Wal-Mart’s China Connections

with more than 10,000 suppliers in China manufacturing for Wal-Mart, the great majority of its merchandize is “Made in China.” Wal-Mart is now becoming a major retail presence there as well. The company has already opened close to 200 stores in 101 Chinese cities and hopes to roll out ever more big-box emporiums across the urban Chinese landscape. What happens when the world’s biggest retailer and the world’s biggest country do business with each other?

 Wal-Mart isn’t the first multinational to source so heavily from Asia. Beginning in the 1970s, the relocation of labor-intensive manufacturing to Asia nurtured the growth of the Four Little Dragons (South Korea, Taiwan, Hong Kong, and Singapore), whose companies entered into contracts to manufacture for Western brand names. When China opened up to foreign investment in the early 1980s, offering vast stretches of greenfield sites, attractive tax breaks, and an abundance of labor at just one-tenth the cost of the Dragons’ wages, another wave of regional manufacturing relocation was set in motion. 

So massive was this shift that the majority of the so-called Chinese manufacturing suppliers today are actually companies from the Four Little Dragons that have set up assembly plants in China. Only in the past decade have local Chinese companies, having learned the ropes of manufacturing for export, been drawn increasingly into this supply chain—first as subcontractors for the Little Dragon–owned factories and more recently as direct producers for Wal-Mart.

Once sourcing from China became a bandwagon, Wal-Mart led the way in driving down wages in the suppliers’ factories. To cut procurement costs, Wal-Mart moved its global outsourcing headquarters from Hong Kong to the southern Chinese city of Shenzhen in 2002 and began focusing intensely on directly sourcing from factories in China rather than buying through wholesalers and agents. As Wal-Mart has squeezed its China-based suppliers for lower prices, their workers, largely poor migrants from the countryside, have borne the brunt of the pressure to cut costs. As one Hong Kong buying agent put it, “Suppliers still have places where they can cut fat, but the easiest fat to cut is workers’ wages.” 

Everyday Low Factory Wages

We obtained information a few years ago about work conditions and wages at nine Wal-Mart garment- and toy-supplier factories in the outskirts of Shenzhen city. Chinese research assistants stood outside factory gates and interviewed 88 workers when they left at the end of the day. Overall, the workers were paid an average of only 59 cents per hour. Most of the garment workers were on piece rates and were paid at a lower rate when doing overtime work than during their first 40 hours per week, even though Chinese law requires a higher wage for all overtime work. In the belief that they would earn more the harder and faster they labored, these workers were actually trapped in a frantic, exhausting race that was being illegally manipulated by unscrupulous employers trying to make a profit in the face of Wal-Mart’s squeeze.

Until about 2004, most of the export factories in south China recruited only young women between the ages of 18 and 23. Managers explained that young female workers have nimble hands, are more meticulous, and, above all, are more obedient. But once the young women reached their mid-20s, they were considered too old to keep up with the very rapid pace of work. However, the supply of young, poor rural women workers under the age of 24 was not endless, especially as new factories kept pouring into China, and starting around 2004, the export-goods factories began to run into labor shortages. So managers had to employ workers they had previously turned away. At the nine surveyed factories, the blue-collar workforce included a sizeable number of men and also a lot of women older than 23, even up into their 40s. 

The level of overwork in these nine Wal-Mart supplier factories is extreme. The vast majority of the interviewed workers (88 percent) worked more than 11 hours per day, and 81 percent of them had fewer than the four rest days a month required by Chinese law. 

Making matters harder for the workers, the supplier factories responded to the cost pressures they faced from Wal-Mart by increasing the pace of work. When asked in 2007, “In comparison to 2006, did your factory direct you to speed up your production [this year]?”, exactly half of the workers answered that they had to work faster, often due to increased work quotas. Fifteen percent said the work speed was a lot faster. Worse yet, the workers were not being paid more for working faster.

The consequence of the fast pace and excessive hours is burnout. Workers wake up one morning and simply cannot physically and mentally endure another day of such exhausting toil. To prevent workers from quitting, the factories deliberately delay wage payments by two weeks, and a worker who quits “without permission” forfeits those two weeks of pay. Despite this, the interviews revealed that the majority of the workers in these Wal-Mart supplier factories lasted less than a year. When Wal-Mart brags of “everyday low prices,” it is these workers who ultimately pay the price.

Migrant workers have started voting with their feet. More and more have refused to travel to Guangdong, which is filled with factories like those that supply Wal-Mart. Wages there have begun shifting upward as a result. The search for cheap labor never ceasing, another wave of relocating export manufacturing is taking place in China right now. A growing number of the manufacturers have begun moving inland from Guangdong, closer to where migrant workers come from and where factory sites are cheaper. In coming years, Wal-Mart suppliers will be more spread out in China’s interior provinces to ensure that the products sent to the U.S. continue to be cheap enough to satisfy Wal-Mart’s demands.

Working at Wal-Mart’s Chinese Stores

Unlike in the U.S., where Wal-Mart is a low-end retailer, Wal-Mart in China largely serves an expanding prosperous middle class. Some of the stores in China feature large parking lots to accommodate this new auto-owning class.

How are conditions for Wal-Mart’s 50,000 Chinese store employees? To find out, we arranged for Chinese research assistants to interview employees and managers at three Wal-Marts in Beijing in 2007 and three in Shenzhen between 2006 and 2009.

First, the good news. Working conditions at Wal-Mart’s stores generally adhere to China’s occupational health and safety regulations. As a Chinese researcher remarked to us, “Wal-Mart doesn’t mind cheating workers but doesn’t dare cheat the government.” Wal-Mart also pays workers on time, which is much welcomed by the stores’ employees. Many of them are migrants from the countryside, and in previous jobs, they often encountered serious problems of delayed payments and owed wages. 

Similar to Wal-Mart workers in the U.S., the problem facing Wal-Mart store workers in China has been the low pay, which sometimes has failed to keep pace with rises in China’s legal minimum wage. In five of the six Chinese cities where we have information for the 2006–2008 period, the increases in Wal-Mart’s salary packages were outpaced by both inflation and by the rise in the local legal minimum wage.

At the Beijing and Shenzhen stores that we studied, Wal-Mart also kept labor costs low by not giving employees paid overtime work, which legally requires higher hourly pay. If a Wal-Mart store worker has to work overtime, he or she either is told to “volunteer” to work for free or is given time off during a slow period in lieu of overtime pay. 

Wal-Mart also cuts back on the wage bill by employing a large percentage of its workforce as part-time or casual staff, who receive an even lower hourly pay. They work an average of four to six hours per day, six or more days a week, and their schedule may change from day to day depending on how busy the store is. For both the full-time workers and the casuals, Wal-Mart imposes very detailed rules and disciplinary procedures and closely monitors workers’ compliance. The interviewed employees complained that they work under enormous pressure. 

Wal-Mart at first seems attractive to newly recruited low-skilled workers looking for a service-industry job, as the retailer presents itself as a sophisticated international company. However, the image soon sours. The turnover rate is very high, reflecting employee dissatisfaction. A department head at one Beijing Wal-Mart stated that the store has a 30 percent to 40 percent annual turnover rate. An official in the human-resources department of the same store said that many ordinary employees quit because of low salaries. After deductions, he said, as of mid-2007, the full-time store workers took home each week only about $25 to $28. The pay was so low that the Wal-Mart stores in Beijing relied largely on migrant workers from other parts of China to fill the jobs. The store department head said only one out of the 22 workers in his section was from Beijing, and he noted that many of the migrant workers stay at the store only until they can find a better-paying job.

Unionizing Wal-Mart’s Chinese Stores

The All-China Federation of Trade Unions is widely considered to be toothless. It was a surprise, therefore, when the ACFTU took on Wal-Mart in 2006 and succeeded in setting up workplace union branches at 22 Wal-Mart Supercenters within just four weeks. Equally surprising, the ACFTU achieved this through a technique it had not used since the early 1950s—grassroots organizing. Wal-Mart management was caught off guard.

The prior experience of the ACFTU in establishing workplace union branches in foreign-funded enterprises had been limited to one method—top-down. Whenever the ACFTU sought to establish a union branch at a foreign or private company, the official district-level union would first seek management approval and cooperation. Once an agreement was struck, management and the district union would decide together on a midlevel company manager to serve as the union chair.

But since the 1990s, the ACFTU has seen a decline in its national membership, as the numbers of employees at state-owned factories has fallen. In the mid-2000s the ACFTU became determined to offset this by expanding membership at foreign-owned firms. Wal-Mart was selected as a special target. The reasoning was that if Wal-Mart fell into line, other foreign companies in China that refused to accept a union would have to follow suit. 

According to Chinese labor law, only 25 employee signatures are required to establish a union branch at a workplace. In July 2006, the city-level union in Quanzhou rented a room close to a Wal-Mart store and began holding secret meetings after work hours with a number of store employees. When enough workers agreed to join, they held a secret founding ceremony one night and elected the store’s union branch committee. The next day, they announced the fait accompli to a surprised Wal-Mart management. In quick succession, 21 similar branch elections were announced across China. Within a week, Wal-Mart conceded it could not resist unionization and declared it was willing to work with the union to achieve “harmony.” In mid-August 2006, union officials from Beijing met with Wal-Mart’s top executives in China at Wal-Mart’s headquarters in Shenzhen and signed a five-point memorandum, promising multi-candidate elections for a union committee at every Wal-Mart store in China.

However, Wal-Mart soon succeeded in reshaping the situation to its own advantage—by gaining control of the union branches. In Beijing, city district union officials frankly admitted in interviews that at the Wal-Marts in their districts, they simply handed all of the decisions on the composition of the union branch committees to the stores’ human-resources departments. Why did they do so? For one, union officials at this level are government functionaries with scant knowledge of trade unionism. They are accustomed to enterprise-level union committees serving as welfare arms of management and providing such things as leisure-time activities for employees. For another, the district-level unions are controlled by the district governments, which were happy to have a Wal-Mart Supercenter in their midst and preferred to work arm in arm with Wal-Mart management. At a Wal-Mart typical of the six stores surveyed, the ballot sheet to elect seven union committee members contained the names of eight nominees, all of whom were midlevel and junior management staff preselected by the stores’ human-resources department. 

 Union membership is voluntary. A worker at one Beijing Wal-Mart said she became a member only because her supervisor signed her up. Two workers there who had not signed up thought the only people interested in the union were those who wanted to impress their managers and get a promotion. Another employee—a woman who was a low-level manager—described the union as “hollow”: “What does this union do? It has nothing to do with us. After the union was set up, no one any longer mentions it, and there have been no meetings.”

Elsewhere, at the stores where union branch committees had been genuinely elected in the weeks prior to the signed national memorandum, Wal-Mart either co-opted the union branch leaders with offers of promotion or hounded them till they quit Wal-Mart in frustration, after which Wal-Mart was able to appoint their successors. According to Chinese sources, no Wal-Mart store today has a branch union that is independent of management.

Wal-Mart continues to make big profits in China, and from China, by squeezing down labor costs in the factories that produce Wal-Mart’s goods and in the mega-stores that the retailer operates. There is a symmetry between Wal-Mart’s behavior in the U.S. and the company’s actions in China, which is both Wal-Mart’s global production hub and retail frontier. For its part, the Chinese government and its trade union put on a show but in the end are not serious in doing much for workers.