Wal-Mart’s International Sourcing: A Primer for Activists

Introduction
Wal-Mart’s Global Procurement division was created in 2002, to manage Wal-Mart’s direct import business and factory direct purchasing. Global Procurement is responsible for overseeing the sourcing of merchandise from thousands of supplier factories worldwide. 

The division is also responsible for identifying new suppliers, sourcing new products, building partnerships with existing suppliers and managing the global supply chain of Wal-Mart’s direct imports. The purpose of Global Procurement is to work on issues of quality assurance, conduct inspections of supplier factories, and provide workplace standards trainings from suppliers and factories. The division staff of 1700 is mostly based in Shenzhen with additional offices in 50 countries.

Established in 1992 to improve conditions for workers in Wal-Mart’s supplier factories, the Ethical Standard Program is a subdivision of Global Procurement. The Ethical Standards team is responsible for verifying that supplier factories are in compliance with Wal-Mart’s Standards for Suppliers and local law. The program is in charge of the administration and execution of supplier factory audits in supplier factories from which Wal-Mart directly sources and is the importer of record.

This primer looks at Wal-Mart’s procurement and sourcing systems, as well as some of the problems with factories in China, Bangladesh, and other countries where their sourcing model has failed to protect the rights of workers and to live up to Wal-Mart’s own standards.

As the world’s largest company, and a member of fair labor standards like the Ethical Trading Initiative and Global Social Compliance Programme, it is Wal-Mart’s responsibility to step up its game and be a leader and innovator in the sourcing realm as it has done in the retail industry. While studying the various cases involving sweatshop abuses and Wal-Mart, three notable patterns emerged:

1.) Wal-Mart’s failure to adequately enforce its own Supplier Standards in the factories
2.) Wal-Mart’s inability to implement a system of accountability with factory owners and managers
3.) Wal-Mart’s continued insistence on getting the lowest price possible from suppliers

Wal-Mart’s Procurement and Sourcing Model
With a gargantuan supply chain and supplier factories worldwide, Wal-Mart’s procurement and sourcing model have left an indelible mark and created their own unique web of exploitation.  It is for these reasons that the retailer continues to be repeatedly scrutinized by labor and sweatshop activists, as well as for being unsustainable, unfair, and inhumane.  Additionally, the company has been working to make surface changes to placate critics instead of delving into the root of the problem, which is their international supply chain.

In the latest version of Wal-Mart’s Ethical Sourcing report, the company proudly claims that the number of unannounced audits in its supplier factories have increased to 26% from 20%.  This low rate is problematic because announced visits allow factory owners time to coach their employees with scripts detailing the greatness of the factory and hide any problems as has been documented by organizations like the National Labor Committee.

Additionally, as noted by the International Labor Rights Fund, “sadly, looking forward, Wal-Mart does not offer any new, concrete benchmarks for improving workers’ conditions… Wal-Mart admits that “details of the strategy, including milestones and metrics, are still being developed” and that we will have to wait until the next year’s Ethical Sourcing Report for specifics. In other words, there are no goals for the coming year.”

Case Study: Wal-Mart’s Relationship with Chinese Sources

China has welcomed Wal-Mart’s demand for cheap goods, but Wal-Mart’s push for low prices has had a negative effect on its reputation with factories. Since Wal-Mart demands goods at such low prices, worker wages are depressed, compliance with regulations safety measures are rare, and profit margins are extremely small. According to Chinese business executive Shao Zhuliang, “it’s always hard to make money from Wal-Mart orders.” And the pressures facing suppliers are getting worse:  As Wal-Mart scales back its demand because of slumping retail sales, profit margins will be even tighter for the Chinese companies.

Many factories make up for low profit margins by forcing laborers to work overtime with little rest. For example, at a hardware and plastics factory in Guangdong, China, of which Wal-Mart was a “major buyer”, workers toiled “80.5 to 85.5 hours a week, working seven days a week and often going for months without a single day off.” At another factory which supplied Wal-Mart with dolls, China Labor Watch and the National Labor Committee revealed workers were forced to labor “up to 94 hours a week.”

Despite such long hours, factory workers at Wal-Mart supplier factories often make very little money. A China Labor Watch report detailed 15 Wal-Mart suppliers and found that “some pay as little as half the minimum daily wage, require mandatory overtime, or provide not health insurance.” The National Labor Committee suggests that Wal-Mart’s supplier factories are the equivalent of “well-run prisons.” Even at Wal-Mart’s own Chinese distribution center workers have been illegally denied overtime pay. 

Such slim profit margins and labor abuse have led some factories to reject Wal-Mart orders.  China’s largest hosiery manufacturer announced in July 2007 that it would no longer accept Wal-Mart orders because the orders weren’t profitable.  Many suppliers also reject Wal-Mart’s requests to buy directly from factories noting that the risks and logistics of working directly with Wal-Mart are not worth the price.

According to the China Business Newspaper, “those in the supply chain who cooperate with Wal-Mart all know one latent rule: do not attempt to raise prices.  Wal-Mart will refuse.” And yet, even though many suppliers in China have yielded to Wal-Mart’s low price demands and are producing for little profit, Wal-Mart is looking to other places, such as India and Africa, for “cheaper alternatives”.  Many European companies “have been willing to share responsibility of increased costs, but Wal-Mart has insisted on not increasing prices, not taking into account manufacturers’ real circumstances.”

Case Study: Wal-Mart in Bangladesh
Among their main procurement and sourcing countries, Bangladesh stands at the top of the list as a major garment supplier for Wal-Mart.

The first major violation in international labor rights was in 1993, when Wal-Mart was on NBC’s Dateline News for selling merchandise made by child laborers in Bangladesh.  Children in Bangladesh were forced to work for five cents an hour while Wal-Mart falsely indicated that their garments had been “Made in USA” consistent with their 1985 image campaign.

However, despite the many years of constant criticism and urge for labor rights reform, in 2006, 200 to 300 children were found to be working at a Bangladesh factory which supplied pants for Wal-Mart.  The National Labor Committee released a report on the Harvest Rich plant, stating that the children were not only forced to work unpaid overtime hours but also “routinely beaten by supervisors, cheated out of their wages, and denied government holidays”.  Not only is it against the Bangladesh labor law for children under the age of 14 to work, the minimum wage for trainees/helpers is USD $22.00 a month.  However the helpers at Harvest Rich were 11 to 13 years old, and only received USD $13.88 a month.  After the report was released, Harvest Rich fired its children workers, forcing them to the streets in order to continue their business with American companies such as Wal-Mart.

As a result of Wal-Mart’s cut and run business model with suppliers, in October 2008, Sweat Free Communities revealed further labor violations by Wal-Mart suppliers. According to the report, a Wal-Mart supported monitoring organization certified a factory that allegedly “force[d] workers to toil up to 150 hours of overtime each month”, “verbally and physically threatened, beaten, suspended, and fired” workers and did not pay enough wages to the workers. 

This pattern of negative work force in Bangladesh factories is resulted from Wal-Mart’s inability to tackle the core problem with its suppliers. Wal-Mart needs to stop the abusive work environments by halting its cutting and running with suppliers, Instead of shifting the blame to factories, it should reform the company’s ineffective auditing process and stop presenting its misrepresentative “ethical sourcing” reports. 

Other Failures & Breakdowns Around the World
Wal-Mart’s infiltration of foreign markets comes at great expense to local and international communities. As the largest retailer in the world, Wal-Mart’s sourcing and procurement practices set unsustainable, unconstrained, and unethical standards of conduct for the global retail industry. Wal-Mart’s most egregious of these betrayals lies in their sustained relationships with dubious factory owners.

Consistently, Wal-Mart has been documented as having links to sweatshop labor all over the globe including in Cambodia, the Dominican Republic, and Jordan. 

Ms. Phal Savin works for Wal-Mart’s supplier King’s Land Garment Cambodia Company. “The minimum wage in Cambodia is about $50 USD a month. However, according to the pay stubs of Ms. Phal Savin, she was paid more than $50 USD only once over a ten month period.”

In the Dominican Republic, Wal-Mart was the largest client of TOS Dominicana Textile Factory, through their supplier relationship with Hanesbrand Inc. who owns the factory.  This factory is one of the largest in the D.R. and has approx.1,100 workers.  The Worker Rights Consortium notified Hanesbrand on June 6, 2007 of the violations taking place at the factory including forced and unpaid overtime, coercion of workers, verbal abuse, etc. “…These violations were neither acknowledged or addressed.”

Petra Apparel, which supplies Wal-Mart, was just recently documented in Jordan. Violations here included forced and unpaid overtime, unpaid minimum wages, verbal harassment, etc.  “Workers…are routinely hit for making mistakes, for speaking during working hours, or for taking too long in the bathroom.”

“Wal-Mart says it inspects thousands of supplier factories each year in dozens of countries. But since no outside body such as Social Accountability International (SAI) or the Fair Labor Association (FLA) is involved and Wal-Mart won’t release its audits or even its factories’ names, the public is left to take the company’s word for it.”

Wal-Mart has a history of abusing foreign labor, yet this is not just “history.” Wal-Mart continues to maintain relationships with factories that do not meet their own Supplier Standards. Wal-Mart’s professed concerns for ethical sourcing have not met the reality of their infamous international procurement practice.

Conclusion
Discouraging Wal-Mart’s coercive sourcing requires a continued and diligent effort by consumers, international activists, and organizations in educating buyers about Wal-Mart’s poor sourcing practices. Wal-Mart’s ability to put increased pressure on other companies to conform to their unrealistic price standards, affects the expectations of the entire retail industry. Improving Wal-Mart’s foreign procurement model will go a long way to alleviate the suffering of severely impoverished factory workers.

Posted by Michael Mignano on Tuesday, November 25, 2008

Click Here for a Printer-Friendly Version