The Wall-Mart Story - Case Study Example

1 The Wall-Mart Story “There is only one boss. The And he can fire everybody in the company from the chairman on down, simply by spendinghis money somewhere else.” (Sam Walton).1 This statement from the Founder and Chairman of Wall-Mart is the cornerstone of his ambitious plan to sell at rock bottom price to the consumer. Sam Wallton’s company is a very well managed one and the stores operate on a no-frills basis catering mostly to the middle class and lower middle class consumers. Despite this Wall-Mart has invested heavily in technology. Its ware houses, known as fulfilment factories, are committed to the one day delivery schedule and the stores are clustered around them to ensure this. Very early on it was decided to buy directly from manufacturers to eliminate the middleman’s cut and initially the company was firmly promoting the “Buy American” programme. Later of course this was dropped in favour of globally procured goods for the benefit of the consumer. The company grew very quickly and the annual growth rate was 35%, far above the retail industry average of around 10%. From a humble beginning as a small-town five-and-dime, Wal-Mart Stores has grown to become the worlds largest corporation and a global economic force with an annual turnover of over $245 billions. All along there has been one singular objective; to cut the price persistently and continuously. Economists credit the company with not only boosting its own bottom line but, due to its enormous size, it has held down the rate of inflation for the entire economy. The consumer has been the greatest beneficiary. The efficiency of the company can be gauged from the fact that 4% of the growth in US economy’s productivity during 1995-1999 was due to Wall-Mart alone. This was estimated by researchers at McKinsey Global Institute. The impact of Wall-Mart on the economy is so obvious and measurable that it has forced competition to become more efficient. As a result the productivity of the nation has risen even higher. 2 The Ground Realities But this strategy had its price. By squeezing the prices to their limits, the suppliers of Wall-Mart were forced to look overseas where cheap labour was available. This resulted in flight of manufacturing jobs to under-developed and developing countries. To keep improving on prices and reducing costs jobs kept moving to poorer countries. The company did not even spare its own 1.2 million American employees. They are paid the lowest wages and the company admits that some may find it difficult to survive on these pay-scales. Cutting prices in now a habit with the company and it continuously looks for ways and means to cut costs. The Fashion Industry is particularly dependant on sweat shops of the East to thrive. Wall-Mart attracts shoppers for fashion clothing mostly made in dangerous sweatshops of Bangladesh, Pakistan, China and Vietnam using child labour as well as underpaid workers. Wages paid were so low that in most cases the worker was unable to feed his family properly. Besides hazardous work conditions, work and gender abuse, child labour are accepted as common local practice and the managements ignore it all. Owners/Managers of the factory refuse to engage in good-faith bargaining with workers It comes as a surprise to many that sweatshops exist in the US too. The backstreets of Los Angeles bear witness to this fact. In a report published in the Independent, UK, Andrew Gumbell stated that he visited an outfit called Fashion 2K along with a team of inspectors from Californias Labour Standards Enforcement Bureau, in response to a worker complaint. The conditions found were atrocious. Low wages, long hours, inhuman working conditions existed in the heart of thriving Los Angeles. (Gumbel, Andrew).2 Companies like Wall-Mart that sourced their products from such places were forced to rethink their strategies and undertook steps to either source from more ethical sources or to issue strict directives to their suppliers on compliance issues. Wall-Mart forced by inter-trade rivalry, are strained to offer cheap goods manufactured under conditions of unethical practices. This encourages the manufacturers to provide them with unethically sourced goods. Here the consumer awareness comes into play. When the consumer is educated about the inhuman conditions of his fellow human being elsewhere, generally he veers around to boycott such apparels and is willing to pay extra money for an ethically sourced article. But this movement is yet to catch on universally. Greed, both at the consumer end and that of the manufacturer or retailer end, still ensures a thriving sweatshop somewhere in the world. 3 Fair Trade Practices But stung by criticism and loss of brand equity Wal-Mart took drastic steps to reverse the situation. “Wal-Mart’s Ethical Standards vision is to have strong relationships with our suppliers and the confidence of our customers that we are taking the appropriate steps to achieve our goal of procuring merchandise for our stores that has been produced in an ethical manner”. This was their statement made in 2005 by Lawrence Jackson, President and CEO along with a long list of what they have accomplished and how they will pursue it further. (Wall-Mart .pdf).3 The Highlights of this report are that out of the over 6000 factories they audited in 2005, over 1000 were those manufacturing and supplying high risk items in “high-risk” categories: apparel, shoes, sporting goods, accessories and toys. Here high risk meant production in unethical conditions including violation of worker rights. Of these 141 were permanently banned from doing business with Wal-Mart due to their under age worker employment practices and a further 23 were disapproved for their non-compliance of the standards fixed by Wal-Mart. Wal-Mart has created an Office of Ethical Standards that has 23 offices and 200 associates worldwide to audit and enforce its ethical standards policy. This includes audit, inspections, training and protection of stakeholder’s rights. Indeed this is a step in the right direction and will restore customer loyalty to a great extent. However the scope of ethical source is not just related to sweatshops although that is the main concern of the consumer. It also effects the environment. It starts at the stage of cotton that is purchased at fair prices that does not exploit the farmer and ends at rightful wages and decent working conditions without violation of worker rights at the factory. It has been estimated that ethical sourcing can increase production costs up to 5% to 10%. What portion this cost can be absorbed by the companies themselves and what has to be passed on to the consumer will really determine the fate of ethical sourcing. Beyond the costs it also involves additional investments by both the companies and retailers and that can be recovered only over a period of time. These issues will also have a bearing on attitude of both the retailer and the consumer alike. “An ethical sourcing policy is only as strong as its weakest link and every aspect of a retailer’s ethical sourcing programme requires investment.” (The Future of Ethical Sourcing).4 4 Conclusions The emphasis on Fair Trade is generally consumer driven.  There is research that 25% people are making their decisions on social and ethical issues rather than price (Otacnet).5 This percentage is big but not significant enough to change the retailers who have larger patronage from people who look for bargains and discounts and have little concern of the source. Unless the consumer feels strongly about it, out of concern or guilt, not much will change. It is futile to expect the retailers and Multinationals to go out of their way and change the situation by adopting ethical habits. They will do so only when compelled by consumer movements. The consumer is the last link and the last resort to put things right and the right perspective needs to be hammered home for effectiveness and for achieving the goals of ethical sourcing to end the menace of sweatshops. 5 References 1 Sam Walton Quotation available at: http://baronburg.blogspot.com/2007/05/quotations-from- sam-walton- himself.html 2 Gumbel, Andrew in Fashion Victims Inside the Sweat Shops of Los Angeles Published on Friday, August 3, 2001 in the Independent / UK © 2001 Independent Digital (UK) Ltd available at: http://www.commondreams.org/headlines01/0803- 02.htm 3 Wall-Mart, available at: www.walmartstores.com/Files/05_ethical_source.pdf 4 The Future of Ethical Sourcing [Report] by Datamonitor Published in June 2006 available at: http://www.the-infoshop.com/study/dc53184-ethical-sourc.html 5 Otacnet available at: http://www.otacnet.com.au/PageId/pg740476839edoras - Read More