Wal-mart and its Challenges in Globalization Context - Essay Example

Introduction Globalization has resulted in almost all organizations, that have some aspects of their business (be it its research and development, manufacturing, hiring and recruitment or sales) performed in countries other than their country of origin (Beck, 2000). This is because, in different geographical and political regions of the world, there are different rules and regulations, tariff and non-tariff barriers, different social and legal norms and different customer demographics and customer preferences (Brunn, 2006). Wal Mart, an organization that has no rival in terms of its sheer size and number of employees (Fortune Global 500, 2007), too had to face several challenges globally in order to maintain its low-cost unique selling positioning and to ensure that its products swiftly move from its stores. More specifically, the challenges that Wal-Mart faces due to globalization include, challenges to its production and supply chain in the event of international competition, changes in the perception of employees due to exposure about industry practices, and challenges due to ethical considerations that arise owing to the globalization of its supply chain. The following paragraphs discuss the globalization challenges, with the first section dealing with the production and supply chain related changes and the next with the people management practices at Wal-Mart. Globalization and Management of the Production Chain at Wal-Mart Globalization has brought new challenges as well as opportunities for Wal-Mart as with the globalization of its operations Wal Mart had to contest with indigenous competitors in foreign markets who could offer customers with benefits of local procurement and distribution systems (Hicks, 2007). Further, local customs, preferences and consumer behavior and market sizes also placed added challenges to Wal-Mart (Hicks, 2007). Added to this was the fact that incomes and expectations of the customers varied with different countries. Additionally, there are growing concerns about the corporate social responsibilities of organizations performing internationally and about the impact they make on the local environment as well as labor conditions (Carlisle & Faulkner, 2004). In order to meet these challenges specific due to its global operations, Wal-Mart needed to follow a two fold strategy – to increase cost and time efficiencies and to improve its brand image in the minds of the customers. Both these objectives were achieved by strengthening its supply chain management processes and by extending its supply chain by making strategic mergers and acquisitions. Strengthening Supply Chain Wal Mart focused on making its supply chain strong, lean and flexible and soon established itself as a leader in supply chain management as it continued its focus on its strategic concept and improved logistics and distribution, information technology, and supplier collaboration (Comm and Mathaisel, 2008). Its strategic concept of providing low price products to the end consumer was kept alive even in the international markets where competitors had better experience and a stronghold. While making international forays, Wal-Mart kept its focus on serving the different regions with a very local perspective, a policy revealed in its ‘best in market’ supply chain strategy. This strategy enables Wal-Mart to invest in technology and service proportional to the customer’s expectations and his or her pocket size. For example, in case of Wal-Mart stores in India, it started with providing basic technology in form of manual movement of products using trolleys and forklifts. On the other hand, for its Japanese stores, Wal-Mart uses costlier and more efficient automated cranes and radio-frequency picking or RFID technology. Using these technologies enables Wal-Mart to keep track of its inventory as well as to facilitate efficient movement of the goods within the stores (Fisher, 1997). In order to continue to serve the international markets with the same promised low price products, Wal Mart started strengthened its logistics and distribution by developing a network of suppliers and transporters that could provide it with benefits of low cost and shorted lead times. Additionally, Wal-Mart follows an aggressive policy of buying from direct producers and bypassing wholesalers (McKinsey Global Report, 2001). Wal-Mart started its global procurement division to source for its global stores and used the retail link system (ICMR, 2004). It also started using a system of ‘traiting’ where each product was indexed according to the local demands and preferences. This is an effective method of ensuring that the local stores stock products that are of relevance to the local buyers (Vignali, 2001). Wal-Mart uses the local market research to guide and allow the local store managers in different geographic locations to display and price products with some independence. Further, it invested in information technology at each step of the supply chain, be it demand forecasting, procurement, logistics management or warehouse and inventory management. Effective utilization of information technology has been linked with more collaborative and efficient supply chains especially for organizations that have diverse operations (Attaran & Attaran, 2007). Use of information technology and CPFR or collaborative planning forecasting and replacement technology along with Electronic Data Interchange and voice enabled tools and applications ensured that its suppliers were able to keep in live contact with its retail stores – where the systems apprised them directly of the stocks schedules needed (ICMR, 2004). Wal-Mart also developed world class tracking and satellite communication system that linked its headquarters with its other stores throughout the world (Brun, 2006). As such, by using information technology, Wal-Mart was able to ensure that it manages efficient collaboration with its suppliers. Wal Mart ensures that its suppliers are competent enough to provide its stores with Just-in-Time deliveries thus reducing inventory costs. The companies large scale operations also made it an efficient bargainer on costs and made the suppliers opt for procuring or manufacturing their products in countries where the labor or manufacturing costs were low (Brun, 2006). However, for its push on suppliers to procure low labor costs, Wal-Mart has been targeted with insinuations of driving low labor standards in poor countries (Scherer, Palazzo & Matten, 2009). Mergers and Acquisitions Wal-Mart’s international supply and production chain are operated either through its fully owned subsidies or by formulating strategic alliances and mergers with other, already established retailers in the local markets. Wal-Mart taps in the local outlook and local competitiveness of these retailers in the local markets. For example, in the United Kingdom, Wal-Mart acquired Asda chain of stores (Eurofood, 1999); in India, it operates through is Best Buy Chain, in Mexico it has controlling option of Walmex, and in Japan it operates through the Seiyo chain of stores. All these operations provided Wal Mart with the chance to work in the local market from inside, as it could capitalize upon the existing production and supply networks and relationships of these retailers. While it is important for international organizations to have economies of scales and standardization of practices and products across its operations, it is equally important that they keep in touch with the needs of the local market that they hope to serve (Spich, 1995). As such, it can be seen that in addition to strengthening its logistics and distribution system and fostering better supplier collaboration via using information technology, Wal-Mart also manages to provide the local customers with their choice and range of products. People Management and effects of globalization at Wal-Mart Globalization places several challenges to organizations that operate in more than one country. Some of the prominent challenges include adapting the business operations in a different cultural and at times, different technological environment, dealing with different ethical standards and dealing with different competency levels while recruiting locally. Also, there may be different laws regarding minimum wages, work hours and benefits incentives as well as regarding the requirement of inclusion practices. While globalization helps organizations in sourcing and outsourcing its various operations either partially or fully, it also poses the threat of discontinuity in terms of the quality and standards of services or products across different locations (Morley and Collings. 2004). The above challenges of globalization are largely met by multinational corporations by implementing strategic management and using standardized benchmarking procedures for performance appraisal, wage valuation and training and development of the employees. Also, culture relevant aspects of people management like acclimatizing the local recruits with the corporate culture as well as formulating cultural guidelines for local operations that reflect local sensitivities are to be worked upon (Perkins, 2003). Wal-Mart operates in over 70 countries and recruits thousands of local employees (Bateman and Snell, 2004). Some of the practices that Wal-Mart promotes include employee recruitment on college universities and employee training and development. Another aspect of its human resource policy is the employee advancement program that helps its hourly wage employees to advance to managerial positions (Bateman and Snell, 2004). Recruiting employees locally helps Wal-Mart to take advantage of the low rates at which the young recruits can be enlisted (Zekos, 2004). However, it follows a standard approach to managing people that is based on cost cutting as Wal-Mart manages to obtain its market leadership by discounting its products heavily. Assuming a cost leadership stance in the international arena is extremely difficult for organizations as there is a limit to the process efficiencies or economies of scales that can be utilized for reducing costs (Brinkman & Brinkman, 2002). As such, in order to ensure that it remains viable, some of the organizations resort to cutting costs by reducing the pays and benefits of their employees (Royle, 2005). Wal-Mart’s cost cutting strategic concept permeate all aspects of its business, be it its employees and human resource policies or its suppliers and distribution partners. Wal-Mart has found itself repeatedly questioned by the public as well as by the lobbyists on its human resource policies. Globalization has also made information regarding labor standards and about laws ruling benefits of employees readily available to employees from all over the world (Arrighi, 2003). Further, there has been an increase in awareness about issues related to gender, and diversity at the workplace. This has lead to a proliferation of community and regional organizations like Avondale and People for Palmer etc. to rage legal or ethical issues against Wal-Mart. The information explosion via internet and electronic media has created additional problems for Wal-Mart as these media became potent tools for campaigns against human resource practices of Wal-Mart. Internet has been used by trade unions and individual bloggers to flag discrimination and health hazards for Wal-Mart employees, and the all pervasive nature of Internet has ensured that negative publicity for Wal-Mart reaches to all corners of the world. For example, there are anti-Wal-Mart sites like wakeupwalmart and CenterforCorporatePolicy.com Wal-Mart, that has traditionally adopted a tough stance towards its employees in terns of salaries compensations and benefits, had to bear the brunt of external media scrutiny after globalization. Some of the internal problems that relate to its people management are now in the spotlight. The next section highlights some of the issues that have been raised about the people management practices at Wal-Mart. People Management Issues at Wal-Mart In terms of managing its 1.4 million employees, Wal Mart is seen to follow a frugal approach (Lichtenstein, 2005). For example, Wal Mart maintains salaries that are extremely low as compared to the industry standards even though its employees average productivity is among the best of the US corporations. Also, the average employee at Wal-Mart earns $1,000 below than the wages prescribed by the US government to remain above the poverty line (Greenhouse, 2003). In addition to low salaries and non-existent insurance and health benefits, Wal-Mart has also been accused of over working its employees without paying for extra-time (Lichtenstein, 2005). It has been found that Wal Mart pressurizes its workers to contribute more and more without adequately compensating them and hence befits from overall productivity in terms of work done per employee. Further, it follows a staunch anti-employee union policy so that it can exploit its employees (Bianco, 2007) Another aspect of Wal-Mart’s people related policies is its alleged discrimination against its female employees. Wal-Mart has been repeatedly accused of paying its female employees below par as well as restricting their career growth (Featherstone, 2005). Additionally, Wal-Mart also faces issues of diversity management as it does not want to burden itself with sensitivities required for managing a diverse workforce (Hicks, 2007). Similarly, there are allegations that the employees at the direct factories of Wal-Mart are exposed to health hazards and are often left locked in during the night shifts (Ministry of Finance, Government of Norway, 2005). Wal-Mart has also found itself to be involved in governmental investigations due to the working conditions enforced by its suppliers from their employees. More specifically, Wal-Mart has been accused of collaborating with suppliers that employ minors, violate work-hour and work-day standards, pay barely sustainable minimum wages, prohibit unions, and subject their employees to hazardous environments (Ministry of Finance, Government of Norway, 2005). The international organizations have to operate with the same ethics and standards in foreign nations as are applicable in their own or as are dictated by the local laws if they need to have a long term global presence (Devinney, 2009). Changes at Wal-Mart However, in spite of the adverse publicity and a number of law suits, there have been little changes in the internal treatment of its employees. Wal-Mart continues with its practices of low wages, long and unpaid overtime hours, discrimination based on gender and poor health and insurance benefits. In fact, Wal-Mart has been further accused of driving lower labor standards in several countries by forcing its suppliers to procure low cost good. Globalization seems to have had added to the power of Wal-Mart over its employees and suppliers as it is able to procure and place people at the lowest possible wages. On some accounts, for example on its diversity related issues, Wal Mart has made some progress as can be seen by its performance on the Human Rights Campaigns Corporate Equality Index for the year 2005. The index measures how corporate treat their LGBT (Lesbian, Gay, Bisexual and Transvestite) workers (Corporate Equality Index, 2006) Globalization has also made Wal-Mart retaliate to adverse publicity aggressively. It has launched its website that portrays its side of the story, uses aggressive speeches and sends letters to bloggers’ posts combating any insinuations (Greenhouse, 2003). Conclusion In conclusion it can be stated that Globalization has led Wal-Mart take advantage of the opportunities presented by new markets. The company employs information technology for making its supply chain robust and trustworthy for international operations. 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