Walmart Case:

Topics: International trade, Currency, Bretton Woods system Pages: 17 (5447 words) Published: September 30, 2012
“Save money. Live better.” This is the promise that the world biggest retailer “Walmart gives to customers since they started business back in early 1940. Low price has always been Walmart strategy. Since their early days, they claimed “We Sell for Less” as their tagline. Later on, “Always Low Prices. Always” displayed alongside with Walmart logo. The biggest challenge for them is to keep the price down with good product quality. Why does Walmart important for American economy and beyond? According to the figures from Charles Fishman’s book The Walmart Effect, more than half of all Americans live within 5 miles of a Walmart. Every week, more than 100 million Americans shop at Walmart (1).

In comparison to the similar scale of American companies like ExxonMobil, Walmart employs 1.6 million workers worldwide while ExxonMobil employed about 90,000 people. Interesting to know that ExxonMobil is growing by raising prices, but Walmart is growing despite lowering prices (1). Walmart net sales in 2012 hit $443,854millions (increase by 5.9%) with the gross profit margin of 24.5% (2). How does Walmart sell low price products and remain high margin of profit? PBS Frontline, a well-known TV program in the US pointed out on 2 aspects. First, Walmart managed to be the lead in technology and able them to track consumer behaviors. Knowing what consumers want and when they need it are not enough, they have to control the price of goods in order to complete with competitors (3).

Walmart found the same heaven as well as other American companies in China. In China, Walmart can offer low price products and still enjoy the widen profit margins. In fact, Walmart is distinctively different from other companies because if they were a country, they would be China’s sixth or seventh largest trading partner. In 2002, $12 billion of merchandises were import from China to Walmart. This was nearly 10% of all Chinese export to the US (4). The value of yuan has played an important role to make export goods from China very competitive in price. Unlike other currencies, the yuan has pegged to the US dollar instead of fluctuate freely. Currency intervention in China makes the US goods less competitive against Chinese goods (5). US trade deficit with China has estimated reaching a record of $295.5 billion in 2011 (6). The US is concerned about China’s currency manipulation. Critics say that Chinese government has artificially undervalued yuan. American exporters are believed that they are facing unfair competition from the Chinese goods. The debate is on for good and bad side of the story.

Question 1: Why is value of Yuan is important?

The official currency that forms the spine of the monetary system in People’s Republic of China is Renminbi (RMB) or with its base unit Yuan (CHY). It is considered to be among the most important currencies being the national currency of one of the most rapidly developing nations of the world. China is taking an important step towards achieving one of its major goals for elevating itself into a global manufacturing and financial power as well.

Chinese economy is emerging out as a new powerful nation of the world supported by its economic growth and advancement. The nation’s prosperity and the currency has stood strong increasingly since its inception as the official one. Also thanks to the growing importance of China in global trade, the Yuan has been gaining value of a worldwide profile. The Yuan is being used more frequently in trade conducted between China and its trading partners.

Earlier, the Chinese Renminbi was unofficially pegged to the United States dollar under a fixed rate regime. This move proved fruitful in the context of currency’s strength but recently it had changed its basis to floating rate regime with some resistance under the pressure of the USA and other European and G7 countries.

Renminbi was pegged informally to United States dollar at a fixed rate...
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