WAL-MART IN CHINA

WAL-MART IN CHINA

20080316-china wal mart watch.jpg Wal-Mart, the world’s No.1 retailer, entered the market in 1996 with a store in Shenzhen. By 2003 it had 31 stores with 16,000 employees. As of the mid 2000s, it was mostly in major cities like Beijing and Shenzhen and was moving into second tier cities. Wal-mart is hoping to cash in a Chinese bargain hunting instincts. One Wal-Mart executive told Time, “Chinese are more open to Americana than shopper sin Europe.

Wal-Mart had 353 stores in mainland China as of October 2011. The Economist reported in 2011: “Walmart entered China, five years before the country joined the World Trade Organisation and liberalised its retail sector. Yet despite starting early, it has advanced slowly. In 2006 it took over Taiwan’s Trust-Mart, which added more than 100 shops to its Chinese operations. Today Walmart has shops in 124 Chinese cities, with 90,000 employees and annual sales of some $7 billion. Not bad, but that amounts to less than 3 percent of its sales in America. Worldwide, Wal-Mart operates more than 10,000 retail stores under 69 different names. [Source: The Economist, May 19, 2011]

In 2006, Wal-Mart had 60 stores in 30 cities, including a giant Wal-Mart "Super Center" and eight others in Shenzhen. Its sales rose 30 percent to $2 billion in 2006, making it China’s 10th largest retailer but still less than one percent of Wal-Mart’s total sales. It planned to open 18 stores in 2006 . One Sam’s Club store recorded $100 million in sales in 2005.As of 2006, Wal-Mart had a work force of 30,000 and had plans to hire 150,000 more employees over the next five years, The turnover rate is in the teens far lower than the United States where it typically hovers around 50 percent.

Wal Mart is China’s seventh largest export market. It bought $18 billion in goods from China in 2005 and $22 billion in 2006. More than 12 percent of China’s exports to the United States end up at Wal Mart stores and trade with retailers accounts for 1 percent of China’s GNP.

Wal-Mart buying and selling power is so strong its can dictate the price that manufacturers in China get for producing goods and what American customers will pay. Wal-Mart has been accused of putting so much pressure on Chinese companies to cut costs they have no choice but to provide poor working conditions for workers. Wal-Mart has been able to reduce the prices of things like portable DVD players and make them affordable and drive competitors to bankruptcy that can’t keep up.

Wal-Mart as a Business in China

Orville Schell wrote in The Atlantic, Although Walmart’s $7.5 billion in Chinese sales receipts account for only 2 percent of the company’s annual revenues, its sales in China have risen substantially over the past decade. And as China’s retail market---the world’s fastest-growing---expands by 18 percent a year, Walmart’s executives smell the intoxicating scent of more growth to come. Equally important, if not more so, some 20,000 Chinese suppliers, or “partners,” reportedly provide Walmart with about 70 percent of the nearly $420 billion worth of goods that it sells globally each year. (Because of the complexity of the global supply chain, the percentage from China is hard to calculate.) China has become so crucial to Walmart’s supply chain that in 2002, the retail giant moved its global sourcing headquarters across the border from Hong Kong to Shenzhen, in southern China. [Source: Orville Schell, The Atlantic, December 2011]

Wal-mart is admired in China as a well-run company. It appeals to local tastes by offering popular Chinese products like live frogs and eels, roasted duck, and turtle blood. Many of its employees even like working there. At meetings in Shenzhen Wal-mart employees blow whistles and sing the company song. Awards are given to tearful employees of the year. Employees at Wal-Mart’s China headquarters have set up a branch of the Communist Party.

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Wal-Mart live food section

Wal-Mart has had success adapting itself to Chinese markets. Some stores offers live river fish, eels and turtles that are slaughtered right on the spot. Sometimes customers catch them in fish tanks with nets, watch as a clerk guts and cleans them and takes them home in plastic bags along with the bloody organs. Shoppers turned up their noses at the idea of buying dead fish wrapped in plastic and Styrofoam. Wal-mart also sells moisturizers made with sheep placenta which is purported to reduce wrinkles. In the year of the monkey, considered a good year to have a child, it loaded up on diapers.

After entering China in 1996, Wal-Mart's expansion gathered steam in 2007 when it bought a 35 percent stake in Taiwanese hypermarket discount chain Trust-Mart. Operated by a Taiwanese firm, Trust Mart has 101 big-box stores in 34 cities in China in 20 Chinese Provinces. Wal-mart spent $1 billion and outbid Carrefour to obtain Trust. The deal with increase the number of Wa-Marts to around 200 generating $2.6 billion in sales. A small fraction of the Wal-marts $312 billion in annual sales.

As first-tier cities and even second tier cities have become saturated Wal-mart is increasingly shifting its focus towards the hinterlands. It has opened stores in places that aren’t mentioned in travel guides like Loudi, a steel and mining city of 4 million in impoverished Hunan Province, Wuhu in largely agricultural Anhui Province and Maoming in Guangdong Province.

Wal-Mart's market share in hypermarkets was 11.2 percent in 2010, in second place after China's Sun Art, but spending for the expansion has weighed on its profitability. Wal-Mart's problem is that it is trying to compete with domestic chains on price, said Shaun Rein, managing director at Shanghai-based China Market Research Group."If your strategy is 'cheaper than Chinese companies', you are never going to win the market," Rein said. "But that is what Wal-Mart is trying to do. The strategy is all wrong since the very beginning, and that is why it has never been profitable here." Wal-Mart competes with French hypermarket chain Carrefour, Britain's Tesco, Germany's Metro AG, China's Sun Art and China Resources Enterprise. Domestic competition also comes from retailer like Wumart in the Beijing areas and Lianhuan in the Shanghai area.

Problems for Wal-Mart in China

But Wal-Mart has been unable to replicate the efficient logistical system it has in the United States largely because it lacks scale. The Sam’s Club warehouse outlets in Beijing and Shenzhen didn’t go down so well because most Chinese homes don’t have ample storage facilities for bulk supplies.

Wal-Mart’s staunch anti-union policy has been put to the test in China. In a country where unions are usually powerless, the government-backed union put considerable effort into is try to organize Wal-Mart’s workers. In August 2006, after years of fighting, Wal-Mart agreed to unionize all of its outlets in China. Critics of the store wondered why they can’t so the same thing at home om the United States. The Economist reported: "Marc Blecher’s 2008 article in Critical Asian Studies (When Wal-Mart Wimped Out) interprets the significance and considerable irony of the ACFTU’s decision to compel the world’s largest corporation and outspoken opponent of unions to organize ACFTU branches in its sixty stores in China."

In October 2011, Reuters reported: The head of Wal-Mart’s China business resigned citing personal reasons, after the world's largest retailer ran into trouble with Chinese authorities leading to store closures and employee detentions following allegations they sold regular pork as organic pork over the past two years. The departure of China CEO Ed Chan, along with Senior Vice President of Human Resources Clara Wong, is another setback for Wal-Mart which is facing stiff competition from local firms in the strategically important market. Authorities in Chongqing have arrested two Walmart China employees and detained 37 others over the incident. [Source: Melanie Lee and Donny Kwok, Reuters, October 17, 2011]

Wumart

The Economist reported: “A heap of raw chickens greets customers at a Wumart store in Beijing, piled up on a table without packaging or protection against passing sneezers. The shop front is dirty, the decor shabby and the goods inside are displayed without the slightest attention to aesthetics. But the prices are wonderfully low. [Source: The Economist, May 19, 2011]

A comparison of Walmart’s Chinese operations with those of Wumart, a Beijing-based chain, is illuminating. Wumart is cheaper---hence that heap of raw chickens. Walmart is considered fancier, a fact that may surprise American shoppers. Its stores are well-lit and spotlessly clean. Its wares are safe, reliable and tastefully displayed, though they differ somewhat from those on offer in Arkansas. Basins brim with live fish and sea turtles that clients can kill at home or have slaughtered on the spot. Other delicacies include birds--- nests, pigs’ feet and sea cucumbers (which resemble foot-long aquatic slugs). [Source: The Economist, May 19, 2011]

Wumart, the Beijing-based chain, was founded in the early 1990s by Zhang Wenzhong, who had developed an IT system for retailers while at Stanford University but found that retailers weren’t interested in it. He returned to China and opened his own chain of stores. By 2005 Wumart had more than 450 hypermarkets, supermarkets and convenience stores. He aimed to have 1,000 by 2010, but that did not happen. Wumart today has 469 shops with annual sales of 14 billion yuan ($2 billion). Mr Zhang, alas, is serving an 18-year prison sentence for bribery. His store is big in Beijing, tiddly elsewhere but still ambitious. “We dream about being the Walmart of China,” says Fu Yu, a Wumart spokesman. Wu Jianzhong, Wumart’s chairman, thinks Chinese stores need to spruce up. “Foreign retailers wear suits when they welcome visitors, while the Chinese wear shorts because they feel they are familiar with their clients,” he sighs. Chinese executives should at least wear long trousers, he reckons. Otherwise foreigners might win the fierce fight for footfall (retail jargon for the number of shoppers).

Inside a Walmart Store in Beijing

Orville Schell wrote in The Atlantic, “Beside the fifth Ring Road, one of the superhighways encircling Beijing like concentric shock waves radiating outward from the epicenter of an earthquake, sits an enormous big-box installation, one of thousands now proliferating throughout China. The parking lots flanking it are gridlocked with late-model cars and ruddy-faced peasants-turned-workers pushing long, snake-like trains of shopping carts toward the entrance. [Source: Orville Schell, The Atlantic, December 2011]

Stepping into the building’s vast, windowless interior, I have the sense of entering an oversize Fabergé egg. But instead of refined scenes of aristocratic czarist life, I encounter thousands of middle-class Chinese engaging in the newest, and already the most inalienable, right in this erstwhile “People’s Republic”: shopping. This is the Shijingshan Shanmuhui, a Sam’s Club, one of the 352 stores that Walmart now operates in 130 Chinese cities.

Just inside the doorway, a scrum of salespeople hawk everything from roasted sweet potatoes to fitness-club memberships and massage chairs. Throngs of energetic customers push overflowing carts (fitted with data screens touting the latest bargains) making that familiar sound of wobbling rubber wheels on concrete. Indeed, its familiarity makes me feel I’ve been astrally projected back to Walmart’s natal place”Bentonville, Arkansas, which the current president and CEO, Michael Duke, recently referred to as the “Lighthouse of the Ozarks.”

But the young Chinese women workers in green aprons and sanitary masks make it undeniable that we’re a long way from the Ozarks. They call out their wares in Mandarin, proffering samples of soya-bean milk, date juice, and lychee jelly. Around them are mountainous piles of fresh pig intestines; pillow-size bags of dried fungus, seaweed, and mushrooms; packages of desiccated deer tendons (still attached to hooves!); inky-black dehydrated sea slugs; glistening octopuses on nests of chopped ice; and tanks of gulping fish, dazed frogs and turtles, and hyperactive shrimp.

Walmart as a Force of Change in China

Orville Schell wrote in The Atlantic, The world’s biggest corporation and the world’s most populous nation have launched a bold experiment in consumer behavior and environmental stewardship: to set green standards for 20,000 suppliers making several hundred thousand items sold to billions of shoppers worldwide. Will that effort take hold, or will it unravel in a recriminatory tangle of misguided expectations and broken promises. [Source: Orville Schell, The Atlantic, December 2011; Orville Schell is the Arthur Ross Director of the Center on U.S.-China Relations at the Asia Society]

As I tramped across the country, from Shenzhen to Manchuria and from the North China Plain to Sichuan province, visiting Walmart retail outlets, factories, farm cooperatives, and executive offices, the Walmart/China axis loomed as something unprecedented. Beyond the sheer scale of the relationship, what struck me was how interactive Walmart and China have become. These two colossal entities, with such utterly different provenances---the world’s largest corporation and the world’s most populous country---have somehow managed to meet and maintain a state of relatively steady symbiosis, each fulfilling vital needs for the other. Just as China is providing Walmart with the lifeblood of its commercial growth, Walmart is helping the Chinese state not just to satisfy the escalating demands of its consumers but to extend Beijing’s regulatory writ. Together, they are engaging in a bold experiment in consumer behavior modification, market economics, and environmental stewardship. Just how this unlikely partnership will affect the evolution of these two larger-than-life entities is as yet uncertain. But one thing is already clear: how Walmart and China interact with each other over the next decade will be critical to the fate of the planet’s environment.

Since the 1980s, many U.S. corporate leaders, policy pundits, China watchers, and politicians have suggested that the best way to curb China’s dedication to Leninism is to bathe the Chinese people in the solvent of the open marketplace. But although China has proved remarkably susceptible to the lure of “marketization,” its one-party system has shown little receptivity to political reform, especially to democratization. The Chinese Communist Party has always fiercely resisted any notion that it can be “changed,” especially by outside pressure.

Of course, over the past century and a half, most of the foreign missionaries, merchants, military emissaries, and educators who have sallied forth in hopes of “changing China” have returned home with little to show for their efforts. Like nitinol, a unique nickel-titanium alloy that possesses “shape memory,” bending at low temperatures only to regain its original form when heated, China has long rebuked foreign efforts to change it. So one might plausibly wonder why Walmart, a company that is so indelibly American, might now have an experience that is any different.

Indeed, Walmart has deep roots in conservative, southern, small-town, fundamentalist-Christian, anti-union, middle-American values. The founder, Sam Walton, was an ardent capitalist, devoted Christian, and militant anti-Communist who rolled all these values up into a quasi-religious/political credo, a founding faith for a business praised by then---Vice President Dick Cheney as “one of our nation’s great companies,” exemplifying “some of the very best qualities in our country---hard work, the spirit of enterprise, fair dealing, and integrity.”

Walton opened his first store in rural Rogers, Arkansas, in 1962. His policy of low markup and high volume---under the banner of “Always Low Prices. Always”---found immediate favor with ordinary Americans, as did the folksy bonhomie of the company’s business practices and corporate culture. By 1985, Walton had become the richest man in America---a billionaire everyone can love,” as USA Today once dubbed him---and by 1989, Walmart was operating in 29 states. Then, in 1991, the company opened its first international store, in Mexico. Since then, with only a few notable failures (in Germany, Russia, and South Korea), it has continued to expand abroad. By 1999, Walmart had become the largest private employer in the world, and in 2003 Fortune magazine pronounced it the nation’s most admired company.

Similarities Between Walmart and China

At first blush, Orville Schell wrote in The Atlantic, such a pedigree would seem to make Walmart an unlikely candidate for an alliance with the People’s Republic of China. And when the company arrived there in 1996, the country was terra incognita for Walmart executives. But the Bentonville behemoth actually shared more commonalities with its new partner than were first apparent---a curious alignment of goals and policies, even of organizational structures and “ideologies.” [Source: Orville Schell, The Atlantic, December 2011]

Both are animated by a mythologized grand progenitor. Sam Walton’s smiling visage (beneath a shovel-billed company cap) today hangs prominently in Walmart stores, much as Mao Zedong’s iconic image still hangs in Tiananmen Square and adorns China’s increasingly powerful currency. Even today, these founders---successors rule supreme---as Walmart’s CEO and as the Chinese Communist Party’s secretary general.

Each is not only unelected, but also anointed with quasi-cultish Big Leader status to reign over a fundamentally authoritarian organization held together by an elaborate belief system or ideology bordering on the religious. And each presides over an enormous and complex apparat staffed by a professionalized core of operatives---namely, Party leaders and cadres in China, and senior executives and mid-level managers at Walmart.

Each of these leviathan organizations seeks to influence the outside world through the media, advertising, and PR while at the same time maintaining the kultur among its own minions, through written propaganda, motivational campaigns, and sometimes coercive measures aimed at bringing refractory “comrades” or “associates” back into line. In fact, each system employs a significant amount of monitoring, even outright electronic surveillance, to make sure that employees and citizens and customers alike stay within the boundaries of “correct” behavior.

And finally, each professes a proud populism, always proclaiming a responsibility to better service. China’s leadership, with its socialist roots, has long stressed “serving the people,” while Walmart, with its capitalist roots, emphasizes “service to the customer.” In fact, Walmart stores in China prominently display personnel charts that are inverted pyramids, with the customers and lowest workers situated on the top tier and the managers on the bottom.

Just as Mao’s revolution elaborated an all-encompassing code of conduct and ideology, “Walmart culture,” known in Chinese as Woerma wenhua, became a set of principles that, in the words of one employee quoted in Derek J. Davies’s insightful article on “corporate cadres” in the forthcoming Book Walmart in China, “are not simply rules for a style of work, but are kind of “a way of life.” This notion of an all-embracing culture has created a shared contradiction: while neither organizational structure is comfortable with dissent, they both value, and depend on, innovation. Leaders are left to confront the same question: How, in such a tightly controlled and closely monitored organizational structure, can they encourage the kind of independent, creative spirit that is essential to surviving and maintaining a competitive advantage?

In that respect, if China wants to keep developing its hybrid form of authoritarian capitalism, its leaders could do worse than to learn from Walmart, a corporate entity larger in scope and logistical complexity than any other in human history: Its 9,700 stores in 28 countries, supplied by a network of more than 100,000 sources in 60 countries, are staffed by some 2.1 million employees serving 200 million customers a week. Compare Walmart’s annual revenue with the GDP of sovereign nations, and it ranks in the top quartile. In many ways, the company is like a country. Its CEO, when abroad, is treated almost like a visiting head of state. Senior executives in charge of overseas operations function like diplomats, signing agreements with governments and businesses and managing the company’s interests. The various national arms of the Walmart Foundation operate almost like a government foreign-aid program. Even Walmart’s stores, arrayed around the world, seem almost as representative of America as our consulates and embassies.

Walmart and China Go Green

Certainly there are lessons for China in Walmart’s evolution over the past decade, Orville Schell wrote in The Atlantic. By 2005, the company’s steady expansion had made it a magnet for criticism and earned it a reputation as a rapacious, anti-labor-union, un-environmental “big box” destroyer of small towns and independent businesses. Walmart CEO Lee Scott, fed up with being viewed as an environmental despoiler and everyone’s punching bag, decided to turn the company around. With the help of a small consulting firm, Blu Skye Sustainability, in Sonoma County, California, Walmart embraced the idea of sustainability with the mantra to “do well by doing good.” According to Edward Humes, the author of Force of Nature: The Unlikely Story of Walmart’s Green Revolution, Blue Sky insisted “that inefficiency and waste were omnipresent, even in a notoriously stingy company like Walmart, with the waste not only damaging the environment, but damaging the company’s bottom line as well.” Identify and cut out the waste in areas like packaging, shipping, and energy use, Blue Skye’s Jib Ellison said, and Scott would solve his company’s image problem and make a better return on investment. [Source: Orville Schell, The Atlantic, December 2011]

With some 30,000 Chinese factories making things for Walmart, the company’s future was tied to China in the most elemental way. So Scott and his team knew that Walmart could never truly “green” its supply chain without taking on its Chinese partners. But, if China was going to be the laboratory of the future, it was difficult to imagine how even Walmart could wrangle such a far-flung and disparate range of suppliers into a responsive group.

On October 22, 2008, with the CEOs and factory managers of more than 1,000 Chinese Walmart suppliers listening in the the Valley Wing Grand Ballroom of Beijing’s Shangri-La Hotel, Scott launched Walmart’s China Sustainability Summit by saying: “When Walmart first came to China,” he declared, “the government said that it expected us to be a model retailer. We have worked hard to try to meet those expectations and to save money in the process.” He spoke without any dramatic oratorical pauses or expressive hand gestures. “And with the Chinese government expanding its goals for sustainability it just makes sense that Walmart would be committed to being a more sustainable company here in China.”

As Scott continued in the cavernous and, by now, completely still room, he conveyed utter conviction. “Look around: we have 1,000 suppliers here. A year from now, each and every one of you who chooses to make a commitment will be a more socially and environmentally responsible company. And that will make a difference. It will make a difference for you, for Walmart, for China, for our customers, and yes, for the planet.”

Acknowledging that Walmart customers “need low prices,” he said he also believed that “more and more, they will be looking at the entire life cycle of a product: How is it made, how is it sold, how is it used, and how is it reused? To meet these customer expectations, we need to ask ourselves: Is a product made in a factory that is a responsible steward of the environment and our natural resources?”

On the crucial role of energy use, Scott declared, “The final factor that I see at work in bringing us here today is an increase in the global demand for energy and what that means for climate change.” Then, as if he were, in fact, a foreign minister, Scott warned: “This will be one of the greatest economic, environmental, and perhaps security challenges that the world will face in the 21st century? Meeting social and environmental standards is not optional. I firmly believe that a company that cheats on overtime and on the age of its labor, that dumps its scraps and its chemicals in our rivers, that does not pay its taxes or honor its contracts, will ultimately cheat on the quality of its products.”

As his listeners were digesting all this, Scott assured them that Walmart was willing to “work with” them. But then he dropped the trap door: “If a factory does not meet these requirements, they will be expected to put forth a plan to fix any problems. If they still do not improve, they will be banned from making products for Walmart.” Like a priest admonishing parishioners to accept Communion or be excommunicated, Scott explained that each supplier would have to make a commitment to comply with these environmental standards. (Ultimately, they would also be required to open themselves to third-party auditors.) “Some may wonder, even inside Walmart: With all that is going on in the global economy, should being a socially and environmentally responsible company still be a priority?” Scott did not yield an inch. “You?re darn right sustainability should be a priority!”

Walmart’s Organic Products

Scott gave his speech about making Walmart a socially and environmentally responsible company, Orville Schell wrote in The Atlantic, as growing numbers of Chinese were also becoming worried, even frightened and angry, about pollution, adulterated foods, and the corruption that kept local government agencies from taking remedial actions. And because more and more Chinese were not only erupting into spontaneous protests as a way to get action, but also looking to NGOs rather than to the government for relief, and because even the press had become more activist, the government became concerned about the impact of environmental damage on the stability of the country. [Source: Orville Schell, The Atlantic, December 2011]

The number of scares involving illegal chemical additives in food was creating particular alarm. In 2008, milk products were found to contain melamine, a coal-based industrial chemical that, when ingested, can cause kidney stones and renal failure. (Melamine had been regularly used to give milk powder and baby formula a seemingly higher protein content.) As a result, some 300,000 Chinese consumers were sickened and at least six infants died. The Chinese government reorganized its food-inspection system in response, and its new Food Safety Law went into effect in 2009. Nonetheless, the dairy industry was hit again with scandals this year.

In the spring, hundreds were sent to the hospital when hogs from 16 provinces were found to have been fed a “lean meat powder” containing the toxic chemical additives ractopamine or clenbuterol, to produce less-fatty pork. In Guangdong province, authorities discovered and destroyed 45 tons of vermicelli noodles adulterated with industrial wax and ink; in Shenyang, police seized 40 tons of bean sprouts that had been illegally bathed in urea, sodium nitrite, antibiotics, and the plant hormone 6-benzyladenine, to make them grow faster and appear fresher. The food-safety situation became so serious that on April 14, Premier Wen Jiabao took the unprecedented step of speaking out, saying the recent scandals indicated that “dishonesty and moral degradation” had become a serious problem.

No wonder, then, that many in China’s burgeoning middle class, especially those with children, are seeking refuge in brand-name restaurants---particularly fast-food chains such as McDonald’s and KFC---and grocery markets such as Walmart. Walmart has several times come under fire in China for selling produce tainted with toxic chemical residues, and for mixing organic and nonorganic foodstuffs: this fall, for example, the Chongqing municipal government fined Walmart, and temporarily closed some of its stores, for mislabeling pork as organic. Still, because Walmart is a well-known multi-national corporation with so much at stake in terms of its global brand, Chinese shoppers have assumed that it will be a more trustworthy outlet. (Of course, Americans and Europeans have exactly the opposite reaction, seeking safety in small organic producers rather than big corporations.) And since the Chinese government, too, is concerned about people’s health and social stability, and its own legitimacy, it tends to see these larger, well-branded outlets as both models and responsible allies. “The government is still the most powerful force in China, and they have just adopted their 12th five-year plan, emphasizing food safety and domestic consumption,” David Gao, Walmart’s government-relations director for China, told me in the company’s Shenzhen headquarters. “If we want to push sustainability efforts and grow here, we have to have government support. So we want to align our strategy with government interests. And quite frankly, because the overall business climate for sustainability is favorable, I can’t think of any reason for not doing this.”

At the Shijingshan Sam’s Club on the periphery of Beijing, produce counters are stocked with three kinds of fresh products: youjide (organic), lusede (green), and wugonghaide (hazard free). A deputy manager tells me that sales of organic produce, meat, eggs, and oils have grown by almost 20 percent a year. When I stop a number of shoppers in the organic-produce section to ask them why they are willing to pay substantial premiums for food that looks the same as ordinary food, most show a characteristically wary Chinese attitude toward answering any question from a stranger and wave me away like a bad smell. But some agree to talk. One man says that he buys organic “because there are so many fake products on the market, and I am worried about my health.” A young woman tells me, “If my salary was high enough, I would only eat organic.” Another woman, with daughter in tow, says, “Some places will take rotten tomatoes and put them in the middle of good ones and then wrap them up in plastic. In my local supermarket, who knows? But I trust Walmart to buy the best.”

Walmart’s green and organic products are clearly designated with special labels that name the province and region where they were grown. Much of this food is sourced from the Direct Farm Program, which Walmart established in 2007; in 2008 the commerce and agriculture ministries invited Walmart to join their new, similar program. This initiative created a national mosaic of new agricultural hezuo she, or “cooperatives,” which echo the long-dismantled mandatory collectives and communes of the Mao era, but this time around have been formed voluntarily by regional farmers banding together to gain market clout and sell directly to large chains like Walmart.

“By buying directly through these co-ops, Walmart eliminates pieces of the supply chain that are not productive,” Leslie Dach, the company’s executive vice president for corporate affairs, tells me. “And we found that we can raise farmers’ income, supply them with extension-like services, and give them greater market access. On top of that, we can get stuff fresher and thereby cut down on food spoilage, which reduces waste and helps us lower our prices.”

Producing Sustainable Fruit for Walmart in China

Orville Schell wrote in The Atlantic, Direct Farm offers one other incomparable benefit: by dealing directly with farmers, a retailer is better able to control the standards of food it advertises as green or organic. This is a huge asset in a country where few people trust an organic label not backed by a recognizable brand-name source. Still, as the Chongqing scandal shows, Walmart’s supply chain---or any other, for that matter---is hardly foolproof. [Source: Orville Schell, The Atlantic, December 2011]

To traverse the emptiness of the almost treeless steppes of Liaoning province in Manchuria, but at the same time drive on a magnificent, eight-lane freeway that runs parallel to a new high-speed overhead rail line (linking the port of Dalian to the provincial capital of Shenyang), is to experience one more of those seemingly infinite moments of counterintuitive amazement that now regularly jolt visitors to China.

As our van passes through hundreds of square kilometers of rolling cropland whose red earth has been manicured into squares of meticulously pruned vineyards and orchards of apple, pear, peach, and cherry, Liu Mei, who, with her sister, Liu Yan, founded one of the most successful fruit-distribution businesses in China, tells me her family’s story. Her tall, spike-heeled black-leather boots, dark-silk evening wear, and stylish coiffure hardly suggest the surrounding countryside, much less her odyssey from penurious post---Cultural Revolution watermelon vendor to mega-agri-entrepreneur. But of course, in today’s China, such rags-to-riches stories are not unusual. Liu Mei, who has adopted the English name Lucy, tells me how Walmart advisers initially visited the family-owned Dalian Xingyeyuan Group to explain how, by selling directly to large outlets, the business---and the co-ops with which it worked---could be more efficient and profitable.

“We learned a lot about quality, pricing, and management from Walmart,” she says. “At first, we didn’t quite understand, but they patiently explained consumer demand to us. So we came to understand that Walmart not only had vision about these things, but also were the strictest in maintaining standards. Now we have started moving from green to organic.”

We arrive at her company’s local fruit-packing plant, the Dalian Glory Times Logistics Company, a large U-shaped building, once a school, standing alone in the midst of a patchwork of orchards. Here Dalian Xingyeyuan’s fruit is collected, sorted, stored in nitrogen-filled cold rooms, packaged, and shipped to its 1,000-plus warehouses in more than 100 cities all over China.

“Over the last couple of years, the problem of food safety has made people think hard about the origins of what they eat,” Liu earnestly tells me. “There are companies that put profit ahead of quality, so many consumers are coming to trust big names like Walmart, which has been a leader in organic food here and does pay real attention to inspections and standards.” She pauses before adding, “We have learned from Walmart how to become a company with a social conscience.” Then, suddenly sounding a little like a Catholic pilgrim reporting back on a tour of the Vatican, Liu proudly announces that she has actually been to Bentonville.

Walmart Fights Pollution in China

Dealing with China’s out-of-control industrial pollution has in many ways been far harder for Walmart than greening its agricultural product lines, Orville Schell wrote in The Atlantic. One thing the company did early on was enlist the help of NGOs to monitor and train workers at its suppliers’ factories. This was a bold move, especially in a country where not only are NGOs still relatively undeveloped, but the government and the Party have a deeply ambivalent relationship with civil society.

One of the people Walmart turned to was Ma Jun, whose Institute of Public and Environmental Affairs maintains a detailed database, the China Water Pollution Map, that uses government statistics on illegal wastewater emissions to keep track of polluting factories. When Walmart representatives sought Ma out, he was as dubious as when he first arrived at the China Sustainability Summit, which he attended, as he put it to me, “without any confidence that they would eventually do anything different.”

Several months after that first meeting, however, he got a call saying that a Walmart procurement team wanted to visit his Beijing office. “To our surprise, there were 15 people,” he recounted. “We didn’t even have that many chairs, so some of them had to sit on the tea table.” Now Walmart relies heavily on the institute’s database to identify factories violating China’s environmental-emissions regulations. “By late 2008, every month, they would do a comparison of their list of suppliers with our list of violators,” Ma told me. “This is exactly what we wanted them to start with.” [Source: Orville Schell, The Atlantic, December 2011]

Making Green Towels for Walmart

Orville Schell wrote in The Atlantic, About two hours from Jinan in Shandong Province , Binzhou is just one more of the provincial Chinese cities whose hell-bent economies have helped hundreds of millions rise from poverty. Despite the existence of 160-plus cities in China with populations of more than 1 million (the United States has only nine), most Westerners have never heard their names. These cities have gone about development with every bit as much competitive fervor and totalism as they exhibited when the “correct line” called on them to foment Maoist class revolution. And their success has been even more revolutionary. [Source: Orville Schell, The Atlantic, December 2011]

I have come to Binzhou to visit Loftex, one of Walmart’s suppliers of high-end bath towels. After the 2008 China Sustainability Summit, Walmart solicited some 200 of its largest provincial suppliers to join an Energy Efficiency Program, dedicated to achieving a 20 percent savings in energy use by 2012. Working with advisers from the Environmental Defense Fund, the National Resources Defense Council, and Business for Social Responsibility, Walmart challenged these companies to examine their supply chains for ways to save energy and cut costs. Loftex is one success story.

Just driving through the gates of Loftex’s sprawling headquarters and plant tells me that this company is striving for something. Giant signs emblazoned with slogans goad its 3,000 workers not to carry out class revolution, but to BOLDLY REVOLUTIONIZE THE TOWEL! and to ESCAPE THE ORDINARY AND PRODUCE TOP-QUALITY TEXTILES! But most of the company’s slogans proclaim the need for employees to strive for greater environmental sensitivity. One reads: ENTERPRISES MUST DEVELOP, BUT THEY MUST FIRST PROTECT THE ENVIRONMENT.

The factory has its own coal-fired power plant, a wastewater treatment facility, and acres of floor space filled with machines that annually churn through more than 50,000 tons of cotton, largely from the United States. It runs 24/7, carding, spinning, weaving, dyeing, labeling, and packing towels, most of them destined to return to U.S. shores.

In a Loftex conference room decorated with tabletop bouquets of plastic lilies, a Venus de Milo---like statue (with arms!), a cast-iron sculpture of a bucking bronco (homage to Frederic Remington, and some abstract oil paintings, I ask the factory’s general manager, Wang Hongxing, a smart, affable middle-aged man in a dark suit and tie, if he was present when Lee Scott gave his 2008 Beijing speech.

“I was, and our first thought was that it was a good thing,” he tells me cheerfully. “But our second thought was that the new policy was going to put a lot of pressure on us, and we didn’t know if we could accomplish Walmart’s goals. We had no idea what sort of investment it would involve. But we also didn’t realize that Walmart would have so many programs to help advise us on how to reduce energy and water use and reduce emissions.” Since then, Loftex has invested more than 4 million RMB (about $650,000) and cut electricity use by 25 percent and water use by 35 percent, achieving its 2012 energy-reduction goals a year ahead of schedule.

“Now, whenever we create a new towel, we always think about the environment!” pipes up Li Yongzhi, the assistant manager, reminding me of how the heads of Revolutionary Committees used to boast during the Great Proletarian Cultural Revolution about how many jin of corn they could harvest from so many mu of land, under the guidance of Chairman Mao. “We have begun experimenting with such things as new fibers derived from bamboo, and even from milk, which we mix with our cotton stock so that it will be faster-drying, and thus produce more-energy-saving towels.”

No doubt, Loftex’s exemplary progress in its sustainability crusade was why Walmart urged me to visit this model plant: I leave Loftex thinking of Wang, the general manager, as the bright kid in class who, because he always raises his hand with the right answer, gets called on by the teacher whenever important visitors stop by.

Getting Walmart’s Suppliers to Tow the Green Line in China

But Chinese industry abounds with bad actors, Orville Schell wrote in The Atlantic, and some of them can be found in Walmart’s network. Ever since Walmart established its Ethical Standards Program in 1992 to improve labor standards among its suppliers, some critics have challenged the program’s effectiveness. In fact, the forthcoming book Walmart in China calls the whole effort into question, citing the company’s own admissions that serious violations have been a persistent problem. “The Corporate Social Responsibility industry,” observes Xue Hong, one of the book’s contributors, “has become a cat-and-mouse game between suppliers and their buyers.” Instead of engendering better compliance, Xue argues, such efforts have given rise to a massive new, and profitable, “corporate social responsibility” auditing industry that offloads responsibility for compliance from Walmart to outside auditors and suppliers. [Source: Orville Schell, The Atlantic, December 2011]

While researching this piece, I repeatedly asked Walmart executives how many Chinese factories had actually been given “red” status and been “disapproved” as ongoing suppliers by Walmart’s Global Audit system, as Lee Scott had threatened back in Beijing. A clear answer was hard to come by. When I checked the company’s “2011 Global Responsibility Report,” I found China grouped with Japan and South Korea simply as the “Far East,” a region that was itself strangely incomplete, making one wonder if Scott’s threat was more bark than bite. When the company’s Ethical Standards team finally responded, it said that it does not “provide breakouts below the regional level.” The team did say, however, “The majority of the [failing] factories in that region are in China.”

Still, none of the environmentalists I spoke with viewed Walmart’s progress toward greater sustainability as simply a PR stratagem. Indeed, just as China’s tenacity and ability to deliver economic growth have recently begun to win new respect for its development model, Walmart’s perseverance in attaining its environmental goals has also won over a host of surprising new admirers. “Of course, journalists are always skeptical at first,” Jib Ellison tells me. “Everyone is always looking for the soft underbelly of Walmart. But in my experience, when they actually look under the hood, they are almost always blown away.”

By 2009, even The New York Times was effectively proclaiming a reincarnation of Walmart’s corporate soul. “The company that democratized consumption” has begun to democratize environmental sustainability,” it enthused. And when interviewed by Bloomberg Businessweek, Andrew Hutson, a supply-chain specialist at the Environmental Defense Fund, found himself not only explaining, but defending, the company’s often-reviled practice of exerting extreme pressure on suppliers to lower prices. “Lowest cost doesn’t have to come from past methods---the squeeze----em-till-they-bleed approach,” he said. Acknowledging that such tactics had led to environmental degradation in the past, he insisted that Walmart was now doing something different by helping suppliers save money.

“Walmart is one of the most environmentally active and vocal companies,” Ma Jun, of the Institute of Public and Environmental Affairs, tells me admiringly. “I respect them for being willing to stick out their head. The globalized economy has created a big transfer of pollution to China. We export all these cheap products, but the waste gets dumped in our backyard, contaminating China’s water, air, soil, and coastal seas. I don’t think Walmart wants to see the day come when all this is blamed on its sourcing practices and they are held responsible for much of the damage. They want to do something now to change it.”

Measuring the Walmart Effect in China

Even if Loftex and the Dalian Xingyeyuan Group are Potemkin villages of a sort, Orville Schell wrote in The Atlantic, what is telling about them is not simply how they have greened their supply chains, and saved a bundle in the process, but how they serve as important models for transforming Lee Scott’s vision from theory into practice. The use of such models is, of course, a time-tested Communist Party way not only to experiment with a new reform, but then to propagandize for it “among the broad masses,” and Walmart seems to have learned that technique well, at the hand of the master. [Source: Orville Schell, The Atlantic, December 2011]

Through the so-called Walmart Effect---according to the scholars who study the enormous global footprint of the company’s management decisions---whatever Walmart does will profoundly influence all its competitors. So Walmart’s reincarnation as a company devoted to sustainability is, in fact, a catalyst for a positive global shift. The company certainly seems to have arrived at a profitable and mutually advantageous partnership with the Chinese government. As China’s economy has decentralized, and many provincial and municipal governments have become rich fiefdoms riddled with corruption, Beijing has struggled to deal with tens of thousands of local polluting factories and hundreds of thousands of small-scale food producers, many of whom have been wantonly violating environmental regulations. But in large, well-organized companies like Walmart that operate nationally in China, the government has found auxiliary sources of public education, control, and regulation---all at no extra public cost.

Indeed, the commercial proselytizing by Walmart managers about the need to respond to consumer demands may end up changing China far more than previous generations of Western Christian missionaries, educators, or advocates of democracy and human rights ever did. For in such giant global corporations, which must please China’s increasingly demanding middle-class consumers in the marketplace, Chinese are becoming accustomed to wielding an influence that they have not hitherto had in the political arena. How Communist Party leaders will deal with such rising expectations is hard to predict. And, as Walmart surely understands, China can be a fickle mistress. Such liaisons of convenience can easily fall apart, especially if interests begin to diverge.

As I roamed through Walmart stores, visited factories, traipsed around co-op farms, and listened to corporate executives in China, I found myself pondering a question that I couldn’t get out of my mind, but that had little to do with Walmart’s immediate success in China or the world: However smart, prescient, and successful Walmart’s sustainability efforts actually turn out to be, just how “sustainable” is the whole bloody global-retail proposition that lies at the heart of the company’s amazing progress? Maybe Walmart’s new initiatives will pencil out in a business sense for the company and, within the terms of the current retail game, even serve as a model of good environmental stewardship. But will the hyperactive retail-consumption model that it has pioneered for global consumers pencil out for the world?

“Yeah, I worry that people will read my book and think that I have drunk the Kool-Aid,” says Edward Humes, reflecting on his admiring study of Walmart’s green progress. “When I started, I didn’t imagine I would be convinced that Walmart was green. And actually, they are not green, but they are a lot better than they were. And the efforts they are making are influencing not only their suppliers, but other businesses as well. Now Walmart is acting something like a private regulator. Nonetheless, the nature of their outsourced business model is not, ultimately, sustainable. But,” he says, laughing at the irony of what he is about to say, “we have created a situation where crazy-sounding things make sense.”

In fact, one could say the same thing about China, which---after so many decades of defiant proletarian opposition to capitalism, consumerism, and American imperialism---has embraced the American-style market and is ardently following the Walmart path to prosperity. Indeed, allowing, even encouraging, people to consume as much as they want, or can, has become one of the Chinese Communist Party’s key strategies for political legitimacy and social stability. Party leaders may label their version of development “scientific” or “sustainable,” but it’s still development. The bitter reality is that even if unrestrained consumerism becomes less environmentally destructive per unit of production than it was in the past, it is still unsustainable in the long run. So even as this most innovative of corporate and statist green strategies may represent an environmental breakthrough and good business for Walmart, and good politics for the Chinese government, it may nonetheless end up being very bad business for humankind.

Wal-Mart China CEO Quits after Pork Scandal

In October 2011, Reuters reported: The head of Wal-Mart’s China business resigned citing personal reasons, after the world's largest retailer ran into trouble with Chinese authorities leading to store closures and employee detentions following allegations they sold regular pork as organic pork over the past two years. The departure of China CEO Ed Chan, along with Senior Vice President of Human Resources Clara Wong, is another setback for Wal-Mart which is facing stiff competition from local firms in the strategically important market.[Source: Melanie Lee and Donny Kwok, Reuters, October 17, 2011]

Authorities in Chongqing have arrested two Walmart China employees and detained 37 others over the incident. Both resignations announced on Monday were for personal reasons and had "no correlation" with the investigations in Chongqing, Walmart Asia spokesman Anthony Rose said. This is the second round of top-management resignations at Walmart China in less than five months. In May, its chief financial officer and chief operating officer resigned "to explore other opportunities," the company had said.

Walmart Asia CEO Scott Price, who will also serve as interim China head, said China was a strong market for the group. "China is a very important market for Wal-Mart and China's 12th five-year plan will provide strong opportunities to the retail industry," Scott said.

Wal-mart Takes Controlling Stake of Chinese Retail Website

In February 2012, AP reported: Wal-Mart Stores plans to buy a controlling stake in the fast-growing Chinese online retailer Yihaodian. The retail chain has agreed to increase its stake in Yihaodian's holding company to approximately 51 percent, Wal-Mart (WMT) said. Yihaodian sells more than 180,000 products, including groceries, electronics and apparel. It has expanded rapidly since it was founded in July 2008. It has 5,400 employees and a next-day delivery network across Shanghai, Beijing, Guangzhou, Wuhan and Chengdu. [Source: Seth Perlman, AP, February 20, 2012]

Wal-Mart eCommerce executive Neil Ashe said the deal improves Wal-Mart's access to Chinese consumers who use smartphones and social media to shop. Yihaodian co-founder and chairman Gang Yu said Wal-Mart's carefully managed supply chain will make the Chinese firm more efficient.

Image Sources: 1)Poco Pico blog; 2) Wall Mart Watch; 3) Picasaweb; 4) Clarkson blog ; 5) Shopdair; 6) Bloomberg ; Wiki Commons

Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, National Geographic, The New Yorker, Time, Newsweek, Reuters, AP, Lonely Planet Guides, Compton’s Encyclopedia and various books and other publications.

Last updated April 2012


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