Costco Wholesale Corporation Company Profile Description (Essay Sample)

Costco Wholesale Corporation
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Costco Wholesale Corporation
Costco is an American multinational corporation that operates a membership-only warehouse club the offers its customers a wide range selection of products across various markets where it operates. It is the largest membership-only warehouse store in the United States. The company was the third largest retailer in the United States in the year 2014. The company experienced impeccable growth in the subsequent year and by the year 2015; it was the second largest after the market leader Wal-Mart. It serves over 71 million members who are spread in over 40 states and other international markets as detailed below. The company offer discounted prices on over 4,000 products which are mostly packaged in bulks. The members can access products ranging from alcoholic beverages, fresh food, pharmaceutical products and fresh food products. Some membership status also enjoys products such as insurance, travel packages and real estate products. The company headquarters are located in Issaquah, Washington. The company opened its first warehouse in Seattle in the year 1983. The company has expanded through series of mergers and acquisitions to its current position. As at November 2015, the company had 698 branches spanning throughout the United States, Canada, Mexico, United Kingdom, South Korea, Taiwan, Spain, Australia and Japan. The company has a notable absence in China. In this paper, we shall explore the steps that Costco should consider in the assessment of the feasibility of the Chinese market prospects. In addition, we shall also assess the risk condition in China (Hoovers, 2015).
The company business strategy is to offer the customers low price, limited edition, retail treasure hunts. This is unlike the strategy of offering low prices on the entire product range that is offered by the retail giant Wal-Mart. The prospect for the company to venture into the Chinese market is informed by the current trends and changes that have occurred in China. From the year 2000 to 2010, the consumer market more than doubled from $650 million to about $1.4 trillion. In the next 2 years, the country is expected to be the largest retail market and the population is expected to hit an all time high of 1.4 billion people. Such statistics is points to a retail market that is gearing for growth in the coming years. According to a 2015 publication by PwC, the country is expected to achieve a volume of 8.7% in the in the next two years making it the largest retail market worldwide. As at 2015, the market was estimated to be worth over $10.1 trillion which was an 8 fold increase from the valuation in 2010. Kevin Wang, PwC China Retail and Consumer Leader’s report indicates that China and India will continue to be the largest drivers of the Asian economy and the retail market will continue to experience an upward growth. There are concerns raised on the quality and safety of food products from the Chinese stores, however, for the already established multinational organizations, such logistics are already in place and thus they can venture into the market with ease (PwC China, 2015).
The US economy is on an upward trajectory but at a lower rate as compared to the Chinese economy. Thus, the US is viewed as a mature market and the prospects for growth are low. China on the other hand offers opportunities for growth that are driven by the country’s economic growth coupled with the high and rising population (Bureau of Economic Analysis, 2015). China is ranked 8th in a data set that analyzed the countries’ ease of doing business. The study analyzed various factors such the process of starting a business, permits, electricity, registering properties, payment of taxes, protection of minority investors, international trade, enforcing of contracts, resolving insolvency and accessing finances. China is ranked higher than the US and thus Costco would not face many barriers in their quest to venture into the Chinese market (World Bank Group, 2015). In terms of corporate and public corruption, China is ranked 80th out of the total 177 countries that were ranked by Transparency International (Transparency International, 2013). The international monetary fund report on the Chinese economy indicates that the country economic growth is still on the upward trajectory though at a slowed down rate. There is thus a concern over the country’s future economy. This is affecting the confidence levels and as well the commodity prices. However, the country’s large population and the growing economy will still be a catalyst that will create more market for the consumer products. The financial market has been highly volatile owing to the uncertainties in the market and the country’s prospects for the growth. The growth rate is expected to slow down to 6.3% in the year 2016 and 6.0 in the year 2017 (International Monetary Fund, 2016). Costco will thus need to evaluate the impacts of the slowing down economy on the retail market and make a decision as to whether it will venture into the Chinese market.
Consumer spending normally accounts for more than 60% of the GDP in a country. Thus, by extension, the GDP trend is an indication of a country’s health of its retail industry. China being a country that is open to international trade, there are a number of both local and international retailers that operate in the market. They are of different types and the customers are attracted to each one of them due to their prices, quality of the products offered, quantities that the goods are sold in, and the varieties available. Costco has more than 4000 products and they offer superior quality products at discounted prices. The goods are however sold in bulks creating a unique opportunity that is not covered in any of the large stores that operates in the region.
In spite of the fact that China is a coveted market by many multinationals, there is need to carry out a risk assessment procedure before venturing into the market. Multinational retails operating in the international market are exposed to risks such as credit risks, government regulation risks, foreign exchange risks, and political instability risks. Organization for Economic Cooperation and Development is responsible for conduction annual countries risk assessment models through the use of qualitative and as well quantitative information that is available. China has a stable government and is not under any political risk at the moment. The country’s profile is well rated as there has not been a history of resurgence and riots that affects business operations. There are over 2000 multinational companies that have operations in China. Thus, Costco entrance into the Chinese market will be easier and the decision will be informed by the success and the stability that has been enjoyed by the companies that have been in operations already. China is a party to many international trade blocks and organizations. Thus, the country is not likely to make unwarranted decisions that will impact negatively on the businesses operating there (Organization for Economic Co operation, 2015).
One of the main concerns for a business venturing into a new market is access to the finances. China has experienced decreased growth rate and thus affecting the company’s ability to meet their financial obligations. This has seen some company’s defaults on their obligations. The overall implication is that the banks will incur losses on the loans and the insurance costs will go up. This will make loans more expensive and thus companies will not be able to afford finances. For large multinational companies such as Costco, this will not affect them as they are able to access finances from other sources such as other branches and thus they will be able to survive any shocks and changes in the financial market. Thus, amongst other considerations, Costco will need to design and evaluate a financing model that steer the business through the opening and expansion of its operations.
The main business risk that multinational corporations face is the fluctuations in the foreign exchange rates. In particular Costco being an American company and being registered in the NYSE, it will be expected to prepare its financial statement in US dollars. However, the operational currency in China is Yuan. In this section, we shall analyze a 24 months exchange rate fluctuation between the US dollar and the Chinese Yuan with an aim of identifying a trend and use the information to predict what will happen in the next two years. The graph below is a two month trend for the exchange rates between the US dollar and the Chinese Yuan Renmini.
Figure 1: two months exchange rate trends between the Chinese Yuan and the US dollar (XE, 2016).
From the above graphical representation of the exchange rate trends in the two months under consideration, it is evident that the US dollar has continued to gain slightly over the Chinese Yuan. At the beginning of June 2014, the rate was at an average of 6.25 Yuan per 1 US dollar. The Chinese Yuan has continued to lose against the US dollar and the rate at the end of the 24 months under consideration stood at slightly above 6.5 Yuan per 1 US dollar. Going by this trend, alongside the slowed down economic growth and further slowdown that is projected in the year 2016 and as well 2017, we expect the Yuan to continue to lose...