Tuesday, November 03, 2009

Wal-Mart Revisited

Wal-Mart has its detractors on the left and the right. Liberals lament the "artificially low wages" and the "disregard for the little guy," be that person an employee or a business owner. Conservatives tend to dislike the company's passion for cheap products, which translates into huge imports from other parts of the world. Its fans note that Wal-Mart is noted for its ability to drive down prices and generally lowers employment in the areas it moves in to.

With that, I was intrigued by a recent article in Foreign Policy that discussed the impact that India's first Wal-Mart had this past summer in Amristar. Those opposed to the major stores feared that Wal-Mart was going to destroy the country's traditional culture. Foreign Policy, on the other hand, sees it as an indicator of major things to come on the economic front.

The article points out that Wal-Mart has started operations in 15 countries since 1991, and 13 of them have seen their economies explode. The average annual growth was a substantial 4.4 percent. In fact, the article demonstrates that over the last five years, the economies of Wal-Mart countries outside the United States have grown 40 percent faster than the world average.

Is this mere coincidence or is there something more to it? Does Wal-Mart provide the spark plug for these countries to explode economically or are they simply effective at doing their homework and know where the next great economy will be?

Foreign Policy argues that it is more of the latter than the former. Wal-Mart is very selective of the country's it chooses. Without a middle class, people who have money to spend but it is scarce enough that value truly matters, a country easily removes itself from the selection process. Wal-Mart wisely selects places that has a very large middle class, which helps to guarantee the country's future profits.

According to the World Bank, the number of the middle class in the devolving world should increase from should increase from 56 percent in 2000 to 93 percent in 2030. Next on the Wal-Mart radar screen are Russia and the countries of Eastern Europe, according to Foreign Policy.

The economic indicators of countries before and after Wal-Mart are impressive:

  • Brazil has 352 stores and went from an average annual GDP of 1.3% before Wal-Mart to 3.8 percent on average between 2003 through 2007 after the store entered the scene.

  • Japan has 371 stores and went from an average annual GDP of 0.5% before Wal-Mart to 2.1 percent on average between 2003 through 2007 after the store entered the scene.

  • Even Mexico has enjoyed the Wal-Mart years with 1,242 stores and went from an average annual GDP of 1.7% before Wal-Mart to 3.3 percent on average between 2003 through 2007 after the store entered the scene.

It appears that those who hat Wal-Mart and despise its arrival to their country will likely find themselves crying all the way to the bank. Maybe countries would serve themselves well by developing policies that mirror Wal-Mart's criteria for expansion.

Kevin Price is Host of the Price of Business, the longest running show on AM 650 (M-F at 11 am) in Houston, Texas and on AOL Radio. His articles often appear in Chicago Sun Times, Reuters, USA Today, and other national media. Steve Moore of the Wall Street Journal calls Price the “best business talk show host in the country.” Find out why and visit his blog at www.BizPlusBlog.com and his show site at www.PriceofBusiness.com. You can also find Price on Strategy Room at FoxNews.com.

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