Introduction
Today’s business world is very competitive and dynamic. Companies often end up failing because of the lack of good planning. Many businesses end up making losses not because the business ideas backing up the product are poor or weak but simply because the business planning and strategy formulation process was not the best or the most appropriate for the company and its products (Lancaster & Withey, 2006). Entrepreneurs/businessmen should make plans that will cover all functional areas within their business if they want to succeed. Strategies mean short and long-term plans that intend to achieve mission and its objectives. Policies are also included in the company’s planning process because they are used as guidelines for decision making. Tactics are specific actions that are used to realize strategic goals (Campbell et al. 2002).
Strategies and tactics
Corporate strategies are the main company’s goals that define the specific direction that a company should follow in order to realize the objectives. These strategies include the following but are not limited to: ensuring stability, achieving economic growth, retrenchment, etc. The overall strategy of Marilyn in Cowgirl Chocolates is to breakeven and stay in business. It is therefore true to say that Marilyn intends to stabilize his/her business. Such a strategy will involve pausing and proceeding with caution or sometimes not making changes in the business model in order to realize profits. This kind of strategy is very popular among small scale business owners (Wheelen & Hunger, 2002). Furthermore, a retrenchment strategy can be carried out on particular products. A retrenchment strategy is a strategy pursued by companies which clearly understand that their products have a weak competitive position and therefore have low sales and profits. These products which are dragging the company down are chopped off to help the company improve its performance. Under these strategies a turnaround strategy or divestment can be used (Frey, 2008).
It is vital to understand that along with setting good strategic goals it is also important that entrepreneurs develop appropriate tactics that will strengthen subsequent strategies covering the 4 P’s (i.e. price, product, promotion and place).The success of the corporate strategies strongly depends on how the product is marketed to the public. Marilyn’s case of Cowgirls Chocolates is quite complex, multiple problems exist in almost every area due to poor planning especially in the field of marketing. Since it is evident that Cowgirl Chocolates have a product design problem, and many consumers including retail managers who intended to stock the problem have complained that the chocolates are very spicy, it is Marilyn’s responsibility to improve the recipe of the chocolates. According to Kotler (2006) business ideas may fail or underperform not only because the idea is poor but because the product is not properly designed. Many consumers may reject a good product because of its shape, size, color, scent and so on as this was the case with The Coca-Cola Company that introduced the new Coca-Cola which failed miserably after the return of classic Coca-Cola (Charles, et al. 2002)
Marilyn’s idea of spicy chocolates is nice but it does not mean that chocolates should be too spicy, therefore Marilyn should reduce the amount of chili in their recipe. Adding too much chilly in Cowgirl Chocolate will diminish the total market potential that the chocolates can serve. For instance, a lot of women and children do not like too spicy or chilly foods. Marilyn will therefore increase the total number of prospect markets which consist of consumers if she goes ahead to change and improve the recipe. Such a step will be rather effective and will probably boost the sales of Cowgirl Chocolates (Kotler, 2003).
It is also vital that Marilyn comes up with an overall competitive strategy that Cowgirl will pursue in order to compete with other producers. According to Michael Porter’s generic competitive strategies participants within an industry can adopt strategies that concentrate on a narrow or a wider perspective of the total market and at the same time focus on a low cost strategy or a high differentiation approach (Porter, 1990). The choice of competitive strategies has an impact on the price strategy followed by an organization. Companies that do not adopt a differentiation approach can use a mass market strategy as well pursuing a market penetration strategy which is basically a pricing strategy that aims to sell affordable, low priced products. When companies follow a differentiation strategy they are most likely to adopt a skimming/milking price strategy which involves establishing high rates for a product in order to recover extensive funds that may have been involved in the process of product research or at the stage of the product design and development (Lancaster & Withey, 2006).
Often companies that have a poor understanding of the specific target market they want to cover or just do not know how this market should be covered effectively can send mixed signals. Marilyn should take into consideration that strategies which intend to differentiate products are quite expensive, and therefore end up in selling products for premium prices and most of the time such a tactic may result in consuming a lot of resources, therefore it is risky for small businesses that have limited resources. The best tactic in order to gain a larger market share will therefore require Marilyn to use a tactic that will make Cowgirl Chocolates follow a general mass market strategy that targets a broader range of the consumers. A particular choice of strategy should precisely match with the resource capabilities of Cowgirl Chocolate.
A mass market approach is the most promising competitive strategy that may boost sales and revenues for Cowgirl Chocolates. A mass market approach does not require high levels of innovation and therefore a producer is more likely to enjoy higher levels of income. This approach also helps to save on costs which can be invested into other strategic business units that require more resources (Lancaster & Withey, 2006). Merilyn should therefore conduct a quantitative and qualitative research that would enable her get rid of all redundant flavors and product lines that may have dragged down the Cowgirl brand. One of the reliable ways for Marilyn to get the relevant data boils down to visiting local high end and low end stores and examining which flavors and brands are the most popular, and then develop recipes that will fit consumer’s tastes and preferences.
For some time, Marilyn should stop or halt producing the caramel sauce product and instead concentrate on the other product lines that have more potentials. The reason for this is the fact that less than 10% of the total caramel manufactured could be sold effectively despite the fact that a lot of money was invested into this product. It is obvious that a newly organized business cannot take up the risk of investing critical resources into products that are not paid off well. The money spent on this product lines could have been invested into other product lines that offered more potential for generating revenue streams and would be more interesting for consumers. If it is a must for Marilyn to continue with this product line, she should make it for consumers who pre-order the product or restrict the quantity of the manufactured product.
Relative competitive position
In the diagram above, Marilyn should look up the company’s figures and decide what to do with divestitures and further investment. In case the products have a high business growth rate and a low relative competitive position, it means these products should be given special attention because if the company blindly invests in them, it involves a lot of risk. On the other hand, if the products have a low business growth rate and also a low relative composition, it means these products are not in demand and Marilyn should not further invest in them. Marilyn should definitely put more effort in products which have a strong competitive position and manage them well to make more profits (Kourdi, 2009).
Small and large business owners like Marilyn should understand that there are a lot of risks involved in holding large amounts of inventory. Innovations greatly depend on the capital, and therefore cash flows of companies are severely affected. Besides, companies are always facing risk of incurring losses when dealing with inventories. That is why many entrepreneurs decide to use the J.I.T (Just in Time) method to acquire inventory. This method proved to be efficient because it ensures that companies work with low budgets and save on holding costs, reducing in this way unnecessary expenditures (Jaber, 2009). Marilyn, for instance, went ahead to produce 2000 cases of caramel sauce but she managed to sell only 70 cases which means that Marilyn suffered sufficiently and lost a lot of money by holding up cash in inventory that did not bring the desired revenues.
It is quite risky for companies to enter into exclusive distribution agreements that give a supplier the ability to control the overall distribution of the product. Thus, Marilyn should delegate all distributing responsibilities to a company that is willing to handle the distribution and promotion of Cowgirl Chocolates. Furthermore, Marilyn should exploit some other channels to spread information about spicy Cowgirl Chocolates. The use of internet should be highly encouraged since various social networks and the recently developed concept of viral marketing can be really effective for a product promotion. The use of Twitter, Facebook and other popular websites can be used at the advantage of the company because they are cheap and can serve as channels of promotion and distribution. If, like in the case with a biscuit business owner who liked Marilyn’s chocolates, then it would be better for Marilyn to enter into collaborative agreements with such individuals that have similar ventures, mergers and franchises to help these individuals acquire and stock Marilyn’s Cowgirl Chocolates in order to increase her sales and revenues (Lancaster & Withey, 2006). Marilyn being desperate to increase her business expansion should not take such risks that may involve her spending huge sums of money on advertising in other countries (Kourdi, 2009).
Branding is a critical part of the product identity and service. A brand “speaks” about products and services, it is the main medium by which information about the product reaches the consumer. Brand identity elements such as color, logo and tagline can send positive or negative vibes to existing and prospect consumers (Balmer & Greyser, 2006). In this case the slogan “Sissies stay away” may be considered somewhat harsh and rough thus giving Cowgirl Chocolates bad attributes that may affect negatively the overall sales performance. It is recommended for Marilyn to come up with a more stylish and less controversial slogan that will have more positive effects on the brand identity of Cowgirl Chocolates.
Promotion is a key to a successful brand, that is why entrepreneurs and companies should use properly various elements of the promotion mix in order to increase the sales of the product. Promotional activities aim to educate, inform, remind, persuade and encourage repeated purchases of the products and brands (Holm, 2006). A good promotion mix should always target the consumers and sellers. Consumer promotional activities encourage customers to buy more, and trader promotional activities encourage traders to stock the product. Promotional activities are not cheap, therefore companies should choose them carefully and make sure they match the resource capabilities of their companies. Furthermore promotional activities should be implemented within the year to stabilize the volumes of demand and supply in the company’s product lines. (Kotler, 2003). Marilyn’s decision to invest $ 3000 in a single advertisement was not a wise decision. Marilyn should therefore use any available funds to transfer any benefits to the consumers directly or to the traders by offering them discounts and other incentives. What is more, Marilyn should invest in outdoor adverts and sale displays that will help to create massive brand awareness (Kitchen, 2005).
Many businessmen whose companies are at their starting stages often arrange promotional activities that involve eat free offers. This allows to attract people who live in a specific market area, select them randomly and invite to taste the product. Assuming that Marilyn’s Cowgirl Chocolates have won numerous awards it is quite possible that consumers may be impressed by the product. Oral presentations are very good methods of promotion as well because people tend to believe those who they can associate a product with. Furthermore free avenues of promotion turn out to be rather effective because they are not assertive or aggressive to the consumer, thus more trustworthy (Kotler, 2003).
Conclusion
To sum up, a strategy is a comprehensive plan that explains how a company will formulate and implement short, mid and long-term goals. Tactics can be defined as more specific and detailed plans that show what exactly should be done in order to realize strategy and therefore the overall mission and vision of the company. Marilyn needs to carry out the above-mentioned tactics in order to cover all losses and stay in business. Tactics presented above aim to reduce unnecessary expenditure and at the same time elevate revenue streams. This will help the company achieve its objectives and prosper in the future (Frey, 2008).
References
Balmer, J. M. T. & Greyser, A. S. (2006). Corporate Marketing. Integrating Corporate Identity, Corporate Branding, Corporate Communications, Corporate Image And Corporate Reputation. European journal of marketing, vol 40 (7/8), 730-741.
Campbell, D., et al. (eds). (2002). Business Strategy an Introduction. Banbury Rd: Elsevier Butterworth-Heinemann.
Charles, W. et al. (2002). Essentials of Marketing. Natorp Boulevard: South Western Cengage Learning.
Frey, R. S. (2008). Successful strategies for Small Businesses: Using Product Knowledge, 5 edn. Norwood: Artech House Inc.
Holm, O. (2006). Intergraded Marketing Communication: From Tactics to Strategy Corporate Communication Objectives. An international journal, vol11 (1), 22-33.
Jaber, Y. M. (2009). Inventory Management: Non classical views Volume 11 of Industrial Innovation Series. Florida: CRC Press.
Kitchen, P. J. (2005). A reader in Marketing Communication. London: Routledge.
Kotler, P. (2003). Marketing Insights from A to Z: 80 Concepts Every Manager Needs to Know. New Jersey: John Wiley & Sons Inc.
Kourdi, J. (2009). Business Strategy: A Guide to Effective Decision Making, 2 edn. New York: Economist books.
Lancaster, G., & Withey, F. (2006). Marketing Fundamentals: CIM Course Book. London: Butterworth-Heimann.
Porter, M. E. (1990). Competitive advantage. Northampton, MA: Free Press.
Wheelen, T. L. & Hunger J. D. (2002). Strategic Management and Business Policy. New Jersey: Prentice Hall.
Walmart Company Performance On The Market
Executive Summary
Wal-Mart Stores is a multinational company that operates retail stores in different set ups across the world. It operates more than 9667 retail units in 28 countries with an employment of 2.1 million associates. Wal-Mart is a leader in employment opportunities, corporate philanthropy as well as sustainability. Indeed, Fortune Magazine ranked it the most admired retail company in 2010 in the top ten (Wal-Mat Inc, 2011).
Segments and products and services
Wal-Mart Stores, Inc. particularly operates retail stores from different parts of the world. There are three segments under which it operates. These includes Sam’s Club, Wal-Mart International and Wal-Mart U.S. Wal-Mart US segment reported 62.1% of the company’s net sales in 2011 fiscal year. This segment operates retail stores in Puerto Rico United States. It also operates online retail stores-Wal-Mart.com. Wal-Mart international segment operates retail stores in 14 countries. The segment reported 26.1% of the company’s net sales during 2011 fiscal year. The international segment manages restaurants and retail stores. “Sam’s club segment is engaged in membership warehouse clubs which operates in Puerto Rico and United States.” (Wal-Mart Inc, 2011, p. 5). Sam’s club also operates an online retail store, Samsclub.com. 11.8% of the net sales during 2011 fiscal year were generated by this particular segment (Company Reports, 2011)
Industry
The company operates under a highly competitive sales environment. Discount retail industry under which Wal-Mart operates is very dynamic and occupies an enormous size in the economy. Competition is rife, especially in regards to the store size, location, price, merchandise mix, overall image, technology, innovation, layout and environment. Economy of scale is a typical strategy in this industry. To achieve high level of operational effectiveness, the leading retailers vertically amalgamate functions such as manufacturing, purchasing, shipping and advertising. Top competitors draw substantial competitive advantages from these functions. The main competitors include supermarkets, variety, specialty, drug, department, and discount stores. Most of the competitors are international, regional or national chains.
Since the company operates online stores, it also faces stiff competition from catalogue businesses, as well as internet-based retailers. Besides competing for sales, the company also competes for quality employees as well as site locations. Essentially, the players in this industry are influenced by factors such as deflation, fuel and energy prices, labor costs, customer preferences, consumer credit availability and fluctuations of currency exchange among many others. By 2001, Wal-Mart had been enjoying an impressive market share of 50 percent (Company Reports, 2011).
Wal-Mat’s major competitors include Kmar, Target, Beyond, Bath, Safeway and Circuit City and Bed. Many surveys have shown that Wal-Mart is preferred by many consumers compared to its competitors. Many of the audiences who have participated in these surveys claim that Wal-Mart is their preferred company because it offers a variety of products at low prices and at high quality. Wal-Mart’s primary competitor in warehouse segment is Costico, which achieves high level of sales but operates fewer warehouses. In respect to supermarket retailing, Wal-Mart competes with companies such as Safeway, Kroger and Albertson’s. Altogether, these competitors find it hard to outweigh Wal-Mart particularly due to its low prices (Company Reports, 2011).
Competitive advantage
Wal-Mat manages to remain competitive in the industry as a result of its powerful strategies which give it advantage over its competitors. One of those strategies is the distribution system. Wal-Mart maintains a strong electronic linkage of sales and inventories with all the distributors, something that the competitors find difficult to replicate. In addition, Wal-Mart has established a strong partnership relationship with suppliers. Wal-Mart is committed to keeping the relationships growing with time. Ideally, Wal-Mart competitors cannot match the long-term and established relationship that has evolved for many years. To further counter the competitors, Wal-Mart counts on its cost-saving capability to pay its suppliers (Barone & DeCarlo, 2003).
Wal-Mart has heavily invested in technology, hence building a substantial competitive edge. For example, the company uses advanced and effective IT system, thus staying ahead of its competitors. The systems are continuously upgraded to ensure effectiveness of the company operations. Wal-is also proud of its skillful and motivated work force. The company enjoys the best workers in the market, as a result of continuous support, training and motivation; hence enhancing productivity more than its competitors (Barone & DeCarlo, 2003).
Financial Condition of Wal-Mart and its Ability to Achieve the Strategic Objectives as Discussed in the Annual Report
Figure 4: key ratios.
| Financial condition | Wal-Mart | Industry |
| Debt/equity ratio | 0.84 | 0.74 |
| Current ratio | 0.9 | 1.1 |
| Quick ratio | 0.3 | 0.4 |
| Interest coverage | 12.1 | 21.6 |
| Leverage ratio | 2.9 | 2.7 |
| Book value/share | 19.62 | 20.05 |
Current ratio is the ability of the company to meet its short term debts. Wal-Mart registered a ratio of 0.9 which is slightly lower compared to the industry which reported 1.1. “The higher the ratio the more capable is the company in paying its obligations.” (Hillegeist et al., 2004, p. 23). A ratio which is below 1 suggests that the company could be experiencing problems paying short term debts. Particularly, this is not a very good sign and the management needs to put up strategies to minimize the short-term debts while at the same time increasing the short-term assets. Nonetheless, the low current ratio could be as a result of heavy inventory turnover which is a typical sales strategy for Wal-Mart.
Wal-Mart can use debt equity ratio to evaluate the amount of money it borrows safely at a particular period of time. The ratio which stands at 0.84 is higher compared with the industry at 0.74. Notably, this ratio impacts taxes, cash flows and earnings in different ways. The management of Wal-Mart would wish to ensure a good balance in order to realize utmost benefits. The manner in which the company’s’ money is invested particularly impact the debt/equity ratio. While borrowing money for investments, the management needs to consider the fact that such debt will attract interest which is deductable as business expenses.
The management should ensure that it builds a good credit rating (repaying the interest for the borrowed money on a timely basis) so as to attract and retain lenders. On the other hand, equity is the permanent ownership of the stake of the company. Considering that the debt/equity ratio for Wal-Mart is above the industry average, the management would want to assess whether they have invested too much in debt finance or not. If the company has no difficulties paying the interest rates for the borrowed money, then there is no cause of concern. The management should, however, invest those funds well to generate income for the company.
The leverage ratio for Wal-Mart is almost at par with the industry average. This ratio is instrumental in measuring the financial health of the company as it shows how much debt has been used on the balance sheet. Normally, more debts expose the company’s stock to more risk. In other words, equity investors will shy away from investing in the company because the debt holders usually enjoy the first claim to the company assets in the event that the company is liquidated. It is, therefore, very important for the management to maintain a proper mix. All in all, Wal-Mart’s ratio appears healthy.
Figure 5: Growth rates.
| Growth rates% | Company | Industry |
| Net sales | 3.4 | 7.3 |
| Operating expenses | 1.7 | – |
| Net Income (Qtr vs. year ago qtr) | 5.7 | 6.1 |
| Sales (5-Year Annual Avg.) | 6.21 | 6.59 |
| Net Income (5-Year Annual Avg.) | 6.12 | 6.65 |
| Dividends (5-Year Annual Avg.) | 15.06 | 13.6 |
The percentage increase in sales during the financial year 2011 was 3.4% from 1.0% in 2010 financial year. The sales growth during 2011 fiscal year is primarily attributable to business expansion, as more retail stores were opened. In addition, volatility of currency exchange rate had substantial influence on sales growth. Apparently, the sales growth rate can be compared with the operating expense growth rate. The objective of the company is to maintain a higher sales growth rate, and a lower operating expenses growth rate. The significant increase in sales shows that the company has managed to achieve this goal.
Figure 6: Return on investment.
| 2011 | 2010 | |
| ROI(return on investment) | 19.2% | 19.3% |
Return on investment (ROI) is a very good metric measure of how the company is effectively employing the assets of the investors to generate income. Strong ROI instills confidence in the investors that the company is actually employing the assets effectively. ROI remained relatively stable for 2010 and 2011 fiscal year, at 19.3% and 19.2% respectively.
Trend Analysis
Figure 7: Profitability trends.
| (%) | 2011 | 2010 | 2009 | 2008 |
| Gross profit margin | 24.7 | 24.7 | 23.7 | 23.5 |
| Operating profit margin | 6.10 | 5.91 | 5.68 | 5.87 |
| Net profit margin | 3.91 | 3.54 | 3.34 | 3.4 |
| Return on equity | 23.91 | 20.26 | 20.53 | 19.70 |
| Return on assets | 9.07 | 8.40 | 8.20 | 7.79 |
Gross profit margin is a very good measure of profitability as it shows the revenue that is available to cover operating expenses among other expenses. There was a slight improvement from 2009 to 2010, after which it stabilized. This ratio gives an insight into the financial health of the company, though not a very reliable estimate of pricing strategy. Wal-Mart’s margin is somewhat adequate to cater for operating and other expenses (Company Reports, 2011). Although the fluctuation is not drastic, the management needs to device better strategies to ensure the ratio’s stability unless the industry is experiencing radical changes which could impact pricing policies or cost of goods.
Wal-Mart’s operating margin has been improving since 2009. The management can easily control the operating expenses compared to cost of sales. This makes it very critical for the investors to investigate operating profit margin. Indeed, positive or negative adjustment to this ratio is as a result of the management, and hence, Wal-Mart should try to paint a good picture to the users of financial reports through this particular ratio. In that respect, the management should maintain a positive improvement on its operating profit margin.
Net profit margin is another indicator of the company’s profitability, which is calculated by dividing net income by revenue. Similarly, this ratio has been improving gradually since 2009. This ratio is the most critical indicator of profitability. It is also extensively analyzed by investors, and its positive improvement is a positive indication on the part of the company. The management should not relent on its expense control measures in order to sustain improvement on this ratio.
Return on equity is “the amount of income returned as percentage of shareholders equity” (Finger, 1994, p. 6). This ratio shows the extent to which profits are generated from the capital invested by the shareholders. Return on equity is a strong indicator of the company’s earnings. It reveals to the investors how effective the management is employing their money for income generation. Wal-Mart’s ROI has been impressive, especially because it has maintained a steady improvement since 2008. The management should focus on returns improvement, generally, in order to improve return on investment. This is possible through effective investments.
Return on assets is an indicator of how the company has been effective in investing the assets to generate returns. Wal-Mart has remarkably maintained a stable improvement since 2008 financial year. The management should use this ratio while deciding on whether to invest in new projects or not. For example, the management should not invest in a project whose rate of return is less than 9.07% in 2011, which is the year’s return on investment. More effective investment strategies can be used to improve this ratio (Company Reports, 2011).
Wal-Mat Cash Position
Figure 8: Wal-Mat cash flow trend.
| 2011 | 2010 | 2009 | |
| Free Cash Flows | $10,944 | $14,065 | $11,648 |
According to the company report (2011, p. 56), free cash flow is the “net cash provided by operating activities in a period minus payments for property and equipment made in that period.” The company generated cash flows of $10.9 billion, $14.1 billion and $11.6 billion for 2011, 2010 and 2009 fiscal year respectively. Wal-Mat management uses free cash flow to measure the company’s financial performance. In particular, free cash flows are used to measure the extent to which Wal-Mart can generate cash from various business operations. The slight decline in free cash flow during 2011 financial year is attributable to inventory investment. Lower inventory levels and enhanced operating results were the reasons behind the cash flow increase in 2009 compared to the year 2010. All in all, the company has managed to maintain a positive cash flow, which is healthy and instrumental in attainment long-term growth (Finger, 1994).
Significant sources of cash flows have been generated from operating activities. Wal-Mart can supplement these cash flows with short-term borrowings and long-term debts to finance capital projects. Nonetheless, the use of such funds to finance capital project is somewhat limited as a substantial amount has to be set aside to finance divided on share repurchases or the company’s common stock (Finger, 1994).
Risk Level and Risk Tolerance
Wal-Mart being one of the largest retailers in the world is heavily affected by fluctuations of international exchange rates. Because of its strategy offering their customers quality merchandise at low prices, it is important to control its costs. This can be achieved through buying and selling goods in the international market.
Due to its presence in a number of foreign countries, Wall-Mart is vulnerable to foreign currency translation risk since it must translate the foreign currency into the US currency for reporting purposes. Foreign translation risk often affects the balance sheet items. For instance, “reporting the assets and liabilities of a foreign subsidiary are translated at current exchange rates, whereby related translation adjustments are recorded as a component of other accumulated comprehensive income” (Bartov, Bodnar & Kaul, 1996, p. 56).
In addition to income received from sales, Wall-Mart also obtains income from international suppliers, which include allowances provided by suppliers (to compensate the company for distributing their products through their distribution channels), discounts allowed for purchasing certain volumes of merchandise, reimbursements and promotional allowances among others. To manage these risks, Wall-Mart uses derivative financial instruments for hedging purposes. In addition, market risk stands for the likelihood that the instrument’s value will not remain stable (Bodnar, Hayt, Marston & Smithson, 1995).
In hedging, “change in the value of the derivative is mostly offset by change in value of the underlying hedged item.” (Phillips, 1995, p. 12). Credit risk is the possibility that the contract terms will not be observed by the other party. Credit risk is checked through controls such as checking set limits, credit ratings and collateral. In reference to various derivative agreements, the company held cash collateral of $344 million and $323 million in 2011 and 2010 respectively.
The company has a policy of recording cash collateral exclusive of any derivative asset. Any collateral recording is reflected in the company’s accrued liabilities as amounts due to the counterparties. More so, as a part of master netting arrangement with its counter parties, the company is required to record collateral if the derivative liability position exceeds $150 Million. In the event that the company provides cash collateral, it would be recorded as a receivable exclusive of any derivative liability.
Undertaking business transactions in local currencies and buying forward currency contracts is also used to reduce foreign transactions risk. A forward currency exchange contract mitigates exposure to translation risk on cross boarder trading (Choi & Prasad, 1995). These contracts are generally for six months or less. The company also uses debt swap to hedge its currency. In 2010 financial year, Wall-Mart entered into swaps to hedge against currency exchange rate fluctuation associated with expected repayment of non-US denominated debt.
The aggregate fair value of these swaps as on January 31, 2010 and 2011 reflected a gain of $471 and $475 million respectively. In addition to swaps, Wal-Mart also held a designated debt of about $3 billion on 31st January, 2011 as a hedge of the net investments in the UK. The company has been applying the necessary measures to reduce the impacts of foreign currency risks, though the risk is not fully eliminated (Lattman & Richardson, 2006).
Risk of Internal Control Environment
Basically, internal controls refers to “a process designed to provide reasonable assurance regarding to the reliability of financial reporting and the preparation of the financial statements for external reporting purposes in accordance with Generally Accepted Accounting Principles (GAAPs) ” (Company Reports, 2011, p. 56).
The management is mandated to evaluate the effectiveness of the company’s internal controls at any given time. In its assessment, the management made use of criteria set out by the Committee of Sponsoring Organizations (COSO). “The audit included understanding of the internal controls over financial reporting, assessing the risk that the material weaknesses exists, testing and evaluating the design and operating effectiveness of the internal controls based on the assessed risk” (Company Reports, 2011, p. 66).
In addition, practical assurance which transactions are recorded appropriately to facilitate preparation of financial statements is provided in accordance with GAAPs. The receipts and expenditures of the company are also made in agreement with the approval of the management. The auditors concluded that the company has all material respects, maintained effective internal controls over financial reporting based on the COSO criteria (Company Reports, 2011)
Wal-Mart’s Vulnerability for Unethical Behavior
Wal-Mart faces numerous controversies for unethical business practices. Some of these unethical business practices include labor union opposition, where employees are not allowed to join labor unions. They are instead compelled to report their grievances to the management. This policy does little in solving employees’ problems. It actually offers the company a leverage to stop unwanted complaints (Anell & Wilson, 2000).
What is more, employees are paid lower wages in comparison with their unionized counterparts. The organization is reported to have prohibited its employees to talk to labor officials, which is totally unethical. In addition, the employees have filed a complaint with National labor relations board, alleging that Wal-Mart violated federal labor law by bribing them to report co-workers who subscribed to any union (Memery, Megicks, & Williams, 2005)
Wal-Mart is continually accused of discriminating against women. Women have been left out of promotion and training opportunities. The employees have filed a sex discrimination lawsuit against the company. The suit was filed because the company provided unequal opportunities for women. Low wages is another issue facing Wall-Mart (Thompson, 1996). As a result, employees are forced to seek public intervention.
Basically, one of the reasons why Wall-Mart pays low wages is to cut on operating costs. Wal-Mart is indeed battling litigations in court for illegally transporting harmful chemicals. As such, the company is undergoing criminal investigations for violating water and hazardous material transportation, which can be viewed as unethical.
Effectiveness of the Company Inventory and Service Costing Methods
Wal-Mart values its inventory “at the lower of cost or market as determined primarily by the retail method of accounting, and using the last-in, first-out (LIFO) for virtually all its segment’s merchandise inventory” (Company Reports, 2011, p. 59). The management is required to make its own judgment while using the retail method. This can sometimes lead to lack of objectivity considerably affecting the value of gross profit and closing stock.
The company uses factors such as anticipated demand and customer preference to determine markdowns. On the other hand, it is probable that changes in customer preference and weather patterns might cause significant adjustments in the manner in which markdowns are measured. The company can, however, change the level at which retail method is used, whenever significant changes in the environment are deemed probable.
Prediction of the Company’s Financial Position in Five Years
The financial performance during 2011 fiscal year is solid and promising. Notably, the net sales have increased by 3.4 percent, while the operating income has increased by 6.4 percent, which is very impressive. Considering that the management is very committed to counteract the key financial obstacles, the growth rate is expected to continue in the next five years. The company’s diluted earnings per share increased by 12 percent per share, again adding more credence to our optimistic anticipation.
As a result, more investors might get attracted by the company’s shares, hence, improving the company’s share price for the next five years. Past analysis on the return on investment shows a stable value of over 19 percent, something that is not expected to turn around. Particularly, a stable return on investment will continue building confidence in the existing shareholders as well as future investors. Essentially, the company will establish a strong capital base, and capitalize on it by expanding the scale of operations.
In addition to this, the company is closing 2011 financial year with a cash flow of $11 billion, while the shareholders have been generously compensated by $19.2 billion through share repurchase and dividends. The result shows a strong foundation and commitment to compensate the shareholders, a momentum that is not likely to fade in the next five years. Above all, Wal-Mart’s competent and committed leadership team seems focused on financial priorities of growth, returns and leverage. We, therefore, expect the leadership to substantially lift the company’s financial performance for the next five year (Company Reports, 2011).
References
Anell, B.I. & Wilson, T.L. (2000). The flexible firm and the flexible co-worker. Journal of Workplace Learning Employee Counseling Today, 12, 165–170.
Barone, M.J. & DeCarlo T.E. (2003). Emerging Forms of Competitive Advantage: Implications for Agricultural Producers. Midwest Agribusiness Trade Research and Information Center Research.
Bartov, E., Bodnar G. M., & Kaul A. (1996). Exchange Rate Variability and the Riskiness of U.S. Multinational Firms: Evidence from the breakdown of the Bretton Woods System. Journal of Financial Economics, 42(1), 105-132.
Bodnar, G. M., Hayt G. S., Marston R. C., & Smithson C. W. (1995). Wharton Survey of Derivatives Usage by U.S. Non-Financial Firms. Financial Management, 24(2), 1-6.
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The Organizational Purposes Of Businesses
Marks & Spencer Organizational Responsibilities through Its CSR Policy
Marks & Spencer has been an ardent supporter of the community events, and it has generously donated financial and material resources to charitable organizations. To remove poverty in the poor countries, it has provided free food packets. Besides, the organization encourages environmental-friendly practices in its business operations by reducing, reusing, and recycling the available resources. There are separate garbage containers for collecting food residue, plastic products, paper products, and tin cans. By segregating the garbage into biodegradable and non-biodegradable waste products, the organization helps in making organic compost from biodegradable resources while recycling the non-biodegradable resources. Marks & Spencer also helps in fundraising for the underprivileged children. By providing cash to the poor, the underprivileged children, the disabled people, and the senior citizens, Marks & Spencer’s Corporation has been aptly performing its role as a responsible corporate citizen.
Marks & Spencer as a corporate citizen is actively involved in building “green” parks which helps cushion the impact of damage to the environment, as well as send their employees to perform community service. All these improve the company’s image, ultimately improving their sales performance. Despite the ongoing recession, the company has been able to stay out of financial trouble because of being prudent. There is no excessive spending and all investment related to expansion on their retail units is ceased or at least scaled back.
Marks & Spencer has both internal and external stakeholders. The internal stakeholders are the employees, while the external stakeholders are the government, customers, shareholders, suppliers, and regulatory bodies such as the Stock Exchange. The company’s relationship with these stakeholders is governed by specific rules, which differ from one stakeholder to another.
Marks & Spencer owes its present and future success to skilled and motivated employees, who are able to accomplish the company’s objectives. In view of this, the employees play an important role in enhancing stakeholder value. The reference to employees has also been used in the context of their role in enhancing stakeholder value based on their communication with external stakeholders.
Marks & Spencer’s customers are possibly the most important stakeholders of the company. In this regard, the company has invested in excellent customer service, ensuring that customers’ specific needs are met in a timely manner. Further, to enhance the customer’s experience, the company prioritizes a customer’s safety, making it a core commitment for the company.
Marks & Spencer maintains a collaborative relationship with the government, which is also an important stakeholder. The company complies with all the government laws, while observing high ethical standards. However, the company maintains a neutral political stand, which governs its dealings with the government. With regard to political donations, for instance, the company does not donate to any government officials or political parties.
As for the shareholders, Marks & Spencer has committed itself to dealing with them according to the stock exchange’s listing rules. To facilitate communication with shareholders, Marks & Spencer has provided its shareholders with various means of accessing the company’s information, such as emails or printed materials.
The other category of stakeholders involves the suppliers who are crucial for the company’s success and reputation. The company has a policy of engaging and managing suppliers, whereby it is a requirement for employees to comply with the company’s procurement policies and procedures. One of the key aspects of these procedures is that the company should get the best value for money, in accordance with the needs of the business (Weiss 2008).
These stakeholders are appropriate for the company, since they contribute to the company’s success in different ways. A close analysis of the Marks & Spencer’s stakeholders clearly shows that failure to account for the needs of these stakeholders will have negative implications for the company. The employees of the company play an important role in ensuring that shareholder value is created, protected, and enhanced.
Customers are also crucial to the success of the company since they determine the company’s sales and profitability. The government and regulatory bodies are also important for Marks & Spencer’s success since the company’s failure to adhere to the set rules and regulations will affect the business negatively. The investors, as represented by shareholders in the paper, are also essential to the company’s success since they own the company. If they withdrew their financial investments from the company, then its financial status would be negatively affected. With regard to suppliers, they greatly influence a company’s efficiency and reputation; hence their contribution to the company’s success cannot be underestimated (Weiss 2008).
Oldham Police and Different Stakeholders
To achieve the intended goals of the Oldham Police, both the external and the internal stakeholders must cooperate and work jointly to ensure that they make meaningful progress. While internal stakeholders refer to the police officers, inmates, auxiliary staff and the management, the external stakeholders refer to the government, the society, and the NGOs. Since decisions by the stakeholders determine how the operations of the station will be, it is advisable for all the stakeholders to play their roles effectively to avoid inefficiency.
Each stakeholder must play his role effectively to make the living conditions in prisons bearable, which, in turn, can help prisoners change their attitude (Siegel 2009).
The role of the government is to help maintain law and order; the police apprehend offenders and take them to police station before taken to court. The government arrests and keeps dangerous people from the society with the intention to protect the citizens and rid the society of bad characters. Although the government has managed to improve the living conditions for police officers and provide the necessary equipment for work, cases of violence, sexual assaults, and failures continue to exist in Oldham Police.
The government can be accredited for its efforts to improve living conditions of the people and make life favorable for all. The police has also been responsible for the improvements marked in the Oldham Police. There have, however, been some awful incidences in the Oldham Police that called for more improvements. Some of the main problems affecting the Oldham Police include brutal punishments, drug abuse, sexual assaults, food crisis, and overcrowding. Although the levels of violence have been tremendously decreasing each year, it would be improper to infer that it is free from brutality, since there are still reported cases.
It is the responsibility of the Oldham Police to ensure that all the suspects are treated equitably, and that their rights are preserved irrespective of their origin, race, or financial status. They should ensure that the newcomers are protected from being assaulted by the older folk (Smith & Cole 2007).
The government has had a positive influence on the Oldham Police since budget was increased. Due to the congestion, it is very easy for the suspects to contract contagious diseases since they are in constant contact with each other. This problem calls for the intervention of both the government and Non-Governmental Organizations as external stakeholders to assist the management and improve the conditions of the Oldham Police. Despite this condition, the facility is more improved than before and much of this has been facilitated by the NGOs.
Conclusively, the internal and external key stakeholders of the Oldham Police should be engaged in every preemptive effort. At an operational level, the prevention of crime presents a considerable challenge whereby the level of risk rises in relation to the criminal approach of the target.
Oxfam and Its Stakeholders
A stakeholder is any person or organization that has a stake or interest in the proposed policy. Oxfam has many stakeholders such as employees, donors, government, and society. Employees are fundamental resources for Oxfam and their talents, skills and expertise should be identified and developed. Employee development should, therefore, be a core focus for all stakeholders. Teamwork and mentorship activities should also be encouraged.
Oxfam has enhanced its communication with donors to adapt its marketing activities to meet their changing needs. Keeping close contact and communication with customers has kept Oxfam on the forefront (informed) of the products and service needed by customers. This has enabled it to give the right products and service to its customers, thus enhancing its relations with customers (Freeman 2003).
Since the market is dynamic, Oxfam has adapted its marketing activities to meet changing customer needs through development of schemes that well illustrate the tangible benefits of the level of donations made. With such schemes in place, customers are well informed of how their donations or income from sale of goods and services are spent. When customers buy retail items to be donated to people living in poverty they are in return given a card as a token of the gift, which they can send to a friend. This has made Oxfam adapt to the changing customer needs in the dynamic market.
Customers donating to charities have different typical behaviors. One group of customers only makes donations depending on the economic status. At times of economic crisis, such group of customers may not have a lot of disposable income which affects their behaviors by ceasing to donate. Another group bases its behavior on loyalty and customer relation. This means that the way they are handled, how their donations are used and accounted for making them either come back or fail to come back. Charities need to be transparent and accountable to reach such customers and create long-term relations with them (Pollert 2005, p 218).
Oxfam has developed several initiatives to promote its marketing activities to increase donations. It has promoted its marketing by enhancing public awareness of its work. It has maintained an active profile and provided varied channels to markets to ensure that its target customers have varied opportunities; means of making donations or accessing and buying its goods and services. One of the ways in which Oxfam has diversified its marketing channels to reach its target customers is by introduction of an online sales service. This has ensured prevention of customer overlap and provision of information where the customers can browse and make purchases or donations online. The customers can also access information on goods and services online and make purchases or donations from Oxfam stores.
To increase donations, Oxfam has formed links with socially aware organizations, such as Marks and Spencer (M&S), in order to provide vouchers to be spent in M&S stores in exchange for second hand M&S clothes donated to Oxfam shops. It has also formed links with music groups and festivals like Arctic Monkeys and encouraged them to use its outlets to distribute music and, in turn, widen its range of target donors (Pollert 2005, p 222).
By developing long-term relationships with donors, Oxfam stands to benefit in the following ways. First, Oxfam is likely to enhance its reputation to the public and other donors. Developing long-terms relations with them means that Oxfam is transparent and accountable for all the donations given by donors, and this is what keeps the relation with these contributors. The donors are likely to provide more donations to keep the charity going and enhance its service to the needy. Others are also likely to be attracted, which will increase Oxfam’s income, thus enabling it to reach a wide group of the needy. Public trust and confidence through its good reputation will enable it to carry out its mandate with minimum disturbance, resistance, opposition, and protests from the public. Its operations/service delivery to the public is likely to be very smooth (Drucker, 2004). Developing long-term relations with donors also enhances stability, this is through constant funding, donations and purchases of goods and services. At times of economic crisis and low disposable income, Oxfam is likely to experience less shortage as compared to charity organizations with no long-term relations with donors.
In developing and making links with other organizations in order to attract more donors and communicating its massages, Oxfam is likely to encounter the following advantages and disadvantages (Alatrista & Arrowsmith 2004, p 538).
One of the advantages of linking with other organizations is the increase in market share. Organizations like socially aware organizations or sport festivals and groups reach a very wide level of individuals among them being donors. Through them, Oxfam will also reach this kind of people and widen its target market share, at the same time strengthen its customer base. Such organizations will also help spread the message on the charity work of Oxfam, and thus increase public awareness. When more target customers become aware of what Oxfam charity does, they are likely to donate to the charity and enhance its work. Therefore, Oxfam is also likely to benefit from gaining more donations (Freeman 2003).
Linking with other organizations is one way of expanding marketing channels and enhancing market activities to reach a wide scope of customers. This is possible with organizations that have good reputations. However, the disadvantage is that organizations linking with Oxfam turns out to be of bad reputation, Oxfam is likely to lose a lot of donors and customers. The donors and customers are likely to distance themselves from associating with Oxfam for its link with organizations with bad reputation. Associating with such an organization will portray a negative image to the public with the notion that Oxfam also has the same reputation. This will greatly diminish its market share and reduce donations (Pollert 2005, p 225).
Another disadvantage is that organizations linking with Oxfam may decide to impose conditions and rules that may affect how Oxfam discharges its charitable work. This deprives it of its independence as an organization, and this is likely to affect its service delivery to the public. Disagreements on certain issues also derail decision making process and mutual agreement, which also affects service delivery. In case the organization breaches the agreements made, Oxfam is likely to suffer a lot and take time to recover, especially when such organization fails to engage in marketing of Oxfam’s products as agreed (Freeman 2003).
Conclusions
Stakeholder analysis is an important process in any given organization, since it helps policy makers to identify groups or individuals that have positive or negative implications for operations. This helps them reduce any impediments to the successful implementation of company’s policies. With regard to Marks & Spencer, Oxfam and Oldham Police have various stakeholders, all of them are important for the success of their operations. However, they need to evaluate how these stakeholders affect their operations, adopting approaches that are relevant to each stakeholder. At the same time, this will help them identify potential stakeholders based on the overall objectives of the business, who will add value to the business. In the end of the analysis, companies should always strive to ensure that the relationships between them and their stakeholders are mutually beneficial.
Reference List
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