The ever changing international political situation affects both domestic and international firms. International trade policies, political movements and global events all affect the manner in which firms operate within the market. The general retail industry has greatly benefited from the liberalization of international trade. Europe and the United States comprise approximately 75% of the market of the general merchandise store sector. With the lowering of US tariffs and the ending of Europe’s Multi Fiber Agreement, these markets now benefit from the availability of low cost labor. Reducing labor costs lowers the product price allowing companies to offer lower priced goods while still maintaining a profit margin (Datamonitor, 2007).
The global general merchandise store sector relies heavily on the United States for revenue. In 2006, the United States accounted for 40.5% of the value within the global industry (Datamonitor, 2007). Due to the lowering of trade barriers, the US market has experienced an increase in low cost goods from Asia. Lower prices encourage sales growth which increases revenue. The current economic situation within the United States could pose problems for retailers operating within the country. The threat of recession looms over consumers who have increasingly become more frugal with their spending habits (Datamonitor, 2007). This shift to economic frugality benefits the firms implementing a price leadership strategy. As the economy worsens the price of crude oil continues to rises. The changing cost increases a firm’s costs associated with energy, transportation, and raw materials. Logistical modifications must be made to accommodate the rise in oil prices (Datamonitor, 2007). The price increase also directly affects consumers. Energy and transportation costs for consumers also rise. A greater proportion of disposable income must be allotted to cover these expenses (Datamonitor, 2007)....