Key insights and practical lessons of Wal-Mart - Essay Example

Key insights and practical lessons of Wal-Mart The company under study is Wal-Mart. This is an American corporation that runs a large chain of departmental stores and warehouses. The company is one of the largest public corporations in the world, and has an employee base of over two million people. Wal-Mart is the largest retail business in the world, and its share prices are very valuable (Roberts and Bergs, 2012). This company began its operations in 1962, and its founder is Samuel Walton. In 1972, the company began trading its shares at the New York stock exchange. The headquarters of the company is in Bentonville, Arkansas. The company runs the largest grocery store in United States of America, and in 2009, over 51% of its sales revenues in United States of America came from its grocery stores (Roberts and Bergs, 2012). This revenue amounted to 258 billion United States dollars. The company has a presence in North America, operating a retail warehouse business. The company has an approximate number of 8500 stores in 15 different countries. In these 15 countries, the company has different brand names. For instance, in United States of America, the company operates under the brand name of Wal-Mart. In Mexico, the company operates under the brand name of Walmex, while in India; the company operates under the brand name of Best Price (Roberts and Bergs, 2012). The company also has retail stores in Japan, Argentina, South Africa, China and the United Kingdom. Despite its successes, the company does not have operations in East Africa, and in particular Kenya. Kenya has the most dominant economy in East Africa, and it has a fast growing retail market within the region (Agwuele, 2012). It also has an open economic system, which is conducive in attracting Foreign Direct Investments in the country. It has one of the best labor force in Africa, and good infrastructures such as an elaborate road network, and efficient supply of energy (Agwuele, 2012). On this basis, the country is a good destination for the entry of the business within the region. However, one main challenge that the nation faces is its unstable political structure. This is denoted by the violence that occurs after every five years during the periods in which they pass through the elections. For instance, in 2008, the country underwent a bloody post-election violence that required the intervention of the International community to solve the conflicts between its various leaders (Agwuele, 2012). However this changed in the 2013 general elections, when the country underwent a peaceful election, and transfer of power. This is partly because of its constitution which created independent organs such as the judiciary for solving disputes amongst conflicting parties. Its constitution also created a more democratic space, ensuring transparency in the manner in which government institutions conduct their affairs. The country has a corrupt administrative system. On this basis therefore, acquiring services from these people is difficult, unless an individual corrupts the officer in charge (Agwuele, 2012). This might be a problem during the registration process of the company. Despite these challenges, the company might make some profits if it invests in this country. However, in international trade, chances are that the value of the money used in trade will always fluctuate. For instance the average value of the Kenyan shilling against the dollar is 83 shilling to 1 dollar (Agwuele, 2012). However, this value always fluctuates, and when it falls, multinational companies that use the dollar as a means of trading might make losses. In the case of Wal-Mart, the company might export or import products into the Kenyan market. While exporting and importing, the company will be dealing with a foreign currency, which is always volatile. On this basis, the company might make losses in its operations. To minimize these risks, the company must enact policies that will help them manage their foreign exchange currencies. One method that the company can use in minimizing risks associated with foreign exchange is the use of currency swaps. Currency swaps refers to an agreement between two organizations to exchange interest payments, or a principal of a loan, in one currency, with an equivalent of a principal amount/ interest payment of a loan in another currency (Ahmad, 2013). For example, Wal-Mart is based in United States of America, and company A is based in Kenya. Company A wants to take a loan denominated by dollars, while Wal-Mart needs to take a loan denominated by shillings. The two companies will swap on the grounds that each and every one of them has positive rates in their respective countries. Through this method, the two companies will be able to minimize the risks associated with fluctuations of the foreign exchange rate. Another method that the company should use in minimizing the risks associated with foreign exchange is the option trading methodology. In this method, the company will analyze the foreign exchange of the currency they want to deal with. The prices of the currencies usually fluctuate, there is a time when they are high, and there is also a time when they are low (Ahmad, 2013). On this basis, the company will transact in the given currency during the period its price will not make the organization to suffer a loss. That is when the dollar is strong against the currency in question. For example, Wal-Mart seeks to import TVS screens into the Kenyan market. As denoted earlier, the average price of the Kenyan shilling against the dollar is 83. However, the prices of the shilling can reach as high as 85 shillings. When the company imports its products using the 85 shilling margin against the dollar, chances are high that the products would be expensive, and therefore the company can make losses. The best option is for the company to wait for the shilling to drop to its average price of 83, or lower and thereafter engage in the exportation and importation of its products (Ahmad, 2013). The International monetary fund and the World Bank have played a great deal in the liberalization of the Kenyan economy. This is through the structural adjustments policies that the institutions advocated for during the 1980s and 1990s. These institutions forced third world countries to open up their economies through the practice of capitalism and liberalization. The Kenyan government is amongst the third world countries that were targeted by these structural adjustment policies (Agwuele, 2012). As a result, the government privatized some of its state corporations, and liberalized its economy, making it convenient for foreign direct investment. On this basis, liberalization is one policy that the Kenyan government practices. The prices of goods and services are determined by the supply and the demand curve in existence in the market. Wal-Mart can take advantage of this policy, and roll out goods that are on high demand in the country, for purposes of making a profit (Roberts and Bergs, 2012). In a liberalized economy, the government does not interfere with the activities of companies operating. For example, the government won’t create specific prices, for specific products. Wal-Mart can take advantage of this policy, and develop strategies that will ensure it gains an advantage over its main competitors. This includes lowering the prices of its products for purposes of attracting more retailers to its stores. In as much as the policies in place might be conducive for the operations of the company, it is important for the organization to have an effective financial management system, highly experienced and qualified human resource staff, good operations and an effective marketing strategy. One aspect that the company must undertake is to reduce the various costs that it will incur in the process of establishing its business in the country (Ahmad, 2013). Cost management is a very important aspect of a business organization, and this is because costs play a role in either increasing or decreasing the profitability of a business organization. There are two types of costs the business will incur, that are variable and fixed costs. Fixed costs include items such as rental costs, property tax, administrative costs, and bureaucracy costs. To manage these types of costs, the company must review its financial performance and records for purposes of finding the best approach of reducing them. Suggestions would include creating a lean administrative staff, use of technology to conduct their operations, budgeting, outsourcing some services that would be expensive for the company to offer, and proper budgeting (Ahmad, 2013). To effectively conduct its operations in the target market, the company needs highly experienced personnel in the retail sector. This is because it is a new venture, and there is stiff completion in the Kenyan retail market (Agwuele, 22012). These people will bring skills that will help the company effectively compete with its competitors. The company will also need an effective marketing strategy, for purposes of advertising its services. For purposes of making sales, people must know of the various products the company sales. This will attract retailers to their stores, and they will most definitely make some sales. References: Agwuele, A. (2012). Development, modernism and modernity in Africa. New York: Routledge. Ahmad, R. (2013). Foreign direct investment (FDI) and global financial crisis. New Delhi: New Century Publications. Roberts, B. R., & Berg, N. (2012). Walmart: key insights and practical lessons from the world's largest retailer. London: Kogan Page. Read More