PART ONE
The Walmart Supply Chain
1 WALMARTâS LONG MARCH TO CHINA
How a Mid-American Retailer Came to Stake Its Future on the Chinese Economy
Nelson Lichtenstein
A globalized world of commerce and labor has existed for centuries, but todayâs globalization differs radically from that of even a few decades past because of the contemporary role played by the corporate kingmakers of our dayâthe big box retail chains that now occupy the strategic heights once so well garrisoned by the great manufacturing firms of the Fordist era. At the crux of the global supply chains stand the Walmarts, the Home Depots, and the Carrefours. They make the markets, set the prices, and determine the worldwide distribution of labor for that gigantic stream of commodities that now flows across their counters. The deindustrialization of Detroit, Pittsburgh, and Cleveland entailed not just the destruction of a particular set of industries and communities, but the shift of power within the structures of world capitalism from manufacturing to a retail sector that today commands the supply chains which girdle the earth and directs the labor power of a working class whose condition replicates much that we once thought characteristic of only the most desperate, early stages of capitalism.
FROM BENTONVILLE TO GUANGDONG
All this is graphically evident on a visit to the two most dynamic nodes of todayâs transnational capitalismâBentonville and Chinaâs Pearl River Delta. It is easy to get to Bentonville, Arkansas, where Walmart has its world headquarters in an unimpressive, low-slung building close by the companyâs original warehouse. There are lots of direct flights from Denver, Chicago, La Guardia, and Los Angeles to this once-remote Arkansas town. Bentonville itself has a population of just twenty-five thousand, but the parking lots are full, the streets crowded, and there is new construction everywhere. Most important, Bentonville and the rest of northwest Arkansas is now home to at least 750 branch offices of the largest Walmart âvendors.â They have planted their corporate flag here in the hope that they can maintain or increase their sales to the worldâs largest buyer of consumer products. Procter & Gamble (P&G), which in 1987 may well have been the first company to put an office in this part of Arkansas, now has a staff of more than two hundred there; likewise Sanyo, Levi Strauss, NestlĂ©, Johnson & Johnson, Eastman Kodak, Mattel, and Kraft Foods maintain large offices in what the locals sometimes call âVendorville.â Walt Disneyâs large retail business has its headquarters, not in Los Angeles, but in Rogers, Arkansas, right next door to Bentonville. These Walmart suppliers are a whoâs who of American and international business, staffed by ambitious young executives who have come to see a posting to once-remote Bentonville as the crucial step that can make or break a corporate career.1 If they can meet Walmartâs exacting price and performance standards, their products will be sucked into the stream of commodities that flow through the worldâs largest and most efficient supply chain. For any manufacturer, it is the brass ring of American salesmanship; this explains why all those New York, Hong Kong, and Los Angeles sophisticates are dining at the surprisingly large number of gourmet restaurants that have sprung up in northwest Arkansas.
If Bentonville represents one nerve center of capitalismâs global supply network, Guangdong Province is the other. Located in coastal south China, it constitutes the raw entrepreneurial engine that links a vast new proletariat to the American retailers who are putting billions of Chinese-made products on a million U.S. discount-store shelves every day. With 15 million migrant workers, tens of thousands of export-oriented factories, and new cities like Shenzhen, which has mushroomed to more than 7 million people in just a quarter of a century, Guangdong lays an arguable claim to being the contemporary âworkshop of the world,â following in the footsteps of nineteenth-century Manchester and early twentieth-century Detroit. This was my thought when we taxied across Dongguan, a gritty, smoggy, sprawling landscape located on the east side of the Pearl River between Guangzhou and skyscraper-etched Shenzhen. We drove for more than an hour late one Sunday afternoon, along broad but heavily trafficked streets continuously bordered by bustling stores, welding shops, warehouses, small manufacturers, and the occasional large factory complex.
The Chinese government in Beijing chose Shenzhen as a special economic zone in 1979 because of its proximity to Hong Kong. A few years later the entire Pearl River Delta became part of the zone, with low corporate taxes, few environmental or urban-planning regulations, and the increasingly free movement of capital and profits. The results were spectacular. Gross domestic product in the Pearl River region leaped from US$8 billion in 1980 to US$351 billion in 2006. Shenzhenâs population rose twentyfold. Guangdong Province itself produces a third of Chinaâs total exports, and almost 10 percent of all that finds its way to Walmartâs U.S. shelves.2
Although Walmart owns no factories outright, its presence is unmistakable. Its world buying headquarters is now in Shenzhen, and it has already opened more than three hundred stores all over China, with others to come. It is feared and respected by everyone involved with any aspect of the export trade, which is why the executives at the Yantian International Container Terminal in Shenzhen, now the fourth largest port in the world, give top priority to cargoes bound for Walmart.
When Walmart first made the decision to source such a high proportion of its products in China, it did so not merely because goods were cheap and wages low but because, for Walmart and other multinational companies doing business there, a sound currency, excellent infrastructure, political stability, and a compliant workforce were nearly as important as low costs. Governments at both the provincial and national level were making huge infrastructure investments, and similarly tens of thousands of foreign investors from Taiwan, Hong Kong, South Korea, Japan, and the United States were building production facilities of increasing complexity and capacity. This made it possible to transform raw materials into containerized consumer goods in just a few weeks. Nike managers at the huge Yue Yuen factory complex in Dongguan bragged that they could fill an order from the United States in just two months. Container ships were loaded in half the time it took in Los Angeles.3 It took four days for exports to clear customs in Guangzhou, eight days in Calcutta, and more than two weeks in Karachi. Likewise, the proportion of total production lost to power outages totaled 2 percent in Guangzhou, but 6 percent in Calcutta and Karachi.4
A decade ago such stability and efficiency seemed overwhelming compared to other East Asian manufacturing venues. As Andrew Tsuei, then managing director of Walmartâs global procurement center in Shenzhen recognized, there were other countries where products could actually be sourced more cheaply. But as he argued, âIf we have to look at a country thatâs not politically stable, you might not get your order on time. If you deal in a country where the currency fluctuates every day, there is a lot of risk. China happens to have the right mix.â5 But as this essay and others in this volume make clear, such stability and predictability no longer characterize the procurement operations of Walmart and other global retailers in China. Labor unrest, wage increases, and an unpredictable exchange rate have generated much tension within the global supply chains dominated by Walmart and the other retailers. To evaluate these growing contradictions, a historical understanding of this new socioeconomic phenomenon is essential.
POWER AND PLACE IN THE RETAIL SUPPLY CHAIN
Neither Bentonville nor Guangdong, these anchors of the trans-Pacific supply chain, are the product of some abstract process of globalization; rather, both were constructed by a set of political and policy choices, in the United States and throughout the globe, that have shifted power from manufacturing to retail distribution, and from an economy in which the interests of relatively high-wage men played a central role to one in which the flexible, low-wage labor of women is increasingly crucial.
For most of the twenty-first century, Walmart has occupied the number-one spot on the Fortune 500 list of the largest American companies. With nearly 2 million employees worldwide and sales of more than US$375 billion in 2008, it is undoubtedly the largest private enterprise on the globe. However, size alone is not what makes Walmart and the other great retailers of our day, such as Tesco, Carrefour, Home Depot, and Sears Holdings, so important. Rather, it is the power that they command in the world economy, the leverage that they exert throughout the supply chains that channel the commodities from manufacturer to merchant, and from Asia to North America and Europe.
This is not the first time that the merchants have been on top. Retail hegemony in the twenty-first century echoes the mercantile regime once presided over by the great seventeenth- and eighteenth-century merchant and banking houses of Amsterdam, Hamburg, and the City of London. By the early nineteenth century, the merchants and traders of Philadelphia, New York, and Boston had moved to the fore. In a society in which production was highly decentralized and largely that of agricultural commodities, the power of these wholesalers, jobbers, and traders to make a market and manipulate it for their own purposes put them at the center of commerce, politics, and culture. They owned the clipper ships and railroads that extended the supply chains of their day across a continent and around the world.6
In the United States, the Civil War ended this first era of merchant power. For more than a century thereafter, until the 1980s, manufacturers set the price and determined the market for much of what they sold: the retailers, even when combined into large chains, had to take whatever prices and products they were offered.7 Today, the merchants again stand at the apex of the worldâs supply chains. Indeed, the very phrase supply chain did not even exist twenty years ago. Historians and sociologists such as Emmanuel Wallerstein had first developed the idea of a âcommodity chainâ as part of a world systems schema. Then, in the 1980s, business consultants like Bain and Company coined the phrase value chain management or supplier rationalization to describe how components and materials were purchased and transformed into saleable goods. Frederick Abernathy and John Dunlop used the phrase commodity channels as recently as 1999 to describe the way apparel moved from Asian and Central American suppliers to North American retailers. In the twenty-first century, however, âsupply chain,â with its hard linkages and connotation of domination and subordination, has become the artful phrase. Theorists such as Gary Gereffi and Gary Hamilton have emphasized the market-making potential of the contemporary buyer-driven supply networks in order more clearly to evaluate the hierarchy of power and profitability that characterizes contemporary global trade.8
Much of the global economy is now driven by the supply chains that have their nerve centers in Bentonville, Atlanta (Home Depot), Minneapolis (Target), Troy, Michigan (K-Mart), Paris (Carrefour), Stockholm (Ikea), and Issaquah, Washington (Costco). The goal of these megaretailers is to contract for only those goods that consumers will actually buy in a given time frame, not what a set of once-powerful supply firms found it convenient and profitable to ship. Like Fordâs first assembly line, which soon made obsolete so many traditional skills and processes in the metal-bending core of the U.S. economy, these supply-chain innovations have superseded virtually all other configurations in the manufacturerâdistributorâretailer nexus.
Using a wide variety of new information technologies, the big box retailers of our day collect point-of-sale (POS) data and relay it electronically through their supply chain to initiate replenishment orders almost instantaneously. Thus when Walmart sells a tube of toothpaste in Memphis that information flashes straight through to Bentonville, then on to the P&G headquarters office in Cincinnati, the Ohio home-product manufacturer, which then immediately sends the electronic impulse directly to an ...