Bill Totten's Weblog

Monday, August 28, 2006

Wal-Mart may be just too American to succeed globally

Outside its homeland, the company formula mirrors that of US foreign policy: brash, bold and increasingly unpopular

by Richard Adams

Guardian (UK) Comment (August 24 2006)

When Thomas Friedman - the American journalist who has become globalisation's loudest cheerleader - wanted to illustrate the powerful forces at work in the world economy, he got on a flight for Bentonville, Arkansas, headquarters of the glory that is Wal-Mart.

In his hagiographic bestseller, The World Is Flat (Farrar, Straus and Giroux, 2005), Friedman records his awe while standing in the middle of Wal-Mart's operation centre in Bentonville, watching the movement of goods to and fro at the heart of the world's largest retailer - a company that last year recorded more than $300 billion in sales from 6,600 stores in fifteen countries, including the Asda chain in Britain.

"Call it 'the Wal-Mart Symphony' in multiple movements - with no finale", Friedman wrote in his trademark breathless prose. "It just plays over and over 24/7/365: delivery, sorting, packing distribution, buying, manufacturing, reordering, delivery, sorting, packing ..".

Friedman was so impressed that he named Wal-Mart as one of the biggest forces driving globalisation, saying: "It's role as one of the ten forces that flattened the world is undeniable".

As it happens, recent history has not been kind to Thomas Friedman. As the leading foreign affairs columnist for the New York Times, he was an influential voice in the ear of east-coast liberals, supporting the neoconservative arguments in favour of the invasion of Iraq and the toppling of Saddam Hussain.

Recently, as Iraq's descent into bloody civil war has made a mockery of cruise-missile liberals, he has had the sense to recant. But Friedman's pin-ups for globalisation haven't fared so well either. The computer manufacturer Dell, lauded to the skies in The World Is Flat, found that its laptops included a built-in cigarette-lighter feature, when their batteries began bursting into flames.

Now it is Wal-Mart's turn to suffer the curse of Friedman. Since his book was published it seems that little has gone right for the champion of globalisation with the motto "Always low prices".

In recent months the giant retailer - at the start of this year the world's second largest corporation by revenue after oil baron Exxon Mobil - has suffered a string of defeats. Some have been self-inflicted, but others are a sign that Wal-Mart's attempts to export its formula of massive purchasing power and cheap imports from China, combined with stringent cost-cutting and aggressive anti-unionism, are beginning to fail.

The first sign that Friedman's steamroller of globalisation was stalling came in May, when the company announced it was pulling out of South Korea. South Korea was one of the first countries Wal-Mart moved into outside North America. But its all-American model of piling very high and selling very cheap never appealed to consumers there. "It failed to read what South Korean housewives want when they go shopping", a local analyst told the New York Times.

Last month, the company announced it was also withdrawing from Germany and selling its 85 stores there, despite pouring in hundreds of millions of dollars over the years to compete with local chains such as Aldi. German customers were turned off by the enforced friendliness of its employees, while the employees objected to US imports such as chanting at morning staff meetings: "Who's number one? The customer."

In the UK, Wal-Mart has also run into trouble with its Asda subsidiary, which it bought in 1999 and now has more than 300 stores and 160,000 employees. Last month the threat of a strike by the GMB union led the company to make unusually significant concessions, agreeing to allow the union access to Asda depots and to participate in a process leading to collective bargaining. Not long afterwards it was revealed by the All-China Federation of Trade Unions that Wal-Mart had allowed nineteen unions to be set up in its stores there.

The Asda and China results mark a clear victory for organised labour against the giant of globalisation. Previously Wal-Mart's determination to run union-free shops was such that when workers at a branch in the Canadian city of Jonquiere - a bastion of the fierce Quebec labour movement - took measures to unionise, the company permanently closed the store. Wal-Mart claims it shut because of poor turnover, but the closure sent a clear message that Wal-Mart could press the nuclear button.

The softening line comes as Wal-Mart's bottom line has suffered. Last week the company announced its first decline in net profits for ten years, thanks to weak sales in the US and UK and the cost of cutting its losses in Germany. The faltering sales in the US come as shoppers, hit by higher petrol prices, appear less willing to drive long distances to one of Wal-Mart's monster outlets.

Opponents are showing their displeasure by other means than voting with their feet. A movie-length documentary, Wal-Mart: the High Cost of Low Price, highlighted the company's less savoury practices. Now a Democratic party senator, Byron Dorgan - who would be a contender for the presidential nomination if he were from a larger state than North Dakota - has taken aim at Wal-Mart and its allies in a new book, Take This Job And Ship It (Thomas Dunne Books, 2006), arguing that its mega-stores destroy communities. Earlier this month the former Democrat presidential candidate John Kerry pointed out that five of the ten richest people in America were from the family of Wal-Mart founder Sam Walton, yet the company still fails to provide proper healthcare for its workers.

Faced with attacks from moderate politicians such as Dorgan and Kerry, and state and city-level attempts to force the likes of Wal-Mart to adhere to basic levels of pay and health insurance, as well as local hostility to new stores opening, the company's share price continues to suffer. Naturally, the company has been fighting back, from a war-room in its Bentonville headquarters that Friedman certainly never visited.

The fightback includes the establishment of a lobbying group called Working Families for Wal-Mart, spending millions of dollars in donations to politicians, and sending "voter guides" to its staff.

Despite its recent setbacks, Wal-Mart is not about to give up. Its international expansion will continue - at the end of last year it invested in Brazil, Japan and central America. And it remains hugely powerful in the US, where polls show that of those who shop at least once a week in the company's outlets, 78% voted for George Bush in 2004. But outside America, Wal-Mart's formula may be mirroring US foreign policy: brash, bold and unpopular. Unfortunately for Thomas Friedman, the rest of the world may not want to be flattened.,,1856901,00.html

Bill Totten


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