Wal-Mart ‘Going Good’
By George Anderson
Critics of how it treats its employees at home are not likely to give Wal-Mart any points for trying or they may slough it off to public posturing, but there is no doubt that the world’s largest retailer has set a bar for its suppliers and itself after a speech made yesterday by CEO Lee Scott to attendees at a conference on retail trends held by the Sam M. Walton College of Business at the University of Arkansas.
In his remarks, Mr.Scott said the retailer would be demanding foreign manufacturers live up to higher social and environmental standards as a requirement to continue doing business with the retailer.
They will have to, said Mr. Scott, because it is retailers and not manufacturers who are taking the heat when suppliers impose sweatshop-like conditions on employees or engage in practices that harm the environment.
“The factories in China are going to end up having to be held up to the same standards as the factories in the U.S.,” he said. “There will be a day of reckoning for retailers. If somebody wakes up and finds out that children that are down the river from that factory where you save three cents a foot in the cost of garden hose are developing cancers at a significant rate so that the American public can save three cents a foot, those things won’t be tolerated, and they shouldn’t be tolerated.”
Mr. Scott announced he was flying to Shanghai next week to begin checking stores and factory operations in the region.
Wal-Mart’s chief said that he knew his talk would come as a surprise. “There are people in this room that hear what I just said and say ‘Wow, Wal-Mart is losing its way. Wal-Mart is not going to talk about customers. They’re talking about sustainability and the factories they buy from.’
In one example of Wal-Mart’s new focus on “going good,” Mr. Scott said the company would start selling clothing made from organically grown cotton next year.
“We’re going to take thousands of tons of pesticides out of the environment and produce a better garment for our customer and a garment that they can be proud of. Those are the kinds of solutions that exist out there that take more sophistication,” he said.
Moderator’s Comment: What is your reaction to the reports of Lee Scott’s speech yesterday? What will it mean for Wal-Mart, its suppliers, competitors
and customers? –
George Anderson – Moderator
While I admire Mr. Scott and Wal-Mart, this is just a speech and nothing more. All CEOs give “feel good” rhetoric as a response to criticism. That’s part of their job. But I don’t think this tiger will change its stripes, nor do they or their stockholders want them to.
Lofty goals – or at least rhetoric – notwithstanding, labor conditions improve only when two conditions are met:
1) labor markets are free enough that people can move to better jobs, and (2) there isn’t a pool of even cheaper labor – read Vietnam, the-country-formerly-known-as-Burma, Africa, et al. – which can be exploited (you may interpret that with or without the moral connotation).
Even Wal-Mart – the proverbial 364 kg gorilla – can’t change that economic reality, unless they can both: (a) thoroughly monitor working conditions, and (b) swallow the higher costs that it will probably entail… I wouldn’t bet on either happening, let alone both (remember Sam’s “American only” creed?).
Count me in with the cynics here, and I am not typically very cynical. Improving conditions has its monetary costs. You can’t come into negotiations and out of one side of your mouth say we must have improved conditions and out of the other side say, but I’d like this product for a quarter cheaper this year. I could be wrong, but my guess is the quarter will win out.
So Wal-Mart has said they want conditions in over-seas factories to improve. Fantastic. Wait…who’s going to eat the cost? Do you honestly think Wal-Mart is going to give up margin? I’d be willing to bet they are going to take the credit for making the manufacturers clean up the labor conditions, yet are not going to take on any of the cost increases that will come with it.
Kathy Lee Gifford, Michael Jordan, Nike, et al, previously performed this symbolic Geisha dance to get activists off their backs. It seemed to work for them, and clearly WM hopes it works again. Sometimes we allow simple posturing to satisfy us – see CNET congressional coverage for current examples. With WM, I’d be ever so much more convinced of their sincerity if Lee Scott were instead reporting the findings of a surprise inspection of their foreign suppliers’ production facilities.
I think that if a CEO makes a comment in a public forum, then it should be taken seriously, and bodes for changes to come, albeit not immediately. With their size and power in the industry, they are the one to make the change and any change they make will have an impact on the retail industry. I congratulate him on making these comments and look forward to more retailers taking this stand.
“Words, words, words, words. Don’t give me words; just show me,” so goes the song. When the goals of low price and sustainability come into conflict, Wal-Mart will have to make a choice. That’s when we will see if Wal-Mart is taking a new direction.
The foreign companies have too much at stake not to respond
in some fashion! However, this speech may suggest ‘WalMart cares,’ and let’s wait to detect if ‘ACTION speaks louder than words.’
The speech still doesn’t address the need for a health and
medical coverage program. WM…take the hit, and move on. Wall Street will forgive.
Hmmmmm
Wal-Mart, The Big Bear, says, “Let me get my arms about you, Chinese manufacturers. I have not the slightest intention of squeezing you if you comply to our honorable standards, but I shall keep my muscle tone very strong just in case.” To which the Chinese suppliers ask, “Wot he say?” Now we shall see what occurs in Act 2 of this saga. Hopefully, Lee is for real on this.
This may, as someone points out, be corporate rhetoric. But this kind of rhetoric may be the beginning of massive reform in overseas markets which rely heavily on cheap labor and abuse of the workforce–including children.
Wal-Mart is exactly the one to start the charge. The company imports about $15 billion annually from mainland China alone and accounts for 10% of all Chinese imports to the U.S. They have the clout to change things and this can be Mr. Scott’s legacy.
By 2009, nearly three-quarters of all companies will be importing from China. Many companies like Wal-Mart, Target and Tesco have procurement offices not only in major cities but in interior provinces. The same is true of Indonesia, India and other exporting countries. Now is the time for everyone to set the ground rules for global procurement.
Economic expediency often takes precedent over social needs. It seems, sometimes, to be the natural order of things. The entire industry must take the position that it will no longer be business as usual for overseas suppliers. International trade is a complex issue, but hats off to Mr. Scott and others for recognizing that wrongs have to be righted and that decency and basic human rights are the cost of entry into the world market.
Wal-Mart will have credibility when its overseas factory inspections become unannounced on an irregular schedule, by a neutral, trusted organization. The current inspection method is largely scheduled in advance with the factory, so evidence of violations can be hidden on inspection day. I hate to make this comparison, but if you’ve ever seen the movie Stalag 17, there is a classic scene where the Red Cross visits the German-run WW II prison camp, and the inspector notices that the blankets smell of mothballs. The blankets are kept in storage away from the prisoners except on inspection day, and the inspector knows it. China is the world’s largest open-air prison.
Other retailers don’t have to spend millions telling you what a great benefit they are for your community either. This from a company that has by its actions created the environment that they are now critical of? It’s about as ironic as Mr. Scott calling for the governments in Europe to look into the trade practices of their own retailers.
The jobs are still in China and US workers are still looking for a job. That is how most Wal-Mart consumers will see it. If I were Wal-Mart, I would be concerned with how to take care of American workers. I think these sound bites will get spun against Wal-Mart again.
Whatever the motivation for Wal-Mart’s new stance on a number of issues, reality is that modern means of communication (i.e. the Internet) are making it harder and harder for companies to keep conditions in their countries hidden. I agree with Mr. Scott that there will be a day of reckoning for companies that abuse workers and the environment. Just look at what went on in the 1950’s in the U.S. in these areas and where we are today. China and other developing countries will be forced into similar changes. And, companies that do wrong there will find themselves in mega-lawsuits, ala the tobacco companies, Union Carbide, etc.