The Ironies and Contradictions of Walmart and China

            New Orleans               The action by the Indian government to modify the standards for foreign direct investment (FDI) in multi-brand retail to 51% ownership is something that ACORN International and the India FDI Watch Campaign (www.indiafdiwatch.org) that founded and continue to support have long opposed.  We have done so in no small manner because of the government’s unwillingness or inability to seek material concessions from big-box retailers like Walmart, Tesco, Carrefour, Metro and others who have been clamoring for years to enter the India marketplace.  Frequently we have found ourselves arguing that even China insisted on a 10-year gradual entry transition period, some form of unionization, and local sourcing, mysteriously none of which have been proposed by the Indian government, which once again brings the telecommunications bribery thought to jump to mind as an unresolved question as well.

All of which found me very interested in reading line by line the article by Orville Schell of the Asia Society in the December 2011 issue of The Atlantic entitled, somewhat ominously, “How Walmart is Changing China and Vice Versa.”  I can’t recommend the piece too highly, though I know full well you won’t read it, which is why I’ll share the highpoints here.

Schell did extensive travel and research in China, including talking directly to customers and others as he tried to get his arms around the fact that Walmart presents itself – and is seen! – in China as having a “social conscience” compared to its hard earned and abysmal anti-worker anti-community reputation in the United States.  The most vivid contradiction explored in the article was willingness to be an environmental leader in China both in terms of what it offers in the stores and how it manages its business and suppliers.

A significant and missing piece in Schell’s analysis in my view was his failure to detail how “clean and green” the Walmart’s distribution center operation was in China, which is widely recognized as part of the core logistical success of the company (and where it has spent the last several years in India working to support its partnership with Bharti before the FDI modifications) and also widely thought to be the most fuel inefficient and unsustainable of all of the company’s operations.  Many analysts have often argued, correctly in my view, that Walmart isn’t committed to the environment at all, except in the most superficial marketing sense, but recognize that its fundamental business model cannot survive future fuel and transportation costs necessary to support its distribution and logistics system.  Walmart desperately needs to cut environmental costs by 20% from its suppliers in order to offset a severely damaged model.  Regrettably, Schell does not look at the “farm to store” distribution and logistics and its support of “factory farming” and “monoculture” farming.  I don’t understand enough about the Chinese cooperative farming system, which may have made this easier for Walmart, but in India, the land of very small and marginal farmers, this issue is huge.

Schell comes to believe that Walmart is sincere in China in no small measure because his discussions with international environmentalists and Chinese non-governmental organizations convince him that close observers believe they are sincere.  I want to believe Schell and his sources are correct, but this also makes me wonder why Walmart is not a better leader in these areas in the rest of the world.  If the answer is that Walmart is better in China, because the Chinese government – and recent consumer panic on foods in that country – have made it better, then why are other governments (can you hear me USA and India?) doing more to make them what they should and could be.

Intriguingly, Schell is no patsy.  He makes the case that China is in some ways “playing” Walmart as a soft paw for governmental policies that might have been more difficult to implement without its compliance, arguing that “inWalmart, the Chinese government has found a source of public education, control, and regulation – at no extra public cost.”

The summary from Schell doesn’t equivocate and makes it clear that, even missing some key issues, Schell was not snookered:

“…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 [Edward Hume author of an upcoming book on Walmart and China] 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 Chinca, 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.

Amen!  And, beware!

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