Wal-Mart Stores Inc, the world’s biggest retailer, said it has imposed new environmental and ethical standards on its 20,000 suppliers in China and will replace those who don't comply.
Factories will have to meet higher targets for reductions in energy use, carbon dioxide emissions, packaging and water usage, the Bentonville, Arkansas-based retailer said in a statement today. Suppliers must adhere to labour laws and ensure workers are paid overtime, Wal-Mart said.
“I firmly believe that a company that cheats on overtime and on the age of its labour, that dumps its scraps and chemicals in our rivers, that does not pay its taxes or honour its contracts will ultimately cheat on the quality of its products,” Chief Executive Officer Lee Scott said in a conference in Beijing. “We will not tolerate that at Wal-Mart.”
The standard helps assure Wal-Mart customers that the $9 billion of Chinese toys, clothing and appliances it's expecting to buy this year from the world's largest exporter of consumer products conform to global quality standards. Public confidence in made-in-China brands has taken a beating in the past two years, after reports of adulterated milk, tainted seafood and toxic toys.
Mattel Inc recalled more than 21 million Chinese-made toys last year because of excessive lead content. At least four infants had died in China after drinking milk that's been adulterated by melamine, while Chinese dumplings sickened people in Japan.
‘Making Things Better’: “To be effective, these programs need an aspirational element of making things better and an enforcement element of punishing failure,” said Howard Harris, who lectures in corporate ethics at the University of South Australia in Adelaide. “Customers are not going to buy any product, regardless of how cheap it is, if there is a nasty impact on the other end.”
Wal-Mart has created a new supplier agreement that will require factories to certify compliance with local laws and regulations on air emissions, wastewater discharges, and its management of toxic substances and hazardous waste disposal.
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The agreement will be phased in beginning with suppliers in China in January 2009, and will expand to suppliers around the world by 2011, said Mike Duke, Wal-Mart's vice chairman in charge of its international division.
Standards Agreement: Wal-Mart has signed an agreement with China's Ministry of Science and Technology to help suppliers meet the standards, and will provide training and help for setting up ''responsible practices,'' Duke told a meeting of 1,000 suppliers in Beijing today. It will also work with Chinese farmers to ensure the use of ''best practices.''
The retailer, which has 20,000 suppliers and subcontractors in China, gets 95 percent of the goods sold in its Chinese stores from local suppliers. Wal-Mart will build 80 percent of its 2008 global retail space in China, Mexico and Canada, as it aims to get a third of growth from outside the U.S. to offset declining American consumer sales. The retailer last year opened 30 outlets in China to tap consumer growth in an economy that expanded 11.4 percent in 2007.
Wal-Mart is aiming for its top 200 factories to achieve a 20 percent gain in energy efficiency by 2012 and ''drive returns on defect merchandise virtually out of existence.''
By next year, all direct suppliers of store-branded and unbranded goods will have to identify the name and location of every factory used to make a product Wal-Mart sells.
Dumping Errant Suppliers
''If, after a period of time, a factory fails to improve, Wal-Mart will move our business to suppliers who do comply and who do improve,'' Duke said.
Speaking at a press conference, Scott said suppliers can lower costs by reducing waste.
''Waste costs money, all those things can raise costs ultimately,'' he said. ''There's nothing we are doing that will force a bunch of small firms to go out of business -- You have to work with them to make it a positive experience.''
Chinese manufacturers are already struggling with rising costs and the yuan's strength against the dollar. Half of the country's toy exporters went out of business in the first seven months of 2008 while appliance maker BEP International Holdings Ltd. said on Oct. 17 it shut its Shenzhen manufacturing unit after failing to obtain financing.
The retailer will also apply new standards to its China operations, with a 30 percent target in energy reduction for existing outlets by 2010, Wal-Mart will also develop a new store format that uses 40 percent less energy than current outlets.
Initiatives include selling energy efficient products, reducing plastic bag consumption and cutting packaging.
To contact the reporter for this story: Stephanie Wong in Shanghai at swong139@bloomberg.net