Impacts of Macroeconomic Factors and Multiculturalism on

Impacts of Macroeconomic Factors and Multiculturalism on

Walmart’s Operations

Introduction

Walmart’s global and domestic operations are affected by various macroeconomic factors like inflation, gross domestic product, and unemployment rates. The corporation is relatively vast, contributing approximately 2.3% of the nation’s GDP and employing millions of American citizens. Likewise, the corporation operates many outlets in countries like Mexico, thereby increasing the dependence on foreign economies. Any changes in the Economic conditions of the U.S or other nations utterly affect Walmart’s operations. For instance, the 2018 GDP decline in the U.S affected the purchasing power of consumers, which led to a significant loss of business.

Furthermore, Walmart’s operations are also influenced by multiculturalism due to the changing demographic dynamics in the U.S population. Walmart’s apparent failure in Germany also depicts how global operations can be hindered or driven by multiculturalism. Therefore, the corporation has to streamline its processes to satisfy the needs of varying ethnicities and culture, both domestically and globally. This paper evaluates Walmart’s macroeconomic indicators, outlining how they affect functions and industry performance. Further, it assesses the necessity of incorporating diversity and multiculturalism in global operations.

Macroeconomic Indicators

Indicator

Recent Changes

Effects on Operations

Consumer Price Index

  • In the first half of 2019, average consumer goods prices increased by 2.3%.
  • The surge was the quickest pace recorded in recent years.
  • In June 2019, a shopping trip at Walmart was 5.2% more costly than the rest of the year
  • Price wars
  • High inventory costs
  • Devaluation of the dollar.
  • Lower profit margins

Employment situation

  • In Dec 2019, the U.S unemployment stood at 3%.
  • By March 2020 the figure was at 4.4%.
  • Rate of unemployment may rise significantly due to the COVID-19 pandemic.
  • High unemployment rates are beneficial for Walmart, as it increases the pool of potential employees.
  • Low unemployment rates necessitate wage increases to attract and retain human resources.

Import and Export Price Indexes

  • Low-income families spend relatively more on trade goods.
  • In the U.S prices of consumer goods are low in areas occupied by Chinese immigrants.
  • Inflation is negative on products that China exports to the rest of the world.
  • Inflation is more than 20% in areas without Chinese residents.
  • Changing price expenditures for non-residents (Dridi & Zieschang, 2004).
  • Higher interest rates
  • Price fluctuations for commodity goods.

Productivity and costs

  • In 2019, Walmart’s non-farm labor productivity increased by 1.2% in the last quarter.
  • Labor output and worked hours increased by 2.4% and 1.2%, respectively (BLS, 2020).
  • Unit labor costs rose by 0.9% in the last quarter.
  • Hourly compensation and productivity increased by 2.1% and 1.2%, respectively.
  • Rising labor costs motivate and retain Walmart employees.
  • The corporation faces lower profit margins.
  • Steadily rising labor costs are a threat to Walmart’s cost leadership model.

Employment Cost Index

  • In 2016, Walmart raised the average pay of its employees to a minimum of $10 an hour.
  • ECI statistics show a significant decline between 2007 and 2015.
  • Wages increased by around 2% annually from 2010-2015.
  • EPI statistics help Walmart in setting pay scales for employees.
  • Inflation of the EPI results in high interests and lower bond prices.
  • Annual increases in EPI help in determining allowance raises.

Purchasing Power Parities

  • Purchasing power parity aids in contrasting economic productivity and living standards of different nations.
  • The cost of living varies in different U.S locations.
  • Walmart has previously been accused of lowering wages in communities where its stores are located.
  • Walmart is relatively underrepresented in zones of high-cost living.
  • Disparities in Yuan-Dollar exchange rates could affect Walmart’s business with Chinese suppliers.

Strategies to Combat Macroeconomics Indicators

Walmart tries its level best to avoid surpassing specific CPI thresholds. However, some occurrences, like the 2019 surge, are unavoidable because there are limited cost savings strategies to offset inflation patterns. Ideally, suppliers support a certain degree of inflation, mainly when the economy is stable. Walmart, however, operates a unique cost-leadership model that enables low pricing of products and services. If Walmart’s prices rose slightly, the corporation would lose a significant portion of its market share to other discounters. Therefore, Walmart’s option is to maintain low prices to maintain the advantage over other competitors like Target and Kroger. If need be, Walmart should adjust prices depending on the strategies followed by other firms in the industry. The entire sector is under immense pressure from rising commodity prices, and each player seems to adjust their prices accordingly.

Import and Export Price Indexes help in evaluating the prices of commodities flowing across the United States borders. The federal government uses the data to forecast future occurrences of inflation and price changes for both imports and exports. Walmart pays close detail to the information because potential rise could have a ripple effect on prices of goods, revenue margins, and industry performance. Additionally, inflation could also affect equity markets by increasing interest rates, which leads to low stock prices. Previous inflation incidences have led Walmart to follow suit in increasing commodity prices, which is a significant risk to its business model.

Walmart is currently the largest U.S employer, with a workforce of approximately 1.5 million individuals. Therefore, the corporation has a significant expenditure on labor costs. Due to the cost leadership strategy, Walmart has been in conflict with trade unions and employees since its inception (Jantzen, Pescatrice, & Braunstein, 2009). Likewise, the corporation also faces notable wage wars in its international operations. Recently, Walmart has seen a rise in labor costs, which are a threat to the cost leadership strategy. The capitalizes on low expenditures to fuel its business model and to increase profitability. However, it should retain high labor costs and offset the spending through strategies like economies of scale in the purchasing sector.

Purchasing power disparities could potentially build thorny relationships with Chinese suppliers. Walmart purchases most of its products from the Chinese market, thereby depending significantly on favorable exchange rates. For instance, if the Yuan appreciated by 20%, most of Walmart’s products could potentially face a 30% price increase, with all factors kept constant. Technically, the idea shows that the corporation’s profit margin could be undone in a single day. Therefore, Walmart could collaborate with its partners to ensure the Yuan can’t appreciate rapidly. The corporation could also initiate currency hedging agreements to avoid the severe effects of inevitable appreciations of the Yuan.

Walmart’s Global Operations

Walmart International is devoted to enriching people’s lives by providing provisions at the least price possible. They leverage their size and economies of scale to offer household essentials and fresh food through integrated cooperation with suppliers and small business owners. Currently, Walmart runs approximately 5,900 stores across 27 nations globally. Further, the corporation has more than 700,000 partners, who enable them to serve around 100 million consumers weekly (Walmart, 2020).

Diversity and Multiculturalism

In the last four decades, the U.S has seen a surge in immigration, which has caused significant demographic changes. Contemporary businesses have to integrate multiculturalism and diversity into their operations to fulfill the requirements of different ethnic groups and culture. For instance, Walmart encourages inclusivity in human resource to ensure various cultures are represented and to get a more profound understanding of their needs. Likewise, the corporation’s international operations are also influenced by different cultural dynamics. Walmart designs its global outlets to fit the context and conditions of the nationalities and communities they serve. Additionally, critics associate Walmart’s apparent failure in the German market to inconsistencies in cultural dynamics. The firm penetrated the market using the American model, which was not welcomed well by society (Hamza & Nizam, 2016). Walmart has to capitalize on developing markets to gain a competitive advantage and to secure a significant market share. However, the corporation has to obtain an informed understanding of cultures, mainly in developing nations, to ensure business continuity.

 

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