WALMART AND CONTINUING BUSINESS
In economic terms, a firm should increase its output so long as the marginal revenue earned from additional units of production is greater than the marginal cost of those units, in order to maximize profits. Considering this, Wal-Mart should continue expanding its outlets and selling more at a higher cost if the extra earnings are greater than the extra costs of operation.
Wal-Mart should continue expanding because by opening new stores in different areas, it will be spreading the risks. During the hurricanes that hit American market, Wal-Mart lost its market without notice. This reduced the profit it made that year. By spreading the risks in having stores at different geographical locations, heavy losses can be avoided.
Another reason for expansion is because most local shops in the U.S.A are not doing well as they lack variety and are based on staple foodstuffs. By introducing outlets nearer these shops, it will offer competition and become dominant. In terms of profits, that will be a good strategy.
Wal-Mart offers relatively lower prices compared to other stores in America and this makes the customers to buy from them. If they establish more shops, more people will keep buying because it meets their current purchase power. So long as Wal-Mart can continue holding the market, it can maximize profits.
Should the Wal-Mart invest in new plants, equipment, or technologies Should the Wal-Mart consider a merger with another organization Explain your reasoning and explain global competition implications.
By investing on new plants, equipment and technologies, Wal-Mart will be transforming its output from offering just the low price goods to providing highly priced commodities like healthcare and housing and transport. This could provide a real purchasing power to the population, but it does not necessarily mean that profits increase for Wal-Mart more than cost of production. So if Wal-Mart wants to maximize profits, it should not do that.
By Wal-Mart dominating the market, its operation can lead to closure of other stores, as well as increasing sales. This surely leads to increased profits but there is the danger of attack and criticism from local community which may lead to government regulation and political influence. Many speculations are evolving around the expansion issue, giving the company a potential threat. If the company merges with another business corporation, it will minimize this threat by deviating attention and avoiding bad image through possible change of strategy.
On the global scale, in order for healthy competition to prevail, Wal-Mart will have to form mergers with the local companies in the foreign countries to reduce insecurity and instill confidence. The company is already receiving a lot of criticism in America. If it were to introduce shops abroad, some changes have to be made. Public relations efforts have failed to revive its image and a change in strategy will be necessary.
The global market has rapidly grown with the introduction of information technology, increasing cultural homogenization and lowered trade barriers. Many companies have already expanded and Wal-Mart has no choice but to pursue globalization uncompromisingly to keep up with the competition.
In undertaking global expansion, Wal-Mart already has giant domestic and foreign suppliers to procure goods cost-effectively for its foreign market. If it maintains good business ties with these companies, the expansion will be a huge success.