STRATEGIC AND GLOBAL FINANCE

The Effect of Global Investment Decisions and Financial Risk on

Multinational Corporations: Walmart Corporation Case Study

Mourad El Mazouni, , Global Association of Risk Professionals, USA

Abstract

In this present study, we introduce a definition of the globalization concept by referring many

sources and identify it is affiliations concerning the firm's investment process. Critically evaluate the

advantages of investment proves with globalization by considering examples from different organizations.

We also enumerate and discuss Walmart’s global business environment factors including its operations

and critically examine theirs on the firm’s on national Global level.

Moreover, we examine Walmart value statement, strategic decision that enabled to achieve such

values, its decision, and source of financing, and various risks the firm confronts on the two levels.

Finally, we appraise Walmart’s financial sourcing and risk management strategies and its implication on

the global market.

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Table of Contents

Globalization ................................................................................................................................................. 2

Critical Review of Business Environment Factors Affecting Multinational Corporations ........................... 3

Walmart’s Value Statement and how it got there. ........................................................................................ 4

Critical Analysis of Walmart’s Strategic Decision Making .......................................................................... 5

Review and Assessment of Walmart’s Source of Financing and their Respective Risk Profiles ................. 6

Examination and Classification of Risk Associated with Walmart’s Global Operations ............................. 7

Investment Strategies and Decision Adopted ............................................................................................... 9

Investment Strategies ................................................................................................................................ 9

Decision Making....................................................................................................................................... 9

References ................................................................................................................................................... 10

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Strategic and Global Finance Case study: Walmart

Introduction

The concept of Globalization can be regarded as the process to interact and integrate among the

people of different countries, a process driven by investment and international trade and assisted by

information technology. The process of globalization has its effects on some of the significant aspects like

business environment, culture, political system, economic development, and different prosperities.

Moreover, it has effects on the well-being of the societies. Essential policies that help in opening the

economies internationally as well as domestically have a significant influence on the process of

globalization. At the same time, the technological development also has a positive influence on the

globalization process (Giddens 2018).

The process of globalization leads to greater interconnectedness among the financial and business

markets all over the world, and this contributes towards increasing awareness and communication in

business opportunities in different corners of the world. Thus, it becomes possible for more investors to

access different investment opportunities along with giving the opportunity to explore new investment

markets in the greater distance (Beck 2018). At the same time, advanced communication technology helps

the investors in analyzing the potential risks and profit opportunities. Nations get the chance to maintain

the positive relation between them by increasingly unifying their economic conditions with the assistance

of increased trade and investment. The availability of various products and services are available in the

markets all over the world; it also helps in increasing the household income. In this way, affiliation can be

seen between globalization and investment process (Beck 2018).

There are various advantages of investments proves with globalization. Investment process through

globalization helps the companies as well as countries to maintain a cordial and peaceful relationship. At

the same time, the policies for free trade are another principal advantage of investment through

globalization as the companies get the chance to make international investments in the absence of taxes,

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duties, quota, and others. More importantly, an investment with the help of globalization assists the

companies in maintaining global connectivity with the business organizations all over the world (Schmukler

and Abraham 2017). For example, the presence of many international investments can be seen in Wal-Mart

Corporations. These are the significant advantages.

Critical Review of Business Environment Factors Affecting Multinational Corporations

The presence of four global business environmental factors can be seen influencing the business

organizations; they are Political environment factors, Economic environment factors, Social environment

factors, Technological environment factors and Legal environment factors. The following discussion shows

the impacts of these factors on national as well as international organizations:

Political Environment Factors:

Some major factors of the political environment are political organizations, the ideology of the government,

government philosophy, nature of bureaucracy, political stability of the countries, foreign policy, military

defense policy, and others; and all these factors influence both the national and multinational organizations.

For example, a country’s policy for restricting the growth of multinational businesses will lead to limiting

the business operations of the companies along with business growth (Harrison 2013).

Economic Environment Factors:

The major environmental factors influencing both the national and multinational companies are economic

system of the country, economic structure, economic policies, the organization of its capital market, factors

and nature of production, infrastructure for socio-economic aspects and others. For example, business

organizations involved in the analysis of external economic factors affecting the business operations so that

profit can be maximized (Hamilton and Webster 2015).

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Social Environment Factors:

The major social, environmental factors are work culture, the mobility of the labors, workgroup, preferences

of the customers and others; and these aspects have an impact on the functioning of both national and

multinational businesses. For example, companies determine the kind of products and services to be offered

based on the preference of the customers (Black, Morrison and Gregersen 2013).

Technological Environment Factors:

Technological factors affect both the national and multinational companies in the areas of technological

investment, the effects of technology on the investment market and the application of technologies.

Legal Environment factors:

Legal factors involve the adaptability and flexibility of legal and legislative regulations that govern both

the national and multinational businesses. Compliance with all the legal rules and regulations makes

complexities for the businesses as these companies are needed to comply with a large number of legal

legislation. For example, business organizations have to witness either increase or decrease in the profit

level due to these compliances with the legal regulations (Black, Morrison and Gregersen 2013).

Walmart’s Value Statement and how it got there.

Using Wal-Mart Corporations (Wal-Mart)as an illustrative example for this case, The presence of

some core values are hard to omnipresent across its the business operation. As per the core value of the

company, Wal-Mart wants to be the most trusted retailer for their customers. The company believes in the

concept of shared values. As per this value statement, the purpose of the operations of Wal-Mart is not only

making their customers, associates and shareholders beneficial, but also makes all the stakeholders

beneficial that include suppliers, community, and society in general.

There are various strategies that help Wal-Mart in achieving their value. One of such strategies is

Every Day Low Price (EDLP) strategy that helps the company in providing products as well as convenient

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services to their customers. At the same time, Wal-Mart provides grants to thousands of organizations to

do the betterment of the society and the people of society. For this reason, the company donated more than

$1.4 billion in cash for this purpose (giving.walmart.com 2018).

Wal-Mart has adopted some noteworthy strategies for enhancing their core values. The generic

strategy of Wal-Mart is based on Cost Leadership in which the main aim of the company is to maintain low

prices of their goods and services. Moreover, another important strategy of Wal-Mart is to keep the

operating costs low so that economies of scale can be achieved. On the other hand, Wal-Mart has adopted

the market penetration strategy as the incentive strategy for growth. At the same time, market development

and product development are two other adopted strategies for Wal-Mart where the company involves in

entering in a new market with new products and services. All these strategies help Wal-Mart in maintaining

their core values (s2.q4cdn.com 2018).

To enhance the organizational values, Wal-Mart is recommended to ensure further expansion of

their business as this expansion can address the pressure of fierce global competition. At the same time, the

company is recommended to ensure that there are capable leaders within the organizations to ensure the

maintenance of the core values of the organization with the introduction of effective business strategies

(corporate.walmart.com 2018).

Critical Analysis of Walmart’s Strategic Decision Making

Over the years, the management of Wal-Mart has taken many strategic decisions in the various

operational field of the business. They are discussed below:

The strategic decisions of Wal-Mart cover its products and services. Under this decision, the

company addresses the design of products and services while emphasizing cost-effectiveness and efficiency

variables. Thus, the focus of Wal-Mart is to increase the efficiency of products and services. Another main

decision lies in the quality management aspect of Wal-Mart throughout the tiers of quality management.

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The decision is to specify the minimum quality expectations for the majority of customers so that low cost

can be maintained with higher-quality products and services (Wilson 2015). The primary decision-making

process for Wal-Mart is the location strategy. This area emphasizes the efficiency of the movement of

materials, human resources as well as business information throughout the organization. As per the strategy,

the stores of the company have been located in or near the urban centers; moreover, strategic warehousing

helps Wal-Mart in making the materials and goods available for the target customers. For layout design

strategy, Wal-Mart has decided to use the behavior of their customers for designing the payout of their

stores. As per the decisions, Wal-Mart has adopted the strategy of continuous recruitment in the area of

human resource management (Shepherd and Rudd 2014). Wal-Mart uses both the information technology

as well as the bargaining power of the suppliers to address the issues in supply chain management. These

are the major strategic decisions of Wal-Mart.

It needs to be mentioned that the above-mentioned strategic decisions have positive financial

consequences. The main aim of these strategic decisions is to increase the sales of the company so that

profit can be maximized. It can be seen that Wal-Mart has been able in increasing their business profitability

over the years. Apart from this, these decisions have positive consequences on the cash flow position of

Wal-Mart as they help in improving the cash inflow of the company due to an increase in sales (Wilson

2015).

Review and Assessment of Walmart’s Source of Financing and their Respective Risk

Profile

Business organizations have the option to select between three critical sources of finance; they are

Long- Term Sources of Finance, Medium-Term Sources of Finance and Short-Term Sources of Finance.

Long-term finance refers to the capital requirements for more than five years to 10, 15 and 20 years. Sources

for long-term finance are equity shares, issue of right shares, leasing, debentures, loans from industrial and

financial institutions and others. Medium-term financing refers to the finance for a time of 3 to 5 years. The

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major sources of medium-term finance are loans from commercial banks, debentures, loans from

specialized credit institutes and others. Short-terms finances are provided for less than a year. Sources of

short-term finance are advance from customers, credit installments, bank overdrafts, cash credits,

discounting bills, creditors, factoring services and others (Brooks and Mukherjee 2013).

The involvement of certain risks can be seen through these sources of finance. In the process of

short-term finance, business organizations involved in collateral like accounts payable, inventories and

others. It implies that the companies take a pledge to sell its receivables to the creditors in exchange for

immediate cash, and this aspect increases the business risk. At the same time, long-term and medium-term

finances also have risks. Both these finance sources increase the debt balance of the companies and make

the financing of the companies highly leveraged. Due to limitedness in the cash flow due to these finances,

the risk of negative growth of the business can be seen. At the same time, this aspect increases the risk

related to business vulnerability. Moreover, companies have to bear the risk of collateral as these types of

finance require high collateral (Palley 2013).

The institution of an effective Enterprise Risk Management (ERM) strategy and framework are

imperative in order to mitigate the risks mentioned above. For this reason, the companies are needed to

incur the high cost, and this cost needs to be allocated a specific head. First, there is a need for the companies

to hire a risk management specialist for the development of a risk management framework. After that, the

company is needed to incur expenses in different stages of the process of managing the risks (Barton and

Wiseman 2014). Thus, the companies are needed to take into consideration all these aspects at the time to

determine the risk management costs.

Examination and Classification of Risk Associated with Walmart’s Global Operations

The following discussion shows different kinds of global risk associated with Wal-Mart and their

mitigation strategy along with their effectiveness:

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Political risk is considered as a major risk for Wal-Mart in the process of global business. The

change in the political condition of the countries can lead to an abrupt transformation in legal and security

environment. Thus, as a mitigation strategy, Wal-Mart is needed to develop a business plan after

considering both the political and business environment by determining demand of the products, legal

compliances, costs and others. This mitigation strategy is valuable as it will help Wal-Mart in considering

all the required political aspects (Uhl and Gollenia 2016).

Another substantial risk can be seen for Wal-Mart in the selection of the right business partner

while entering into the international market. There are instances when companies collaborate with other

companies at the time of business expansion. This aspect can lead to failure in business expansion in case

the business partner is not good. Thus, the strategy for minimizing this risk is the selection of a right

business partner. At the same time, Wal-Mart needs to wary of wide-ranging resource commitment in the

expansion to avoid any losses. This strategy is useful as it will provide Wal-Mart with the right choice of

business partner and resource allocation (Piekkari, Welch and Welch 2014).

Commissioning unexperienced managers can prove detrimental to Walmart’s global business.

There can be a significant amount of loss and business failure as well in the absence of experience people.

Thus, this risk mitigation strategy is to hire experienced local employees for the new business as they know

about doing business in that specific area. This strategy will be advantageous as it will diminish the

possibilities of business failure to a large extent (Belás et al. 2014).

Lack of a suitable business model is another serious global risk for Wal-Mart in international

expansions. The expansion can lead to business failure in the absence of a valid business model. Thus, the

mitigation strategy is to develop a business model that fits the host country and its demographics. This

strategy is compelling as it will help Wal-Mart in segmenting the market. At the same time, Wal-Mart is

needed to have a well-developed contingency plan.

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Investment Strategies and Decision Adopted

Investment Strategies

In the provided situation, it is the assumption that that Wal-Mart is considering entering into the

new marker. This expansion process will involve in establishing new facilities along with associated

working capital, repositioning in the existing facilities and sale of investments. For this reason, the

investment decision of Wal-Mart will involve for facilitating all the aspects of the business expansion.

Multiple facets of a firm’s strategy such as training and digital infrastructure investment are just as

important (Clemen and Reilly 2013). At the same time, other investment strategies will involve the

establishment of new research facilities for the reason of the development of new products and services. At

the time of making the investment decisions, Wal-Mart is needed to consider some crucial factors affective

the capital investment decisions; they are the outlook of the management, opportunities from the

technological changes, competitors’ strategies, the budget for cash flow, incentives of the fiscal, market

forecast and other non-economic factors. At the time to expand into the international market, the

management of Wal-Mart should consider all these aspects as these aspects can lead to successful

investment decisions (Lin 2013).

Decision Making

Effective strategies choices and decision-making process have some effects on the global

environment. In the presence of effective decisions and strategies, the companies become able to make a

connection with the marketing decision making in the global environment. At the same time, the process

of decision making and the development of strategies in the global market involves risk as the companies

are needed to consider all the aspects related to them at that time. Most importantly, the companies are

needed to take into consideration the strategies of global competitors in case of decision making and strategy

development (Therivel 2013).

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