go global

Advances in technology, logistics, information and communication systems and trade and economic liberalization contribute towards globalization. But the frenzy towards globalization in the retail industry is overwhelming. The world does not seem big enough to cater the expansion of retailers such as Wal-Mart, who are building gigantic stores worldwide at top notch speeds. As we look around ourselves, we find retailers going global. Justin and Carla( 1995) so rightly describe it, ” Hit the sights in Mexico City, and you’ll find great museums, hip nightclubs, and the world’s largest Wal-Mart, with everything from tortillas to Pop-Tarts. Catch a flight with British Airways this summer, and you’ll find a virtual store in your seat’s interactive, satellite-linked console, ready to sell you the contents of stores like Harrods right there and then if you’ve got plastic aplenty. Just east of Shanghai’s harbor, the Japanese retailer Yaohan plans to welcome one million shoppers each weekend to the largest shopping center in Asia, the 21-story Nextage Shanghai Tower”.

Advancements in transportation, logistics and ICT with the lowering economic barriers has armed retailers such as Wal-Mart to go beyond their saturated home markets and venture across borders to set up stores wherever there is demand from customers and market has potential. The journey of Wal-Mart’s mega spree into the globalization also began with the same factors. However, Wal-Mart was quick enough to make the most of all the opportunities the market presented it with, and this proactive approach coupled by the forces of globalization made it the tremendous business it is today. In fact, Wal-Mart capitalized on these advances and technological innovations to achieve tremendous growth in the 1980s, growth which occurred prior to its global sourcing of suppliers (Clark and Irwin, 2006). Wal-Mart is synonymous with the lowest prices in the retail industry. Wal-Mart is able to achieve this due to its cost and operational efficiencies by managing their supply chain effectively with the help of computer aided distribution and logistics system which is strengthened by the forces of globalization. This way Wal-Mart is able to pass on the cost savings to consumers in the form of affordable prices.

Wal-Mart – initiator and receiver of globalization

The impact of Wal-Mart over America’s culture alone has been huge. Wal-Mart is a source of globalization not only in America, but also in all the countries in which it has operations.

The spheres of influence of Wal-Mart are economic (affecting local, regional and national economies), societal (structuring of the workforce and impact on consumer spending and purchase behavior) and political (impacting local and community level processes). Wal-Mart, itself also has to operate in the same environment it has created for itself which in turn reinforces globalization.

Wal-Mart indeed is “a potent symbol of the economic and social impact that globalization can have on national, community and individual identities [2] “.

Wherever Wal-Mart is located, be it suburbia to urban America, towns, cities or countries- all have experienced social and economic changes, and the accelerated pace of globalization that Wal-Mart brings with its operations. Wal-Mart generates a whole new ecosystem with its operations, which is not only about the lower prices and the massive volume of products that it sells, but also about markets, preferences, economics, employment, suppliers, collaborators, infrastructure etc.

The strategies adopted by Wal-Mart through 1960’s to 1980’s which were fuelled by the drivers of globalization not only revolutionized the global retail industry, but also made Wal-Mart what it is today- an undisputed market leader in the retail industry. Embracing Wal-Mart into their midst has given communities employment opportunities and revenues.

Sam Walton’s strategies for Wal-Mart include [3] :

“Locating stores in towns of less than 25,000 people, where little comprehensive retail competition existed

Extensive use of information technologies to link to manufacturers and reduce distribution costs.

Locating stores in close proximity to its distribution centers and Bentonville, AK headquarters.

Saturating the rural discount retail market within a close radius to its distribution centers before opening new warehouses.

Entering metropolitan and suburban markets located in depressed, low income areas with low-cost, readily available real estate.

Targeting low to middle wage earners as its consumer base, resulting in the segmentation of the customer market in order to avoid competition with service-oriented retailers.

Offering its ”associates” a profit-sharing program to offset the limited benefits and career mobility opportunities that its sales staff receives”

Therefore Wal-Mart is on one side a symbol of economic progress, but on the other side it is also a force that in-filters the economic, social and political notions of the people in regions where Wal-Mart locates.

Wal-Mart and Globalization

Positive effects of Globalization on Wal-Mart

Wal-Mart today is not only the biggest retailer of the world, but also among the largest corporations of the world. Its International operations started in 1991 and encompass Wal-Mart discount stores in Canada and Puerto Rico; Wal-Mart Supercenters in Argentina, Brazil, China, Germany, Mexico, Puerto Rico, South Korea, and the United Kingdom; and Sam’s Clubs in Brazil, China, Mexico, and Puerto Rico. In Mexico, Wal-Mart also operates Bodegas discount stores, Suburbias specialty department stores, Superamas supermarkets, and Vips restaurants. In addition, the company runs Todo Dias supermarkets in Brazil, Neighborhood Markets supermarkets in China, ASDA combined grocery and apparel stores in the United Kingdom, and Amigo supermarkets in Puerto Rico. Wal-Mart also holds a 36 percent stake in The Seiyu, Ltd., a leading Japanese retailer. In all, more than one-quarter of Wal-Mart’s stores are located outside the United States, and international operations generate about 18.5 percent of total revenues. 

Wal-Mart truly is the poster child for corporate globalization. The entire Wal-Mart Empire’s international success can be contributed to the globalization forces.

Supply Chains

Economic globalization and advances in information technology are at the crux of Wal-Mart’s logistics and supply chain which have revolutionized the retail industry. Wal-Mart has been successful in changing the nature of bargaining power that it enjoys over its suppliers and manufacturers. The Wal-Mart’s strategy of everyday low prices hinges on importing goods from low-wage countries like China, and compelling suppliers in North America to achieve operative and cost efficiency to lower costs.  Wal-Mart’s company philosophy (‘The Wal-Mart Way’) is to be at the leading edge of logistics, distribution, transportation, and technology. The Wal-Mart business model would fail instantly without its advanced technology (Wal-Mart has the largest IT systems of any private company in the world) and supply chain (Wal-Mart has made significant investments in supply chain management). The supply chain at Wal-Mart rests on advances in technology, and being able to procure goods at lower prices from around the world. This is driven by globalization.

Global procurement

Wal-Mart also relies on global procurement as a basis of its cost efficiency. Globalization facilitates direct purchase of goods from wherever they can be procured from around the world, where they can obtain the lowest prices and the best quality. This of course could not have been possible by the advances in ICT and the economic liberalization. Global Procurement is responsible for overseeing the sourcing of merchandise from thousands of supplier factories worldwide

Outsourcing by Wal-Mart

China

“Wal-Mart’s power and influence are awesome…By figuring out how to exploit two powerful forces that converged in the 1990s–the rise of information and the explosion of the global economy–Wal-Mart has dramatically changed the balance of power in the world of business. Retailers are now more powerful than manufacturers, and they are forcing the decision to move produc

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