Come on boys, are you committed to international expansion or not? For Walmart, with $122bn in earnings over the past decade, it looks, perhaps, a little halfhearted to pay just $24m in bribes for building permits in Mexico, as the The New York Times alleges.
Markets were nonplussed, sending Walmart’s shares down 5 per cent and those of its majority-owned Mexican subsidiary by twice that much. Investors were not, of course, selling because the small sum reflects a lack of enthusiasm. And it would take the prospect of a truly massive fine under the Foreign Corrupt Practices Act to justify the roughly $12bn in market value lost in the sell-off. The worry is more that because the allegations involve a number of Walmart’s senior managers, substantial leadership disruption could ensue.
Still, the panic looks a bit overdone. Yes, the Mexican operation is growing much faster than the US business – its 10-year average sales growth is 18 per cent, more than twice the rate of the US supercenters. Profits are strong, too: operating margins in Mexico are comparable to US levels and return on assets a shade higher than the corporate average. But Walmart Mexico’s sales amount to only 6 per cent of Walmart’s overall, even before the minority owners’ portion is backed out. It is not as if the whole Mexican business is in danger of disappearing.
But Walmart is a company that badly needs a growth story, and international expansion is it. The US market is increasingly saturated. If Walmart runs into expensive and growth-constraining legal problems in Mexico (a quarter of international square footage), might there be bad news coming in developing markets such as China (a fifth) or Brazil (one 10th) – and will nascent markets such as Africa and India prove slow going? That $24m may turn out to be a very big small number.
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