Wal-Mart’s China Sourcing Decreases

Wal-Mart recently announced its appetite for cheap Chinese goods is still strong and will not decrease over the course of 2008.  Wal-Mart claims this continued sourcing, valued at $9 billion, is possible in the face of inflation because Chinese suppliers have increased their efficiency.  If efficiency means continually ignoring the needs and rights of Chinese workers, Wal-Mart may be on to something.

However, a more accurate announcement might talk about how Wal-Mart has been forced to accept higher prices by some Chinese suppliers—or about how reputable factories will accept low-priced Wal-Mart orders only to outsource them to smaller factories because the profit margin is either too slim or nonexistent.  A more accurate announcement might focus on the volume of imports and not the cost - because, as one Chinese report suggests, Wal-Mart’s sourcing is NOT holding constant; it’s actually decreasing.

Wal-Mart Unlikely to Reduce Chinese Purchases This Year [Daily Economic News, 2/26/08]

Yesterday, Wal-Mart declared that in 2008 its Chinese purchasing would not be reduced.  Wal-Mart will still make direct purchases worth approximately USD 9 billion, the same as in 2007.  Wal-Mart direct and indirect purchasing for 2008 will approximately total USD 18 billion.

Last year, Wal-Mart announced it would substantially reduce its Chinese purchasing causing discontent among suppliers.  Data demonstrate that Wal-Mart’s China purchasing has become an integral part of China-USA trade.  In 2006, for example, national statistics illustrate that Chinese exports to the US totaled USD 203 billion.  According to this journalist’s understanding, Wal-Mart set up its sole global purchasing headquarters in Shenzhen, China.  Each year, this purchasing center buys Chinese goods and supplies them stores around the world.

Nevertheless, even though Wal-Mart indicated 2008 Chinese purchasing will not decrease, it’s also improbable that the spending will increase.  According to a Wal-Mart spokesperson, USD 9 billion in direct and USD 9 billion in indirect purchases has been maintained for two years.  Beyond 2006 and 2007, Wal-Mart’s Chinese purchases were also around USD 18 billion.  Adding in 2008, the figure will have remained constant for three straight years.

Business insiders have analyzed that when one considers the growth rate of China-USA trade along with the influence of the currency exchange rate, Wal-Mart’s Chinese purchasing has actually decreased.

Posted by Michael Mignano on Tuesday, February 26, 2008

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