Monday, November 22, 2004

Playing the "Wal-Mart-China" Global Game

In response to the many postings on blogs -- from Small Business Trends to The Entrepreneurial Mind -- about eBay's international expansion and how they are enabling small businesses to go global, I'd like to bring up another monster of a company and country who are not necessarily leading the way for small businesses to go global but influencing the international marketplace: Wal-Mart and China.

Wal-Mart has achieved economies of scale that are unprecendented when it comes to its purchases from the biggest country-customer in the world: China. Here are some facts I tracked over the last couple of days on just how BIG the Wal-Mart and China game is:

• Wal-Mart is termed China's eight-largest trading partner by the government-controlled mainland media and would place ahead of Russia and the United Kingdom on the top-10 list.

• Wal-Mart would be the fifth-largest importer of Chinese manufactured items if it were considered as a nation.

• The U.S. is expected to run up a total trade deficit of more than $600 billion in 2004, with the deficit in its bilateral trade with China contributing $150 billion.

• Wal-Mart imported $15 billion in goods from China in the fiscal year that ended January 31, 2004. About $7.5 billion were directly imported by Wal-Mart, the other $7.5 billion came indirectly through suppliers.

• In the same period noted above, Wal-Mart's total net sales reached $256 billion, with roughly $209 billion coming from U.S. operations.

Here's what I researched on the dollar-yuan situation that you might find interesting:

It all begins when American consumers plunk down their credit cards at Wal-Mart stores anxious to buy appliances, toys and clothes at rock-bottom prices. But because the United States imports roughly $6.50 in goods from China for every $1 that America exports to China, the Beijing central bank ends up with a huge reserve of dollars, amounting to $514.5 billion, for example, at the end of September.

Not wanting a boatload of dollars in its vaults, the People's Bank of China, the central bank, uses a huge portion of its reserves to buy Treasurys. THIS IS A KEY TO KEEPING THE YUAN FROM APPRECIATING AND THE DOLLAR STABLE AT 8.28 YUAN. It also keeps U.S. consumer prices down along with interest rates, which means for now that Americans can continue to plunk down those credit cards at Wal-Mart during the upcoming holiday season.

What's a small business to do? Navigate your way around this monster "Wal-Mart-China" relationship and either export goods that are the world's best at their intended purpose to China or go elsewhere.

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