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Wal-Mart Impact

This virtually unbridled power of the life or death of consumer goods industries, however, presents the question of whether or not Wal-Mart is indeed good for America. While it certainly does create jobs and sustains the consumer goods industries of America, it also has the same power of taking such benefits away and perhaps leaving the American economy in a far worse off situation than it is at the present. Wal-Mart has become so powerful that any shift in its purchasing and production policies will certainly result in some imbalance on a certain economy in the world.

This is one key business concept that many corporations in America need to learn; the cost of driving down prices too much versus the profit that is involved in developing a sustainable consumer base. An example of the power of Wal-Mart is the fact that because of the immense volume of sales that Wal-Mart generates it is able to dictate where goods are to be manufactured in the world despite the fact that it is not a producer but simply a retail-chain.

For a retail chain to be able to dictate to suppliers where they are to produce their items in order to be able to sell to Wal-Mart at a lower cost means that the retail chain has either a huge stake in the ownership of the supplier or buys so much from the supplier that it is able to dictate the price that it is willing to buy at and by doing so dictate where such goods are to be produced. Another key business concept that Wal-Mart has capitalized on is the mobility of factors of production concept.

In its early years, Wal-Mart provided jobs for most Americans because a majority of the goods supplied were produced in the United States. With globalization and the theory of a flat world, other countries have become more competitive industrially and have now taken those production jobs that were previously held by Americans. The outsourcing of consumer goods industries to other countries can be theorized to have been created by the Wal-Mart demand for cheaper products from their suppliers. The problem with this scenario is that it creates unemployment for Americans who are the main buyers from Wal-Mart.

In order to counteract this scenario, Wal-Mart must then reduce prices lower to meet the increasing lower income bracket of unemployed Americans who have lost their jobs because of the global production tilt to other countries. As this trend continues, it may be theorized that Wal-Mart will eventually strangle itself by driving the prices of goods down too much without protecting its major market which is the United States. Bane or Boon: In determining whether or not Wal-Mart is good for America, the basic economic principles of any market must be analyzed.

Every market is governed by two basic forces, supply and demand. Wal-Mart is able to control both these forces because of the immense size that it has. It controls supply by deciding what items it chooses to retail. It also decides the demand for the item by pricing competitively. In its early years, Wal-Mart provided jobs for most Americans because a majority of the goods supplied were produced in the United States. With globalization and the theory of a flat world, other countries have become more competitive industrially and have now taken those production jobs that were previously held by Americans.

The outsourcing of consumer goods industries to other countries can be theorized to have been created by the Wal-Mart demand for cheaper products from their suppliers. The problem with this scenario is that it creates unemployment for Americans who are the main buyers from Wal-Mart. In order to counteract this scenario, Wal-Mart must then reduce prices lower to meet the increasing lower income bracket of unemployed Americans who have lost their jobs because of the global production tilt to other countries.

As this trend continues, it may be theorized that Wal-Mart will eventually strangle itself by driving the prices of goods down too much without protecting its major market which is the United States. The size of Wal-Mart is such that it can do more than just cause ripples in a pond. In one of the world’s largest job markets, the Wal-Mart effect is that it can also lead to small business running into bankruptcy or adding to unemployment in the area. One study shows that the mere entry of Wal-Mart into a local area had the effect of increasing the poverty rate among residents.

Counties that had Wal-Mart stores in 1999 were found to have increased rates of poverty than other counties that had a lower number of Wal-Mart outlets or none at all (Basker 177). Between the years of 1987 and 1998, it was also shown that the areas where the Wal-Mart stores were placed immediately experienced higher poverty rates, increasing the average level for the area to 0. 204 as compared to those of other counties that only had 0. 099 (Basker 177). These studies show that while Wal-Mart has been shown to be good to the consumer by increasing the disposable income and by lowering the prices, the effect is not necessarily good.

It can lead to increases in poverty and unemployment rates (Basker 177). The effect that this proves, however, is that wherever a Wal-Mart opens up or whatever policy it decides to implement, there will always be a Wal-Mart effect. Conclusion: The impact that Wal-Mart has on the American economy is not as simple as looking at facts and figures, however, as the other social effects need to be considered. Therefore, in determining whether or not Wal-Mart is good for America, the basic economic principles of any market must be analyzed.

Every market is governed by two basic forces, supply and demand. Wal-Mart is able to control both these forces because of the immense size that it has (Hicks 27). It controls supply by deciding what items it chooses to retail. It also decides the demand for the item by pricing competitively (Hicks 27). The status of Wal-Mart, therefore, as either a boon or a bane for the American economy solely depends on whether or not it is willing to protect its major market which is the United States.

Wal-Mart not only determines which consumer goods industries are to survive but also which economies are to benefit.

References:

Basker, E. (2005). Job Creation or Destruction? Labor-Market Effects of Wal-Mart Expansion. The Review of Economics and Statistics, 87, 174-183 Global Insight. (2005). The Economic Impact of Wal-Mart. Business Planning Solutions Global Insight Advisory Services Division Hausman, J. & Leibtag, E. (2005). Consumer Benefits from Increased Competition in Shopping Outlets: Measuring the Effect of Wal-Mart. Economic Research Service, U. S. Department of Agriculture.

Hicks,M. (2005) “The Impact of Wal-Mart on Local Fiscal Health: Evidence from a Panel of Ohio Counties. ” Econ WPA Economics Working Papers. (Urban/Regional Archive No. 0511016) Nene, G. (2005). The Effect of Wal-Mart on the Economic Growth of Nebraska Counties. Master of Sciences Thesis, Agricultural Economics: University of Nebraska-Lincoln. Kenneth Rogoff: The Purchasing Power Parity Puzzle, Journal of Economic Literature, 34(2), June 1996, pages 647-668. Wilfred J. Ethier: Modern International Economics, 3rd edition. W. W. Norton & Comp. , New York/London: 1995.

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