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Walmart’s Power in Negotiations

With thousands of stores around the world, Walmart is an extremely powerful corporation in the discount retail industry.  This article discusses one of Walmart’s business strategies, to keep its accounts payables high and its accounts receivables low.  Accounts payables is money Walmart owes to its suppliers, while accounts receivables is money owed to Walmart by its customers.  By not paying its suppliers for as long as possible and by being paid quickly by those to whom it extends credit, Walmart maximizes its working capital, which it can use to make investments and to carry out its business operations.

The outcomes of Walmart’s negotiations demonstrate the advantages of having power in a business network.  In class, we focused on how people (nodes) with different positions in networks split an amount of money between them.  More powerful nodes took greater proportions of the money than the weaker nodes they negotiated with.  The nodes in these examples were powerful because they had several options of nodes with whom they could trade, some of which had only one option themselves.  Walmart has a great amount of power because of its presence throughout the world and especially in the United States.  Suppliers know that by having their goods appear in Walmart stores, they can reach many people and make more sales.  Because many manufacturers want to do business with Walmart, the corporation has an advantage in negotiations over the prices it pays for manufacturers’ goods and over its credit terms with them.  It can buy goods as cheaply as possible and secure a long period of time to pay its debts, increasing its working capital as described above.  If one of Walmart’s competitors becomes very successful in the future, it will be interesting to see how Walmart’s loss of power affects its negotiations.

http://www.trefis.com/stock/wmt/articles/16191/managing-working-capital-translates-to-significant-value-for-wal-mart/2010-07-08

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