Sam Walton bred not only a kind of ruthless quest for efficiency in improving Wal-Mart's supply chain but also a degree of ruthlessness period. I am talking about everything from Wal-Mart's recently exposed practice of locking overnight workers into its stores, to its allowing Wal-Mart's maintenance contractors to use illegal immigrants as janitors, to its role as defendant in the largest civil-rights class-action lawsuit in history, to its refusal to stock certain magazines-like Playboy-on its shelves, even in small towns where Wal-Mart is the only major store. This is all aside from the fact that some of Wal-Mart's biggest competitors complain that they have had to cut health-care benefits and create a lower wage tier to compete with Wal-Mart, which pays less and covers less than most big companies (more on this later). One can only hope that all the bad publicity Wal-Mart has received in the last few years will force it to understand that there is a fine line between a hyperefficient global supply chain that is helping people save money and improve their lives and one that has pursued cost cutting and profit margins to such a degree that whatever social benefits it is offering with one hand, it is taking away with the other.
Wal-Mart is the China of companies. It has so much leverage that it can grind down any supplier to the last halfpenny. And it is not at all hesitant about using its ability to play its foreign and domestic suppliers off against each other.
Some suppliers have found ways to flourish under the pressure and become better at what they do. If all of Wal-Mart's suppliers were being squeezed dry by Wal-Mart, Wal-Mart would have no suppliers. So obviously many of them are thriving as Wal-Mart's partners. But some no doubt have translated Wal-Mart's incessant price pressure into lower wages and benefits for their employees or watched as their business moved to China, whence Wal-Mart's supply chain pulled in $18 billion worth of goods in 2004 from five thousand Chinese suppliers. “If Wal-Mart were an individual economy, it would rank as China's eighth-biggest trading partner, ahead of Russia, Australia and Canada,” Xu Jun, the spokesman for Wal-Mart China, told the China Business Weekly (November 29, 2004).
The successor generation to Sam Walton's leadership seems to recognize that it has both an image and a reality to fix. How far Wal-Mart will adjust remains to be seen. But when I asked Wal-Mart's CEO, H. Lee Scott Jr., directly about all these issues, he did not duck. In fact, he wanted to talk about it. “What I think I have to do is institutionalize this sense of obligation to society to the same extent that we have institutionalized the commitment to the customer,” said Scott. “The world has changed and we have missed that. We believed that good intentions and good stores and good prices would cause people to forgive what we are not as good at, and we were wrong.” In certain areas, he added, “we are not as good as we should be. We just have to get better.”
One trend that Wal-Mart insists it is not responsible for is the off-shoring of manufacturing. “We are much better off if we can buy merchandise made in the United States,” said Glass. “I spent two years going around this country trying to talk people into manufacturing here. We would pay more to buy it here because the manufacturing facilities in those towns [would create jobs for] all those people who shopped in our stores. Sanyo had a plant here [in Arkansas] making television sets for Sears, and Sears cut them off, so they decided they were closing the plant and going to move part to Mexico and part to Asia. Our governor asked if we would help. We decided we would buy television sets from Sanyo [if they would keep the plant in Arkansas], and they didn't want to do it. They wanted to move it, and [the governor] even talked to the [Japanese owning] family to try to persuade them to stay. Between his efforts and ours, we persuaded them to do it. They are now the world's largest producer of televisions. We just bought our fifty millionth set from them. But for the most part people in this country have just abandoned the manufacturing process. They say, 'I want to sell to you, but I don't want the responsibility for the buildings and employees [and health care]. I want to source it somewhere else.' So we were forced to source merchandise in other places in the world.” He added, “One of my concerns is that, with the manufacturing out of this country, one day we'll all be selling hamburgers to each other.”
The best way to get a taste of Wal-Mart's power as a global flattener is to visit Japan.