Walmart – An Easy Target?

By Savita Gill, Michelle Leung, and Annie Xu

In January 2012, 150 workers at Foxconn threatened mass suicide in protest of their poor working conditions (Moore, 2012). In November 2012, over 112 workers died in fire at a factory operated by Tazreen Fashions Ltd. In Dhaka, Bangladesh (The Associated Press, 2012). What did these two incidents have in common? The companies involved were both suppliers to large and powerful American companies. Foxconn was a supplier to Apple, whereas Tazreen was a garment supplier to Walmart. Both Apple and Walmart were and continue to be heavily criticized for not taking a larger and more active role in ensuring the quality and safety of the working conditions at their suppliers, but is it really their responsibility? As the largest company by revenue in the world, Walmart is an easy target. In this blog post, we shall argue that Walmart should not be held responsible or accountable for what happens at its tens of thousands of suppliers.

The local government shall be held fully responsible for the working conditions and safety of its people and factories. The Rana Plaza tragedy in Bangladesh is one example where the government should have enforced its laws and regulations to protect its factory workers. The collapse of the building that took over 1100 lives was due to the extra two floors that were illegally added to the building. If government regulation and inspection were tightly in place, the tragedy would not have happened. Some argue that corporations such as Loblaws, Wal-Mart and JC Penny should be held accountable for the conditions and safety of the factories such as the Rana Plaza; but the truth is that this would never be possible as multiple layers of contractors are in place disconnecting the North American corporations from its source of goods. In addition, corporations cannot uphold their own laws and regulations in another country. Wal-Mart’s clothing line supplier contracts the production of the garment to a clothing company where it then contracts to a Bangladeshi manufacturer who then contracts to a local shop that makes clothes for multiple North American corporations. With so many levels of sub-contracting and the factories being half way around the world, Wal-Mart does not have the ability to have a say on how its clothing are made, nor could Wal-Mart walk into Bangladesh and start giving orders on how things should be done even if Wal-Mart wanted to. To make the change of safe working conditions to happen, it takes the local government, business alliances and pressure from the media. In 2002, China passed the bill on Child labour law after much criticism from the West and threads to move factories elsewhere. Now with local government enforcement, the condition has improved, children’s rights are being protected and maltreatment of children is prohibited. In 2001, US government and Cambodia government came into agreement that US would open more opportunities to Cambodia if the Cambodian factory working condition improves. It’s been 14 years since the founding of “Better Factories Cambodia”, both the government and the foundation are still working hard to ensure the factories comply with the rules and regulations of international labour standards. Local government intervention is absolutely necessary for the working conditions and safety to improve.

Secondly, international coherence on core labor standards is an issue much beyond the realm of Wal-Mart. Placing a developing country under the same lens as an economically developed country can be seen as a protectionist measure. It will impact country’s competitive advantage and hence net export and hence economic development. In addition, every Fortune 500 Company is leveraging low-cost manufacturing to improve bottom line. Wal-Mart is just one player in this ecosystem. So, nations and business communities across the world need to address these hard questions and balance diverse interests. WTO (World Trade Organization) has deferred negotiation of work standards to the International Labour Organization (ILO). WTO points that “it is not easy for member governments to agree on these issues and the question of international enforcement is a minefield” (WTO, 2015). If governments themselves are reluctant to protect their citizens then Wal-Mart faces an uphill task. As a publically listed company with multiple stakeholders, Wal-Mart has taken steps in the right direction with an alliance for Bangladesh and “Responsible Sourcing program”. Wal-Mart should continue to have dialogues around sustainability and better working conditions but cannot be hold accountable if something slips out.

There is no dispute that Walmart has the power to coerce their suppliers to comply with whatever conditions they demand, however, it should not be Walmart’s responsibility to govern the operations and policies of its suppliers. In the end, it is simply a basic business transaction. If Walmart becomes aware of illegal practices and unsafe conditions at its suppliers, they should terminate the relationship if the supplier is not willing to comply with the local laws and regulations. They should not be interfering with how another business operates. Walmart has taken steps to be socially responsible through various initiatives such as participation in the Alliance for Bangladesh Worker Safety. It is now up to local governments and pressure from the world stage to ensure the necessary laws and regulations are in place to guarantee the safety and well being of workers around the world.

References
Moore, M. (2012, January 11). ‘Mass suicide’ protest at Apple manufacturer Foxconn factory. Retrieved January 25, 2015, from The Telegraph: http://www.telegraph.co.uk/news/worldnews/asia/china/9006988/Mass-suicide-protest-at-Apple-manufacturer-Foxconn-factory.html

The Associated Press. (2012, November 25). Bangladesh fire kills 112 at Wal-Mart supplier. Retrieved January 25, 2015, from CBC News: http://www.cbc.ca/news/world/bangladesh-fire-kills-112-at-wal-mart-supplier-1.1179644

WTO. (2015). http://www.wto.org/english/thewto_e/whatis_e/tif_e/bey5_e.htm. Retrieved from http://www.wto.org/: http://www.wto.org/english/thewto_e/whatis_e/tif_e/bey5_e.htm

BFC. (2015). http://betterfactories.org/?page_id=25. Retrieved January 25, 2015, from http://betterfactories.org/: http://betterfactories.org/?page_id=25

Bangladesh Worker Safety Org. (2015) http://www.bangladeshworkersafety.org/. Retrieved January 25, 2015, from: http://www.bangladeshworkersafety.org/

ILO. (2015). http://www.ilo.org/dyn/natlex/docs/WEBTEXT/63806/65269/E02CHN01.htm. Retrieved January 25, 2015, from: http://www.ilo.org/dyn/natlex/docs/WEBTEXT/63806/65269/E02CHN01.htm

Library of Congress. (2015). http://www.loc.gov/law/help/child-rights/china.php. Retrieved January 25, 2015, from: http://www.loc.gov/law/help/child-rights/china.php

Tyson, L. (2014, February 7). The Chalenges ofRunning Responsible Supply Chain. Retrieved January 25, 2015, from Econmix: http://economix.blogs.nytimes.com/2014/02/07/the-challenges-of-running-responsible-supply-chains/?_r=0

Is Walmart Improving Working Conditions Today for Jobs It Will Destroy Tomorrow?

By Ian Cummins, Ron French and Soumik Sen

Following the April 2013 garment factory disaster in Bangladesh that killed over 1,200 workers, the International Labor Organization (ILO) brokered an Accord on Fire and Building Safety that has been signed by over 170 international retailers and brands, as well as prominent trade unions [i]. The Agreement will implement reasonable health and safety measures in the ready-made garment industry, monitored by independent inspectors, over a five-year period.

The signature of one retailer was conspicuously absent from this ambitious agreement: Walmart. The retail giant has also refused to contribute to an ILO compensation fund created to help the victims of the tragedy [ii]. Instead, the retail giant announced in 2013 that it was joining the Alliance for Bangladesh Worker Safety, along with 25 other North American retailers [iii].

Despite its stated commitment to ethical sourcing, Walmart’s refusal to join a multilateral initiative with government and not-for-profit partners speaks volumes about the company’s lack of commitment towards the communities where it sources goods. The ILO Accord was intended to affirm that retailers, suppliers, governments, trade unions and civil society groups have a joint obligation to create safe working conditions for all garment workers. By opting instead for a business-led initiative, Walmart has signaled that it views itself as being accountable only to its shareholders and consumers.

Underlying these decisions is Walmart’s desire to preserve its ability to source goods at the lowest cost possible and to provide consumers with Everyday Low Prices (EDLP). While the company has committed to ensuring its suppliers in Bangladesh meet basic safety conditions, it has made no commitments to a long-term sourcing relationship with the country’s garment industry. If efforts to improve working conditions increase costs for suppliers, Walmart’s history of prioritizing cost suggests the company would simply shift production to the next low cost destination.

Indeed, the growth of Bangladesh’s large garment industry has been fuelled by the increased costs of producing goods in Southern China, which has been partly driven by worker demands for higher salaries and better working conditions [iv]. A 2013 survey of Chief Purchasing Officers (CPOs) for 29 apparel retailers revealed that 77% were planning to reduce their share of goods sourced from China [v]. The CPOs cited rising labour expenses as the main driver of their increased sourcing costs, particularly in China where labour costs are estimated to be growing roughly 20% per year [vi].

Granted, this survey also reveals that Walmart is not alone in basing its sourcing decisions primarily on cost. However, given its size, scale and powerful leverage over suppliers, Walmart has a unique capacity to play a leadership role with respect to ethical sourcing, a reality acknowledged by CEO Doug McMillon in the company’s most recent Global Sustainability Reportvii. Walmart could use its supplier leverage to help bring about meaningful improvements for Bangladeshi workers simply by committing not to exit the country as it is taking concrete steps to strengthen working conditions. Sadly, by not signing the ILO Accord, the company has sent its suppliers and workers a clear signal that it is not willing to make any direct commitments to Bangladeshi governments, labour unions or civil groups.

There may be consequences for Bangladeshi workers sooner rather than later. Following the garment factory tragedy, the Bangladeshi government took steps to raise the monthly minimum wage for garment workers by 77% (approximately $68) [viii]. This type of policy change should be welcomed as it creates a level playing field for workers, suppliers and retailers without seriously affecting the country’s low cost advantage relative to other middle to high-income countries. However, this type of change will more likely push Walmart to begin its search for the next low-cost destination for sourcing goods. Indeed, there are signals this process may already be underway.

In 2012, Walmart increased its presence in Africa through the acquisition of South African retailer Massmart [ix]. The company’s expansion plans for the continent include countries that offer significantly worse legal protections for workers than either China or Bangladesh. For example, Nigeria, cited by Walmart as a “priority market”, has been rated by the International Trade Union Confederation as one of the world’s worst places for workers [x][xi]. The country also scores among the worst countries in the world on indexes measuring democracy, human rights protection and corruption [xii]. While it remains to be seen whether sub-Saharan African countries will ever replace Bangladesh or China as global sourcing destinations, the simple fact that Walmart has prioritized growth in a country like Nigeria where there is a risk of even greater abuses demonstrates that ethical sourcing considerations remain marginal when the company is making business decisions.

The signatures of over 170 retailers and brands on the ILO Accord suggest there are companies that disagree with Walmart’s approach. These companies may be betting that building longer term partnerships with suppliers, governments, trade unions and civil society groups in order to collectively improve working conditions will pay dividends by increasing productivity, building a loyal customer bases in emerging markets and reducing the risk of future tragedies that have given discount retailers such a bad image. Given Walmart International’s poor performance recently, it might be time for the company to reconsider its approach [xiii].

i Accord on Fire and Building Safety in Bangladesh. http://bangladeshaccord.org/ (Accessed October 31, 2014).
ii “U.S. Retailers Decline to Aid Factory Victims in Bangladesh.” New York Times. Nov 22, 2103. http://www.nytimes.com/2013/11/23/business/international/us-retailers-decline-to-aid-factory-victims-in- bangladesh.html?pagewanted=all&_r=0
iii Alliance for Bangladesh Worker Safety. http://www.bangladeshworkersafety.org/. (Accessed October 31, 2014).
iv “Exporters Leave China But Find Rising Costs Elsewhere.” Bloomberg Businessweek. January 9, 2014. http://www.businessweek.com/articles/2014-01-09/exporters-leave-china-but-find-rising-costs-elsewhere
v McKinsey and Company. “The Global Sourcing Map – Balancing Cost, Compliance and Capacity.” October 2013. Pg 3
vi Ibid. Pgs 2-3.
vii Walmart. 2014 Global Responsibility Report. Pg 3.
viii “Bangladesh Raises Minimum Wage for Garment Workers After Unrest.” Bloomberg. November 14, 2013. http://www.bloomberg.com/news/2013-11-13/bangladesh-garment-factories-to-stay-shut-amid-worker- protests.html .
ix Walmart acquired a majority stake in Massmart Holdings Ltd. in 2011. Massmart operates more than 350 stores in South Africa and 11 other sub-Saharan countries. See: http://corporate.walmart.com/our-story/our- business/international/africa.
x As a condition for approving the acquisition, the South African government required Walmart to contribute to a fund to help local suppliers adjust to Walmart’s new sourcing requirements. The court that approved the acquisition lowered the amount of the fund, arguing that integrating local African suppliers into Walmart’s supply chain was a more critical policy objective. See: “Walmart-Massmart Commercializes the Local Supply Chain.” Consultancy Africa Intelligence. http://www.consultancyafrica.com/index.php?option=com_content&view=article&id=1244:walmart- massmart-commercialises-the-local-supply-chain-a-step-in-the-right-direction-&catid=82:african-industry-a- business&Itemid=266.
xi International Trade Union Confederation. “2014 ITUC Global Rights Index: The World’s Worst Countries for Workers.” http://www.ituc-csi.org/IMG/pdf/survey_ra_2014_eng_v2.pdf. Pgs 38-39
xii International Human Rights Rank Indicator. http://www.ihrri.com/index.php?iso=NG
xiii “Why Walmart is Failing in Emerging Markets.” The Motley Fool. http://www.fool.com/investing/general/2014/04/28/why-is-wal-mart-failing-in-emerging-markets.aspx.

Photo Credit: James Strock, Serve to Lead.