Introduction and the industry as a whole
Currently, some companies compel individuals to get everything at the cheapest price. Such companies include the Wal-Mart. This is the main reason why several jobs are sent overseas. For instance, Wal-Mart Corporation highly expanded that the manufacturers were told how much they would be paid for their own products. This made the manufacturers to send their manufacturing jobs overseas so as to meet the Wal-Mart pricing. This cheap labor that is available overseas makes more companies to follow the footsteps of Wal-Mart. This in turn results into loss of jobs to several individuals. Several disadvantages come with this cheap labor. In all honesty, this is the main cause of shoddy work. Companies fail to pay their experienced workers appropriately since the work should be done for nothing according to homeowners. If the work is not done up to the required standards or if the work takes too long to be completed, complains arise.
This cheap price spiral was all started by Wal-Mart. Lowes, Home Depot (HD) and other big box stores have also fallen into the same place. Initially, if you bought your merchandise, the store owner would offer you better services. Currently, you get a very cheap good, without any service, and the quality of the good is also wanting. The mentality brought by this is that you go for a very low quality at a very cheap price (lower quality at cheaper price). This is what has polluted the market and has resulted in poor sale of quality goods. Nowadays, if you have a very quality product and a very quality service to be offered, nobody will be willing to pay for it.
Companies are therefore forced to lower their prices or risk losing their customers. This also results in limiting the customer base to a smaller portion that is willing to pay for the high quality. This small portion of customers fall day by day as the manufacturing jobs and technical jobs are sent overseas. If an individual becomes a professional in a technical field, there is a risk of lack of job since all the technical jobs are sent abroad. As a result, the individual resorts to open a remodeling business. This in turn lowers the remodeling price for those who have been in the remodeling field for years.
Another area of concern is the prices of drugs. Government and other private corporations lower the drug prices hoping to create some short-term savings. The biggest question that arises today is whether these savings might not or might worsen the future health care. As the drug prices fall, the revenues of the pharmaceutical sector is pushed below the minimum returns required for continued investment. This reduces the investment rates in the medical sector which is quite disastrous. The VA (Veterans Administration) enjoys price reduction. This can be attributed to the fact that they buy in bulk thus market costs are lowered. In normal sense, every company that wishes to get self sustenance must find ways of meeting its total costs. This means that if VA is to pay less for whatever reason, somebody somewhere must pay more. This price reduction is not in the public interest. In the modern economy, various sectors including the medical are faced with declining costs. There is a fall in the cost of production as the overall production level rises.
Having Wal-Mart as our case study and keenly analyzing the Robert Greenwald’s documentary about the same, we openly identify how this retail giant assaults the American values and the families. This is the hypocrisy of the Wal-Mart. Openly; this corporation depicts a charity and servitude image to the community while in real sense, it is responsible for the shameful, unjust and irresponsible inhumane practices in US and elsewhere.
Companies like Wal-Mart have directly contributed towards the downfall of numerous retail shops in small towns. The arrival of Wal-Mart marked the end of such shops that had been in operation for decades. An example is the Red Esry Groceries which was started way back in 1959. Immediately after Wal-Mart was welcomed, the Esry Groceries lost its business.
Wal-Mart eliminated almost all competitors by their extremely reduced prices. It therefore made the community to fully depend on it and at the same time accelerated unemployment rates. Due to the low quality of the Wal-Mart’s products, the quality of life in the small towns went down and at the same time, the dependency on it rose. Such corporations purely enjoy monopoly since their competitors cannot thrive.
In the inner side of such corporations, workers get frustrated as a result of the unjust treatments. First, quite a number of the employees are forced to be part-time workers since these companies want to pay for as little benefits as possible. Even though quite a number of the employees are part-time workers, such companies are temporarily understaffed making many employees to work overtime which in real sense is a lie. Failure of the employees to complete their tasks directly results into loss of that particular job. This compels the workers to go extra miles even if it means working overtime and the benefits are very poor. There are other injustices including sexual and racial discriminations.
On the other side, financial sense is depicted in the whole issue. The consumer should never worry if the prices continue falling. Current electronic devices like printers, televisions, computers, etc may last only a third or half as long as they used to sometimes back. In such a case, what is the problem if such a gadget costs a third or half of what it used to cost? There is also no financial sense in spending more on electronic devices with pledged reliability while cheap ones are readily available. Consumers always feel that the extra cost is simply meant for buying the brand logo instead of a better quality product.
Considering the mobile phones industry; the term cheap has powerfully taken control at the subconscious level. Various consumers can not afford to buy the genuine and original phones even if they were willing to. This is because of the counterfeits that in all aspects are similar to the original products and cost extremely less. Hence, there is no financial sense in having a product that is claimed to be original when a cheap and similar one exists. The value is no longer a utility; what matters is the class equality.
This, however, comes with various consequences. Since the lifespan of such goods are short, there is the problem of excessive waste. Disposal of some of these wastes is also a very big problem as they degrade the environment. Also, there is a repeated purchase of the replacements which in the long run proves to be very expensive. Other consequences are indirect. An example of an indirect consequence is the low wages since the models are low priced.
Supply and demand price elasticity
There are several factors that together determine the elasticity. Some of which include the availability of substitutes, the size of purchase, the time horizon, the nature of the market, and the necessities versus luxuries.
Wal-Mart and other similar corporations provide cheap goods that act as close substitutes to the expensive ones. This makes the demand more elastic. Considering the relative size of the purchase, it is obvious that if a purchase is a small percentage of the total expenditure, it becomes inelastic. This is due to the fact that consumers do not get worried about the extra expenditure. These corporations have also broadened the item definition. This makes the demand quite elastic as several substitutes are readily available.
In terms of the revenue and elasticity, it is clear that in an inelastic demand, the revenue becomes more influenced by the high price. The revenue also increases as the price increases. The reverse of this is true for Wal-Mart and other similar companies. For their case, the demand is elastic. The total revenue is highly affected by the low quantities. With an increase in the prices, the revenue decreases. In a normal situation, a rise in price leads to rise in the revenue per unit sold and also fall in the quantity sold. For there to be an increase in the revenue, we have to estimate the greater effect between the above two.
In terms of income elasticity; when the demand increases as the income increases, then elasticity is considered to be positive. In such a case, the product is said to be of normal or good quality. If the demand falls as the income increases, the elasticity is negative and the product is said to be of poor quality or inferior. Goods from Wal-Mart always have a negative income elasticity of demand. The direct implication is that such products are of very poor quality.
Leverage characteristics (debt) or capital investment considerations
Companies like Wal-Mart have intensive capital spending which includes borrowings. In the year that ended on 31st Jan, 2010, this company had a total capital spending $13.1 billion. This value was higher than that in the year 2009 which was $11.5 billion. In the year ending 31st Jan, 2011, there is a projection that the capital spending shall total to $ 15 billion. All this increase is intended to raise the shareholder value. A lot of money is spent in building of new stores and in accelerating the remodeling pace. This is due to the success with which customers are retained. Also, due to the enormous size of such companies, a lot of capital is pumped in ensuring the growth in both home and abroad so as to take the advantage of growing economies.
The capital expenditure details are given below
Wal-Mart always get aid from other organizations so that it can improve their services. The city of Cameron gave it $2.1 million so that it can set up shops in 2004. It also got $300 million from the city of Brookfield so that it can open its doors.
Current events relating to the industry
Taking Wal-Mart as an example, various dramas erupt in such corporations. In 2004, Wal-Mart workers in California relied on public assistance and this claimed taxpayers $86 million. In 2005, 3864 children of the employees of Wal-Mart were enrolled Medicaid in Alabama at a cost of $8.2 million. In the same year, 2700 workers of Wal-Mart were on Medicaid in Arizona. In Arkansas, 3971 workers of the same corporation were on public assistance in 2005. Several workers and their dependants were in state healthcare program in several areas including 824 in Connecticut and 12,300 in Florida,
It is amazing that it costs taxpayers $1557 billion so as to support the employees of Wal-Mart.
Andy Miller, “Wal-Mart Stands Out On Rolls of Peach Care,” Atlanta Journal-Constitution, February 27, 2004.
Anthony Bianco and Wendy Zellner, “Is Wal-Mart Too Powerful?” Business Week, October 6, 2003
Arindrajit Dube, (2005.) Impact of Wal-Mart Growth on Earnings throughout the Retail Sector in Urban and Rural Counties. UC Berkeley Labor Center, USA
Brian Baskin, “Top 9 Employers in State Have 9,698 Getting Public Aid,” Arkansas Democrat-Gazette, March 17, 2005.
Howard Fischer, (July 30, 2005) “Wal-Mart 1st in State Aid Enrollees,” Arizona Daily Star.
Ken Jacobs and Arindrajit Dube, (August 2, 2004). Hidden Costs of Wal-Mart Jobs. UC Berkeley Labor Center, USA
Michael Hicks, (October 26, 2005). Does Wal-Mart Cause an Increase in Anti-Poverty Program Expenditures? Business Week.
Robert Greenwald (2005). Wal-Mart: the high cost of low price film poster, USA
Stacy Forster, “Big Companies Fill Badger Care Rolls,” Milwaukee Journal Sentinel, May 24, 2005.
Sydney P. Freedberg and Connie Humburg, “Lured Employers Now Tax Medicaid,” St. Petersburg Times, March 25, 2005.