Challenges of Expansion to a Foreign Location
melissasimmxne41
MelissaSimmonsResearchAnalysisforBusiness.doc1
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Research Analysis for Business
Melissa Simmons
ECO/561
February 5, 2018
Caryn Callahan
Research Analysis for Business
The economic have a noteworthy effect on the overall economy, which in turn affects the performance constraints of the business operating in the concerned economy (Liow, 2016). For instance, an economic boom period leads to prosperity and growth of the concerned business. The great economic downturn between 2007 and 2009 lead to bankruptcy of many industries, since they could not survive in the prevailing harsh economic conditions. However, there are various strategies that could be adopted by a company to address and overcome the turbulence of the economic performance. In relation to this, the present paper conducts an investigation of economic data and business data to explain how the core economic principles effect the sustainability of the firm and what actions the firm can take to guarantee accomplishment (DiModica, P. (2006). The firm considered in this case is the Walmart Stores Inc.
Walmart Market Analysis
Walmart operates in a fragmented discount retail industry. The market structure in which Walmart operates is the monopolistic market structure. This is because there are a lot of retailers who competes with the company. Walmart faces competition from international companies such as the Carrefour in France, Metro AG in Germany, Tesco in the United Kingdom, Loblaw Companies in Canada, and Ahold in the Netherlands. It also faces rivalry from Target Corp, Costco Wholesale, Dollar General, Amazon amid other retailers (Hicks, 2016). Walmart market share, as per the 2017 statistics was 12.2%. This market has few barriers of entry in the market. These include the inflated cost of establishing a retail business, and the involved fierce competition. There is also low margins since firms offer lower prices.
Trends in current macroeconomic indicators
The USA has been having a vibrant microeconomic indicator. Considering the business cycle, USA is at the mid-expansion phase, which is has remained for the last six years expansion roll. The real GDP of USA has been increasing for the last three years. In 2013, it was $16691.52 billion, in 2013, it was $17393.1 billion, while in 2015, and it was $18036.65 billion. Inflation has been experiencing significant fluctuations. In 2014, it was approximately 1.5, but droped to an average of -0.2 in 2016, and rose again to an average of 1.5 in 2016. It reached the highest peak of 2.5 at the end of 2016. The USA unemployment rate has declined significantly for the last three years. For instance, in 2014 January, it was 6.6% and declined to 5.5% in 2015. The decline continues to 4.9% in 2016. The country’s federal funds rate is quite low, though it has been increasing over time. In 2014, it was 0.09%, and increased to 0.13%, and 0.4% in 2015 and 2016 respectively. The current American interest rates FED are maintained at 0.750%. The prime rate is maintained at 3.75%.
Figure 1: USA GDP variation
Trends in demand over the last three years
The data for the domestic demand of the US is presented in the table below. There were wan increase in demand between 2014 and 2015, from 2.45% to 3.22%. Then declined to 1.53% in 2016 and is projected to rise to 2.43% in 2017 and 3.34 in 2018. An increase in the rate of demand would lead to the increase in demand for goods and services offered by the retail industry in USA, and consequently, an increase in the goods sold by Walmart Stores. This case would be experienced between 2014 and 2015 (Hicks, 2015). However, the vice-versa would be experienced between 2015 and 2016 due to decline in domestic demand.
|
Data table for: Domestic demand forecast, Total, Annual growth rate (%), 2014 – 2018 |
|||||
|
OECD - Total |
1.90 |
2.38 |
1.80 |
2.00 |
2.35 |
|
United States |
2.45 |
3.22 |
1.53 |
2.43 |
3.34 |
Walmart sales in US is presented in the table below.
|
Walmart Annual Sales |
|||||
|
Year |
2013-01 |
2014-01 |
2015-01 |
2016-01 |
|
|
Revenue USD Million |
446,509 |
468,651 |
476,294 |
485,651 |
|
|
Walmart Quarterly Sales |
|
|
Jan. 31, 2017 |
130.94B |
|
Oct. 31, 2016 |
118.18B |
|
July 31, 2016 |
120.85B |
|
April 30, 2016 |
115.90B |
(Liow, K. H. (2016).
105110115120125130135Jan. 31, 2017Oct. 31, 201631-Jul-1630-Apr-16Walmart Quarterly Sales Billion DollarsQuarters Walmart Quarterly Sales Series 1Column1Column2
The most effective strategy a firm should adopt is to depend on the prevailing demand in determining the products to supply in the market. The forecast of future demand should determine the supply to be made by the firm in the market, since the sales would be higher.
Price Elasticity
Price elasticity of demand expresses the responses of the responses of the quantity demanded of a product to price. It is premeditated using the following formula:
PEoD = (% Change in Quantity Demanded )/(% Change in Price) (Kazakov, S. (2016).
In the case of Walmart, the price of elasticity of demand could be calculated by looking at two different prices of the same product, and the amount of a product bought as the varying prices. This would indicate the percentage by which quantity demanded changes when the prices of the same product are changed. Price elasticity of demand has significant effect on pricing of a product. A high price elasticity of demand implies that a insignificant change in price result to a immense change in quantity demanded. Hence, charging high prices would reduce sales and revenue. However, if the elasticity is inelastic, then a higher price change has little effect on the quantity of products demanded, and hence the company would increase price without losing sales and revenue.
Concept of variable and fixed cost
The level of output depends on the cost involved in the production (DiModica, 2006). In Walmart Stores, the variable coat is high as compared to the fixed cost. The major variable costs include the labour, reduces the amount of money used for procurement and expansion. The cost of the products from the suppliers affects the amount of the goods to be bought for sale. The higher the unit cost of the products, the lesser the amount ordered by the company, and the lesser the stock in the Walmart stores. Fixed cost also makes a significant portion of production, which include the rents. Most of the Walmart stores are on rented premises, whose rent consists of a significant portion of the production cost.
Conclusion
Based on the above analysis several recommendations could be made to Walmart Stores. The company operates in monopolistic market, where price elasticity of demand is usually elastic. Therefore, it is advisable for the company to set their prices lower than its competitors, so as to increase their sales volume. The higher sales would recover the lower prices charged. To manage its future production, Walmart should take advantage of the economies of scale, so that it could manage to access its products at a lower cost, as compared to its competitors. This could be done by having long term engagement and trustful suppliers. To pursue these strategies, the company would use its reputation and brand name, to woe its customers and suppliers to develop a loyal and long-term engagement. To sustain its success, Walmart should set periodical budgets and objectives, which should involve maintaining and improving its market share, social responsibility, quality products and observing the set standard, policies and regulations.
References
DiModica, P. (2006). Hunt for business: Grow now or be eaten! six proven management methods to grow your business. Cost Engineering, 48(11), 10-11. Retrieved from https://search.proquest.com/docview/220457970?accountid=45049
Hicks, M. J. (2015). Estimating wal-mart's impacts in maryland: A test of identification strategies and endogeneity tests. Eastern Economic Journal, 34(1), 56-73. doi:http://dx.doi.org/10.1057/palgrave.eej.9050002
Hicks, M. J. (2016). Wal-mart's impact on local revenue and expenditure instruments in ohio, 1988-2003. Atlantic Economic Journal, 35(1), 77. doi:http://dx.doi.org/10.1007/s11293-006-9062-6
Kazakov, S. (2016). The impact of market orientation levels on business performance results. Worldwide Hospitality and Tourism Themes, 8(3), 296-309. Retrieved from https://search.proquest.com/docview/1826444309?accountid=45049
Liow, K. H. (2016). Linkages between cross-country business cycles, cross-country stock market cycles and cross-country real estate market cycles. Journal of European Real Estate Research, 9(2), 123-146. Retrieved from https://search.proquest.com/docview/1826809899?accountid=45049
_1549587892.xls
Chart1
| 2014 | 2014 | 2014 |
| 2015 | 2015 | 2015 |
| 2016 | 2016 | 2016 |
| 2017 | 2017 | 2017 |
| 2018 | 2018 | 2018 |
Sheet1
| UNITED STATES | Column1 | Column2 | |
| 2014 | 2.45 | ||
| 2015 | 3.22 | ||
| 2016 | 1.53 | ||
| 2017 | 2.43 | ||
| 2018 | 3.34 |
_1579257384.xls
Chart1
| Jan. 31, 2017 | Jan. 31, 2017 | Jan. 31, 2017 |
| Oct. 31, 2016 | Oct. 31, 2016 | Oct. 31, 2016 |
| 31-Jul-16 | 31-Jul-16 | 31-Jul-16 |
| 30-Apr-16 | 30-Apr-16 | 30-Apr-16 |
Sheet1
| Series 1 | Column1 | Column2 | |
| Jan. 31, 2017 | 130.94 | ||
| Oct. 31, 2016 | 118.18 | ||
| 31-Jul-16 | 120.85 | ||
| 30-Apr-16 | 115.9 |
_1549587889.xls
Chart1
| 2013 | 2013 | 2013 |
| 2014 | 2014 | 2014 |
| 2015 | 2015 | 2015 |
| 2016 | 2016 | 2016 |
Sheet1
| Revenue | Column1 | Column2 | |
| 2013 | 446,509 | ||
| 2014 | 468,651 | ||
| 2015 | 476,294 | ||
| 2016 | 485,651 |
