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Wal-Mart Standards Fail in China, Worker Rights Abused, Report Shows

NEW YORK, Nov 25 /PRNewswire-USNewswire/ -- Workers making shoes, Christmas lights, tools, curtains and paper boxes sold at Wal-Mart stores labor in illegal and degrading conditions. China Labor Watch's latest investigation of five Wal-Mart supplier factories reveals that not a single factory has implemented Wal-Mart's basic standards, and a total of 10,000 workers included in the report suffer serious rights abuses. "This is not about a single factory, but about Wal-Mart's inability to implement its standards," says CLW Executive Director, Li Qiang. In the report, CLW attributes this failure to ineffective auditing and a pricing structure that forces factories to sell goods at unsustainable prices. As the world's largest retailer, Wal-Mart leverages its massive product orders to purchase goods at low prices, and workers suffer the financial burden. As Wal-Mart gears up for holiday sales, workers at all five factories work at least 3 hours of overtime/day, for 100-140 total hours of overtime/month, and one factory routinely schedules overtime through the night. Two of the factories illegally underpay overtime wages at rates as low as $0.44/hour, and two withhold wages from workers who fail to meet production quotas. Workers' low wages are further undermined by excessive fines and unpaid days off or maternity leave, and some workers cannot even purchase social security! Worker abuse extends beyond paychecks. Workers at two factories are denied gloves on the grounds that it will slow production. Dormitory conditions are so poor that at one factory, there is no running water in the bathrooms. Canteen meals are extremely poor and workers often complain of hunger pangs, and one factory forbids workers from leaving the factory to eat. Worst of all, two of the factories have rules forcing workers to lie to Wal-Mart auditors, forcing workers into silence as Wal-Mart turns a blind eye to sweatshop conditions. Violations at these randomly selected factories represent poor conditions across Wal-Mart's supply chain in China. Wal-Mart has already pledged to remediate these five factories. But with tens of thousands of Wal-Mart supplier factories in China, CLW does not seek a piecemeal approach to factory remediation. Rather, CLW urges Wal-Mart to address its systematic failure to purchase goods made in legal conditions, according to its own basic standards.

Wal-Marts Latest Failure?

Posted on September 5, 2008 by webteam According to Chinese media, Wal-Marts latest international failure might be Wal-Mart China which, within its 12 years in China, has failed to become profitable. One article notes that WalMarts market share has retreated in defeat and that Wal-Marts lofty sales goals are extremely distant figures.

Even according to data from Chinas Department of Trade Wal-Marts rank within the retail sector has dropped from 17th in 2003 to 20th in 2004and in 2005, Wal-Mart dropped again to an astonishingly low 30th. To analysts, Wal-Mart Chinas financial failures may be a significant factor in why Wal-Mart decided to abandon its Wal-Mart Asia headquarters in mainland China. However, Wal-Mart Asia chairman and CEO Vicente Trius makes clear that China remains important to Wal-Marts global purchasing. At the same time, though, Trius also states that locating the Asia headquarters in Hong Kong will preserve the independent nature of the Chinese operations perhaps a hint that Wal-Mart wants to isolate the damage. At any rate, it looks like Wal-Mart China has interesting times ahead of it. See both articles below for more details. No Opportunity for a Wal-Mart Asia Headquarters in Shenzhen [Finance and Economics] Wal-Mart, who entered China 12 years ago and still has not made a profit, announced on September 3 that it will establish its Asia headquarters in Hong Kong. Before this, it was widely spread that Shenzhen, Wal-Mart Chinas headquarters and Wal-Mart Global Procurement Center, would be Wal-Mart Asias headquarters. September 3, Wal-Mart joined with Invest HK to announce the above news. According to WalMart Asia chairman and CEO Vicente Trius, in selecting the location for the Asia headquarters Shanghai and Singapore where also options. But ultimately, Hong Kong was selected for its geographic position in the core of Asia. At the same time, this will also preserve the independent nature of the China business department. Trius expressed that the Asia headquarters location is strategic for supervision and coordination not establishing the headquarters in Chinas interior will prevent needless interference in concrete business operations. Shenzhen will still act as Wal-Marts Global Procurement Center and Wal-Mart Chinas headquarters and the Asia headquarters in Hong Kong would unify supervision of inland China, India, Japan, and Wal-Marts exploration of new Asian markets. Before Wal-Mart entered inland China, it had already established a Hong Kong office. Later Wal-Mart relocated to Shenzhen. With the final decision of the Asia headquarters, retail analysts believe Shenzhen has lost the Asia headquarters struggle and that poor Wal-Mart China profits must be a reason. In 1996 Wal-Mart entered China for the first time, selecting to enter Shenzhen. By April 2008, Wal-Mart China had 204 stores including 99 supercenters, 3 Sams Clubs, 2 Neighborhood Markets, as well as having purchased Trust-Marts 100 stores. When Wal-Mart first entered Chinas interior, it had hoped to achieve $100 billion in sales. However, not only is Wal-Marts $100 billion figure a distant goal, in Chinas retail, Wal-Marts market share has retreated in defeat.

According to Department of Trade data, in 2003, Wal-Mart ranked 17th within China retail. In 2004, Wal-Mart has slid to 20th. In 2005, Wal-Mart ranked 30th. Within foreign investment competition between Carrefour, Wal-Mart also is not superior. In 2004, Wal-Marts sales figures totaled 7.63 billion [the article does not denote whether this is USD or RMB]. At the same time, foreign investment champion Carrefours sales were 16.24 billion. Wal-Mart Chinas losses already brought about the resignation of Wal-Mart Chinas former chairman Zhang Jiasheng ( ) in February 2005. Its not just China Wal-Marts Asia expansion has definitely not been smooth. In 2006, WalMart sold its South Korean operations for $882 million, thereby formally exiting the market. In 2002, Wal-Mart entered the Japanese market with a 37.8% share of department store Seiyu Ltd. But in the first half of 2006, Seiyus losses reached up to 54 billion Japanese yen. WalMarts scope in Japan is second only to the U.S. and Mexico. Thus, Wal-Mart cannot easily abandon Japan. In 2007, Wal-Mart purchased the remaining shares of Seiyu. National Capital Securities analyst Xia Mao Sheng ( ) believes that Wal-Marts Asia headquarters being located in Hong Kong does not represent an indifference by Wal-Mart to Chinas interior. Chinas retail industry grows hundreds of millions of RMB each year. WalMart has no grounds to be indifferent, Xia said. Xia expressed that before Wal-Marts defeat, its development strategy had been consistent with its American suburban development strategy which disagrees with the current state of China. Nevertheless, in the past two years, Wal-Mart has changed their thinking to expand in the urban market. Shenzhen Loses Wal-Mart Asia Headquarters Struggle [Nanfang Daily] Yesterday, the global retail big shot Wal-Mart declared that it would set up its Asia headquarters in Hong Kong while Wal-Marts previous widely spread talk of establishing an Asia headquarters in Shenzhen collapsed on itself. A Wal-Mart high-level official expressed that Shenzhen would still act as Wal-Marts Global Procurement Center and China headquarters. And that an Asia headquarters in Hong Kong would unify supervision of inland China, India, Japan, and Wal-Marts exploration of new Asian markets. Make Purchases in Shenzhen, Conduct in Hong Kong Wal-Mart Asia chairman Vicente Trius expressed that the headquarters will have strategic responsibilities for managing and coordinating the companys current operations in Asia as well as being beneficial for expansion in India, Chinas interior, and even more Asian markets. According to Wal-Mart Chinas public relations director Jonathon Dong ( ) within Asia Wal-Marts largest market share is in Japan with Wal-Mart possessing more than 390 stores. China is second with 107 stores and if Trust-Marts stores are added in there are 208 stores.

For the past few years, Wal-Marts expansion in Chinas first tier cities has not been smooth. For example, Wal-Mart has never entered Guangzhou [capital city of Guangdong province] and instead has spread to second and third tier cities such as Hunan Loudi, etc. Jonathan Dong said that this is synchronous with Chinas economic development. China Profit Problem Perplexes Wal-Mart In regards to Wal-Marts talk about Shenzhen as Wal-Marts Asia headquarters since 2005, Dong explained that Shenzhen is Wal-Marts Global Procurement headquarters and Chinas retail headquarters, but Wal-Mart Asias headquarters has not be formally established. Clearly Wal-Mart regards Shenzhens purchasing as its dominant importance. Analysis has also indicated that in selecting Hong Kong as Wal-Mart Asias headquarters Wal-Mart might be thinking about other regions in Asia. Also, the operation model which makes Wal-Mart successful in U.S. has not proven effective in China. According to city new sources familiar with the situation, it is the almost the worst kept secret that Wal-Mart China Inc. has not made any profit. Trius enthusiastically praised Hong Kong it is located in the core of Asia and is convenient for all sorts of business.

Saturday, April 4, 2009

CASE STUDY: Wal-Mart in China Wal-Mart Stores: Everyday Low Prices in China Summary: (Taken From Harvard's site) Although Wal-Mart, the world's largest company by revenue, was into its 9th year of operations in China, its stores were still losing money. It had created a miracle in the U.S. retail industry by revolutionizing the sector's business model and successfully implementing its model through innovative practices that enabled it to sell national brands at "Every Day Low Prices". The challenge Wal-Mart faced was whether it could transport its successful model to win in a market with many differing characteristics which threatened its low-cost structure and which could nullify its competitive advantage. Concerned with the application of established domestic business models in international expansion. Also sheds light on other globalization issues such as market entry strategy, localization vs. standardization, the effect of regulation changes on the competitive landscape, and firm performance. Learning Objective: (Taken From Harvard's site) To address competitive advantage and its sources (differentiation and cost leadership); debate standardization and localization in international expansion and strategy formation--the fit between firm strategies and external environments; provide students with a basic understanding of the concept of competitive advantage and its sources through a discussion of Wal-Mart's success in the U.S.; discuss the challenges of replicating a successful domestic strategy in a different market environment; explore whether a firm is able to transport its competitive advantage from one market to another using the

example of Wal-Mart's entry into China; and think about potential strategies that Wal-Mart China should consider going forward. Subjects Covered: (Taken From Harvard's site) Competitive strategy, Global strategy, Consumer behavior, Industry standards, Standardization, Competitive advantage, Expansion, Consumer goods, Department stores, Retail stores, Retailers, Retailing, Business & government, Government & business, Multinational corporations, Internationalization, Localization, Public administration, Public sector. (My Notes) Users & Objectives: 1. Cassian Cheung- President of Wal-Mart China, recently resigned 2. Sam Walton, founder 3. Joe Hartfield- CEO of Wal-Mart Asia Competitors: world rival- Carrefour, Thailand's Lotus, Uk's Tesco, Germany's Metro foreign operators would usually have a dominant market position at their home markets, strong liquidity, and came with long term plans for China mostly operated in the form of hypermarkets Financial position: poor financial results for Wal-Mart China WAL MART US Strategy in US: opened one horse , rural, backwater towns ignored by other retailers aimed to serve customers who had travel long distances to save money grew outside competitors' radar screens to a substantial size to command economies of scale public listing provided company with ample resources to finance more rapid expansion selling brand name products for less offered multiple store formats, including discount stores, supercentres, warehouse stores, and neighbourhood markets brought customers from all income levels unique combination of culture and strategies at Wal-Mart that set it apart from its competition started by opening discount stores in small towns: (1) avoided direct competition from stronger players, (2) due to small populations it served once Wal-Mart opened a store, the town could not support another store of similar size, and (3) rural backwaters also reduced costs due to lower land and real estate prices

Cost Controls: one of company's core capabilities only worthwhile cost was the one that got their customers to buy a product and everybody played a part in keeping the cost down goal: to drive down the price of products to the lowest they could possibly be had a huge purchasing power with 68,000 suppliers, love hate relationship Wal-Mart demanded lower price, high quality, efficient bookkeeping and punctual delivery from their suppliers helped suppliers improve inventory management and efficiency by weeding out extra costs forced its suppliers to search hard for ways to eliminate the inefficiency in their own processes in order to drive costs to a minimum and to improve the quality of their products Logistics Management: target was to have inventories at half the rate of sales and to have any required delivery arriving on the shelved within one day no store was more than a day's drive from its distribution centre use of technology gave Wal-Mart great efficiency in the supply chain arrangement and was a distinct competitive advantage, started using electronic data interchange (EDI), satellite technology: able to connect all stores to home office enabled it to offer its customers the right product mix at the right time while keeping inventory and associated costs as low as they could possibly be Benefits to Workers: started profit sharing plans for rank and file workers, 2/3 of the American workforce owned stock in Wal-Mart cross training : people switched jobs to enable them to understand different parts of the company's operation, which gave them more variation int heir jobs financial numbers were also shared with every employee position against unions, would rather close a store than allow it to be unionised promotes open door policy so that employees could channel complaints employees were motivated, happy, and passionate about their job Competitive Advantage in which customers were looking for: Quality of merchandise assortment of goods price level store environment customer support store hours availability of free parking Wal- Mart focused on two major drivers: Price and Service each Wal-Mart store monitored the prices of about 1500 items in their competitors' stores

objective: to offer same merchandise at other local stores but at 20% less on-going program to lower prices even further when there was the opportunity to do so roll back Special Buy : a product with a special tag that offered everyday items bundled with additional amounts of the same product or another product for a limited time Customer Service: 3 cardinal beliefs: (1) providing great customer service, (2) showing respect for the individual, and (3) striving for excellence these beliefs were translated to 10 specific business rules for every executive/ associate Sundown rule required for employees to answer requests from customers by the end of business hours Wal Mart China 95% of world population was outside U.S Wal-mart China has been losing money since they arrived in August 1996 Wal-Mart in Germany failed because it was hindered by strict union rule,high labour costs, zoning laws and existing competition growth in rural areas was much slower problems such as, backward infrastructure, diverse regional consumption patterns entry into the WTO gave foreign companies more control over wholesaling and distribution industry was crowded with both internationally renowned retailers and domestic players resulted to high store density in larger cities retail market was undergoing continuous consolidation to eliminate weaker operators foreign retailers grew rapidly and commanded a market share estimated at only 3% in 2004 local rivals were competing head on with foreign operators supermarket segment was primarily dominated by domestic players localised demand, localised supply base, and localised distributio in China also provided domestic players with an edge in establishing strong regional dominance when foreign retailers found it hard to leverage national presence in a regional market China saw substantial growth but many factors either a legacy of history or ew phenomena born of reform still impeded the fast development of a national market Income Disparity broadened gap I wealth between rich and poor and between urban and rural populatios income below US$500 limit purchases to daily necessities US $1000-$2000 purchase consumer durables and commercial housing US$2000- look for sophisticated products and advanced information services almost impossible to develop a uniformed national merchandising or marketing strategy satisfying consumer's demand in different regions became a costly practice low income in rural areas raised concerns on Wal-Mart's US-bred strategy of locating stores in smaller communities questions whether such areas could support a large supercentre and were forced to re-focus on more

expensive, urban locations Local Protectionism local governments had incetives to protect state-owned enterprises under their jurisdiction as they were the base of their political power and a source of private benefits as well as fiscal revenue Wal Mart's entrance to Shanghai: published a new commercial plan to restrict the opening of new supercentres in the inner city delay in obtaining municipal approval put Wal-Mart in a much disadvantaged position against major competition in Shanghai's retail market Infrastructure: highways were costly to use, toll fees reached as much as 10% or more of total freight costs toll collection at the local level was arbitrary and illegal under-developed highway network that Wal-Mart depended on increased costs and more waste especially with perishable goods backward transportation network greatly added to the cost of inter-regional distribution logistics costs were around 20% of GDP compared with just 10-12% I developed markets Regulatory Restrictions: when distribution centre served a large enough number of stores, economies of scale would be achieved therefore pushing costs down only three stores were allowed to be launched in one city and only a hadful of cities were open to foreign retailers every store opening had to be approved by the central government therefore this made Wal-Mart's expansion very slow stores in China were supported by two distribution centres, and they were significantly underused but was required given the slow speed of transportation thus usig the distribution centres did not enable Wal-Mart to reduce costs Carrefour expanded quickly to occupy important markets and established network by openly bending Chinese regulations Lack of IT Network: lack of IT network and regulatory ban of satellite usage impaired retailer's effieciency in communicating with its 15,000 local suppliers Chinese Consumers Culture 1. Many Trips, Little Purchase many Chinese spent leisure time in commercial centres instead of staying home and compared prices and quality among different shops purchase was often impulsive rather than according to plan consumers were brand conscious ad loyalty was very hard to cultivate when consumers always shopped around for best bargain people would rather pick up a small amount of goods at one time because most shoppers bked or

walked which limited bulk buys takes Chinese customer at least 5 trips to buy as much as American shopper got I oe average cost of serving customer greatly increased 2. Fresh Means Alive freshness of food was an indication of quality Customers' demad for absolute freshness with poor transportation network required that a large variety of foods had to be procured locally instead of through Wal-Mart's centralised pocuremet system diminished economies of scale and interrupted supply chain meant higher costs insatisfying Chinese customers 3. Shoplifting associates morale was to easy to maintain when they were paid low wages and did ot have the upside of stock options management turn over was high labour official in China's Wal-Mart condemned for squeezing suppliers and making workers suffer Class Discussion Questions: (Class Note) 1. Why is Wal-Mart successful in the US? What are Wal-Mart's competitive advantages and its sources? Key Success Factors in US: one stop shop- buy things I bulk different values very patriotic low cost good logistics anti unionization policy frugal culture creative barriers to entry (rural locations)- small town reputation squeeze suppliers efficient logistics hiring practices (reducing benefits paid) own store brands product mix (only products that sell) continuously create value economies of scale 2. Should Wal-Mart replicate its domestic model in its original form in China? Why? Can it build the same competitive advantage in China through its success domestic model 3. Provide suggestions on potential strategies that Wal-Mart China should consider in going forward. Wal Mart in China:(Using what is applicable/ not applicable to China from US key success factors) logistics: in store housing to reduce transportation, undercut transports, work with local suppliers who established transportig

squeezing suppliers: no urgent need to modify, suppliers willing to be squeezed, because too many products/ suppliers already frugal culture: keep- anti unionization policy (Not applicable In China) create barriers to entry (rural locations)- must be modified, rural areas in China cannot support a WalMart, build near highway (suburbs) reputation as U.S icon Economies of scale- parter with powerful Carforre is a good idea Posted by Kaylee at 1:11 AM Labels: business, case study, management, strategic management, university