Sunday, December 30, 2007

The Wal-Mart-SM-China Connection

I've been on a book spree as of late. Apart from the fantasy types that I read, I've been enamored with corporate stories too. I've read the corporate biographies of Netscape, Google, Amazon, a little Microsoft (it bored me)and I've also finished books about Warren Buffet and Steven Jobs.

The last one I finished was about Wal-Mart called "The Wal-Mart Effect". Since I'm not American, I wasn't aware of how dominant the company was. I just know it's one of the major retailers in the US because of an old, old stock market game I used to play. Apart from that, I couldn't differentiate it from K-Mart or Target. My old MBA teacher used to say that companies position either by cost or by differentiation. Wal-Mart used the former.

And boy did it do so well.

I knew for a fact that the manufacturing trend was towards outsourcing (like in China) and that normal business dynamics were at work (namely competition). What I didn't realize and found very enlightening from the book was that retailers can have the power to force outsourcing. How?

Well, Wal-Mart is so "dedicated" to its "everyday low prices" creed that it forces its suppliers to lower prices every year. I have to admit, that's the first time I've heard of a corporate-induced deflation. How is it forced? If the suppliers to accede to the "request", Wal-Mart walks away not just from the product, but from the supplier. For example, if P&G doesn't want to lower the price of Tide (no I didn't check if they actually manufactured that), Wal-Mart will stop doing business with P&G, not just with the product line. If you can imagine that there's like a Wal-Mart every 15 KMs (or something) for about 70% of the US population, that tells you the extent of the company's distribution system. If Wal-Mart turns its back on you, that's a disaster. However, if you keep doing business with the company, it will erode your profit margin until there's nothing left. Spell dilemma baby.

To be fair though, Wal-Mart is reportedly not just ruthless with suppliers; it is with its employees as well. The book said that there's a class suit against the company by its former employees because the company used to lock them up inside the stores so they couldn't go anywhere. Furthermore, employees were routinely asked to log out and keep working (there's nothing cheaper than free labor).

For some weird reason, these descriptions reminded me of SM. I could be wrong, but hey.

The book also made me think about the commercial that says, "When the buying stops, the killing does too" which is a reference to buying products from near-extinct animals. As a consumer, it really is hard. We all know that there's child labor out there and that factories in other countries don't really factor in externalities in the price. And yet, when you go to a store, how can you say no to the cheaper goods (of equal quality)? For example, in our country, how can you weigh the morality of the act of buying? Do you patronize the inhumane conditions in other country or do you let your family starve? I sure don't want to make that call.

But that's theory. The fact remains that Wal-Marts are sprouting like mushrooms in the US. That means that every day, consumers are voting with their wallets, giving Wal-Mart the thumbs up. Like I said, it's hard to blame them.

I'm guessing this is one of those things that are best left to governments. I don't really want to discuss that now so I'll end this post here.


  1. Kwela ka neighbor, hanep sa leisure reading! Our Strama teacher Elfren Cruz would probably adore you. Tapusin mo na grad school, sayang naman. Yes, P&G does manufacture Tide =) Those are tough and REAL questions. Hay. Who was the author of the book?

  2. Charles Fishman. I can just lend it to you if you want. Drop by anytime. Ah grad school...if only I didn't despise all those frameworks.


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