WAL-MART

Risk Management & Fiscal Analysis

Table of Contents

Introduction1

Vision Statement1

Mission Statement1

History of the Company1

Risk Analysis2

Commodity Price Risks2

Exchange Rate Risks3

Interest Rate risks3

Comparative Advantages3

Comparative Disadvantages4

Distribution System5

Competitive Environment6

Internal Competition6

External Competition7

Recent Developments7

Conclusion8

References9

Risk Management and Fiscal Analysis

Introduction

Wal-Mart Company operates retail stores in different formats worldwide. In United States of America, the retail formats implemented by the company include supercenters, discount stores, neighborhood markets, and Sam's Clubs. In the global arena, the company operates in El Salvador, Argentina, Canada, Chile, Brazil, China, Guatemala, Costa Rica, Honduras, Japan, Puerto Rico, Mexico, India, Nicaragua, and the United Kingdom. The company's headquarter is located in Bentonville, Arkansas . As of today, the company employs nearly 2.1 million people (Soderquist, 2005). Since operating in a highly competitive international market, the company is experiencing several risks, including market risk, commodity risk, foreign exchange risk and interest rate risk.

Vision Statement

“To become the worldwide leader in retailing”

Mission Statement

“We save people money so they can live better”

History of the Company

Sam Walton inaugurated Walton's 5&10 in Bentonville, Arkansas, on May 9, 1962. The first store with the brand name of Wal-Mart was opened in 1962 in Rogers, AR, financed 95% by Sam Walton himself. It registered itself as a public limited in the following year. Wal-Mart started trading of shares in NYSE, in 1972. The company inaugurated Wal-Mart Supercenters, international operations, and membership warehouse clubs, namely Sam's Clubs, during the 1980s. In 1983, it introduced the concept of cash and carry and opened Sam's Wholesale Club. The company engaged in a joint venture with the Dallas-based supermarket Cullum Companies in 1987. In 1989, Wal-Mart acquired Cullum Companies. Wal-Mart entered the Mexican market in 1992 through a joint venture with the country's largest retail company, Cifra. The company continued its trend of international expansion and entered china in 1996. Moreover, it also acquired German hypermarket chain, Wertkauf and Brazil retailer Lojas Americanas in 1997 and 1998 respectively. In 1999, Wal-Mart acquired 74 German based Interspar hypermarkets. Wal-Mart started selling household appliances and private label cosmetics in the beginning of the following century. The company stepped in the Japanese market in 2002 (Soderquist, 2005).

Risk Analysis

Wal-Mart conducts its business in three separate divisions: Wal-Mart US, Sam's Club and Wal-Mart International. It operates 8970 stores all over the world. Since it is operating in a highly competitive international market, with volatile economic conditions; it is exposed to several financial and market risks.

Commodity Price Risks

Wal-Mart offers a wide variety of products in different segments. Its business model is highly sensitive to the prices of Raw Materials. The changes in the prices of inputs tend to boost up the price risks for the company. In order to minimize such risks, it is recommended that the company engage in long term contracts and maintain strategic relationships with suppliers. Moreover, it should hedge any expected uncertainty in the future prices of raw materials.

Exchange Rate Risks

Wal-Mart has to face the risks linked with the variability in the exchange rates primarily with import of raw material. Since the company operates in the international market, and conduct business ...