India on Wal-Mart’s Sourcing Practices

As Wal-Mart ramps up to enter the Indian market, academics and analysts in India are taking a fresh look at Wal-Mart’s expansion practices. This piece from India’s Financial Express explores Wal-Mart’s sourcing practices and dependence on China for production. Wal-Mart has met harsh resistance in India, and as the discussion around Wal-Mart expands, more debate is sure to follow.

Wal-Mart increases its hold on China [Financial Express (India)]

China is the largest exporter to the US in virtually all consumer goods category and Wal-Mart is the leading retailer of consumer goods in the US. So uncanny and strong is the mutual dependency between China and Wal-Mart that they have been called as the “ultimate joint venture” by some. Wal-Mart’s dramatic rise in overseas production and sourcing was a result of landmark changes in public and global trade policies supported by bipartisan consensus for the last 25 years.

Wal-Mart has reached such levels of sophistication in its international sourcing that it is always one step ahead of its competitor in either new product development or sourcing the same product for a nickel less and thereby doing justice to its motto of “everyday low prices”. The impact of the rise of Wal-Mart on other US-based retailers and manufacturers bears striking resemblance to the impact of the rise of China as a manufacturing force on other Asian manufacturing-exporting countries.

Few went out of business and others had to find a way to survive within the realms of the new eco-system. The rest had to be content with the focus on niche products at the cost of growth. A month ago, Wal-Mart celebrated the approval of its 100th store in China, since it entered the Chinese market in 1996, with the presence of secretary Carlos Guitierrez from the US department of commerce and vice minister Jian Zengwei from China’s ministry of commerce. Coinciding with the celebrations in Beijing marked the opening of the new Wal-Mart super-centre in Loudi in Hunan province.

This represents Wal-Mart’s growth into smaller Chinese towns and is one of the 23 new stores that it has managed to open in China just last year. This number may pale in comparison to more than 4,000 stores that Wal-Mart meticulously operates in the US, and over 2,800 stores in Argentina, Brazil, Canada, China, Costa Rica, El Salvador, Guatemala, Honduras, Japan, Mexico, Nicaragua, Puerto Rico and the UK. But this represents an important milestone in the nature of relationship between China and Wal-Mart. China, which was always a low-cost sourcing destination for Wal-Mart is now being viewed as the biggest opportunity to repeat what it did in US. China, having the seventh largest retail market in the world, is expected to climb to number five, just behind Germany and ahead of France by 2010. The retail market in China grew by 13% in the second half of 2007 over a base of $650 billion.

“The secret of successful retailing is to give your customers what they want,” Sam Walton, the founder of Wal-Mart, wrote in his autobiography. And really, if you think about it from the point of view of the customer, you want everything: a wide assortment of good quality merchandise; the lowest possible prices; guaranteed satisfaction with what you buy; friendly, knowledgeable service; convenient hours; free parking and a pleasant shopping experience. Today, Wal-Mart is a global company with more than 1.9 million associates worldwide and more than 7,000 stores and wholesale clubs across 14 Markets. Wal-Mart clocked $ 348 billion in fiscal 2007 revenues and recorded sales of more than $90 billion in Q3 of fiscal 2008. Wal-Mart employs 1.9 million associates worldwide and more than 1.3 million in the US, making it not only one of the largest private employers in the US, but the largest in Mexico and one of the largest private employers in Canada.

Next year, Wal-Mart expects to add 48 to 49 million square feet globally, which is an increase of 6% in fiscal year 2008 over fiscal 2007. During each of the following two fiscals, Wal-Mart expects to increase square footage between 48 million and 52 million square feet, an increase of 5% to 6%. To put this into perspective, in fiscal 2005, India had a mere 21.5 million square feet of space in malls which, some reports state, has increased to 50 million square feet by end of 2007.

Wal-Mart alone is responsible for about 10% of US trade deficit with China. About 70% of the products sold on Wal-Mart’s shelves are made in China. It has moved its global sourcing headquarters to Shenzhen, a city transformed from a sleepy fishing marshland into a world-class role model in just over a decade. Ten years ago Shenzhen’s main port did not exist.Today it is on the verge of becoming the third busiest port in the world. Of the Wal-Mart’s more than 6,500 global suppliers, experts estimate that as many as 80% are based in China. And this figure can go up significantly if you include the suppliers of Wal-Mart suppliers based outside China. If Wal-Mart was a country, it would be in the top ten trading partners for China.

Wal-Mart has reversed a century-old-tradition that retailer depends on the manufacturer. Now the retailer is in the driving seat and can easily drive its manufacturer supplier out of business at the drop of a hat if it cannot compete on cost and quality with thousands of global manufacturers dying to be on the supplier list of the largest retailer in the world called Wal-Mart. It deliberately keeps its vendor list short so that it can have more control over its operations and cost structure. It is estimated that Wal-Mart may have 60% of the world’s largest factories churning out products which would be sold on Wal-Mart’s shelves. While partnering each other through this economic juggernaut, both have also been target of backlashes on the question of cost of growth and practices employed to reach this end state. However, China derives a third of its GDP from exports, a bulk of which goes to the US. China has witnessed the fastest growth by a developing country since 1980s. It has contributed more to global GDP growth in 2007 than the US.

Posted by Alex Goldschmidt on Wednesday, February 06, 2008

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COMMENTS

Want a laugh? Here is another of the constant flowing Wal-mart Canada new releases:

http://www.newswire.ca/en/releases/archive/February2008/04/c6692.html

Attention News/Business Editors:

For the first time Wal-Mart Canada stores add authentic merchandise to help Asian customers ring in the new year
Retailer offers Asian customers convenient one-stop shopping for
authentic Chinese New Year items and ongoing specialized product
selection

MISSISSAUGA, ON, Feb. 4 /CNW/ - For some Canadians the holiday season is
a distant memory but for many Asian Canadians the festivities are just
beginning with the start of Chinese New Year on February 7. For the first
time, Wal-Mart Canada plans to help customers celebrate by offering convenient
one-stop shopping for traditional Chinese New Year items at select stores
nationally. The company is also carrying Asian specialty items on an ongoing
basis in several locations.

This new release goes on to say:

Wal-Mart Canada’s Chinese New Year decorations are

Alex in Ontario, Canada
Wednesday, February 06 at 10:46 PM

Want a laugh? Here is another of the constant flowing Wal-mart Canada new releases:

http://www.newswire.ca/en/releases/archive/February2008/04/c6692.html

Attention News/Business Editors:

This new release goes on to say:

Wal-Mart Canada’s Chinese New Year decorations are the same as those
carried in Wal-Mart stores in China, including traditional and authentic
couplets, ornaments, lanterns, posters, paper cut outs and banners.

-----------------------------------------------------------------------
Well if that is not enough to make us feel real special!
They went all the way to China for this.
But wait a minute. Most of the stuff is coming from China in the first place!
Thanks for the laugh Walmart.

R E M E M B E R
J O N Q U I E R E
Q U E B E C
Home of Walmart Worker Abuse

R E M E M B E R
J A C K S O N V I L L E
T E X A S
Home of Walmart Worker Abuse

Alex in Ontario, Canada
Wednesday, February 06 at 10:46 PM

Wal-Mart has reached such levels of sophistication...

....that it can’t get nazi t-shirts off their shelves in 6 months!

...more than 4,000 stores that Wal-Mart meticulously operates in the US.

Meticulously?

“Wal-Mart disclosed a year and a half ago that same-store sales were rising 10 times, or 1,000%, faster at the 800 best-managed outlets than at the 800 worst-run ones. Equally shocking was its admission that 25% of its stores failed to meet minimum expectations of cleanliness, product availability, checkout times, and so on.” ~ Anthony Bianco

...and recorded sales of more than $90 billion in Q3 of fiscal 2008.

Huh?

It has moved its global sourcing headquarters to Shenzhen....

I thought Wal-Mart was moving it’s sourcing operation to Africa?

Ken V in Texas
Thursday, February 07 at 04:49 AM

Wal-Mart Blames It on “the Weather” (again)

You gotta love the way this MSN Money Report starts out:

“January was not pretty for Wal-Mart.”

The company said this morning that January sales at stores open at least one year rose 0.5% from January 2007, below the consensus estimate of a 2% increase.

So what does Wal-Mart do? They blame it on the weather like they’ve always done. I suppose it doesn’t have anything to do with the news of a recession and the consumer’s increasing unwillingness to spend.

Maybe if Wal-Mart wasn’t so busy spending money on appealing court decisions it’s already lost, as well as defending itself against other numerous lawsuits around the country, the numbers wouldn’t be quite as bleak.

ScrewedbyWal-Mart in Anytown, America
Thursday, February 07 at 11:26 AM

I suppose it doesn’t have anything to do with the news of a recession and the consumer’s increasing unwillingness to spend.

That’s the truly puzzling thing about all this. You’d think high gas prices would favor Wal-Mart but it doesn’t seem to. A general recession should also favor Wal-Mart, the lowest of low end, but here again, it doesn’t seem to.

Don’t you know it’s got the Bentonville bean-counters* scratching their heads.

*Speaking of bean-counters, I stumbled upon this discussion which may appeal to those of you with a hardcore numerical fetish. A few minutes reading made my hair hurt but I was able to glean this quote:

c. The question comes up: Are the managers of the company (Wal-Mart) aware that the kind of growth curve they are on is unsustainable?

Ken V in Texas
Friday, February 08 at 06:06 AM

“Are the managers of the company (Wal-Mart) aware...?”

In a nutshell… I don’t think they are aware. They have no insight or “awareness” of the MONSTER they’ve created. They’re in denial!

What I find interesting is the rising of the Wal-Mart star that takes place starting in 1992 with the death of Sam Walton. Interestingly enough, this also happens to be the same year Bill Clinton was elected. Of course we’ve all witnessed what’s happened since 2000 when Lee Scott took over.

ScrewedbyWal-Mart in Anytown, America
Friday, February 08 at 11:03 AM

A group of Wal-Mart traders called the Wal-Mart India Company first came to India at the beginning of the 21st century. Wal-Mart India Company had attained governmental rights in the port city of Chennai. Thirty years later, in 2069, they came into possession of Mumbai, another important port on the West coast.
By the middle of the 21st century, the authority of the Mughal leaders had weakened, and therefore, easily manipulated. The Wal-Mart India Company developed armies, naval fleets, administrators, and tax collectors. They also started producing their own currency and imposing their own laws. By the end of the 21st century it had effective authority over the three principal ports in India: Bombay, Madras, and Calcutta. The power of Wal-Mart spread across India and by the 2050’s almost the entire country was under its total control. With headquarters in Madras, the Wal-Mart Governor-General ruled over the country. The Mughal emperors had become merely figureheads in the country and the other European countries (France, Sweden, and the Netherlands) that had previously controlled any part of India had been expelled, except for Portugal, which retained control of Goa on the Wal-Mart coast. Wal-Mart India continued its commercial affairs and India came to be known as “The Jewel in the Crown”.
Indian soldiers took over a Wal-Mart supercenter and massacred 20,000 women and children. However, in the end, the Sepoy Rebellion, also called the First War for Independence by Indians or the Mutiny of the Wal-Mart, “strengthened the Wal-Mart hold on India” After the Sepoy Rebellion, the strategic construction of Superstores across the country made Wal-Mart a greater influence over India, commercially and culturally.

thomas l. simons in Chicago, Illinois
Saturday, February 09 at 07:37 PM

Did You Get Into a Bad Batch of Mushrooms, thomas?

Either that, or you’re trying to “float” an idea for a Wal-Mart futuristic novel.

Someone beat you to the punch with the play, “Wal-Martopia.” I mean the disembodied head of Sam Walton? That’s strange. And it’s funny!

Personally, I’m not a big fiction reader. I think the truths about Wal-Mart are as strange as any fiction.

ScrewedbyWal-Mart in Anytown, America
Sunday, February 10 at 08:36 AM

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