Question

Discuss whether economies of scale have any relevance to such companies as Wal-Mart.

Answer 1

Ans. Economies of scale : It is defined as the cost reduction or cost advantage that occurs when the organisation is large or the production increases.

In case of walmart , the economies of scale take a large place as walmart is a very big brand which sell goods at a very large scale at at very economical prices due to which custoemrs get cheap products and also they themselves are benefited with the cost advantage and reduction. It has largely 5000 stores around the world and the largest retailer as well. Due to large number of customers, even the walmart gets the power of bargaining with suppliers ultimately benefiting the brand itself.

Eg , Suppose walmart purchases a tiffin box for $3 from the supplier and on the other hand , one of the competitor of walmart bought it for $4 because he cannot take that much bulk amount as compared to walmart and hence will get it for more price. Now for the distributing purpose again walmart spends $3 and the competitor spends $4 . Now the total expense for walmart is $6 and if he sells it for $7, he will make profit of $1. But for the competitor the total becoems $8 and making a profit , he would sell it for $9 to make a profit of $1 , hence a difference of $2 in both the firm's. So the customer will definitely prefer walmart to the other one.