Walmart in India

GLS 499
Thorburn
November 20, 2010

          Wal-Mart Stores, Inc. began as a discount department store in Arkansas in 1962 (Wal-Mart Stores Inc., n. d. a); as of 2010, they are the largest corporation in the world according to Fortune’s Global 500 report (2010).  In May of 2009, Walmart expanded its empire into India by opening a warehouse store under the name of “Best Price Modern Wholesale” (Wal-Mart Stores, Inc., 2009).  In a joint venture with Bharti Enterprises, the two companies created Bharti Walmart Private Limited which allows Walmart to enter into the Indian market (Wal-Mart Stores, Inc., 2009).  With all the negative publicity surrounding Walmart’s business practices in the United States, one must question if they will have the same problems in India.  With suppliers’ questionable working conditions, low wages and allegations for polluting the environment, Walmart is sure to face similar problems in India as they have in the U.S.  
          In order to determine the kinds of issues Walmart is likely to face in India, it is important to review their troubles in the U.S.  A survey conducted by the Pew Research Center in 2005 (as cited in Basker, 2007) reveals the American public’s opinion of Walmart.  The survey shows that “19 percent of respondents with a Wal-Mart store in their area thought that it had had a negative effect locally, and 24 percent of all respondents thought that Wal-Mart was bad for the country” (as cited in Basker, 2007).  Why would 19% believe Walmart is bad for their community and 24% believe they are bad for the country?  It is Walmart’s business practices that has given the corporation a bad reputation in the U.S.  
          Walmart’s Discount Stores, Superstores and Sam’s Clubs are not necessarily good for local economies.  Walmart’s rock bottom low prices translate into low employee wages.  In the article “Decency Means More than ‘Always Low Prices’: A Comparison of Costco to Wal-Mart’s Sam’s Club,” in the journal Academy of Management Perspective, Wayne E. Casico (2006) compares Costco’s higher than average retail wages to the very low wages of Walmart employees.  Costco’s philosophy is to take care of their employees, the consumer next and its shareholders last (Casico, 2006).  Unlike Walmart, whose number one goal is to sell products at the lowest price and with the highest profit margin, Costco caps the profit they will make on each product; the savings is then passed on to the consumer and translates into “living wages” for their employees (Casico, 2006).  By putting employees before increasing company profits, Costco is able to provide higher than average retail wages and excellent healthcare coverage for their employees.  As of 2006, Costco employees only paid 8% of their healthcare expenses while Walmart employees paid 33% (Casico, 2006).  For tax payers, that means there is a significant portion of Walmart employees who cannot afford to get health insurance through their employer.  Only 46 % of Walmart employees were enrolled in Walmart’s health insurance plan in 2006 (Casico, 2006); the other 54% either had no health insurance, were covered under a relative’s healthcare plan, or were enrolled in a government sponsored program.  That translates into higher taxes for tax payers because Walmart insists on paying its employees low wages where they cannot afford the healthcare premiums (Casico, 2006).  As a result, employees must rely on government assistance to fill in the gap (Greenwald, 2005).  Walmart is able to increase their profits at the expense of taxpayers.  This does not seem moral; however, it is legal.  Comparing Walmart to Costco shows that other U.S. corporations can provide living wages and benefits to  their employees so they can positively contribute to the health of their local economies without placing a burden on government programs.  Walmart’s low wages and low prices will eventually hurt local economies. 
           John Hunter, a third generation small business owner of H & H Hardware in Missouri commented in the documentary “Walmart: The High Cost of Low Prices” that when he went to the bank to check on funding for his business, the bank informed him they could not continue to provide funding.  When he asked what the problems was they told him the property on which his store sits is too close to Walmart.  What they were saying it that his commercial property value went down when Walmart moved into the neighborhood (Greenwald, 2005).  The bank assumes in the near future the buildings around his store will be vacant which ultimately lowers his property value (Greenwald, 2005).  When Walmart moves into a town, they eventually will put the small businesses out of business.  With Walmart’s low prices, consumers begin to shop at Walmart, while small businesses end up losing business.  Thus, employees of small businesses will very likely lose their jobs.  Walmart claims they boost the standard of living by offering products at low prices, but clearly it seems that it does the opposite to the communities for which they operate.  
          The Walmart Supercenter is the larger more inclusive version of the Walmart Discount Store and has been attributed to the down fall of local mom-and-pop and grocery stores throughout the U.S.  At an average of 185,000 square feet, the Walmart Supercenter is 77,000 square feet larger than Walmart Discount Stores (Walmart, n.d. c).  The additional square footage includes a full grocery department with bakery goods, meats, dairy, deli counter, frozen and packaged foods.  This may sound like a really great way to shop.  The Supercenter creates a one-stop-shopping experience for the consumer.  However, in an article written by Georgeanne M. Artz and Kenneth E. Stone (2006) they address the negative economic effects associated with Walmart Supercenters on local grocery stores in both rural and metropolitan counties in Mississippi:  
          We find that Wal-Mart’s entry into nonmetropolitan markets reduces growth of  grocery store sales by nearly
          17 percentage points within two years of entry.  In metropolitan counties, the proportionate reduction in 
          sales growth is much smaller, 4 percentage points within one year of Supercenter entry, but the associated 
          dollar amount of sales captured by the Supercenter is nearly twice as large. Some of the decline may be 
          attributable to lower prices induced by Wal-Mart competition, but the magnitude of the effects suggests
          that, particularly in more rural areas, the new store captures a significant amount of business from existing 
          grocery retailers in the host county. (2006)
Looking at the actual data collected by Artz and Stone, it is clear the introduction of the Walmart Supercenter into rural areas negatively affects the bottom line for grocery stores in the area.  It seems that the convenience of one-stop-shopping and really low prices have won over many consumers despite the true economic costs.  According to Artx and Stone (2006), “a Supercenter’s entry reduces food and beverage growth by 6.3 percentage points in its opening year and another 10.5 percentage points in the succeeding year.”  Not only are grocery stores affected by the Supercenters but so are other related industries like restaurants who sell food and beverages.  Introducing low paying jobs into a small town lowers the spending capability of Walmart employees and thus other businesses in the area suffer.  The study takes into account many factors that could inadvertently skew the results.  Artz and Stone (2006) even include an analyzes of the economic stability of the town and surrounding areas before the introduction of Walmart Supercenters and suggest Walmart has a strategy for entering certain markets.  Artz and Stone (2006) believe Walmart finds markets that are in an economic decline; when the economy temporary recovers due to an increase in jobs at the Walmart store, it appears Walmart has brought an economic recovery (Artz & Stone; 2006).  In actuality, the data shows Walmart Supercenters will eventually negatively affect economic growth in surrounding areas even with the increase in jobs; the initial job increases do not counteract the low pay and unaffordable healthcare coverage.  These factors actually bring down the standard of living for its employees.  
          As Walmart increases the number of low paying jobs in a community, they are also guilty of polluting the environment (Greenwald, 2005).  In May of 2010, Walmart settled a lawsuit in California for $27.6 million for “illegally storing and dumping hazardous waste including pesticides, paint, chemicals and acid in violation of the state’s environmental laws and regulations” (Littlefield, 2010).  The settlement includes 236 violations at 42 stores (Littlefield, 2010).  The most recent environmental settlement is not an isolated incident.  In 2004, Walmart settled another lawsuit for $400,000 because Sam’s Club had violated “federal air pollution regulations in eleven states” (Cook, 2007).  Walmart faced additional fines in 2004 “for violations of environmental laws in nine states” (Cook, 2007).  In Georgia, they violated the Clean Water Act and were ordered to pay $170,000 in fines because they “knowingly [let] polluted storm water run into state waters” (Cook, 2007).   There are numerous examples of where Walmart has been caught polluting the environment.  It doesn’t seem to bother the corporation as year after year they are caught, fined and are allowed to repeat their violations.  It appears the fines Walmart is forced to pay does not hurt their bottom line very much; otherwise, they would literally clean up their act.  It becomes evident that polluting the environment does not rank very high on their priorities.  Pollution is only an issue for Walmart when they have been caught.  One would think that enforcing stricter guidelines at Walmart stores would save them a lot of money over time.  However, every few years the media reports on a new lawsuit and the fines Walmart is forced to pay.  It is not just environmental regulations Walmart is known for ignoring; there have been lawsuits for employees not being paid for working overtime and discrimination based on race and gender (Greenwald, 2005).
          Walmart’s influence is not confined to the United States.  As of 2007, Walmart imported “over 15 percent of U.S. imports of consumer goods from China” (Basker, 2007).  The volume of their imports is evident by the products that they sell.  In the Frontline documentary, “Is Wal-mart Good For American,” John Lehman a former Walmart manager of 17 years remarked about how he saw Walmart change into the giant corporation it is today (Smith, 2005); “I saw this as a Store Manager, an influx—a giant influx of imported merchandise coming in.  The stores were inundated with inventory – inundated.  I mean we had so much of this cheap crap floating around the store we didn’t know what to do with it” (Smith, 2005).  According to Lehman, the profit margins for imported goods can be 60%, 70% or even 80% compared to 18%, 20% or 22% for domestic products.  From a business perspective, it makes sense to sell more imported goods than domestic goods because the profit margins are much higher.  American suppliers reveal they have been pressured to move their manufacturing to Asia as a way to lower their costs (Smith, 2005).  This means that Walmart could then purchase the products at an even lower cost and thus sell them to the consumer at a lower price than other retailers.  Americans who think they are buying products made in the United States may be shocked to find out that their favorite name brand items are now made in Asia.  The products may not have the same quality standards required in the U.S.  One must ask if a higher profit for one corporation justifies the loss of thousands of small businesses, the unemployment that follows and a reduction in the quality of consumer goods.     
           Not only does Walmart work with foreign suppliers which negatively affects U.S. manufacturing jobs, but they also are able to get away with human rights violations at their suppliers’ factories.  Katherine Kenny (2007) writes about Walmart’s Code of Conduct which was developed in the 1992.  Kenny (2007) examines whether or not Walmart’s Code of Conduct is a binding contract between Walmart and the suppliers’ employees.  The Code of Conduct is included in the manufacturing agreement that must be aknowledged by the supplier.  The code is created by Walmart and is completely voluntary on their part.  The U.S. government does not require such an agreement.  Their code becomes important for them when they are faced in U.S. court with human rights violations.  Walmart asserts that their Code of Conduct is displayed to employees of their suppliers to help enforce the code; however, it is not meant to be viewed as a contract between Walmart and the supplier’s employee.  However, in the U.S. there has been negative publicity regarding human right violations, public relations representatives for Walmart cite their Code of Conduct as their way of protecting the rights of supplier’s employees (Kenny, 2007).  Clearly, Walmart’s Code of Conduct is just a public relations device used to calm the concerns of the American public; it does not actually protect the human rights of foreign factory workers.
          There has been much debate regarding Walmart’s responsibility to the employees of their suppliers.  Human rights violations have long been reported in foreign countries where Walmart suppliers have agreed to the Walmart Code of Conduct.  The code specifically includes the “fundamental rights to workers in Wal-Mart supplier Factories” (Kenny, 2007).  The code of conduct addresses “five standards relating to compliance with applicable law and practices, employment conditions, workplace environment, concern for environment, factory inspection, and Wal-Mart’s gift and gratuity policy” (Kenny, 2007).  Multi-national corporations (MNC) like Walmart often elect to have a code of conduct for which they make their suppliers agree (Kenny, 2007).  Requiring agreement to the company’s code of conduct can greatly reduce Walmart’s liability if there is a dispute regarding human rights violations.  MNCs may even see “monetary incentives” for “instituting ethics programs” according to Kenny (2007) which is along the same lines as a code of conduct.  It seems MNCs like Walmart use their self-created code of conduct as a public relations tool to give the illusion they are serious about human rights (Kenny, 2007).   It does seem quite transparent though when suppliers’ employees from Bangladesh, China, Indonesia, Nicaragua and Swaziland sue the corporation for not enforcing their own code of conduct.  One must ask if Walmart really takes human rights violations seriously or if they only want to appear as if they do?  Some may argue that Walmart cannot be responsible for the working conditions in the factories of their suppliers even if they do agree to the code of conduct; however, other MNCs like Levi-Straus employ questionnaires, perform “audits, and surprise visits” to ensure compliance of their working conditions (Kenny, 2007).  Walmart could use similar techniques to ensure their suppliers are in compliance.  According to Kenny (2007), Levi-Strauss also “discontinued contracts with thirty-five of approximately 700 subcontractors due to repeated Code violations.”  It is not enough for Walmart to have a code of conduct or even for them to say they check to make sure it is being followed (which they have not claimed), but it is more meaningful for them to stop using suppliers who violate the code.    That is the most accurate indicator that they are serious about ensuring compliance for human rights.
          With violations against foreign workers, one must ask if Walmart will continue this type of disregard for their employees in India as well.  There treatment of Indian employees may be better than those of their suppliers because Walmart has entered into a partnership with an established Indian corporation.  According to the corporate website for Wal-Mart Stores Inc. (n.d. b), in a joint partnership, Walmart and Bharti Enterprises together created Bharti Walmart Private Limited.  The partnership was established “for wholesale cash-and carry and back-end supply chain management operations in India.  [Their] first Best Price Modern Wholesale opened in May 2009” (Wal-Mart Stores, Inc., n.d. b.).  It appears that Walmart would not have been able to expand into India without their partnership with Bharti Enterprises.  The Indian government restricts foreign investment and thus the Walmart and Bharti Enterprises each own fifty percent of Bharti Walmart Private Limited (Wal-Mart Stores, Inc., 2009).  This partnership allows the Walmart efficiency and brand recognition to be married with local production and manufacturing.    
          Walmart claims products sold in India are “sourced locally” meaning they are either grown or manufactured relatively close to the store (Wal-Mart Stores, Inc., 2009).  According to Wal-Mart Stores, Inc. (2009), sourcing goods and services from a local area helps to keep their costs down and boosts the local economy.  Walmart is known for streamlining the distribution channel to reduce any unnecessary costs like shipping.  Because they buy from local producers, they are able to create an efficient supply chain which allows farmers and small manufactures to reduce waste by streamlining their distribution channel (Wal-Mart Stores, Inc., 2009).  Because Walmart’s stores are for wholesalers, Walmart can buy larger quantities from local suppliers.  In the case of produce, this means that farmers can sell large portions of their crop to Walmart before it spoils.  Consequently, farmers can earn more money with the same amount of produce according to Walmart’s public rations materials (2009).  
          Walmart claims their model for India is much different than the model used in the United States; however, they still import products from outside of India (Wal-Mart Stores, Inc., 2009; Wal-Mart Stores, Inc.; n. d. b).  Their public relations materials seem to contract each other. One says they are using local manufacturers and farmers and another states they will import from from place like Sir Lanka.  
          There is a significant difference between the U.S. and India models; Walmart sells directly to the consumer in the U.S.  Even at Sam’s Club, Walmart’s wholesale division, it is accessible to all consumers who purchase a membership.  In India, “Best Price Modern Wholesale store is a one-stop shop that meets the day-to-day needs of restaurant owners, hoteliers, caterers, fruit and vegetable resellers, kiranas, other retail store owners, offices and institutions” (Wal-Mart Stores, Inc., 2009).  Unlike the Sam’s Club stores in the U.S., the Indian version, Best Price Modern Wholesale, is supposed to be more selective as to who has the opportunity to shop there.  In theory, this helps to control the effects of the low prices on the local economy.  In order to do business in India, Walmart had to adjust their model to comply with government regulations that limit the types of business international corporations can do in India (Wax, 2009).  
          Not only has the Indian Government forced Walmart to modify their model, but they must also look at the culture of the market for which they intend to enter.  When international corporations do business in countries with significantly different cultures from their own, they must evaluate the way their business will fit into the existing market.  The model used in India is described as wholesale cash-and-carry.  It is designed to provide high quality products and low prices to retailers so they can sell them to the consumer at a low price while still making a profit (Wal-Mart Stores, Inc., n.d. b.).  This system ideally would not put the small retailers out of business because the majority of the population would not have access to purchase goods at the Best Price Modern Wholesale stores.  However, the membership is open to merchants, their family and friends, up to three additional memberships (Wax, 2009).   Walmart appears to be concerned publicly with the negative effects they have had in small U.S. towns and thus have actively addressed concerns of the small merchants by limiting their customer base to retailers and a small group of the public.  While there are limitations on who can buy from Walmart in India, the limitations are not restrictive enough as to not have a negative effect on the local economy.
          With all the negative publicity Walmart has had in the U.S., it still seems pretty early in Walmart’s India experience to assume that Indians will continue to enjoy the benefits Walmart brings like low prices and none of the negatives as portrayed in The Wall Street Journal article “India’s First Wal-Mart Draws Excitement, Not Protest; Venture Comes With Limits That Protect Merchants” (Wax, 2010).  Wax (2009) reports that the Walmart store has “brought more praise than protest.”  One must question the motive of the article.  Is it to reassure investors that the Indian venture is an automatic success unlike Walmart’s short presence in Germany?  However, the article does briefly note the “India Foreign Direct Investment Watch, a national coalition of labor unions, environmentalists, nonprofit groups and academics, has said that the company will eventually hurt shopkeepers, even if its store is not open to everyone in the general public” (Wax, 2009).  It does not appear Walmart’s presence in India will be any different from its presence in the U.S. 

Reference
Artz, G. M., Stone, K. E. (2006). Analyzing the Impact of Wal-Mart Supercenters on Local Food Store Sales.  
          American Journal of Agricultural Economics.  Retrieved from
          http://ajae.oxfordjournals.org.ezproxy.nu.edu/content/88/5/1296.full
Basker, E. (2007). The Causes and Consequences of Wal-Mart’s Growth. Journal of Economic Perspectives, 21(3), 
          177-198. Retrieved from http://ezproxy.nu.edu/login?url=http://search.ebscohost.com/login.aspx?
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Cascio, W. (2006). Decency Means More than “Always Low Prices”: A Comparison of Costco to Wal-Mart’s Sam’s 
          Club. Academy of Management Perspectives, 20(3), 26-37. Retrieved from http://ezproxy.nu.edu/login
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Cook, J. (2007). “Wal-Mart: An Environmental Issue.”  Associated Content.  Retrieved from 
          http://www.associatedcontent.com/article/325072/walmart_an_environmental_issue.html
Fortune. (2010).  Global 500.  Retrieved from http://www.cnnmoney.com
Greenwald, R. (2005). “Walmart: The High Cost of Low Prices” (documentary). Retrieved from
          http://video.google.com/videoplay?docid=654848081233525955#
Kenny, K. (2007). Code or Contract: Whether Wal-Mart’s Code of Conduct Creates a Contractual Obligation
          Between Wal-Mart and the Employees of its Foreign Suppliers. Northwestern Journal of International Law 
          & Business, 27(2), 453-473. Retrieved from 
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          direct=true&db=buh&AN=24599391&site=ehost-live

Littlefield, D. (2010).  “Walmart settles in waste suit: Retail giant to pay more than $27 million.” Signon San Diego. 
          Retrieved from http://www.signonsandiego.com/news/2010/may/03/wal-mart-to-pay-276m/
Smith, H. (Writer), Young, R. (Writer & Director). (2005). Is Wal-Mart Good For America? [Documentary].  In R. 
          Young (Producer), Frontline. Boston, MA: WGBH Educational Foundation.  Retrieved from 
          http://www.pbs.org/wgbh/pages/frontline/video/flv/generic.html?s=frol02p71&continuous=1

Wal-Mart Stores, Inc. (2009). Walmart in India Fact Sheet. Retrieved from http://www.google.com/url?
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Wal-Mart Stores, Inc. (no date a).  About Us.  Retrieved from http://walmartstores.com/AboutUs/
Wal-Mart Stores, Inc. (no date b). India. Retrieved from http://www.walmartstores.com/aboutus/276.aspx
Wal-Mart Stores, Inc. (no date c). Walmart Supercenters.  Retrieved from 
          http://walmartstores.com/aboutus/7606.aspx
Wax, E.  (2009). India’s First Wal-Mart Draws Excitement, Not Protest; Venture Comes With Limits That Protect 
          Merchants. The Washington Post, Retrieved from http://ezproxy.nu.edu/login?
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© Copyright 2010. Alyssa Burley.

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