Response to Classmates Discussions

Bus 626 Week 6 - Discussion Forum 1

Guided Response: Respond to at least two of your fellow students’ and to your instructor’s posts in a substantive manner and provide information or concepts that they may not have considered. Each response should have a minimum of 100 words. Support your position by using information from the week’s readings. You are encouraged to post your required replies earlier in the week to promote more meaningful and interactive discourse in this discussion forum. Continue to monitor the discussion forum until Day 7 and respond with robust dialogue to anyone who replies to your initial post.

Jocelyn Harnett

Egypt has a sizable trade deficit that has continued to grow through the 21st century. The country has imports that make up a third of GDP and exports that make up one tenth of GDP. Egypt has many critical trade partners that include China, the United States, and the Gulf Arab countries. Throughout history Egypt has had an unstable government which has led to an unstable economy. This is related to the fluctuations the country has experienced in tariffs and taxes. The country has stabilized in recent years, but the historic instability still remains a critical factor when considering the expansion of Wal-Mart into Egypt. The trade deficit would not be a concern under normal conditions due to the fact that this means money is flowing into the country and creating new opportunities, but because the government is not stable Wal-Mart would want to ascertain that money was being invested properly in the future. If money is not being utilized correctly than the trade deficit becomes a concern because future generations are inheriting a debt that had no payback associated with it.  The exchange rate of the Egyptian pound has gotten stronger to the US Dollar, which is a good indicator the economy is heading in the correct direction. Wal-Mart expansion could benefit from getting into the market in Egypt at the right time to see major profits.

Egypt is a market that will continue to grow as the internal government becomes stabilized and the country continues to focus on improving the economic welfare of the people.  Currently the market in Egypt is volatile and companies that select to make an investment here must be aware of the many different cultural aspects that will affect success. The government is working to “find solutions and solve difficulties for people and businesses” (Bawaba, 2019) and has seen success in the first half of 2019. “At the time of May 31, 2019, the whole country had 721,516 businesses doing business, increasing 23,921 enterprises (3.43 %) compared to the end of 2018.” (Bawaba, 2019). This sort of success validates a foreign company wanting to make an investment, but continued analysis of the country’s government stability will be needed before each new storefront is added.

 

References:

Bawaba, A. (2019). Egypt : "Reviewing tax policies, finding solutions to solve difficulties for people and businesses.) Retrieved from: SyndiGate Media Inc. (Syndigate.info)

Gwartney, J. A., Stroup, R. L., Sobel, R. L., & Macpherson, D. A. (2018).  Macroeconomics: Private and public choice  (16th ed.). Retrieved from https://www.cengage.com

Gabriela Quito

Hi Class,

Discuss how comparative analysis, trade restrictions, tariffs, and exchange rates of your chosen country will impact the decision to expand. You need to take these macroeconomic concepts and apply them directly to the Walmart expansion decision.

I decided to expand Walmart’s operation in Peru. Despite the benefits of international trade, many countries put limits on trade for various reasons. The main types of trade restrictions are tariffs, quotas, embargoes, licensing requirements, standards, and exchange rates. A tariff is a tax put on goods imported from abroad. The effect of a tariff is to raise the price of the imported product. It helps domestic producers of similar products to sell them at higher prices. The money received from the tariff is collected by the domestic government.

It is important to recognize that the taxes owed on imports are paid by domestic consumers and not imposed directly on the foreign country's exports. The effect is nonetheless to make foreign products relatively more expensive for consumers but if manufacturers rely on imported components or other inputs in their production process, they will also pass the increased cost on to consumers. As mentioned by the report on trade and tariffs, “It is pointed out that improvement in present condition may be affected by the combined efforts of American financial and commercial interests, on the one hand, and governmental activity, on the other” (pg. 1). This explains that Walmart will have to foster trust and cooperation among the political or economic edges of Peru during the expansion of its operations

Another factor that will impact Walmart’s expansion in Peru will be the currency fluctuation because the values fluctuate depending on several factors including a nation's economic activity and growth prospects, interest rates, and geopolitical risk. Currency moves can have a wide-ranging impact not just on a domestic economy but also globally. According to Gwartney (2018), “Exchange rate controls both reduce the volume of trade and lead to black-market currency exchanges.”(pg.18-4c). This means the fluctuations in exchange rates can have a significant effect on businesses, the impact differs in its benefits and harms depending on the type of business. In this case, exchange rates directly affect import and export businesses like Walmart the most, and they can both flourish or lose following a currency appreciation or depreciation.

Considering the topics you have studied throughout this course, what other economic factors may impact the decision to expand?

 The economic situation of your market impacts what you offer and how you present it to your target customers. The local economy influences how you approach consumers, while the international economic outline limits your ability to produce, dispatch, and distribute your products throughout cost and regulatory restrictions. The reason to expand internationally is to access the global marketplace for the sale of goods and services. This is especially attractive to companies that may be located in less-developed economies like Peru and market regions, where growth is limited. It is a common practice for businesses to outsource production to countries with less expensive labor and infrastructure costs. For Walmart's company, looking for the production of goods in some local Peruvian companies or other countries can offer real cost savings and competitive pricing of products.

 

References:

Amiti, M., Redding, S. J., & Weinstein, D. E. (2019). The Impact of the 2018 Tariffs on Prices and Welfare. Journal of Economic Perspectives, 33(4), 187–210.  https://doi-org.proxy-library.ashford.edu/http://www.aeaweb.org/jep/ (Links to an external site.)

Gwartney, J. A., Stroup, R. L., Sobel, R. L., & Macpherson, D. A. (2018). Macroeconomics: Private and public choice (16th ed.). Retrieved from  https://www.cengage.com (Links to an external site.)

Report on Trade and Tariffs in Brazil, Uruguay, Argentina, Chile, Bolivia, and Peru. (1917). 7(1), 179.