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WalMart Merger - Assignment Example

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Walmart Merger Instructor Name WALMART MERGER ABSTRACT For a couple of decades now, Wal-Mart has been characterized as being the leader, the dominant firm and the Big One Retail Company, all relatively smaller firms look up to. The main reasons behind this are multifarious, with the consumers benefitting the most among them…
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Download file to see previous pages The paper has been divided into two main parts: the first part mainly dealing with the Retail Industry, the major players, their production schemes, and their impact on the consumers and society overall. The second part deals with the advantages and disadvantages the firms might have because of the merger. PART I: INTRODUCTION Oligopoly is characterized as consisting of a small number of large sellers, being called the ‘Competitive Fringe’, with a few big firms dominating the entire industry’s production (Lipsey, 2004). These big firms, act as the trend-setters in terms of price and output, and are a major reflection of the entire Market. In this instance, the Retail market, is characterized by one big firm – Wal-Mart, with smaller firms either adhering to an acquisition or a merger, for their benefit. For example, in the United Kingdom, the Big Five Banks – Barclays, Lloyds TSB, Royal Bank of Scotland, HSBC and HBOS - dominate the Banking Sector. Similarly, there are many small departmental stores, selling retail products, but a dominant few, like Sainsbury, Asda and Tesco, taking over the entire nation. The small firms, then, sometimes, find it profitable to merge, consolidate, co-operate or be purchased by the Big One. SALES, OPERATIONS AND FIRMS IN THE MERGER According to Forbes Global 2000 list, Wal-Mart is the world’s 18th largest public corporation, and the world’s largest corporation when it comes to annual revenue ($421.849 billion), with its international operations accounting for 26.1 % of its total sales, and a gross profit margin of 24.7%, running chains of discounted departmental stores and warehouse stores. With a total of 8500 stores in 15 different countries, with 55 different names, Wal-Mart extends its operations in nine different retail formats, including general merchandise, food and drugs, Super Center, small markets, cash and carry stores, membership warehouse clubs, apparel stores, discount stores and restaurants (Holdings, 2011). VERTICAL INTEGRATION: REASONS TO CONSOLIDATE A lot of consolidation has been seen among retailers and retails chains, over the past couple of decades, with 40,788 mergers & acquisitions having been announced only between 1988 and 2010. The main reasons behind the consolidation of firms in the industry may be due to: 1. Economies of Scale: This refers to a significant decrease in the fixed cost of the merging firms by the removal of duplicate or extensive operations; 2. Economies of Scope: Economies of scope exist due to the alteration of method of the distribution and the marketing of products. For instance, two homogeneous products may have been advertised in a similar way previously, but now they are not; 3. Vertical Integration: This primarily means the merging of two or more firms from the same industry results in increasing profits and a larger consumer surplus than before, implying a decrease in the deadweight loss. This is done by the firms deciding on a particular amount of output, and then sticking to that output level; 4. Investment benefits: The merged firms have higher chances of receiving greater benefits when it comes to Investment, because of the name of the big firm attached to it. Sensing financial stability, the smaller firms, once a part of the big firm, are viewed as being stable, and thus attract a larger number of investors. There ...Download file to see next pages Read More
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