I imagine that many readers will react as I did to the Washington Post story, “In China, Wal-Mart presses suppliers on labor, environmental standards” (hat tip reader Paul S): that this story, yet another tidbit supporting the Bentonville giant’s supposed conversion to the true green camp, has to make sense on a cold-blooded P&L basis, even if it isn’t obvious how.
Given Wal-Mart’s history in the US, it is just about impossible to imagine that the company has concern about the impact of its policies on the greater community. Wal-Mart’s low prices depend on super-low wages effectively subsidized by the public (for instance, it pays workers so poorly that they cannnot afford health insurance, so that it is a given that some will wind up getting their health care via their local emergency room, which then winds up recovering those costs from paying customers). And the company is the antithesis of a good citizen. Over 40 states filed lawsuits against Wal-Mart for failing to pay overtime when mandated by law; the Bentonville giant settled a Federal lawsuit over similar issues in 2007 and agreed to pay as much as $640 million to settle 63 wage and hours class action suits. Wal-Mart also has the largest sex discrimination lawsuit in US history pending, and has settled other suits charging discrimination.
Wal-Mart is also famous for squeezing suppliers. One attorney I worked with who had a lot of early stage companies would recommend strongly against them taking orders from Wal-Mart, for the simple reason that the retailer (if satisfied with quality) would quickly become their dominant customer, know it controlled their business, and would start pushing for lower prices and improvements on other terms.
That’s a long winded way of saying that Wal-Mart is the antithesis of an altruistic organization. In particular, Wal-Mart has a history of funding anti-environmental candidates. So why should we trust that its seemingly civic-minded action is all that it appears to be?
One interpretation is that there is indeed less here than meets the eye. Wal-Mart, according to the Post, is making impressive declarations that are not fully met in practice:
In October 2008, Wal-Mart held a conference in Beijing for a thousand of its biggest suppliers to urge them to pay attention not only to price but also to “sustainability,” which has become a touchstone for many companies.
“For those who may still be on the sidelines, I want to be direct,” Wal-Mart chief executive Lee Scott said sternly. “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. And cheating on the quality of products is the same as cheating on customers. We will not tolerate that at Wal-Mart.”…
Many critics argue that WalMart’s longtime commitment to “everyday low prices” fosters a disregard for labor and environmental standards. China Labor Watch, a New York-based organization devoted to workers’ rights in China, said in a report last Thanksgiving that “the case of Wal-Mart . . . shows that corporate codes of conduct and factory auditing alone are not enough to strengthen workers’ rights if corporations are unwilling to pay the production costs associated with such codes.”
China Labor Watch pointed to five factories where it said workers lived in overcrowded and unsanitary conditions and were forced to work excessive overtime without adequate pay. Moreover, it said, two of the five had plotted to deceive Wal-Mart auditors and had coached workers to lie during the audits.
Yves here. Wal-Mart says it is trying to do a more through job of auditing.
But there are reasons to think this push is more that a PR ploy with a few more teeth than usual (Wal-Mart is sufficiently heavily scrutinized that a mere campaign of words would not be persuasive).
First, the odds of increased protectionism are high, particularly directed against China. The US and China are engaged in a phony war, with action so far limited to tit-for-tat tariffs and some designed-to-irritate gestures, like having Obama meet the Dalai Lama. But the theater is being ratcheted up for a reason: unemployment is painfully high, and China refuses to revalue its currency. If these stresses continue (likely), politicians may feel compelled to take measures that apply more pressure to China. An obvious one, that allows the US to maintain that it remains committed to free trade, is to demand that importers meet certain minimum environmental and labor standards. Given China’s particularly poor record on environmental protection, any such effort would hit it harder than other exporters (although how one would measure adherence to this sort of standard is an open question). Wal-Mart may regard this as a real risk (as in even if the odds are only 15%, the consequences would be so disruptive that it is prudent to go down this path). This “insurance policy” approach would also be consistent with taking some steps but not going full bore until new measures looked to be imminent. But Wal-Mart did suspend 126 Chinese suppliers in 2008 and stopped dealing with 35 permanently, so some serious steps are being taken.
A second reason may be that Wal-Mart is increasingly involved in food production in China. China has industrial pollution so severe that it has cadmium and heavy metals in the soil in some areas. Wal-Mart may correctly regard establishing itself as a company that supplies food with consistent attention to environmental issues (as well as cost saving measures to prevent waste and loss) could give it an unassailable position in the Chinese market. So visible concern about environmental practices, as evidenced in its pressure on suppliers of all sorts, could be part of a long-term branding strategy (it seems odd to think of Wal-Mart aspiring to be the Costco of China, but readers have commented that its prices, ex food, seem high relative to local market levels, so Wal-Mart in China may be a more upmarket discounter than in the US).
A third possibility is that evangelical Christians are increasingly see stewardship of the earth as an important duty. If Wal-Mart does not take at least some measures that look environmentally responsible, it might risk a backlash from its core customers.
Wal-Mart seems to be less of a target of ire than it was a few years ago; its pro-environment posture and other progressive-looking measures seem to have appeased many of its critics. But I have little faith that Wal-Mart has really turned over a new leaf.