Wal-Mart's New Push to Green China

China Calling

RSS

Author

Melinda Liu

Email |
Bio

Featured Postings

20 years after Tiananmen: Understanding Chinese Youth

3:09 AM, June 2, 2009 | Comments (1)

As the anniversary of the June 4 bloodshed looms, Newsweek's Duncan Hewitt explains why China's younger generation doesn't fit the usual stereotypes. Hewitt, who is author of "Getting Rich First: Life in a Changing China", argues that understanding Chinese...

Traditional Culture from a Modern Artist

5:09 AM, May 20, 2009 | Comments (0)

China's Smallest Hero, One Year Later

2:13 PM, May 14, 2009 | Comments (2)

Sun	Mon	Tue	Wed	Thu	Fri	Sat
			1	2	3	4
5	6	7	8	9	10	11
12	13	14	15	16	17	18
19	20	21	22	23	24	25
26	27	28	29	30	31

Mary Hennock

As the world economy sags, the world's largest retailer is looking for new ways of reducing both costs and environmental impact—and arguing that the two can go hand-in-hand. At its "Sustainability Summit" in Beijing Wednesday, Wal-Mart announced the launch of a new set of stringent environmental standards, energy reduction targets and ethical compliance procedures that will apply initially to its thousands of suppliers in China and eventually to all suppliers. The company kicked off the day-long summit, attended by more than 600 of its suppliers, by spelling out ambitious targets that, if implemented, have the potential to make a significant impact. The goal is to set new standards for responsible sourcing in its global supply chain and create a model of best practice in China. The main points:

Environmental efficiency: The top 200 factories that supply Wal-Mart must improve energy efficiency by 20 percent by 2012, while China's 113 Wal-Mart stores must cut energy use by 30 percent and halve water use in all stores by 2010, and get suppliers to reduce packaging by five percent by 2013.

Stricter enforcement of ethical standards: All new suppliers must pledge to comply with local labor and environmental laws (existing suppliers already face an audit that checks such things). By 2012 direct suppliers must source 95 percent of their production from factories with high social and environmental audit scores.

Supply chain transparency: Wal-Mart will demand suppliers can provide the name and location of every factory they use to make any products Wal-Mart sells. The rule will start with clothing and cover all merchandise by the end of 2009.

All of which sounds good, as does the urgent timeframe with implementation of many targets starting in 2009--a date that's only a couple of months away. But is Wal-Mart serious about making this happen? There are several reasons to think so. One of the most convincing was offered by Mike Duke, Vice Chairman, Wal-Mart International in the opening session when he said, "If we don't pose these questions, our customers will. In the age of YouTube, social networks and bloggers, there is no trust without transparency and ownership." Wal-Mart's embarrassments over China-sourced goods include baby cribs with defective safety pegs (also sold by Kmart.com and Target) just this week.

China is a sensible place to start rolling out these policies. It plays a pivotal role in Wal-Mart's overall sourcing, and the retailer's Global Purchasing and Supply HQ is in Shenzhen. When it comes to capturing the world's largest consumer market, there are brand-building incentives as well. Chinese consumers have plentiful reasons to fear poor product quality; the latest food poisoning scandal has sickened 54,000 children who drank melamine-tainted milk. In China, Wal-Mart has a unique opportunity to position itself "almost as a high-end store", explained Terrence Cullen, vice-president of development for Wal-Mart China. As a foreign store, it enjoys a reputation for quality compared to local retailers.

Finally, there's the role of socially responsible policies in warming relationships with officials. Working constructively on something that benefits society offers "a platform for developing a mutual understanding that you might not otherwise achieve", says Felicia Pullman, head of the regional corporate social responsibility team at APCO Worldwide in Hong Kong. China's rulers are seeking solutions to its environmental crisis, and senior officials are trawling for workable ideas and technologies. Wal-Mart's summit was attended by vice-ministers for commerce, and science and technology.

Wal-Mart CEO Lee Scott argues that sustainability and transparency are simply good business. They can save costs and win consumers to "better products that people are willing to pay a fair value for." The argument: Wal-Mart's extra-large footprint in the marketplace means it can have an outsize impact on how suppliers manufacture their product while at the same time bringing low-cost, eco-friendly products to the masses. The new policies represent a logical upgrade for both Wal-Mart and China's manufacturers, Scott says. Past purchasing policies have been "very transactional" and failed to "create a relationship that allows your supplier to invest in new capital, new equipment, new technology."

Transparency doesn't always come naturally to the often secretive retail giant, and questions to Wal-Mart executives over the last two days frequently drew the answer "We don't disclose that figure." That will have to change if the company is serious about the value of promoting corporate openness.