Is Wal-Mart Good for America?
1-How has Wal-Mart changed the power relationship between retailers and manufacturers? Give examples from the documentary.
Wal-Mart has had an enormous impact on American producers. In the film Is Wal-Mart Good for America, narrator talks about “the revolution” in the relationship between retailers and manufacturers that took place in the USA when Wal-Mart decided to cooperate with foreign suppliers. In the past manufacturers determined what to produce and at what price to sell their products. However, Wal-Mart that heavily relies on the economies of scale was able to overcome the old “push-production” system and now successfully dictates suppliers and partners how many products they should produce and what prices should be written in the contracts.
Many American companies had to open their sales offices in Bentonville, Arkansas where Wal-Mart’s headquarters are located. One of such companies is a socks manufacturer Kentucky Derby Hosiery that totally depends on Wal-Mart’s orders. In the documentary film, narrator also tells a story of the Rubbermaid Company that manufactures household items. At some point the company became too dependent on several large retailers including Wal-Mart. Rubbermaid was a very successful company, but it was not able to agree with Wal-Mart on the issue of prices. When prices for raw materials increased, Wal-Mart did not want to increase prices for Rubbermaid’s products. Additionally, Wal-Mart took a decision to reduce the volume of Rubbermaid’s products that could be sold. As the result, Rubbermaid could not survive the competition and had to be sold to Newell Brands, one of its main rivals.
2-Why and when did Wal-Mart go global, specifically to China, for supplies? In your answer make sure to mention what proportion of its suppliers are from China and what the estimated value of Wal-Mart’s imports to the US are on an annual basis?
Wal-Mart went global in 1970s-1980s in order to outsource production to the countries with emerging economies where labor was cheaper than in the USA. Having a competitive advantage thanks to low prices has always been one of Wal-Mart’s strengths. In the film it was said that the number of stores in the USA rapidly grew starting from the 1970s. In 1991, Walmart became the biggest retailer in the USA, but in 1992 the company had financial problems. Outsourcing to China was a very important step to overcome the unexpected difficulties. In the 1990s, there was a huge influx of foreign merchandise in the Walmart stores. What is more, American suppliers had to move their production to China and other countries in order to sustain relationship with Wal-Mart. When the USA signed Trade Agreement with China, American companies started to cooperate with many Chinese and Taiwanese companies that agreed to produce products at low prices. A lot of cities and provinces that have ports provided infrastructure for the new factories and plants. For example, Shenzhen quickly grew into a city that is vital for the global economy. For Wal-Mart Chinese producers are very important, because 80% of 6,000 Wal-Mart’s global suppliers are located in China. There is one global procurement center that makes sure that sufficient quantities of products are delivered to the USA in a timely manner. Wal-Mart provides Chinese suppliers with specifications that they have to comply with. However, not all Chinese companies agree to cooperate with Wal-Mart, because the profit margin may be too low. Wal-Mart estimates imports of goods from China at the level $15 billion.
As it was written above, Wal-Mart’s purchasing from China directly affected businesses of US manufacturing suppliers. In order to stay competitive, they had to relocate their production overseas. Narrator provides an example of port of Long Beach, California. Yvonne Smith, port’s communication director, told some statistical information that is concerned with the work of the port. Every year, approximate cost of consumer products that are imported from China equals to $36 billion. On the contrary, cost of exported goods that are shipped from Long Beach, California to China is $3 billion. American companies usually export raw materials such as scrap metal, cotton, etc.
In total, U.S. trade deficit with China equals to $120 billion. There are two opposite opinions about the negative trade deficit. Alan Tonelson from U.S. Business & Industry Council thinks that Chinese companies benefit from trade much more than American companies. Chinese consumers cannot buy a lot of American products, because their incomes are too low. This is why it was evident that after signing the Trade Agreement with China American companies would not be able to sell a lot of their products there. Brink Lindsey, economist from Cato Institute, thinks that people should not exaggerate the consequences of sourcing production overseas. He argues that trade flows do not have a significant impact on the number of jobs in the USA.
4-Do you think the Wal-Mart story is the new model of global capitalism? What are the implications of this model for US prosperity and workers specifically? In your answer, explain what happened in Circleville, Ohio.
In the 1980s-1990s, Wal-Mart’s business strategy could be regarded as the new model of global capitalism. However, nowadays large companies – not only in the USA – benefit from globalization and ability to source production in the countries where production costs are lower and overall conditions for production are much better than in the countries where companies are headquartered. In the meantime, for many centuries countries, including the USA, relied on foreign trade. So it would not be right to state that global capitalism is something that American people should fear. Thanks to globalization people may buy cheaper products and American companies are much more competitive than before. Implications of globalization for US prosperity are very difficult to assess, but it seems that in general there are much more advantages than disadvantages. Economic growth (not taking into account the period of recession) and emergence of new companies that do not depend on manufacturing prove that American economy adjusted to the changes in the global economy.
Nonetheless, in the documentary film one could see that a lot of workers lost their jobs, because their employers were unable to compete against foreign companies that manufacture products in Asia. For example, Circleville, Ohio used to be a typical town where majority of people were in manufacturing. There were several large plants that provided enough jobs to the local inhabitants. Thomson Consumer Electronics opened their plant in Circleville in the 1970s and provided 1000 jobs. In the early 2000s this company could not cope with the foreign competition. Moreover, Walmart decided to order TVs from another producer. As the result, a lot of people lost their jobs. Unfortunately, there are not many alternative places where they can find a new job. A large number of American towns had to experience similar negative consequences of relocation production overseas.
5-What is your position on Wal-Mart’s strategy? Do you think the free-trade/free-market/lowest price strategy of Wal-Mart’s is a good or bad one for America? Why do think it is good/bad? Who is it good/bad for in America? Is it good for consumers? Is it good for workers? Does it make sense to distinguish between these latter two groups in evaluating Wal-Mart’s strategy? In my opinion, Wal-Mart is a private company and therefore they should implement such a business strategy that brings the largest revenue. Wal-Mart does not break any laws and cannot be regarded as a monopoly that does business in an unfair way. Wal-Mart relies on the lowest price strategy and buying products from overseas was a vital strategic decision for the company that is headquartered in Arkansas. We cannot blame Wal-Mart as well as other famous American companies, for example, McDonalds, Ford, Apple, etc. that take advantage of the free trade. In the film, we could see that Wal-Mart’s lowest price strategy is very bad for many American workers and small businesses. At the same time, it is clear that Wal-Mart is one of the largest employers and taxpayers in the USA. More importantly, thanks to low prices every week more than100 million Americans can make cheap purchases. Besides, quality of products is not bad. However, I would like to agree with the director of the film that a lot of American manufacturers and workers suffered from Wal-Mart’s decision to cooperate with foreign suppliers. Therefore it is necessary to distinguish between workers and consumers in evaluating Wal-Mart’s strategy. In conclusion, in the free market economy there will be always winners and losers. It is impossible to create an isolated system that would benefit everyone when there are so many business opportunities overseas. Creating favorable conditions for American manufacturers would mean higher prices. For Wal-Mart working with American manufacturers would result in inability to compete against other major retailers.
6-Do you think that the manufacturing industry lost from the USA because of strategies pursued by Wal-Mart and others will come back?
I think that American manufacturing industry will not recover unless some dramatic events start to occur in the world trade and politics. Free trade was a very powerful factor that made American companies to source production overseas despite the fact that such a decision was very unpopular due to the need to lay off thousands of people. Additionally, there is no point in revival of industries that depend on low-skilled workers, because they will not bring high added value. This is partly a reason why large American companies decided not to own production facilities and instead found reliable partners abroad. On the other hand, American manufacturing industry will not collapse, because there are probably a large number of small and medium-sized enterprises in the USA whose target audience is affluent people that can afford to buy expensive products if their quality is high. For example, in the series of articles written in the New York Times one can read that usually people pay attention to the right balance between price and quality if they want to make a purchase. For them it is not very important whether a product was made in the USA or abroad. What could make American products more competitive is the quality. A lot of people in the USA would agree to pay a higher price for American products if their quality was higher than quality of the foreign products. Nevertheless, some minor actions such as Wal-Mart’s decision to insignificantly increase the number of U.S.-made products in the stores or use of modern equipment that would reduce production costs will not be sufficient to revive American manufacturing industry to the level of the 1960s-1980s.
