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Custom Monopolistic Practices of Wal-Mart Essay

Obviously, doing good business normally entails making profits. It is through these profits that a company is judged to have done well financially or experienced bad results. Besides, these profits determine the rate of growth of a particular company whereby they are used to finance expansion projects, pay better salaries to workers and improve the asset base of a company. However, ways through which a given company achieves high profit margins more often draws the interests and criticism of many. Particularly, people take into account the business policies of that company, how it remunerates its workers, its product sourcing, how it treats and pays its suppliers and its environmental practices. The purpose of this essay is to describe the main criticism leveled against Wal-Mart and make recommendations as to whether the community should allow Wal-Mart to build a Super Centre in the town. Hopefully, it will provide a better understanding of the reasons behind the huge profit margins attained by the specific companies.

Many criticisms have been leveled against Wal-Mart, which is a world renowned retail giant. Many feel that the supermarket chain is making huge profits unfairly at the expense of the workers and communities. These criticisms are numerous, however, the main ones include:

Predatory Pricing and Product Quality

The allegations of Wal-Mart using monopolistic practices to drive away potential competitors are not new to many. In fact, many incidences in the recent past have served to cement these allegations. Many institutions, companies and retail outlets have gone to the courts to sue Wal-Mart for what they claim to be predatory pricing, whereby they crush competitors or rather drive them out of the market by selling their commodities and goods at such low prices that will force their competitors to incur losses, if they try to also sell their goods cheaply. Moreover, Wal-Mart is a retail giant with a large capital and asset base therefore, it can afford to sell its commodities cheaply, while compensating for any losses incurred until such a time when its competitors who cannot keep up with the low pricing decide to quit that market. In the recent past, Wal-Mart has had to contend with many court cases where it has been accused of predatory pricing, for example, in 1995, American Drug Inc, a retail giant which deals in pharmaceutical products sued Wal-Mart for selling commodities at very low prices that had the potential of injuring or even driving the competitors out of the market. Even though American Drug Inc did lose this particular case many companies, institutions and retail outlets drew inspiration from the case and come out publicly to condemn and even sue Wal-Mart. Such have included: the Department of Agriculture and Consumer Protection in Wisconsin in2000, Crest Foods which filed a law suit in the same year and the Mexican Federal Competition Commission in 2003.The low pricing has also served to affect the suppliers who in a bid to satisfy Wal-Mart’s steady demand for low cost goods, make a lot of losses and are eventually forced to lay down workers and at times even shut down their operations. Such is the case, which happened with Kraft Foods which was forced to shut down thirty nine of its production plants, laying down most of its workers as a result. Issues have also been raised about its product quality, for example, in May, 2010, Wal-Mart was accused of selling Miley Cyrus brand of jewelries even though they were shown to have cadmium - a potent carcinogen which resulted in hepatic failure and osteoporosis on long term exposure.

Working Conditions and Wages

Wal-Mart has been accused of remunerating its workers poorly and subjecting them to poor working conditions. Moreover, their health care system does not adequately cater for all the needs of the workers and their families. Particularly in 2006, a research carried out by Los Angeles Alliance for New Economy indicated that full time employees received an average wage of about ten dollars per hour. Furthermore, calculations revealed that an employee who was working for about thirty-five hours a week received about eighteen thousand dollars a year. This critics say, that it is almost ten thousand dollars less than what a standard family of two required for an entire year. Funnily enough, it was reported that the ability to limit the expenditure on workers’ salaries formed the basis of judging the managers. Another study carried out in 2001 noted that, a sales clerk at a Wal-Mart store had an average wage of about eight dollars per hour or about fourteen thousand dollars a year despite the poverty line for a standard family of three being about fourteen thousand, seven hundred dollars. To complicate matters further, Sam Walton; the founder of Wal-Mart was once quoted as  saying that he favored low employee wages and a low benefit model in his companies.

Another one of the criticism leveled against Wal-Mart is its role in subjecting most of its employees to long working hours under poor working conditions. More often than not, reports of the retail giant not compensating its workers for any off the clock work done by its have surfaced in the media and the general public. As a result, Wal-Mart has had to contend with many law suits filed by many existing and previous employees. For example, in2005, a class action lawsuit filed in one of the Missouri court claimed that up to two hundred thousand employees were forced to work for extra hours without due compensation, they also worked through lunch breaks without taking a rest. Similarly, Wal-Mart had to pat with around fifty million dollars in 2000 resolve a class action lawsuit, which affirmed that about sixty thousand previous and present employees in Colorado had been compelled to work for extra hours without pay. The same occurred in states like Oregon, Minnesota and Pennsylvania. Wal-Mart policies of reducing full time working hours, pay caps and indiscriminate shift allocations using computers forced many workers to the streets in 2006 who accused the giant retailer of inhumane policies. Moreover, the human rights activists condemned the decision by Wal-Mart managers to lock some of its night time employees during work so as to prevent them from moving out. It was claimed that such a move exposed workers to high risks, especially during emergency cases like fire and hurricanes.

Wal-Mart health insurance policy has also been a subject to much criticism. It was noted that its healthcare plan only covered for about forty-four percent of its employees in the United States. Particularly, it spent an average of about three thousand and five hundred dollars on each employee for health care purposes. Consequently, most of its workers sought to enroll for healthcare in their various states instead of enrolling for the one provided by Wal-Mart. In absolute contrast, Wal-Mart`s retail rival Costco insured about ninety-six percent of its employees and spent an average of about four thousand, eight hundred dollars on individual employee healthcare plans; about twenty-seven percent more than what Wal-Mart spent on individual healthcare plans.      

Importation and Product Selection

Due to the low pricing system that Wal-Mart stores have adopted, most of the vendors to whom Wal-Mart is a customer, are forced to lower the price of their commodities in order to fit into the Wal-Mart system. Failure to do so will lead to the removal of the brand associated with a particular vendor from the shelves of Wal-Mart stores. Consequently, the vendors have been forced to operate at high labor costs with low profit margins making them shift their services to Chinese markets. Besides, up to about sixty percent of merchandise sold in Wal-Mart stores is believed to be imported. It is estimated, for example, that Wal-Mart expenditure on Chinese products was in the region of twenty thousand dollars per year. Economists have attributed the ever growing United States of America trade deficit with China to the huge number of imports by Wal-Mart from China. The retail giant has also been biased against some products because of minor issues, for example, its decision not to stock emergency contraception peels in 1999 and removal of men’s magazines from the shelves of its stores in2003.

Recommendation

As a recommendation therefore, the city council should allow Wal-Mart to build a Super Centre in the town on a condition that it signs a memorandum of understanding with the city council based on the interests of the locals. In the memorandum, Wal-Mart should agree to compete with its rivals fairly and the limit to which the retail giant will lower their prices should be defined and mechanisms put in place to control the limits. Moreover, the city council on behalf of the locals should discuss with the retail giant and agree on a fair payment scheme for the workers Wal-Mart will employ. Finally, the working conditions of the workers and pricing of supplies delivered by the locals should also be defined.

All in all, the essay has analyzed criticism leveled against Wal-Mart and come up with recommendations. It is worth mentioning that despite the criticism leveled against Wal-Mart, it is obvious that it creates more jobs than it destroys and it brings some modernization into an otherwise remote area. Therefore, the opportunity to let it invest in a given area should not be allowed to pass.

Custom Monopolistic Practices of Wal-Mart Essay

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