Impacts of the Walmart Bribery Scandal in Mexico

Abstract

I am writing this case study with the intentions to identify and analyse the impacts of the Walmart bribery scandal in Mexico. I intend on doing this through the thorough exploration of the scandal using a PESTLE analysis (Political, Economic, Social, Technological, Legal, and Environmental aspects). The incidents which involved the American organisation and the Mexican host have brought tremendous impact on its business. I will also go into depth regarding the Walmart business incident described; followed by an illustration of how Walmart has managed it.

Introduction

This article presents a comprehensive analysis of the bribery scandal of Walmart de México through a political, economic, social, technological, legal and environmental (PESTLE) approach and review of relevant literature. Walmart’s presence and regional expansion during the last decade have earned it the title of the largest private employer in the country with around 200 thousand current workers. Walmart isn’t only just the largest retailer within the US. It is additionally a commercial powerhouse and the biggest private employer in Mexico. Bribery is common throughout the globe in many countries. It can mean anything from giving a small gift to an official to obtain a building permit to pay off a whole political party for passing a law. In some countries, it’s part of the culture, and if you don’t play ball, doing anything can be incredibly hard. It was never Walmart’s purpose to overwhelm the Mexican markets without a small amount of obscure money, almost certainly in infringement of the US and Mexican laws. Many investigations were conducted to fully respond to what happened in the past, what system failed, and who was responsible for possible violations of the Foreign Corrupt Practices Act (FCPA), which hinder foreign officials from bribery, but accountability issues remain unanswered. It also means that it has been possible for Walmart leaders to hide all the important clues to avoid sanctions. Now, one question about this behaviour that will undoubtedly be asked is whether, laws or not, paying bribes in Mexico is or was just business as usual. That will certainly be the first reaction of many who hear about this story— and these people will probably also point to U.S. lobbying laws and campaign donations as just forms of legalised corruption. And at least they’re going to have a point on the latter charge.

Overview of Ethical Issue

An ethical issue by basic definition is an issue or circumstance that leads to an organisation (or an individual) to decide which of two outcomes will have the most benefit. These outcomes must be assed to determine whether they are right (ethical) or wrong (unethical). The incident showed that a senior Walmart lawyer at the company’s Walmart de México subsidiary received an alarming e-mail from the former executive (Barstow, 2012). It specifically pointed out how the company tried to achieve market dominance. It also noted that bribery was exercised by the company to obtain permission to build new stores across the country (Barstow, 2012). The former executive expressed the amount, name, and dates of the overall bribes. The amount of bribery was twenty-four million dollars ($24,000,000), and not only did Walmart de México officials know about payments, they also tried to hide it from their headquarters.

Before the New York Times released an article talking about the bribery allegations no one had heard about the scandal. The information regarding the extortion spread around Mexico and within only a couple of days evidence was coming to light proving the serious allegations. Soon after the scandal went public the Federal Bureau of Investigation had to get involved and they started to scrutinize the situation. It was found that the Walmart de México was in clear violation of both the Mexican and United States laws. (Heineman, 2012)

Nevertheless, the company handled the case delicately by expanding the investigation process, and it was found that the company shut it down without notifying enforcement officials from the American and Mexican Law, this also showed that the officials were undisciplined. In 2008, the chief executive was promoted to Walmart de México’s vice president (Brown, 2012).

The allegation and investigation were not disclosed until an article about the bribery action was published by the New York Times. Before the bribery campaign, Walmart de México planned to expand its business in Mexico’s Pineda field and calculated that due to the ideal location it would be able to get more than 250 customers in an hour (Worstall, 2012). The Walmart de México officials, however, were unable to build the stores in this area as the newly elected leaders passed a new zoning map that restricted the city’s new entrance as it had already congested (Smith, 2012). After that, it was notified to Walmart de México that commercial development was banned.

In that case, this decision has condemned Walmart de México and attempted to find out how the company can build a store in the field of Pineda. Meanwhile, a simple solution has been developed by Walmart de México officials to approve their intention to build a store in the field of Mrs. Pineda. Walmart de México officials knew the proposal wasn’t published in the daily newspaper and it’s not going to be a law unless it’s published in the newspaper. It also was therefore arranged to bribe an official to allow the Walmart de México store in the area, so it will change the map just before the newspaper is delivered.

PESTLE Analysis

Political

Political factors play an important role in determining the factors that may affect the long-term profitability of Walmart Stores, in a particular country or market. Walmart Stores operate in more than a dozen countries in Discount, Variety Stores and exposes itself to various kinds of political environment and political system risks. The success across different countries using dynamic discounts, a variety stores in the industry are attempting to diversify the systematic risks of the political environment. It is stated that Walmart shows little or no respect to its employees, where they are severely mistreated and their only purpose is to fit into the philosophy that the company looks out for itself. Statistics show that the store was part of several class action lawsuits in different states from 1999 to 2005 alone involving hundreds of thousands of former and current employees who had their work hours and wages tampered with as well as abused.

Economic

Bribery has severe consequences that may lead to a false view of the legitimacy of the government, these consequences can include but are not exclusive to an increase in economic and social costs. Economic analysis is something we can use to help our understanding of the incentives that lead to extortion and bribery and how successful the laws deterrents actually are. This analysis tells us that there are discrepancies in the law and should be reevaluated in many jurisdictions. The penalties are not well connected to the bribery’s minor benefits. Smaller bribes often get deterred more effectively than larger ones, this is because of the unlinked penalties to the beneficial gains of the perpetrators.

Macro environmental factors such as inflation rate, savings rate, interest rate, foreign exchange rate and economic cycle determine an economy’s aggregate demand and aggregate investment. While Walmart’s competitive advantage is affected by micro-environment factors such as competition norms. Walmart Stores can use the economic factor of the country such as growth rate, economic indicators of inflation & industry such as discount, growth rate of the variety stores, consumer spending, to forecast the growth trajectory not only of the sectors but also of the organisation. There are various factors affecting Retail Company’s performance, which also affects Walmart’s performance; first is the rising price of products that drive inflation. This affects the performance of the whole company, not only on its customer relationship, but also on the overall system. It allows the company to lower the price of the products with the help of the internet or online shop due to the cost saved in the store’s management and maintenance.

Social

The culture and way of doing things of the society has an impact on an organisation’s culture in an environment. Shared population beliefs and attitudes play a major role in how Walmart Store marketers understand a given market’s customers and how they design the marketing message for consumers in the Discount, Variety Stores industry. Walmart is a highly respected household name and has one of the worst health care policies in corporate America. It pushes employees to participate in several government-funded programs such as Medicaid, public assistance, and public housing to account for low wages. Several of its policies have been changed for the worst since the death of its founder. It’s not that the company doesn’t offer its employees’ health insurance; it just comes at a high price for workers who earn minimum wage. It is stated that Walmart shows little or no respect to its employees, where they are severely maltreated and their sole purpose is to fit in with the philosophy that the company looks out for. Statistics show that the store was part of several class action lawsuits in different states from 1999 to 2005 alone involving hundreds of thousands of former and current employees who had their work hours and wages tampered with and abused.

Retail firms with the largest federal political spending— such as Walmart and Home Depot— exemplify the economic-democratic inequity relationship. Walmart is the largest political spender in the industry as well as the largest retailer and private employer in the world, distinctions that give the company considerable influence over U.S. and beyond labor and product markets. Walmart relies on this global influence in markets to exacerbate the inequality at the heart of its business model.

Technological

Over the years Walmart has been developing and utilising technologies. Technology that helps with payments, and getting customers through the checkouts, demonstrations, endless aisles, and call buttons. Technological development is super important in regards to keeping the organisation up to date and using resources that are being made available to us to make our lives easier.

Legal

The legal framework and institutions are not robust enough in many countries to protect an organisation’s intellectual property rights. Before entering such markets, a company should carefully evaluate how it can lead to theft of the secret sauce of the organisation and thus the overall competitive edge. The global headquarters of Walmart immediately launched a practice investigation. But, despite finding much evidence of at least suspicious behavior (and, at worst, clear breaches of Mexican and U.S. laws), Walmart effectively shut down the investigation. Walmart was exposed to the public in 2003 and charged after hours for hiring illegal citizens to do some cleaning. The case, led by the Immigration and Customs Enforcement, lasted over four years and resulted in a huge number of undocumented workers being arrested. However, by settling to pay millions of dollars, the company managed to evade criminal sanctions and then disputed the racial and gender discrimination claims. In the above cases, more evidence of racism has been evident from Walmart stores.

Environmental

Different markets have different standards or environmental standards that can affect an organisation’s profitability in those markets. Even within a country, states can often have different laws and liability laws on the environment. For example, in the case of mishaps or environmental disasters, Texas and Florida have different liability clauses. In 2006, Walmart set three sustainability-related aspirations: zero waste generation, 100% renewable energy operation, and the sale of products that sustain our resources and the environment. Since then, Walmart has regularly set specific targets to move the company towards these aspiring goals. At a minimum, in the countries where Walmart operates, Walmart is committed to complying with applicable environmental, health and safety (EH&S) laws and other requirements. Walmart has put in place programs and procedures to fulfil its obligations of compliance. Walmart is committed to working towards promoting environmental sustainability with our diverse value chain. For example, Walmart launched Project Gigaton and asked suppliers to join us in our efforts to remove from our value chain by 2030 1 billion metric tons (Gigaton) of greenhouse gases (Walmart, 2018). With the construction of a new Walmart store, its location attracts additional businesses immediately. For their shopping, customers from surrounding communities would travel to the area and often stick around, spending their money at different local hubs. If a place has no such store of its own, its citizens would think of driving to a place that has one.

Organisational Culture

Walmart has an organisational Eiffel tower culture where all things are coordinated from the top and the jobs are well-defined. At any time, the person holding the top position could be replaced without affecting the work being done. The business environment is intensely dynamic and challenging more than ever due to the huge advancements in the technology. Most of the organisations are facing extreme competition to ensure sustainability and growth. The organisational culture we can see evident in Walmart determines how customers and employees react to challenges in the workplace. The company’s human resources is only able to build resilience through supported mindsets all the way through the corporate culture. Walmart is adaptable and able to adjust to changes and potential challenges that may emerge over time. Walmart is growing to other countries, such as Mexico, Brazil and China, Walmart investors are exposed to a more diverse business model. Although this attribute could also bring negative issues such as language barriers, taxes and other regulations, it is good for consumers regardless of their language (Doh & Luthans, 2018). Moreover, investors gain exposure to other currencies and middle-class growth in other countries by having operations in multiple jurisdictions.

Analysis of Ethical Issue

Walmart de México had a long term struggle within the company that conflicted the organisations consistent pursuit of growth and development. The organisations commitment to the highest moral and ethical standards were also vastly broadcasted. A past executive explained how the Mexican branch arranged a bribery campaign to assist them in gaining market dominance. Then by allowing the US headquarters to become aware of the situation. However once the information was learned, instead of broadening the investigation, the executives of Walmart decided to try and shut it down with minimal press coverage. (Shayan, 2012). It was found that Walmart corporate heads had essentially brushed aside the events. The two ethical dilemmas that are seen with this are both whether the profit and employment benefits of the bribery were worth the illegal dealings, and how Walmart executives failed to punish those involved (Marsh, 2012). With regard to the first point, any business wants to maximise profits, but anything unethical or illegal, if only from a moral point of view, should be avoided. For the second point, the greatest failure of Walmart was the apathy they displayed for those involved in the scandal in terms of discipline. A business that insists they operate with a strong ethical behaviour in mind (as Walmart does) should have followed the matter beyond what they have done.

Conclusion and Recommendations

Walmart needed to have a plan in place, a ‘go to solution’, but when they needed one for this solution there wasn’t one. Management at Walmart needed a place they could go to for assistance. They needed a person with high enough authority to say ‘enough’ and put an end to the wrong doings fast. Even though both current and former CEO’s were briefed on the situation Walmart still needed controls in place to prevent or at least control a situation like this. Someone was needed to step up and track the problems to protect Walmart’s best interests. Walmart’s structure had none of these things, however it had an extensive bureaucracy instead. However, based on the statistics alone, this corporation is the largest private employer in the US and other countries and it is vital to the economy of the country. The jobs created by Walmart are very important, making it one of the world’s most important companies. If Walmart wants to succeed in the future, major changes are going to have to be made regarding the company’s policies and organisational culture.