Wal-Mart is regarded as the fast-growing retailer that originated from Bentonville, Arkansas. The Wal-Mart branches in Mexico have also been known for its notorious success. Wal-Mart has only entered the Mexican Market during the year 1991. Nevertheless, it now boasts 694 Mexican stores. The company has also accumulated 128 billion pesos worth of sales during the year 2003, which is close to $12 billion US dollars. The 2003 sales of Wal-Mart in Mexico has surpassed the 102 billion earnings of its three closest competitors all put together.
This retailer has been recognized as a giant company in Mexico as well as in other countries with news headlines referring to it as the “Goliath” or “Leviathan” (Tilly, 2005). In relation to these, the North America Free Trade Agreement (NAFTA) is said to have contributed towards the existence of greater economic partnership among Mexico, the United States, and Canada. Statistics show that since 1993, the year before the trade agreement was implemented, the commerce of these three countries already increased by 70 percent.
The estimated increase in commerce is about US$300 billion to US$515 billion. The two-way trade between Mexico and the United States has increase by 71 percent and in the same period, the trade of Mexico and Canada raised to 80 percent (Carrera, 2006). Issue The effects of the North America Free Trade Agreement have its benefits especially I increasing and solidifying the economic relationship among the countries that are included in it. Nevertheless, there is also an issue raise regarding the disadvantages of this trade agreement.
The positive effect of NAFTA is the creation of larger, long-term opportunities like multinational business alliances. It is also responsible in increasing the sales and jobs within the countries that are members of NAFTA. On the other hand, those who criticize NAFTA have pointed out that this trade agreement has been directly responsible for the emergence of problems such as: environmental damage, the widening gap between the rich and the poor, and the multiplication of trade disputes.
In this case, the effects of NAFTA in the establishment of Wal-Mart I Mexico are also put into question as to how NAFTA was able to contribute to this giant’s retailer success. Analysis The North America Free Trade Agreement was able to pave the way towards the success of Wal-Mart in Mexico. The case of Wal-Mart in Mexico exemplifies the positive effects of NAFTA to its members. This trade agreement helped Wal-Mart to increase its productivity and total quality management. The company has largely benefited in the synergies created by free trade that is included in the main features of NAFTA (Carrera, 2006).
The Wal-Mart of Mexico was able to relate and replicate with the companies in the United States that has a large automated distribution network. NAFTA was able to eliminate most of the trade barriers, which allows Wal-Mart Mexico to establish direct links to the United States distribution centers. In relation to this, it also increases the efficiency of the company as this heightens Wal-Mart Mexico’s power as a purchaser because it consolidates orders for all its goods from outside the United States.
This buying power that Wal-Mart Mexico has is their main strength as this help in driving down the prices of their goods (Tilly, 2005). Conclusion The provisions that is included in the North America Free Trade Agreement especially its elimination of most trade barriers tremendously help in the success of Wal-Mart in Mexico. Due to this free trade agreement, multinational business alliances among Mexico, the United States, and Canada become possible, which also aided in the establishment of Wal-Mart in Mexico.
In connection to this, NAFTA also helped in increasing the productivity and total quality management of the company. Lastly, it also gives way for Wal-Mart to maximize it purchasing power that becomes an important strategy in lowering their prices to attract more consumers.
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