To- The Leadership of Walmart
Subject- Executive Memo on Geopolitical Issues Impacting Cross-Border Business
The aim of this memorandum is to call your attention towards the need to mitigate operational risks regarding geopolitical issues impacting cross –border business of Walmart. It is known to everyone that the years after the global financial crisis have been difficult for the government as well as for the business industry. The US and Europe specifically have witnessed political change consistently. The political changes have either increased or decreased the international relations and at the same time influenced the business dealings across the border (Gemechu, Sonnemann & Young, 2017). However, that age has been evaporated and given rise to a special kind of difficulty named as the ‘geopolitical risk’.
Today, the most crucial geo-political risk is that there is huge uncertainty among the industrial territories and the way they interact with each other. The regulations, opinions and initiatives are not being established from the same base (Deresky, 2017). An example can be taken of the regional pressure in the Middle East. This type of geopolitical risk in continuously evolving and influencing the companies in some other ways. The latest example of geopolitical threat is the sanctioning of US on Russia. Although it is common for the global companies, the difficulty arises when the possibility of Russia’s retaliation increases that places the regional risk as a primary global concern (Nelson, 2015). The cross-border trade, currency inconvertibility and the tax reforms are the kind of geo-political risks which are disturbing the multinationals to proceed and plan strategically. The regulatory risk has been considered to be the most significant risk in the trading field. Many companies face the politically –driven losses in exchange rates. According to a latest survey the US has been mentioned as the most unpredictable country where the geo-political risks are rising which is harassing the companies in creating supply chain and strategic planning.
In 2017, President Trump withdrew the United States from the Trans-Pacific Partnership (TPP) trade agreement as well as from the Paris Agreement on climate change (Hiro, 2018). In October 2017 President Trump indicated his displeasure by rejecting to certify that Iran is in acquiescence with it (Hiro, 2018). This has threatened the business relationships between US and Iraq and the traders are getting highly disturbed in trading with each other.
Walmart is facing operational challenges in its international business dealings. Walmart has a remarkable number of stores around the globe than it has in the US (Walmart.com, 2018). Recently the company is facing decline in revenue in its cross-border trading due to the adverse movements of currency and the rise of US dollar (Walmart.com, 2018). The US dollar appreciation has considerably reduced the repatriated bulk of money from the cross- border trades. The reform of monetary structure is a result of geo political regulations and changes which is highly impacting the business operations of the multinational enterprises. The withdrawal of the US from the world stage is also impacting the business relations of the company with its associate countries (Walmart.com, 2018). The geo-political fluctuations are giving rise to fund transaction problems from the stores beyond the US borders. Tax problems are also disturbing the business operations of the company (Walmart.com, 2018).
In this respect the company can operate strategically to avoid such problems. International enterprises like Walmart have various options to manage the currency risks. The company can apply tools like currency futures, or currency –hedged funds (Moschella, 2015). An alternative plan for hedging against currency risks can be the exchange –traded funds (EFTs) which are currency focused (Moschella, 2015). The Walmart company can also use the geo-political risk protection policies to avoid operational risks like financial inconsistency (Moschella, 2015). The best way to avoid currency inconvertibility is to have accounts in the regional banks of that country which the company is dealing with (Moschella, 2015).
Therefore, from the above discussion it can be seen why geo-political risk management strategies are needed in an organization, how they are affecting the cross-border trades and what are the possible ways of mitigating the operational risks. Keeping in view all the aspects of the topic the next action plan of the Walmart company must be establishing a geo-political risk insurance policy. Second is to have multiple suppliers and vendors in the selected country or region. The next is to have funds in the local banks of the selected region to avoid currency inconvertibility issue. The multinational companies like Walmart can strategically avoid the geopolitical threats by acting likewise.
Deresky, H. (2017). International management: Managing across borders and cultures. Pearson Education India
Gemechu, E. D., Sonnemann, G., & Young, S. B. (2017). Geopolitical-related supply risk assessment as a complement to environmental impact assessment: the case of electric vehicles. The International Journal of Life Cycle Assessment, 22(1), 31-39.
Hiro, D. (2018). Donald Trump Makes the United States More Dispensable Than Ever. The Nation. [online] Available at: https://www.thenation.com/article/donald-trump-makes-the-united-states-more-dispensable-than-ever/ [Accessed 13 Sep. 2018].
Moschella, M. (2015). The institutional roots of incremental ideational change: The IMF and capital controls after the global financial crisis. The British Journal of Politics and International Relations, 17(3), 442-460.
Nelson, R. M. (2015). US Sanctions on Russia: Economic Implications. Washington, DC: Congressional Research Service.
Walmart.com. (2018). Retrieved from https://www.walmart.com/