Critically evaluate the impacts of global macroeconomic environment and international risks to the current external international business environment of Wal-Mart
In the era of globalization, no business can avoid competition from abroad, nor it is a wise choice to choose not to compete with other companies from other countries. There are many opportunities abroad, whereby it is not assessable in the home country. Thus, in the last decade, it is witnessed that more companies are expanding aggressively to the other part of the world for various reasons and to reap various benefits in the foreign market. However, managing a business in the international context is nothing easy, and many extra issues should be considered before profitable international expansion is possible. In this article, Wal-Mart will be used as a case study in the discussion of the impacts of global macroeconomic environment as well as the various international risks to the company. The article is arranged as follow. Firstly, some background of Wal-Mart will be presented. Then, the issues related to the global macroeconomic environment recently will be discussed. The impacts of macroeconomic environment to the organization will be outlined. Then, the article will focus on the discussion of the various international risks facing multinational companies today. The impacts of these identifiable risks to Wal-Mart will also be outlined. The article will conclude by pointing out the best possible general direction of Wal-Mart to achieve consistent growth and profitability in the new globalization economy.
Wal-Mart is the famous US-based retailer in the global Fortune 500 list in the last few decades. In fact, it is the largest retailing corporation around the world. Today, the company has more than 5,000 stores around the world. Today, the company is evolving fast, and today the corporation is selling its products on the Internet. Besides, the company is also the largest private sector employers around the globe. The company is famous for its efficient supply chain management and the everyday low price tagline (Source: Corporate Website). The company is chosen because it is a multinational company operating around the globe, and the changes in the global arena will definitely affect the company is a significant manner.
In managing business in the global context, an in-depth understanding on the international macroeconomic environment is crucial for the multinational firms to plan and execute its international strategies in other countries or regions. In almost all types of business analysis, plan or strategies, an analysis of the macroenvironment is the very first step to be conducted before the corresponded strategies, plan and execution can be conducted. Since the financial crises in 2008, the world witnessed many changes in the global macroeconomic environment. In the following section, the changes in macroeconomic trends and issues due to the financial crises in 2008 in the near future will be presented.
Due to the financial crises in 2008, the Federal Reserve, namely the Central Bank of the United State had been implementing expansionary monetary expansion policies in the country. The most significant and aggressive expansionary policy to revive the economy is due to the two quantitative easing by the Federal Reserve. As the government of US printed excessive money in the country, many economists are expecting that the value of US dollar will depreciate in the long term to account for the depreciation of the USD value due to excessive amount of money created by the central bank. Not only that, it is also speculated that due to such events, the USD may lose its position as the world reserve currency (Schmidt, 2010). This is not hard to understand, as when excessive US money is created, the value of USD will decrease in relative term if compared to other currencies. (It is worthy to mention that the Federal Reserve has the power to either expanding or contracting the money supply, thereby indirectly affecting the value of USD relative to other currencies. However, it is expected that the Federal Reserve will not contract the money supply in the near future, as such act will push the US economy back into Great Recession as the economic environment in US remain sluggish and weak.)
As the Federal Reserve is printing more money, the excessive liquidity is flowing from the Western world to the emerging countries, particularly China and the South East Asian countries. Besides, due to the gloomy economy outlook in the US and Europe, many investors and companies are diverting their investment into the emerging countries, such as the BRICs (i.e., Brazil, Russia, India and China) (Barro et. al., 2010; Cardarelli et. al., 2010). This is creating inflationary pressure in those emerging countries, whereby can be witnessed from the significant and serious increasing prices particular on the property sector of these countries. Thus, there are concerns if the economy in China may face hard landing is the asset bubble burst. As in the recent month, China is trying hard to cut down the inflationary pressure in the market to stop the asset bubble in the property sector from overheating. The most serious measure implemented is the rise of interest rate in the country and this is creating concerns among some economists if the excessive increases of interest rates in the country may cause economy crashes or hard landing in China. As China is becoming the economic growth engine in the world, any economic downturn in the country may cause the economy slowdown around the world (Forbes, 2011; Cardarelli et. al., 2010).
As a company operating primarily in US and in many of the developed countries in Europe, the changes in the macroeconomic outlook in US and Western nations will affect the profitability and outlook of the firm in a serious manner. Thus, as we have discussed that the macroeconomic outlook in the US and the nations around the Europe is gloomy and uncertain (whereby the growth rate in these nations is expected to be slower than those from the emerging countries), it is the management imperative of Wal-Mart to expand to other emerging countries. In fact, it is noted that the company had already been doing so since the past decades. If the company stays unchanged, the company may not be reaping sufficient growth rate from the operations in the Western world. Not only that, as it is expected that the USD is to be depreciated due to excessive and too aggressive monetary expansionary policies, which may ultimately causing the USD to lost its dominating position as the world reserve currency, it is important for Wal-Mart to implement currency management program to deal with such a risk. To hold all of its reserve currency in USD may not be relevant and proper, as the changes in the world macroeconomic condition demand the corporation to diversify away its risk by holding the company reserve in a basket of currency instead of in USD alone only. Not only that, the unemployment rate in the Western world is still high from a historical perspective, and it is expected to remain so in the near future. Thus, it is not rational to expect that the economic situation in these nations to able to support and contribute to the bottom line of Wal-Mart in the future.
Not only that, as we have see that due to the excessive money creation in the Western world, the capital is flowing from the Western nations to the emerging countries in Asia, causing significant and rising threats of asset bubbles in Asia. As the company has substantial operations in the Asia region, such uncertainties, potential risks and the building up of asset bubble in the region, may pose significant threats to the company. Thus, it is crucial for the company to avoid over extended to these countries and to manage the operations in the emerging countries in a conservative manner. It will not be wise to become too optimistic in managing operation in these countries. As China is raising interest rates for several times with a period of 6 months recently, there are economists arguing that the country may be facing a hard landing as the measures implemented by the government is too hard in calming down the already overheating economy. If the situation is not being controlled properly, the slowdown of economy in China may even create political instability in the nation. It is crucial for Wal-Mart then to consider such changes in the business operating environment in China.
Doing business in the international arena does come with various new uncertainties and risks. Without proper understanding on the potential risks that may arise from the international business operating environment, any firm may face serious losses by expanding to the global market. Today, one of the biggest risks in the global context is the changing order of power among the various nations around the world. The world is witnessing the shift of balance of power from the Western world to many other emerging countries. Such a risk will be discussed in details in this paper.
In the new millennium, the balance of political and economic power is changing fast. It is witnessed that the influence of United State, Europe and Japan around the world is decreasing, replaced gradually by the rising power of the BRICs and the other emerging countries in Asia. As with any changes in the balance of power throughout human civilization, the changes will tend to create uncertainties and political clashes among the leading and the up-coming economic and political powers. These will certainty creates risks to the businesses operating around the world (Syroka & Wilcox, 2010). Referring to the estimation provided by OECD, It is expected that both China and India will rise as one of the biggest economic power in the world in 2050. Not only that, other emerging countries such as Russia, Brazil and even Indonesia may rise as the economic power in the world, creating a new economic order in the world (Evans et. al., 2010). Not only that, as China and India is gaining economic power, they are expected to gain military as well as political power as well, thereby able to exert significant influence to other nations around the world. The impacts due to such a scenario are hardly predictable, as nobody can be sure how the rising powers are going to deal with the resistance from the existing powerful countries, such as from the United States.
The risks due to the changes of economic power around the world are posing greater threats to the operation and strategies of Wal-Mart in the recent years. Any political and economic clashed or disagreement between countries may cause Wal-Mart to suffer, as the company has operations in many of the nations around the world. For example, the increasingly disagreement between the China and US government may create challenge for the firm to stay relevant in China, as it is virtually impossible to predict the reaction of one government to the other government in case of political or business disputes among the countries. Yet another example is the increasing threats of currency wars widely debated are not something that can be neglected by the company. China may also implement policies hurting the firms from US in case both the countries started to engage in aggressive rivalry in the economic and political arena (in taking care of their own benefits around the world). The situation can become worse when the countries engage in aggressive measures to control the basic resources required for the development and safety of the nation around the world.
Besides, it is also reasonable to expect that political clashes between countries may cause the people living from other countries to resist business organizations from the opponent country. For example, it is not hard to observe that the Chinese tend to boycott the multinational firms from other countries, when there happen to have political disagreement or argument between China and the others. One of the incidents happen lately is that the Chinese are boycotting Carrefour in China due to unfriendly France prime minister speeches a few years ago. Thus, if the tension between the United States, as the current world dominant powerful nation, with China, as the upcoming powerful forces in the world heightened, it is possible that the Chinese may boycott Wal-Mart, causing great financial losses of Wal-Mart from its operations in China.
There are also long terms impacts due to macroeconomic changes in the world that must be tackled properly. The most crucial changes are indeed the shift of balance of economic power from the West to the East, which effectively creating a multi-polar world. In order to remain as a market leader in the retailing industry around the world, Wal-Mart must ride with the trend and to expand its business to those rising economic power. The changes of economic power around the world demand Wal-Mart not only to commence operations in China, but also to other nations such as to Indonesia, Thailand, Malaysia, the Middle East as well as Russia to maintain its dominant position around the globe. Thus, Wal-Mart may be required to take risks in expanding to these emerging countries, in order to stay relevant and serve as the lowest costs retailer around the world. It is also noted that if Wal-Mart is not pursuing a viable global expansion strategy, it is possible that some others retailers from these emerging countries may grow big one day and become the competitive and terrible challengers to Wal-Mart in the future. Thus, it is crucial for Wal-Mart to take strategic actions timely to prevent the emergence of the retailers from these emerging countries, while remain relevant and competitive in the global landscape.
The changes of macroeconomic scenario around the globe are not something that can be ignored or neglected by multinational corporations in an increasingly globalized world. To manage business operations on the global scale, to know the changes and then to ride with the trend is crucial for the survival and growth of a firm (Forbes, 2011). Since the burst of financial crisis in US in 2008, the world witnessed a dramatic shift in the macroeconomic environment around the globe. The balance of power among nations is shifting, and the increasingly integrated world is causing the business environment around the world to become more inter-related, dynamic and complex (Evans et. al., 2010). All these are factors to be considered by the management in leading any corporation to thrive in the ever challenging and competitive global business landscape.
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