Case Study :

Why a Main Street Firm, Walmart, Is

Impacted by Foreign Exchange
Fluctuations

Case Analyzed by:

Cordis, Rovic
Flores, Reymart
Maglalang, Joshua Cristian
Mendoza, Alyssa
Ramos, Jann Julianne
Siguenza, Charlene
Sumague, Abigail
I. Case Summary

The case studied about Walmart, the world's biggest company in terms
of revenue, which has been ranked number one on the 2010 Fortune 500 list.
It's in 15 global markets and operates 4,343 stores outside the US, with sales
of $408 billion. Walmart's strength comes from its ability to negotiate with
suppliers around the world to buy goods at a lower price. This will allow
Walmart to offer these products, which are an essential part of its business
model, at a lower price than their competitors.

Furthermore, the case analyzed the cost and profitability of Walmart

may nevertheless be substantially affected by small changes in the Foreign
Exchange Market, given that it deals with a wide range of currencies. In
particular, it takes place in China, where the government is trying to hold
down the value of its currency so as to support exports. It will cost Walmart
more to purchase products from the People's Republic of China, thereby
leading to higher prices for its customers if the value of the RMB increases.
That could also have a negative impact on the profitability of Walmart and its
global suppliers.

The case additionally stated that Walmart uses a number of strategies,

such as hedging or diversifying its global operations, to mitigate the impact of
foreign exchange fluctuations. However, such strategies may not be entirely
reliable and can be affected by a range of factors, e.g., changes in
government policy or market conditions. Consequently, in order to protect its
profitability and retain its competitive edge, Walmart needs to keep up with
these changes.

II. Case Problem

1. Increased Sourcing Costs: Walmart's reliance on global sourcing means

that fluctuations in foreign exchange rates can significantly impact the cost of
goods purchased from suppliers in foreign countries. When the value of a
foreign currency strengthens against the US dollar, it becomes more
expensive for Walmart to source products, reducing profit margins and
potentially leading to higher prices for consumers.

2. Revenue Volatility: As a multinational company, Walmart generates a

significant portion of its revenue from international operations. When foreign
currencies weaken against the US dollar, the value of revenue earned in
those countries decreases when converted back into US dollars. This can
result in revenue volatility and impact Walmart's overall financial performance.
 3. Currency Hedging Challenges: Walmart employs currency hedging
strategies to mitigate foreign exchange risks. However, it can be challenging
to accurately predict and hedge against currency fluctuations. Inaccurate
hedging decisions can lead to unexpected losses or reduced hedging
effectiveness, leaving Walmart exposed to currency volatility.

4. Decreased Consumer Purchasing Power: When local currencies weaken,

consumers in those countries experience reduced purchasing power. This
can impact sales volume and demand for Walmart's products, both
domestically and internationally. Declining consumer purchasing power can
lead to lower sales and revenue for Walmart.

5. Financial Reporting Complexity: Walmart is required to report its financial

results in US dollars, which introduces complexities when currency values
fluctuate. The conversion of financial statements from foreign currencies to
US dollars can result in significant translation gains or losses, affecting the
reported financial performance and potentially impacting investor confidence.

6. Supply Chain Disruptions: Fluctuations in foreign exchange rates can

disrupt Walmart's complex global supply chain. Currency fluctuations impact
the costs of raw materials, transportation, and logistics, potentially leading to
supply chain disruptions and increased operational challenges.

7. Competitive Pressure: Foreign exchange fluctuations can affect the

competitive position of Walmart in the global retail market. Currency
movements can impact the pricing strategies of competitors based in different
countries, creating challenges for Walmart to maintain its competitive pricing
and market share.

Addressing these main case problems is crucial for Walmart to effectively

manage the impact of foreign exchange fluctuations on its business.
Implementing effective hedging strategies, closely monitoring currency
movements, optimizing sourcing and supply chain management, and
adapting pricing and marketing strategies are essential to navigate these
challenges.

III. Case Facts

1. Walmart, a leading main street firm, operates numerous retail stores

worldwide, making it highly susceptible to foreign exchange fluctuations.

2. Foreign exchange fluctuations refer to the continuous changes in the

values of different currencies against each other in the global market.

3. Walmart generates a significant portion of its revenue from international

sales, which exposes it to currency exchange rate risks.
4. When the value of a foreign currency decreases against the US dollar,
Walmart's revenues earned in that currency will be worth less when converted
back to US dollars.

5. Conversely, if a foreign currency strengthens against the US dollar,

Walmart's revenues earned in that currency will be worth more in US dollars
when converted.

6. Foreign exchange fluctuations can impact Walmart's profitability by

affecting the purchasing power of customers in different countries.

7. A weakened currency can make imported goods more expensive for

customers, reducing their purchasing power and potentially leading to lower
sales volumes for Walmart's stores in those countries.

8. Conversely, a stronger currency can make imported goods cheaper for

customers, potentially driving up sales volumes in some countries.

9. Additionally, foreign exchange fluctuations affect Walmart's sourcing costs,

as the company procures a significant amount of its products from different
countries.

10. If the US dollar strengthens against the currencies of countries from

which Walmart imports goods, its sourcing costs will decrease.

11. Conversely, if the US dollar weakens against the currencies of countries

from which Walmart imports goods, its sourcing costs will increase.

12. Fluctuating currency exchange rates can also impact Walmart's global
supply chain and logistics costs.

13. A sudden change in exchange rates may result in higher transportation

and shipping costs for Walmart when moving products across borders.

14. To mitigate these risks, Walmart may engage in currency hedging

strategies, such as forward contracts, to shield itself from adverse currency
movements.

15. Walmart's exposure to foreign exchange fluctuations highlights the

interconnectedness of the global economy and the importance of monitoring
currency markets for multinational firms.
IV. Alternative Courses of Action
SWOT ANALYSIS (Walmart’s side)
INTERNAL
ENVIRONMENT
EXTERNAL
ENVIRONMENT
OPPORTUNITIES
O1 Expansion into emerging
markets
O2 Online and Omnichannel
O3 Health and Wellness market
O4 Sustainability initiatives
O5 Partnerships and acquisitions
STRENGTHS
S1 Global presence and market
leadership
S2 Strong bargaining power
S3 Strong brand name
S4 Diverse product image
S5 Technological capabilities
S6 Strong supply chain
management
(+,+)
S1,O5 Joint ventures with local
suppliers
S2,O1 Branch out/ Open new
branch
S4,O3 Produce Nutritious
products
S5,O2 Create reliable application
to easily purchase
S5,O4 Implement renewable
energy sources
S6,O1 Maintain strong supply
chain management
WEAKNESSES
W1 Reliance on imported goods
W2 Vulnerability to economic
fluctuations
W3 Staffing and labor issues
W4 Limited control over foreign
operations
W5 Legal and regulatory
challenges
(-,+)
W1,O1 Local sourcing and
production
W2, O2 Optimize supply chain
and inventory management.
Walmart can minimize
disruptions caused by economic
fluctuations and efficiently
manage inventory levels
W3,O1 Collaborate with local
labor organization to help ensure
fair labor practices and create
channel for open communication
and dispute resolution.
W4,O5 Continuous
Communication and
collaboration
 THREATS (+,-) (-,-)

T1 Currency exchange rate
fluctuations
T2 Intense competition
T3 Economic downturns
T4 Regulatory changes
T5 Shift in consumer
preferences
T6 Cybersecurity risks
S2,T2 To enhance customer
retention and strengthen its
bargaining power.
S4, T1 Localizing source
production
S6, T4 Diversify sourcing and
supply chain
S1, T1 Hedging foreign
exchange rate
W4,T1 Implement a currency risk
management program
W1,T2 Optimizing
pricing strategies
W1,T5 Local supplier
diversification
W5,T6 Provide regular
cybersecurity education and
training programs to enhance
awareness and promote good
security practices.

Strengths:

1. Global presence and market leadership: Walmart has a vast global network of stores,
giving it a significant advantage in terms of market reach and customer base.

2. Strong bargaining power: Walmart's size and market dominance allow it to negotiate
favorable terms with suppliers and gain cost advantages.

3. Strong brand image: Walmart is a well-known and trusted brand globally. This helps
the company attract customers and maintain customer loyalty.

4. Diverse product offering: Walmart offers a wide range of products, allowing it to cater
to different customer preferences and adapt to changing market dynamics.

5. Technological capabilities: Walmart has invested in advanced technologies and

digital platforms, enhancing its operational efficiency and customer experience.

6. Strong supply chain management: Walmart's efficient supply chain ensures timely
delivery of products to stores, maximizing customer satisfaction.

Weaknesses:

1. Reliance on imported goods: Walmart heavily depends on goods sourced from other
countries, exposing it to currency exchange rate risks and potential fluctuations in
sourcing costs.
2. Vulnerability to economic fluctuations: Walmart's performance can be impacted by
economic downturns in countries in which it operates, affecting consumer spending
patterns and overall sales.

3. Staffing and labor issues: Walmart has faced criticism regarding labor practices,
employee wages, and working conditions, which can impact its reputation and
employee morale.

4. Limited control over foreign operations: In some markets, Walmart faces stiff
competition from local retailers and e-commerce giants, which may limit its ability to
stand out and offer unique value propositions.

5. Legal and regulatory challenges: Operating in multiple countries exposes Walmart to

varying legal and regulatory requirements, which can pose compliance challenges and
affect its operations.

Opportunities:

1. Expansion in emerging markets: Walmart can leverage its global brand recognition
and scale to tap into new and growing markets, diversifying its revenue streams and
reducing dependency on particular regions.

2. Online and omnichannel growth: The increasing popularity of e-commerce presents

opportunities for Walmart to expand its online presence and strengthen its omnichannel
strategy.

3. Health and wellness market: With growing consumer interest in health and wellness,
Walmart can expand its product offerings in this segment, catering to evolving trends
and preferences.

4. Sustainable initiatives: Walmart can capitalize on the growing demand for

sustainable and eco-friendly products, establishing itself as a leader in corporate social
responsibility.

5. Partnerships and acquisitions: Collaborating with local businesses or acquiring

smaller players can help Walmart expand its market share and gain access to new
technologies and customer segments.

Threats:

1. Currency exchange rate fluctuations: Unpredictable changes in foreign exchange

rates can significantly impact Walmart's revenues, costs, and overall profitability.
2. Intense competition: Walmart faces intense competition from both traditional retailers
and e-commerce giants. This can put pressure on its market share and pricing strategy.

3. Economic downturns: During economic downturns, consumers may cut back on

discretionary spending, which can affect Walmart's sales and profitability.

4. Regulatory changes: Alterations in trade policies, import/export regulations, and

taxation can disrupt Walmart's international operations and increase costs.

5. Shift in consumer preferences: Changing consumer preferences, such as a shift

towards sustainable products or a preference for local brands, can challenge Walmart's
market position and require adaptation.

6. Cybersecurity risks: With increased reliance on technology and digital platforms,

Walmart faces the threat of cyber-attacks, data breaches, and other cybersecurity risks
that can harm its reputation and financial stability.

IV. Alternative Courses of Action

1. Hedging strategies: Walmart can implement hedging techniques to minimize the
impact of foreign exchange fluctuations. This can involve entering into currency futures
contracts or options to lock in exchange rates for future transactions.
2. Diversification of supplier base: Walmart can reduce its dependency on foreign
suppliers by diversifying its supplier base and sourcing products from different countries.
This can help mitigate the risk of sudden currency fluctuations in any one country.
3. Pricing adjustments: Walmart can consider adjusting its pricing strategies in
response to foreign exchange fluctuations. For example, if the local currency weakens
against the US dollar, Walmart may choose to increase prices to protect profit margins.
4. Localization strategies: Walmart can adopt localization strategies to reduce its
exposure to foreign exchange fluctuations. By sourcing products locally and establishing
strong relationships with local suppliers, Walmart can mitigate the risks associated with
international currency fluctuations.
5. Financial risk management: Walmart can also focus on effective financial risk
management by closely monitoring and analyzing currency trends, utilizing financial
instruments, and engaging in proactive risk management practices to protect against
adverse foreign exchange movements.
 V. Evaluation of Alternatives and Solution to the Problem

Alternative Course of Cost- Compliance Risk Mitigation Long-term Total

Action Effectiveness with (20%) Impact
(100%)
(40%) Regulations (20%)
(20%)

1. Hedging strategies 1x.4= .4 1x.2= .2 1x.2= .2 2x.2= .4 1.2

2. Diversification of 2x.4= .8 2x.2= .4 2x.2= .4 1x.2= .2 1.8

supplier base

3. Localization 3x.4= 1.2 3x.2= .6 3x.2= .6 3x.2=.6 3

strategies

3 – highest cost 3 – highly 3 – most 3 – longest

compliant effective time
2 – average cost
2 – average 2 – moderate 2 – average
LEGEND : 1 – lowest cost
compliance effective time
1 – limited 1 – Inadequate 1 – shortest
compliance effective time

By implementing Localization strategies, they can get the goods that they need
locally that results to lower cost than to import goods from outside of the country, this
also means that Walmart can offer much cheaper price range when they get their
supplies locally than internationally because they don’t need to worry about exchange
rate and transportation. Having domestic sourcing can increase Walmart’s revenue,
since the goods and supplies are produced locally, the company can maximize their
profit because they can get the goods cheaper without worrying about foreign
currencies which can affect their operation. Since the products and supplies are
decreases in price, the people/ customers that purchase products increases, because
the prices are cheaper and the company can survive the competition among other retail
market by gaining more customers and by providing affordable goods.
VI. Recommendation
Among the alternatives, domestic sourcing got the highest point in total which is
why domestic sourcing is recommended. Wherein in the case study mentioned, the
recommendation to explore domestic sourcing as a risk mitigation technique for
Walmart's exposure to foreign exchange volatility can be supported for the following
reasons:
1. Reduced Currency Risk: Domestic sourcing entails obtaining goods and materials
from sources within the same country in which Walmart operates. Walmart lessens its
reliance on overseas suppliers and its susceptibility to variations in foreign exchange
rates by procuring locally. The impact of exchange rate variations on the cost of goods
is lessened since domestic sourcing removes the need for currency conversion.
2. Stable Cost Structure: When Walmart sources products from within the country, it
often pays suppliers in the local currency, which is relatively stable in comparison to
international currencies. This stability offers Walmart more predictability and
consistency in its cost structure, allowing for better planning and budgeting. It decreases
the danger of unexpected cost increases caused by adverse currency changes and
makes it easier to sustain profit margins.
3.Walmart's supply chain resiliency is enhanced by its reliance on domestic suppliers. It
lowers the logistical complications of overseas sourcing, such as longer lead times,
customs processes, and potential shipping disruptions. A domestic supply chain gives
Walmart more control and reactivity, assuring a consistent and reliable flow of
commodities to its stores.
4. Local Economic Support: By favoring domestic sourcing, Walmart may help local
economies by creating jobs and encouraging community development. This approach is
consistent with the company's commitment to corporate social responsibility and
develops its relationships with local stakeholders such as consumers, employees, and
governments.
While domestic sourcing has numerous advantages, it may not be viable or practical for
all product categories or areas. When deciding whether to emphasize local sourcing,
Walmart should do a detailed cost-benefit analysis, taking into account aspects such as
supplier capabilities, product availability, pricing competitiveness, and quality
requirements. In controlling foreign exchange swings and supply chain risks, a balanced
approach that blends domestic and global sourcing techniques may be the most
effective.
VII. Conclusion
The case study's biggest problem is how Walmart can keep surviving and
growing in the competitive market with the effect of foreign exchange fluctuations. The
researchers pointed out that domestic sourcing is the best way for how Walmart can
leverage its sales with the effect of fluctuating foreign exchange. Because of this
research, we are able to learn and understand how important it is to know how foreign
exchange affects big companies like Walmart. We can also understand the
disadvantages of the currency's value in one's country to its importer and exporter.
It is proven that sourcing a product or service from a domestic place ensures
invulnerability to the foreign exchange rate. Another example is Walmart's Buy
American campaign, which aims to support domestic sourcing in America by creating
100,000 jobs and $50 billion in sourcing over the span of ten years. The US economy
will be strengthened as a result, and Walmart's reputation and brand recognition will
grow as well. Walmart might be able to sell its products for less money thanks to Made
in America while also saving money on transportation and inventory costs.