Watch Out for Rising Prices
Last July, Langsha Group, China’s largest hosiery manufacturer, made headlines when it publicly announced it would no longer fill cheap orders for Wal-Mart. With a burgeoning domestic market and European buyers willing to pay fair prices, Langsha was able to cut business ties with Wal-Mart and continue thriving. In fact, rejecting Wal-Mart’s unreasonable demands became a trend as other factories started closing the door on Wal-Mart as well.
Not much time passed before Wal-Mart and Langsha resumed negotiations and Wal-Mart agreed to pay the higher prices.
If Wal-Mart’s bargaining power in the Chinese market has diminished at the same time that Wal-Mart has committed itself to expansion in China, what safety/fair labor practice/equal employment laws will Wal-Mart have to ignore in order to keep those prices ingratiatingly low?
Wal-Mart Bows to Langsha Group, No More Low Priced Procurement [Xinhua]
In July, China’s largest hosiery manufacturer, Langsha Group, suspended cooperation with Wal-Mart because Wal-Mart’s purchase orders were too cheap.
But according to the latest information, both parties have currently resumed working together. The low priced orders of the past have been changed to higher quality goods.
Wal-Mart Accepts High Priced Orders
Yesterday, Langsha Group’s foreign trade manager, Cao, revealed that Langsha has already continued to receive Wal-Mart purchasing orders. These new orders are for Langsha’s most recently developed high quality products.
In the last two or three years, Wal-Mart’s direct and indirect Langsha orders totaled over $5 million a year. This year, after one month, Langsha seized a $200 million Wal-Mart order. This order’s production will only take until July.
Presently, production costs have increased substantially. Many European companies have been willing to share the responsibility with Chinese manufacturers of increase costs, but Wal-Mart insisted on not increasing prices, not taking into account the manufacturer’s real circumstances. Wal-Mart actually gave prices which would simply give the manufacturer no profit. Despite Wal-Mart’s insistence on low prices, Langsha firmly resisted. That is why both sides stopped cooperating.
Cao reflected, that over the past six months, Langsha hadn’t received Wal-Mart orders, yet currently, after negotiations, Wal-Mart is willing to accept the goods at a higher price. In regards to the current detailed circumstances and order prices, Cao refused to comment.
China’s textile Chamber of Commerce for imports and export’s president, Cao Xinyu, indicated that how many of Wal-Mart’s low priced orders were diverted to peripheral countries and regions, the Chamber of Commerce did not know the numbers. But this situation doesn’t only apply to Langsha, other textile companies have also abandoned low priced orders because of Wal-Mart. This reflects two circumstances: Costs have increased and lead to companies fighting over order prices. This also reflects textile companies’ promotion of increased awareness.
This past year between January and October, Chinese clothing exports, compared to all other exports, increased 10.2%. The average price of an item, however, grew 14%. This rate of increase exceeded this year’s decline in taxes as well as the rising value of Chinese currency. This, to a certain degree, can explain this years clothing export firms’ increased quality and value. It is not simply a pursuit of expansion. That is why exports emerged strongly. The Chinese clothing industries’ current thinking follows a stable low-end market, an expanding mid-market, and a breakthrough high-end market, explained Cao Xinyu.
To view the article in the original Chinese, click here.
Posted by Michael Mignano on Wednesday, December 12, 2007
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COMMENTS
Time for my little lecture on monopsony power.
Most people are familiar with a monopoly. That’s when there is only one seller and lots of buyers. In many areas of the country Walmart is a local monopoly, because it has driven all the other stores away (at least for certain type of merchandise).
A monopsony is the opposite. It is where there is only one buyer, but lots of sellers. The classic example was with labor. If you lived in a company town and the mine operator was the only place to work then he had a monopsony and could pay what ever wages he wished. It was this situation that led to the rise of unions, especially the United Mineworkers.
Walmart has been a monopsony when it comes to many items. The stories about their forcing firms out of business or into unfavorable deals are well-known.
Well Walmart has started to lose its monopsony power in the China. The rise of a local middle class and good relations with the EU and its Asian neighbors means that the market for consumer items in these regions exceeds that in the US. The US consumer may be wealthier, but there are just more of them in the other markets.
Couple this with the fact that the types of items being discussed are designed to appeal to the bottom of the retail sector in the US, which makes them affordable elsewhere either as low end or middle class purchases and you can see why firms can start to ignore Walmart if the terms are not favorable.
I predict we will see more of this in the future. Combine this with the weak dollar and Walmart will face a real rise in costs. They will be forced to pass this along, which will contribute to the inflation which the Federal Reserve claims doesn’t exist.
robertdfeinman in Long Island, NY
Wednesday, December 12 at 05:18 PM
robert china fills the same cheap orders from target,costco and others as well
matthew vantress in gresham oregon
Wednesday, December 12 at 06:13 PM
Not even close in comparison to other stores as Walmart admits to at least 70% of their crap being from China as Walmart is China’s sixth largest trading partner all by themselves. But for some Walmart ‘obsessive-compulsive’ types it must be OK then, huh matthew?
Soupy Sales in
Thursday, December 13 at 02:54 AM
funny soupy morons like you have no problem with higher cost stores you patronize like k-mart,costco,target,kohls and etc selling so much from china and bangladeesh as well.why so dam quiet on that?i could care less where walmart stuff is made because unlike you i am smart enough to know and realize that other retailers sell just as much shit from china as walmart does.sorry i dont buy any govt stats that tell you wm sells the most.
matthew vantress in gresham oregon
Thursday, December 13 at 05:37 AM
vantress-
Wanted to thank you personally for being the Oregon taxpayer sucker of the year 2007-
Oregon
2005 - Total # of Wal-Mart Employees in State: 11,035
2005 - Estimated # of Wal-Mart Workers on Medicaid: 1,457
2005 - Estimated # of Wal-Mart Dependents on State Health Programs: 889
2005 - 2005 - Estimated Total Cost; Federal & State:$8,037,702
For all the years before and since, we want to thank vantress for willingly subsidizing WalMart at the corporate hog trough of public largess.
Thanks vantress for being the WalMart meat popsicle choirboy with the ‘dead conscience’ sucker you are! Kudos from Bentonville and the multi-billionaire Waltons.
Perhaps a candlelight vigil at 182nd and Powell with ghost dancing by yourself will make you feel better.
SanDiegoView in
Thursday, December 13 at 05:59 AM
matthew is that the picture of you n i shaken palms after we write n bitchen?you got a good firm grip but kind of sweaty.next time matt.later.
student of matthew vantress in gresham oregon
Thursday, December 13 at 05:50 PM
Why some of us go after Walmart, then say Costco? Simply because Walmart is leading the trends, not following it.
It is Walmart that has “Anti-Union” policy, this is why GM and other Auto industry has more power over union members.
Tina in New York City, NY
Friday, December 21 at 02:39 PM
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