Wal-Mart and China’s Retail Unions

This very recent article from the Economist may shed some light:~~~~~~~~~~Membership required
Jul 31st 2008 | HONG KONG
From The Economist print edition

Global firms operating in China are being pressured to sign up with a government-affiliated union now, or pay more later

Reuters

Now welcoming union representatives, tooRATHER than deal with trade unions, Walmart, the world’s biggest retailer, has reconfigured its operations around the world, even pulling out of some markets altogether. But, in a reflection of just how different operating conditions are in China, Walmart signed collective-bargaining agreements with workers in two provinces in July. Further agreements covering all 50,000 of its local employees in China are a foregone conclusion.

The financial terms of the contract are of only minor importance. Far more important are the other implications of Walmart’s new ties to the All-China Federation of Trade Unions (ACFTU), a monopoly that claims 193m members and is deeply intertwined with China’s government and Communist Party. Like it or not, Walmart now has a business partner, and if it wants to close stores, lay off employees, or change other aspects of its business such as operating hours and work quotas (what employees are expected to accomplish), that partner must be consulted.

The history of the ACFTU is, in many ways, the recent history of China. Founded in 1925, it was crushed by the nationalist government in 1927, rose with the Communist Party’s ascension in 1949, and was crushed again in the Cultural Revolution before being revived in the general opening following Mao’s death in 1976. Competing unions are not allowed and by discouraging any sign of dissent, including strikes, the ACFTU has often been accused of failing to act in its members’ best interests. This point was made with particular vehemence in the 1980s and 1990s, as China emphasised growth and business investment at the expense of workers’ rights.

With the change of political leadership in 2003 and many highly publicised reports about poor working conditions, there has been a shift in emphasis in China, and a corresponding shift in the union. Walmart, with its prominence, served as an early test case for the union’s rise, with accreditation (but no contract) achieved in 2006. Two foreign fast-food chains, Yum! Brands and McDonald’s, agreed to worker representation in 2007 after being slammed in the Chinese press for breaking the law in their payment of students (the charges turned out to be false). Agreements were also reached with other companies well known for resisting unions elsewhere, notably FedEx, a logistics firm. The process is now accelerating.

In January, China imposed one of the most far-reaching labour laws in the world. It included provisions requiring firms to consult employees on “material” work-related issues. Some companies responded by forming in-house workers’ groups, but the ACFTU objected, claiming that this amounted to the creation of an alternative labour union, and was thus illegal. Instead, it has used the new law as the basis for a huge registration drive by the ACFTU that began in June and is intended to sign up 80% of the largest foreign companies by the end of September. And that, in turn, is a prelude to the stated goal of having trade unions in all of China’s non-state-owned companies by 2010.

Unrelenting pressure is applied to convince companies to sign up. Many are visited every two weeks by union representatives. Firms that are willing to co-operate receive two critical benefits: the ability to influence who their union chairman will be, and some negotiating freedom around a 2% payroll “tax” to the national union, much of which is remitted back to the municipal and company branches and, in the best circumstances, may then be used to pay for social functions, medical benefits and bereavement leave.

These two benefits are far more important than they sound. The union chairman is typically tied to the government and the Communist Party, must be consulted on critical issues and, in effect, cannot be fired. The union chairman is therefore critical to a firm’s management. And the ability to negotiate on the payroll levy can mean, for example, that expatriate salaries are excluded from the payroll figure, or that a smaller figure from a previous year is used as the basis of the calculation.

By contrast, companies that resist, according to a senior union official quoted in the China Daily, a government newspaper, will be blacklisted. They will not face pickets and strikes, as they might in the West. Instead they will be subject to endless audits, tax examinations and, as in the cases of McDonald’s and Yum!, accusations of employment-law violations. It is also possible, given the wording of the new labour law, that resisting unionisation is illegal. So it is difficult to imagine that any company will choose to resist.

With a over a billion people and rising prosperity, China is an irresistible market for the world’s largest manufacturers, distributors and retailers. Even so, the impact of higher labour costs and more cumbersome work rules should not be underestimated. For companies aspiring to sell in China, the intervention of what is, essentially, the state into their management is probably unavoidable. For those using China as a production hub, there is yet another reason to search for an alternative. ~~~~~~~~~~~~~~~~Note: Sounds like dealing with Americam unions is FAR more attractive,IMHO.

Sounds like dealing with NO unions is FAR more attractive,IMHO. Both the Chinese and American unions have a bad impact on a business and therefore, their employees.  How can hurting a business, be good for the employees in the long run?

Charles: It sure doesn’t seem to be hurting the Chinese . Have you checked the trade deficit lately? Sure don’t look like THEIR business is hurting.

From Trade Ticker-a minute by minute update on the actual trade deficit amount { $426,711,855,593.07 } as of this posting.------------------
What does this number actually mean?
The number above represents the U.S. trade deficit, up until this second, for the year 2008. A trade deficit is a calculation of the difference between the goods and services Americans sell to foreigners and the goods and services that Americans purchase from foreigners. A trade deficit with one country or in one year is not necessarily worrisome, and according to standard economic theory, will correct itself over time. But the theory has been proved wrong over the last 30 years as the United States has run consistent and increasing trade deficits. The enormous size of the trade deficits over the last several years raises the possibility of a severe international economic crisis should foreigners begin to dump the dollars they hold in world currency markets.

...a bad impact on a business..

Abolishing indentured servitude and slavery had “a bad impact on a business” also. It raised labor costs.

Where do you think the Finish Line for the race to the bottom is?

Ken V: The finish line is like doing the Limbo-how low can you go? The bar keeps getting set lower. ..and lower… and lower..

Ken V,

You said you left GD to become rich, well, here’s a tip:  In order to become rich, you have to focus on ‘wealth generation’ and ‘wealth accumulation’, not ‘wealth distribution’!!  You need to watch YOUR finances and let others look out for theirs!!  Also, it’s hard to get rich, when you keep throwing money away by paying more than is required!!

...it’s hard to get rich..

Not at all, RDS. You just have to know when the iron is hot. In my case easy wealth came during a Democratic administration when even the little guy could achieve the American Dream.

If you think when the tech bubble burst everyone lost everything, you’ve been misinformed.

“If you think when the tech bubble burst everyone lost everything, you’ve been misinformed.”

I don’t think that at all, because I didn’t fall for that tech stock rise and fall and made a few bucks myself, how do you think I was able to retire early?

Then why make the statement ...it’s hard to get rich..?

Granted, it’s hard to get rich if you are willing to settle for a profit margin of 3,4, or 5%.

Proponents of globalization use the old, worn-out argument of class envy as the motivation for cticizm. So you bottom-rung workers are losing your jobs to Chinese sweat shops. So what?

Until recently, Chinese manufacturing conjured up images of over-crowded sweat shops grinding out low-skill, low-margin products such as lead-based toys and mass produced pens. So, this past week when the Economic Policy Institute released a study showing that between 2001 and 2007, 2.3 million American jobs were lost some economists shrugged their shoulders.

But, guess what, boys and girls, according to the EPI study all classes should be envious.

However, contrary to the stereotype that these lost jobs were predominantly in low-skill, low-pay industries, EPI insists the trade deficit with China has, in fact, forced workers from better-paying jobs to lower-paying sectors. More than half (55.6 percent) of the displaced jobs were in the top half of American wage earners. Nearly a third (31 percent) of the jobs lost were among workers with a college degree. Growing China trade deficits have contributed to the loss of 200,000 scientist and engineer jobs within the manufacturing sector, a 10.7 percent drop.

Click on my name for the full story.

What’s good for Wal-Mart is BAD for America!

“Granted, it’s hard to get rich if you are willing to settle for a profit margin of 3,4, or 5%.”

Seems that Wal-Mart didn’t have that much trouble doing it!!

I hate to break up your little diatribes with facts, RDS, but Wal-Mart didn’t become what it is today on 3% profit margins. You can thank Lee Scott for that less than stellar return.

How many people have gotten rich owning WMT since 2000?

Ken, for someone who likes to Google you don’t research much.  in 1982 Walmart had sales of 2,444,997 and profit of 82,794 for a 3.39% margin. In 1981 sales 1,643,199 and profit 55,682 for a margin of 3.39% margin.  In 1980 Walmart had sales of 1,248,176 and a profit of 41,151 for a 3.3% profit margin.  1979 Walmart had sales of 900,298 and profit of 29,447 for a 3.27% margin.  In 1978 sales were 678,456 and profit was 21,191 for a 3.12% margin.  Last year sales were 378,799,000 and profit was 12,731,000 for a 3.36% margin.  So I would have to say the margin has pretty much been in that range for a while.  All those facts are from Walmart’s site if you want to check for yourself, and all numbers are in thousands.

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You forgot to answer this question, Dave:

How many people have gotten rich owning WMT since 2000?

A study conducted by the Congressional Research Service showed that for every two jobs created by a Wal-Mart store, the community loses three.

P.S. And you didn’t mention last year, or was it the year before, when the profit was less then ½ of 1%? It was the same year Bentonville took an $856 MILLION German bath.

I didn’t answer the question because it doesn’t matter.  Stock price is influenced mostly by public opinion which is easily swayed and is often wrong.  Also if someone bought stock two years ago they would have posted a 30+% return which isn’t bad. 

Second your PS is wrong which isn’t suprising since clearly you are incapable of researching anything and just spew out things that you see other people post on other anti Walmart sites.  2007:3.53 2006:3.69 2005:3.723 2004:3.598 2003:3.51 2002:3.33 2001:3.62 2000:3.6 So every year since he has taken over was in the mid 3’s.  Of the years I’ve checked so far the worst margin was 3.12% and that was during Sam’s time.  So the margin during Lee Scott’s time has matched and maybe even beaten Sam’s time.  The only difference is stock price which a large chunk of it is because then Walmart was an up and coming and now it is huge which leaves a lot less room for growth. 

PS since you seem to not know much about Walmart’s numbers, the years I gave are for the fiscal years ending in January of that year meaning that the number for 2007 actually included mostly 2006.