For an international company such as Walmart, comparative advantage, trade restrictions, tariffs, and exchange rates will all be variables at play when deciding whether or not to expand. Comparative advantage is when a company would be able to produce a good at a lower opportunity cost compared to a competitor (Gwartney et
al, 2022, pg 358). For Walmart, its size alone may serve as its competitive advantage when determining an expansion plan, particularly
their supply chain and logistical management. Their investment in technology and efficiency allows them to move quick and minimize waste when moving into new locations, making their opportunity for success much greater when tackling foreign markets (Pant, 2022). Trade restrictions can come in the form of tariffs (taxes on imported goods), quotas, and exchange rate controls. Tariffs tend to act as a subsidy to domestic producers as imported foreign goods will be taxed. Walmart is a company that sells a plethora of goods and makes a profit from being able to offer low prices. Moving into a new market that may impose tariffs on several of their goods would potentially force the company to raise prices in order to maintain a positive margin. This would inhibit Walmart's ability to maintain its competitive advantage of lower prices against potential domestic competitors. An import quota is another form of trade restriction that looks to limit foreign goods from entering the market in order to protect domestic industries (Gwartney et al, 2022, pg 367). Quotas tend to inflate the domestic price compared to the world price for the good. Foreign producers will be able to sell the good at a premium price in the country even if they can produce it at a decreased rate. Even though this may be
of benefit to Walmart, there are various bouts of friction here. First, it would involve a large degree of competition for permits to compete in the market and will involve other tactics such as lobbying and other forms of contributions. Second, it goes against the Walmart values of passing along low prices to the consumer. Exchange rate controls will see foreign markets fix the value of their currency above the market rate and will enforce restrictions on exchange rate transactions (Gwartney et al, 2022, pg 368). This will result in decreased trade with a limitation in exports and a strain on residents to purchase any imports. Generally this is used to manage the value of local currency and is for transitional economies, not industrial economies. This would be significant for Walmart when determining which foreign markets to enter. Inflation and interest rates will be other factors that may influence which markets Walmart may invest in. Countries with low interest rates may show increased consumer spending but this may not always attract the most foreign investment whereas high interest rates may create more demand for a country's currency. Meanwhile, a higher inflation rate will devalue a currency and reduce buying power and may lead to decreased
consumer spending. References Gwartney, J. D., Stroup, R. L., Sobel, R. S., & Macpherson, D. A. (2022). Macroeconomics: Private and public choice
(17th ed.). Cengage Learning. Pant, R. (2022, November 8). Walmart’s Business Strategy and Competitive Advantages
. Management Enthusiast. https://managemententhusiast.com/walmarts-business-strategy-and-
competitive-advantages/Links to an external site.
