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March 24, 2012

Apple & Walmart Squeezing The limit of China Suppliers

By Stan Abrams  

Mother Jones magazine has an in depth, investigative piece on Walmart and its China suppliers in its March/April issue. I assume this is going to get quite a bit of attention. On a side note, it was amusing to see the subtitle running with the online version “Our fiction-free investigation finds that in many cases, the company’s auditors are asleep on the job.” It looks like the Mike Daisey affair is already starting to have consequences; Mother Jones apparently did not want its investigation to be at all compared to what Mike Daisey did in Shenzhen.
They did send a reporter over here to look at some Walmart facilities/supplier factories, mostly in connection to so-called “green” or “sustainability” initiatives.
In October 2005, Walmart announced plans to transform itself into one of the greenest corporations in the world. Then- CEO Lee Scott called sustainability “essential to our future success as a retailer.” The company has been especially vocal about shrinking its environmental footprint in China, its manufacturing hub. But do the facts on the ground match Walmart’s rhetoric?
For what it’s worth, after reading the piece, I was rather impressed by Walmart’s results. I mean, as compared to what everyone else seems to be doing, both foreign and domestic enterprises. At the end of the day, I find it difficult to be critical when a company sets out some rather ambitious goals and only meets some of them. Hey, better than nothing, and much better than a lot of the competition. But hey, maybe my standards are just way too low.

One of the criticisms in the article involved the use of subcontractors. While I suppose Walmart could take a more active role in the entire process and crack down on misbehavior, it seems like one of those things that is almost impossible to avoid, given the challenges inherent in auditing such a large number of facilities. The same goes for another criticism, that of these factories keeping multiple books, only one of which of course is given to the auditor (and another to the tax man, etc.). Talk about a widespread problem — heaven knows I wouldn’t want to be responsible for stamping out that practice (that’s a recipe for failure).

One issue that came up with both Walmart and Apple concerns profit margins. Both companies are well known for squeezing their suppliers mercilessly. There are of course consequences to this. You can’t tell a supplier to cut costs on a regular basis and also expect that company to implement expensive CSR programs. The numbers just don’t add up, at least long term.

That being said, I still have a hard time telling a company like Apple or Walmart that even if they can negotiate better deals with suppliers, they should forgo doing so. This doesn’t seem to be in the best interest of their shareholders, and therefore that’s a big problem. As you probably know from reading this blog for a while, my favorite solution is a governmental one, and in a perfect world I would like to see the government step in and mandate agreed-upon sustainability goals across the board so there are no issues with respect to shareholders, competitors, or any other stakeholders for that matter. Look at me, I’m a cockeyed optimist!

It will be interesting to see what sort of reaction this piece gets, and whether or not the story will be picked up by the mainstream media. Although Mother Jones is widely read, it’s not the New York Times or Wall Street Journal. It’s certainly no coincidence that of any company out there to receive the same sort of scrutiny that Apple has enjoyed these days, Mother Jones chose Walmart. If there is one company, perhaps aside from Goldman Sachs, that makes the political Left see red (so to speak), it’s definitely Walmart (note that Mother Jones is a progressive magazine).

But this piece is definitely no hit job, nor is it a melodramatic Daiseyfication of an important trade issue.

About The Author - Stan Abrams is a Beijing-based IP/IT lawyer and law professor with an M.A. from Johns Hopkins in International Relations, a J.D. from Boston College Law School, a B.A. from Pomona College, and writes at China Hearsay.  (EconMatters author archive here)

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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