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Walmart International Expansion Recommendation

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Walmart International Expansion Recommendation

The decision for Walmart to expand to the Philippines should be centered on the business culture and economic factors. As economic scholars will allude, a multinational corporation must comprehensively assess factors likely to impact its performance. Financial climate equally plays an integral role in determining whether an expansion can succeed. Analyzing the Philippines’ gross domestic product is significant as it will measure Walmart’s sustainability in a foreign country. Additionally, the elements of foreign exchange rates, such as interest rates, government policies, taxes, and tariffs, give an insight into business operations in a foreign region. The success of Walmart in the Philippines de- pends on how best the corporation manages foreign exchange and potential political risks.

Furthermore, Walmart is likely to be impacted by the foreign exchange rates of the Philippines. The forthcoming financial performance of the corporation rests on the degree of a- variability of interest rates, the balance of payments, government policies, taxes, and tariffs.

Hence, just as Merzlyakova & Goncharova (2020) put it, a thorough assessment of the components above should be conducted before making far-reaching decisions on the ex-expansion. Upon assessing the foreign exchange rates, appropriate measures should be implemented to aid Walmart in managing risks about foreign exchange. Thus, this paper summarizes the culture and financial climate of the Philippines to gauge whether Walmart can expand its operations there. Besides that, the essay describes the foreign exchange rates of the Philippines, mechanisms of managing foreign exchange risks, and an analysis of the political risks Walmart is likely to encounter in the country. Lastly, this paper will provide a proposal regarding the expansion’s funding drive.

Culture of the Philippines

 The business culture of the Philippines has been under transformation for decades. In the past, expanding a business of Walmart’s caliber in the country was difficult due to the unfavorable business culture animated by political and economic instabilities. In 2001, Walmart’s push to expand its operations in Indonesia hit a snag when the multinational corporation sought to expand in Asia. Simultaneously, the Philippines started negotiating with the company to expand the country. It is worth noting that the push remains on course due to the ever-improving business culture in the region. Today, progressive business culture is healthy for foreign business operations (Wiwanto, 2020). As mentioned earlier, the political and economic instabilities were the biggest impediments to business expansion in the Philippines. As such, de- desirable business culture in the country suffered a hitch culminating in abandonment by several international companies.

Furthermore, accountability and ethics are the building blocks of a business culture globally. Today, multinational corporations like Walmart are keen on establishing whether potential expansion countries subscribe to accountability and ethics (Carino, 2008). An international business ought to be centered on ethical considerations. According to Wiwanto (2020) assertions, it is through subscribing to ethical provisions that a business culture capable of hosting substantial international business firms is achieved. Based on these assertions, it is critical to analyze the Philippines and ethical standards to measure its preparedness to accommodatealmart. The Philippines’ liberalization has revolutionized the governance of both private and public business enterprises. The Philippines’ business culture is shaped by its business structures organized by the laws. Sole proprietorships, partnerships, and corporations are the main business structures for business culture. It implies that other foreign business firms are open to choosing their preferred business structure that aligns with the needs of their respective businesses.

Both Eastern and Western cultures influence the Philippines’ business culture. The latter involves forming formal business partnerships and relationships, with each party obligated to keep the deal intact. A wide range of scholars, including but not limited to Cardon (2009), assert that Eastern countries have since adopted some of the measures practiced by Western countries. As such, they have a blended culture that aims at enhancing foreign business development in the region. The West’s culture has since been tested and found to be revolutionary because it aligns with current affairs in the business market. Western countries have emphasized infrastructure, currencies, and education as they consider them significant in breeding a conducive environment for local and international business (Buena & Whitney, 2017). In satisfying the assertions above, the Philippines has revolutionized its culture from hier- archical during the political and economic turmoil to building mutual relationships that underpin business operations.

Eastern culture has been dominant in Asia, with the Philippines among the im- packed countries. It is not a surprise that the Philippines is underpinned by Eastern culture, considering it is one of the countries in Asia. Thus, considering business expansion in the region, the culture has reiterated the need to move as a group, thus quashing the dominant capitalistic approach in the West. Thanks to its holistic approach to engaging young segments into adopting its business culture, the Philippines is regarded as one of the fastest-growing countries in Asia (Buena & Whitney, 2017). The element will be crucial once Wal- mart Inc. expands to the region. The segment is likely to revolutionize the business culture further to accommodate foreign businesses.

Financial Climate of the Philippines

 Financial climate analysis will be crucial in setting the standards through which Walmart will operate. A corporation of Walmart’s status should not risk expanding in countries whose financial climate is below standards. In the Philippines, the financial environment is viewed through critical economic indicators, including but not limited to the gross domestic product (GDP). The Philippines’ economy has been receiving applause from International Monetary Fund (IMF) and the World Bank. The two financial organizations’ praise of the country’s economy centers on the recovery after the global coronavirus pandemic hardly hit it. At present, the lifting of measures aimed at containing the spread of the virus has culminated in a fast economic growth of a staggering 11.8%. According to the scholarly work by Apat et (2019), business firms should consider a stable financial environment when opting to expand to a foreign country. It implies that under normal conditions, the economic climate of the Philip- pines is good enough to host some of the giant corporations in the world, such as Walmart. Hence, Walmart must pay special attention to the current economic growth of the Philippines.

On the downside, the financial climate of the Philippines possesses a wide range of challenges that Walmart should consider. According to the International Trade Administration (ITA), the challenges will demoralize potential foreign business firms from expanding to the region. One of the challenges is the price-sensitive market, particularly on products from the United States. Walmart needs to assess the challenges to establish potential measures to mitigate them (Polinkevych et al., 2021). Although the challenges are demoralizing, the assessment of market opportunities and entry strategies in the Philippines favor Walmart Inc. to consider ex- expanding its regional operations. As has been the tradition before developing to a foreign country, building relationships for mutual benefit will avert the challenge mentioned above of the sensitivity of market prices. Armored with the assertions discussed above, the financial climate in the Philippines is encouraging, thus favoring Walmart’s expansion push to the region.

Foreign Exchange Rates in the Philippines

 Interest Rates

 Foreign investors often pay special attention to interest rates before investing in a foreign region. The value of a country’s currency is directly linked to interest rates. In this re- guard, although economic and political factors play a significant role in determining, countries with higher interest rates tend to have a strong currency that encourages investors to invest (Camba Jr & Camba, 2021). A case in point concerns Walmart’s expansion to the Philippines.

According to the International Monetary Fund (IMF), the economic transformation in the Philip- pines has been animated by the establishment of a new Central Bank, the Bangko Sentral Ng Pilipinas, that has since transformed the monetary policies to advance foreign corporations in- interests in considering an expansion in the region (Arora, 2016). Today, the new bank solely makes decisions that align with the current state of the foreign exchange markets. In this regard, the bank’s interest rates favor a foreign business firm to expand its regional operations.

Balance of Payments

 Besides interest rates, the foreign exchange market in the Philippines is linked to the balance of payments (BoP). The BoP is responsible for measuring the transactions of a given company by comparing it to the rest of the countries. Walmart’s expansion plan to the Philip- pines is subject to a favorable balance of payments recorded by the government. Currently, Walmart has already established itself as a stand-out multi-corporation globally. As such, it is only open to expanding in countries whose balance of payments does not overburden the economy (Camba Jr & Camba, 2021). In May 2021, the Philippines recorded a deficit of $ 1.39 billion after satisfying its obligation of repaying debts. Although the deficit might be concerning, economic experts allude that it only reflects a decrease of 0.42% compared to April (Camba Jr & Camba, 2021). Additionally, experts assert that the reserve level arrived at by repaying foreign debts is enough to cover the short-term debt on top of catering for imports for more than 12 months.

Government Policies

 Policies put in place by the states determine the extent to which it attracts, promote, and retain foreign investors. As it is a tradition, foreign investors are only open to working in a country with practicable foreign investment policies. According to the United Nations Conference on Trade and Development (UNCTAD), the Philippines has since enacted government policies to cater to the welfare of foreign investors (UNCTAD, 2021). The Foreign Investment Act 1991, still in force today, does not prohibit the extension of foreign ownership save from areas put on the negative list. Regardless of the negative list, the policy allows foreign investors to own 100% equity in the country (UNCTAD, 2021). Besides that, the policy provides non-Philippine to own up to 100% of the domestic market enterprises without any reservations. Walmart will likely be operational in the Philippines as soon as it becomes practicable based on the foreign ownership policy.

Tariffs and Taxes

 Other factors that may affect the operations of Walmart in the Philippines are taxes and tariffs. It is worth noting that every country has taxation and tariff rates guiding foreign investment operations. However, taxes and surcharges differ across countries, with some having hefty taxation measures that inevitably discourage foreign investments (Alegado, 2021). In the Philippines, its tariff rates align with the World Trade Organization (WTO) requirements, thus suggesting it favors foreign investors. Agricultural goods attract massive tariffs in the region, thus prompting Walmart Inc. to assess the taxes before deciding on the expansion. It implies that Walmart will likely be at loggerheads with the Philippines’ taxation authority once the development is accredited (USTR, 2015). Being a multinational retail corporation, the company must deal in a wide range of goods and services, with some bringing taxation disputes. On the other hand, the country’s taxes have recently attracted protests from the United States and the European Union on selected products.

Management of Foreign Exchange Risks

 Managing currency risks requires a business firm to lay down a set of procedures to avert the dangers. Currency fluctuations are the biggest threat to international business, resulting in massive losses for foreign companies. In this case, Walmart is not yet immune to the financial risks having evaded several obstacles to expand its operations in the Philippines. In a bid to establish some of the best strategies to avert foreign exchange risks, Matraeva (2017) as- asserts that foreign investment suffers heavily in the event a country experiences currency fluctuations. Thus, the multi-corporation should consider diversifying its operations in the Philippines to enable Walmart to operate swiftly without interfering with foreign exchange risks. For in- stance, Walmart can diversify its portfolio, assets, and investment methods in the country to avert any possible currency risks (Matraeva, 2017). In the long run, the multi-corporation man- ages to operate flawlessly in the Philippines.

Additionally, Walmart should adopt forward and futures contracts to avert the risks emanating from the foreign exchange market in the Philippines. Financial and economic experts ar- gue that future and forward contracts play an integral role in mitigating foreign exchange risks. Regarding forward contracts, Walmart should ensure it agrees to buy and sell currencies on a specified date owing to the forecasted market prices (Davies & Ostaszewski, 2019). The move will hedge foreign exchange risks that may affect future settlements. On the other hand, future contracts will be responsible for hedging bets centered on receiving payments in foreign currency dimensions. Walmart should be concerned about the potential effect of foreign exchange risks on its performance once it expands in the Philippines (Davies & Ostaszewski, 2019).

Adopting the future contracts tool lessens the chances of being ravaged by the risk, thus pro-testing its performance in the foreign region.

Potential Political Risks in the Philippines

 As mentioned earlier, political and economic risks have greatly impeded foreign investment in the Philippines. Several foreign business firms have walked away from investing in the country for fear of political unrest. Besides, the ruling regimes have been engaging in malpractices, much to the inconvenience of foreign investments, which arguably require a conducive business environment. Walmart is not yet immune to the political in- stabilities once they occur in the Philippines. Instead, it will likely suffer the most from political instability as the foreign exchange market and the currency value will be highly affected. Ac- cording to the report put forward by the leadership and democracy lab (LD), the severe corruption experienced in the country is likely to assassinate the reputation of Walmart Inc. as it is bound to work within an ethical business environment (LD, 2016). Besides, corruption will likely cost Walmart the most regarding imposing extra costs.

Furthermore, taxes and trade tariffs are the potential political risks that Walmart should be well prepared to suffer from, much to its convenience regarding financials. The heavy taxation on selected goods and services will coerce Walmart to incur losses it had not considered before expanding (LD, 2016). Today, even after Covid-19 has ravaged the economy for the better part of the year, Walmart’s revenue for TTM stands at $566.145 million. Thus, once the decision to expand to the Philippines gets the nod, Walmart should be wary of potential high trade tariffs that could derail its progress in reporting significant revenue figures. Additionally, if political unrest occurs, currency valuation will be equally affected (Ghozzi & Chaibi, 2021). As such, the foreign exchange market will inevitably be impacted negatively, thus, posing a considerable threat to Walmart’s operations, leaving alone its revenue.

Proposal to Funding Walmart’s Expansion

Equity Capital

 Even though the above-discussed concepts are fundamental to Walmart’s expansion to the Philippines, the greatest puzzle is identifying better financing strategies for the corporation. Walmart has a wide range of financing options for the expansion to be fruitful. Of the many financing options, I propose that Walmart fund the development using equity capital. The equity capital financing method has existed for ages, and economic experts have tested its effectiveness. The technique involves exchanging for standard or preferred stocks de- pending on an investor’s approach. Upon adopting equity capital as the primary funding strategy for the expansion to the Philippines, Walmart Inc. frees itself from the obligation of repaying as the shares are sold in the event of liquidation. The effectiveness of equity capital financing has been reviewed by many scholars, including but not limited to Sassi et al. (2019), and found to be suitable for funding multi-corporations.

Debt Financing

Besides equity capital financing, Walmart should consider adopting a debt financing method to fund the expansion to the Philippines. Debt financing is an alternate form of capital that supports a business firm. In this case, Walmart should welcome investors ready to refund the corporation funds with interest at a future date. It is worth noting that Walmart will generate substantial revenue when its push to ex- and the Philippines becomes official. Thus, opting for debt financing will not overburden the multi-corporation as it will manage to honor the obligation of refunding to the investors. Accord- ing to Alzoubi’s (2018) assertions, adopting debt financing will require the borrower to issue stocks to raise funds. At this point, Walmart has enormous stock that, when given to investors, will not have a negative impact. Thus, I propose that Walmart considers debt financing as an al- alternative to equity capital as two exemplary methods of raising capital to finance the expansion in the Philippines.

Conclusion

 This paper assessed a wide range of issues to establish whether or not Walmart’s ex-expansion in the Philippines will be successful. It is worth noting that the findings in this paper affirm the favorable environment that the Philippines will accord Walmart once the expansion is off- facial. The summary covers the Philippines’ culture and financial climate among the many issues covered in this paper. With the assertions mentioned earlier, the region’s business culture and economic environment favor Walmart’s expansion. The Philip- pines have transformed rapidly after ending the political and economic instability that discouraged foreign investment in the region. The rapid economic growth and the recovery after a hard-hit Covid-19 period suggest that expansion in the area will succeed.

Additionally, the components of foreign exchange in the country favor Walmart’s expansion in the Philippines. The interest rates, government policies, and balance of payments assure Walmart of a successful spell in the Philippines. In addition, massive corruption engineered by poor political governance and high tariffs and taxes is the potential political risk that Walmart should be ready to face once it officializes its expansion in the region. Lastly, to finance the ex-expansion, debt financing, and equity capital are the best methods of funding Walmart’s development. Thus, the corporation is called upon to adopt the two practices for successful expansion.

References

Alegado, S. (August 12, 2021). The Philippines to Hold Rates, Growth View in Focus: Decision Guide. Bloomberg. https://www.bloomberg.com/news/articles/2021-08-11/philippines-to- hold-rates-growth-view-in-focus-decision-guide

Alzoubi, E. S. S. (2018). Audit quality, debt financing, and earnings management: Evidence from Jordan. Journal of International Accounting, Auditing, and Taxation, 30, 69-84.

Apat, E. J. C., De Villa, J. P. D., & Ibarra, V. C. (2019). Evolution, Implementation, And Effects Of International Accounting Standards In The Philippines. Malaysian E-Commerce Journal (MECJ), 3(2), 06-11.

Arora, B., V. (2016). Monetary and Exchange Rate Policy. https://www.elibrary.imf.org/view/books/084/05272-9781557758613-en/ch04.xml

Buena, M. R., & Whitney, C. W. (2017). Entrepreneurial Culture And Capability of Organic Farm- ers’ Organizations in the Philippines. In Proceedings of the Scientific Track at the Organic World Congress 2017 (Vol. 2, pp. 750-753). Johann Heinrich von Thuenen-Insti- tute.

CAMBA Jr, A. C., & CAMBA, A. L. (2021). The Mean Reverting Behavior of Inflation in the Philippines. The Journal of Asian Finance, Economics, and Business, 8(10), 239-247.

Cardon, P. W. (2009). A model of face practices in Chinese business culture: Implications for Western businesspersons. Thunderbird International Business Review, 51(1), 19-36.

CARINO, L. V. (2008). TOWARDS A STRONG REPUBLIC: ENHANCING THE ACCOUNTABILITY OF THE PHILIPPINE STATE. Public Administration Quarterly, 32(1), 59–92. http://www.jstor.org/stable/41288305

Davies, R. O., & Ostaszewski, A. J. (2019). Optimal forward contract design for inventory: a value-of-waiting analysis. In Ulam Type Stability (pp. 73-96). Springer, Cham.

Ghozzi, B. B., & Chaibi, H. (2021). Political risks and financial markets: emerging vs. developed economies. EuroMed Journal of Business.

(April 2016). Political Risk Assessment Mitigating Foreign Investment Risk in the Philip- pines. https://democracylab.uwo.ca/img/Philippines%20Final%20Report.pdf

Matraeva, L. V. (2017). MODERN TRENDS IN THE DEVELOPMENT OF THE METHODOLOGY FOR ASSESSING FOREIGN EXCHANGE RISKS IN FOREIGN ECONOMIC AC-

TIVITIES OF ENTERPRISES. In The Strategies of Modern Science Development (pp. 60-63).

Merzlyakova, N. V., & Goncharova, N. A. (2020). Investigation of import substitution and expansion impact in Russian foreign economic practice by supply chain strategy. International Journal of Supply Chain Management, 9(2), 772.

Polinkevych, O., Khovrak, I., Trynchuk, V., Klapkiv, Y., & Volynets, I. (2021). Business risk management in times of crises and pandemics. Montenegrin Journal of Economics, 17(3), 99-110.

Sassi, S., Saadi, S., Boubaker, S., & Chourou, L. (2019). External governance and the cost of equity financing. Journal of Financial Research, 42(4), 817-865.

UNCTAD. (2021). Foreign Investment Act of 1991. https://investmentpolicy.unctad.org/invest-ment-laws/laws/95/Philippines-foreign-investment-act

USTR. (2015). THE PHILIPPINES. https://ustr.gov/sites/default/files/2013%20NTE%20Philip- pines%20Final.pdf

Wiwanto, F. (November 16, 2020). What Is Culture, And Why Is It Important In Financial Services? https://www.forbes.com/sites/forbesfinancecouncil/2020/11/16/what-is-culture-and-why-is-it-important-in-financial-services/?sh=6a3d91b117fe

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Question 

Before beginning work on this assignment,

Review Chapter 20 and Chapter 21 in the Foundations of Financial Management textbook.

Walmart International Expansion Recommendation

Watch the Week 6 Final Paper video with Dr. Kevin Kuznia, DBA, CSSBB, PMP.

Review the Walmart Case Study links to an external site. Interactive.

Review the current financial statements of Walmart.

For this assignment, you may also wish to upload your work to your ePortfolio and Waypoint so that, once you graduate, it can also be used to demonstrate your skills and competencies to potential employers and the professional community. Learn about Folio, UAGC’s ePortfolio tool, by viewing the Setting Up and Using FolioLinks to an external site. Guide.

In prior weeks, you learned about finance and financial analysis. This week you will put it all together. Using the Walmart Case Study and your selected country, you will complete a comprehensive recommendation to Walmart executives either recommending or forgoing expansion into your selected country.

In your paper,

The Walmart International Expansion Recommendation final paper

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