Introduction
Wal-Mart is an American-based retailing company that has ventured into the international market to take over some emerging markets. The company has dominated the local market in the United States. It is looking to dominate the international market by providing consumers with some of the cheapest alternatives to the products purchased daily. It follows that Wal-Mart is among the companies that are always complaining when the economy of the United States weakens.
A weaker dollar lowers the company’s profit margins because its supply chain is based overseas; hence, the company’s purchasing power decreases. This implies that when the economy is weak, Wal-Mart spends more dollars on acquiring products. This paper looks into some of the fundamental principles applied by the authorities to stimulate or weaken the economy, with a close focus on the effects of these strategies on Wal-Mart.
President and Congress
The president and Congress stimulate the economy by employing short-term measures, which mainly involve momentary fiscal expansion. The president and Congress propose the encouragement of economic growth to fight inflation through the enhancement of government spending, providing tax cuts and rebates, and developing macroeconomic policies that compel the nation to create more jobs (Spilimbergo, Schindler & Symansky, 2009). Economic multipliers facilitate the strengthening of the labor market to enhance citizens’ purchasing power, and this approach combats inflation.
Similarly, the president and Congress can influence the economy’s contraction, especially when the nation is facing runaway inflation. The president and Congress influence the development of short-term fixes in the fiscal policy, and they may introduce new taxes to ensure the purchasing power of citizens is controlled (Spilimbergo, Schindler & Symansky, 2009). The taxes are normally introduced to companies to ensure they do not take advantage of the consumers’ high purchasing power, which ultimately leads to a balance in the economy. A prolonged application of the policies may result in a recession.
The Federal Reserve
The Federal Reserve is charged with the control of the stimulation and contraction of the economy, and its main task is to ensure there is an equilibrium between the two. The Federal reserve stimulates the economy by expanding the supply of money in the economy. When the institution pumps money into the economy, companies create more jobs, and the consumers have more money to spend; hence, the economy grows faster.
The Federal Reserve uses target interest rates to stimulate the economy. Whenever the economy is struggling, the target interest rate is reduced, resulting in more spending on the part of businesses and consumers because of borrowing decreases (Bernanke & Reinhart, 2004). As businesses and consumers increase their consumption, the economy is stimulated for growth through the creation of employment opportunities and faster consumption rates, which reduces the inflation rate.
What Motivates Policymakers to Stimulate or Contract the Economy?
Policymakers are motivated by the changes in business cycles in the economy. When the economy gets weak, businesses start reducing the frequency of borrowing because the financial institutions require higher interest rates. On the other hand, consumers start experiencing shortages in money as businesses increase the cost of products and services. Unemployment increases, and inflation rates increase; thus, compelling policymakers to employ countermeasures that stimulate economic growth.
This implies that policymakers are forced to develop policies that influence temporary fiscal expansion. When the economy is strong, the purchasing power of the consumer increases, but businesses may take advantage of the money being pumped into the Federal reserve economy, causing inflation through the increase in prices of various commodities. In such a scenario, policymakers introduce policies that force businesses to lower prices, and the amount of money pumped into the economy by the Federal Reserve is reduced. Policymakers must strike a balance in the economy’s business cycle by stimulating or contracting the economy when necessary. Following this requirement, the Federal Reserve claims that the policy goals are to facilitate equilibrium in economic growth (Wells, 2004).
Effect of Strength of Other Economies on the Organization
The relationship between the American dollar and other currencies across the world affects the performance of Wal-Mart concerning its profit margins. When other economies gain against the U.S. dollar, Wal-Mart has to pay higher amounts to finance its offshore supply chain. The majority of the products sold at Wal-Mart are manufactured from different countries across the world; hence, the company has to cushion the liabilities propagated by the weak dollar.
Since Wal-Mart is traditionally associated with the provision of the lowest prices for different commodities, it cannot afford to pass the higher expenses of products to the customers; thus, it continues selling at standardized prices. This implies that the company’s profit margins are adversely affected when the U.S. dollar weakens against other currencies.
Conversely, when the dollar strengthens, other economies experience depreciation in the price of different products, and Wal-Mart spends smaller amounts of money in its supply chain. The purchasing power of the consumers also increases in the United States; thus, the company records higher sales numbers. During this period, the company can afford to create more employment opportunities, unlike when the U.S. dollar is weaker (Wells, 2004).
Recommendations
Wal-Mart is overly dependent on oversea manufacturers in its supply chain, and this implies that the weakening of the U.S economy directly affects its profitability. The company should look into developing ties with local suppliers to ensure that whenever the dollar is significantly weaker than other currencies, Wal-Mart can maintain its high profitability through the local suppliers. However, the cost of the offshore supply chain is cheaper for Wal-Mart because the cost of manufacturing products in the United States is significantly higher. Maintaining an offshore supply chain is more sustainable on a long-term basis for the company; hence, Wal-Mart should continue working with its current suppliers regardless of the status of the economy in the United States (Kumar, Medina & Nelson, 2009). The company should also look into developing a cost increment strategy on its products to facilitate normal profitability during economic recessions in the United States.
Conclusion
The president and Congress can influence the development of temporary fiscal expansion or contraction by introducing policies that facilitate the same. However, the Federal Reserve has the biggest influence on the economy. When the economy is weak, the Federal Reserve pumps more money into the economy to facilitate the development of employment opportunities through business entities and promote the consumption of products among the citizens. Wal-Mart is among the companies that depend on offshore manufacturers in their supply chains; hence, the performance of the economy of other nations relative to the United States’ currency affects its profit margins.
References
Bernanke, B. S., & Reinhart, V. R. (2004). Conducting monetary policy at very low short-term interest rates. American Economic Review, 85-90.
Kumar, S., Medina, J., & Nelson, M. T. (2009). Is the offshore outsourcing landscape for US manufacturers migrating away from China?. Supply Chain Management: An International Journal, 14(5), 342-348.
Spilimbergo, M. A., Schindler, M. M., & Symansky, M. S. A. (2009). Fiscal multipliers (No. 2009-2011). Washington, D.C.: International Monetary Fund.
Wells, D. R. (2004). The Federal Reserve System: A History. Jefferson, NC: McFarland.