When one country can produce a good at a lower opportunity cost than another, they are said to have comparative advantage (Gwartney et al., 2018). My chosen country for a Walmart expansion was the Philippines. For over a hundred years, the US and Philippines have had a close trade relationship with several signed agreements. In 2019, the Philippines and US traded $21.4 billion in goods with $8.6 billion in exports and $12.8 billion in imports which is a trade deficit to the US of $4.1 billion. Since the Philippine peso’s value is only around $0.02, the labor rates are much lower in the Philippines than the US thus giving them comparative advantage.
The Philippines is a low-income country and its 2014 per person GDP was only $6,649 compared to the US per person GDP of $52,118. However, this is right up Walmart’s alley as it prides itself on being a low-cost provider and an anti-poverty source within the US (Kestenbaum, 2017). Additionally, Walmart is the most important distribution of wealth from the rich to the poor (Kestenbaum, 2017).
Discuss how comparative analysis, trade restrictions, tariffs, and exchange rates of your chosen country will impact the decision to expand. You need to take these macroeconomic concepts and apply them directly to the Walmart expansion decision.
I chose the Philippines for my program country of choice. A comparative analysis gives us a look at how Walmart can gain from and help the Philippines by opening stores in the country. As the lecture told us the total output will be at its highest level if goods are made in the country that has the least opportunity cost in produces the goods. A comparative analysis can give us the information needed to see what those goods are that could be manufactured here in the U.S. or if it is better to have them manufactured in the Phillipines.Purchasing goods form the place that has the lowest opportunity cost will allow Walmart to offer the lowest prices possible. The United States (U.S.) is one of the biggest foreign investors in the Philippines and we are their 3rd largest trading partner. The Philippines and the U.S. have a pretty strong trade and investment relationship. This article shows that they have over 27 billion dollars in goods and services that have been traded. (U.S. Department of State,2020). Exchange rates change based on the value of a countries currency. The biggest reason for fluctuations in the exchange rate is supply and demand. Fiscal policy can influence a country’s currency value thus the exchange rate. At this time one US dollar is worth 41.85 Phillipino Pesos (PHP) (Travel X, nd). The Regional Comprehensive Economic Partnership (RCEP is one of the biggest trade agreements in history. It is an agreement between the 10 members of the Association of Southeast Asian Nations for which the Philippines is a part of. The deal will most likely not cut tariffs significantly it will bring Asia closer to being a coherent trading zone. This could help Walmart acquire goods for its stores at a lower price because being in the Philippines would put them in close proximity to Japan and China and others in the new agreement (Harding,2020). Walmart would be at an advantage by moving into the Philippines due to the low cost of labor, a potentially large supply chain with the new Asian agreement and close geographical proximity to other countries within the trade agreement.
Considering the topics, you have studied throughout this course, what other economic factors may impact the decision to expand?
With the pandemic in full swing Walmart should also look at the spending habits of the Phillipino people during this difficult time. I believe that until this pandemic is over Walmart should put their efforts into e Commerce in the Philippines. They would help the country’s employment rate because they would need to hire people to process and deliver orders. Since Covid began the Philippines has had deep growth contractions with a shallow recovery estimated. It was reported by the Philippines that their GDP went down 16.5 % from last year. Walmart in e commerce could help the Pilipino people without putting themselves at too much risk due to the global e commerce business. With economic contractions being seen in many countries I would not think this would be a good time to attempt a brick and mortar start up in the Philippines but perhaps revisit it in the near future.