What causes the success of companies like Walmart?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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The major factor that allows companies like WalMart to succeed is their ability to provide acceptable goods and services at low costs.  This is a fairly obvious answer, so we must look deeper to ask why these companies are able to offer such low prices.  For this, there are at least three main reasons.

First, there is the use of globalization.  Companies like WalMart buy the bulk of the products they sell from overseas companies.  China is, of course, the most prominent source of products today, but there are other countries that are major sources as well.  These countries are less developed and have large workforces who will do low-skill work for low wages.

Second, there is extreme efficiency and rationalization.  These companies are very adept at using things like computerization to manage their inventory and their supply chain.  They have made a science of moving the right amounts of various goods to the right places at the lowest cost through their program of Store-Specific distribution.

Finally, there is the fact that their workers are often not very well-paid.  Often, these workers do not earn benefits such as health insurance.  This is possible because they are not very skilled, not unionized, and not protected by any laws requiring better treatment.

All of these factors are very important in allowing companies like WalMart to offer very low prices and, thereby, to succeed.