The Effect Wal-Mart Has on Small Businesses

The edging out of small businesses is the core net effect of Wal-Mart on such businesses. This can be attributed to the fact that Wal-Mart takes advantage of the economies of scale to benefit itself. In comparison to the hyper store, the local businesses stand no chance in competing with it. This paper will serve to argue the key pointers that prove the fact that Wal-Mart does not serve the best interest of the small businesses in question. This will be achieved by looking into the key supporting evidence that suggests that the entry of Wal-Mart into a given locality means the death of the small businesses in the area. The evidence provided in via the arguments will also delve into some of the alluded benefits of introducing the hyper market into a community. While these suggestions look good on paper, they are not necessarily beneficial to local businesses in the long term.

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One of the ways in which Walmart has been proven to be negative influence on local businesses in the long term is a reduction in employment. The reduction in employment has been found to mainly target smaller businesses, making it difficult for such employees to get other jobs. Before penetrating any market, Wal-Mart has often been found to suggest that they will create jobs for all the businesses that are edged out (Ficano 264). However, recent research has served to refute these claims. While the company may introduce and create new jobs for those who loose theirs, many more are found to lose out on their businesses in comparison to those who gain. A study has pointed out that: for every two jobs created by Wal-Mart, there are three jobs that are lost in the retail business (Ficano 271). This shows a direct conflict in the ways in which Wal-Mart purports to alleviate the business situation in the local community.

The discrepancy in what Wal-Mart promises and what happens on the ground is a recurrent issue. Such is the case as is with the promise that the entry of Wal-Mart would increase business for business within its niche. However, judging from the resultant effect of the entry of Wal-Mart in Chicago, it is clear to see that the company resulted in the eradication of businesses held by local owners (Hicks 76). For instance, discount stores as well as supermarkets have reported on a consistent basis a reduction of sales by close to forty percent. The reduction in sales can be attributed to the competitive prices being offered by Wal-Mart. The smaller businesses cannot compete with the business giant, and are therefore edged out (Hicks 79). This trend has been found to have an adverse effect on local business as well as the greater economy. By eliminating the local businesses, the company will have eradicated many families source of income.

With regards to the economy, it has been found that the small businesses are the ones that hurt the most when the economy hurts. Therefore, it is easy to see why the entry of a giant like Wal-Mart into a community means perpetual doom for the small business (Paruchuri et al. 210). One of the main reasons behind this argument is that the company creates an economical upsurge that negates the economic benefits of local businesses. This is to say that the company negates the benefits that a local community would have enjoyed if the wages of those employed were spent in the locality. What happens when Wal-Mart penetrates a new market is that the local businesses have to fire their employees by simply going out of business (Paruchuri et al. 215). This in turn results in an increase in the number of people who are not providing for themselves and their families.

The fact that Wal-Mart does not spend its income within the locality of the business is also to blame for the death of local businesses. A smooth cash flow within a locality is also important in the determination of the rate of growth of local economies (Hicks 81). Therefore, it is important to note that in comparison to local businesses, Wal-Mart, as well as other similar chain stores, will recirculate less of their income. For instance, as study found out that if one spent a hundred dollars within a local retail shop, sixty eight dollars would be spent within that locality (Hicks 82). However, if that same one hundred dollars is spent at Wal-Mart, only forty three dollars would recirculate locally (Hicks 81). The effect of this phenomenon is that local businesses would be strangled gradually. The strangulation of local businesses would in turn lower the quality of the lives of those living in the said localities.

Based on the arguments and facts presented herein, it is clear to see that the entry of Wal-Mart into a given locality would result in the death of small local businesses. One of the arguments presented has pointed out the fact that he entry of Wal-Mart results in job losses. This has been attributed to the edging out of local retail shops. Wal-Mart has also been found to be the reason behind a sharp decline in the cash flow within a given community. Cash flow is crucial in the determination of the flow of business within a given locality. However, Wal-Mart has been found to re-direct the monies it makes out of the community in question. This tends to smother small businesses. Therefore, the arguments in this paper tend to support the core idea that Wal-Mart will edge out small businesses. The effect of edging out small businesses will be felt by the business owners as well as the community in question.

Works Cited

Ficano, Carlena Cochi. "Business Churn And The Retail Giant: Establishment Birth And Death From Wal- Mart's Entry*."Social Science Quarterly (Wiley-Blackwell) 94.1 (2013): 263-291. Academic Search Premier. Web. 15 Feb. 2016.

Hicks, Michael J. "Wal-Mart And Small Business: Boon Or Bane?."Review Of Regional Studies 39.1 (2009): 73-83. Academic Search Premier. Web. 15 Feb. 2016.

Paruchuri, Srikanth, Joel A. C. Baum, and David Potere. "The Wal-Mart Effect:Wave Of Destruction Or Creative Destruction?."Economic Geography 85.2 (2009): 209-236. Academic Search Premier. Web. 15 Feb. 2016.