Date of publication: July 24, 2003
Source: Los Angeles Times
Second of Three Parts (See Part I and Part III)
Wal-Mart, once a believer in buying American, extracts ever lower prices from 10,000 suppliers worldwide. Workers struggle to keep pace.
By Nancy Cleeland, Evelyn Iritani and Tyler Marshall, Times Staff Writers
SAN PEDRO SULA, HONDURAS — When Wal-Mart Stores Inc. demands a lower price for the shirts and shorts it sells by the millions, the consequences are felt in a remote Chinese industrial town, at a port in Bangladesh and here in Honduras, under the corrugated metal roof of the Cosmos clothing factory.
Isabel Reyes, who has worked at the plant for 11 years, pushes fabric through her sewing machine 10 hours a day, struggling to meet the latest quota scrawled on a blackboard.
She now sews sleeves onto shirts at the rate of 1,200 garments a day. That's two shirts a minute, one sleeve every 15 seconds.
"There is always an acceleration," said Reyes, 37, who can't lift a cooking pot or hold her infant daughter without the anti-inflammatory pills she gulps down every few hours. "The goals are always increasing, but the pay stays the same."
Reyes, who earns the equivalent of $35 a week, says her bosses blame the long hours and low wages on big U.S. companies and their demands for ever-cheaper merchandise. Wal-Mart, the biggest company of them all, is the Cosmos factory's main customer.
Reyes is skeptical. Why, she asked, would a company in the richest country in the world care about a few pennies on a pair of shorts?
The answer: Wal-Mart built its empire on bargains.
The company's size and obsession with shaving costs have made it a global economic force. Its decisions affect wages, working conditions and manufacturing practices — even the price of a yard of denim — around the world.
From its headquarters in Bentonville, Ark., the company has established a network of 10,000 suppliers and constantly pressures them to lower their prices. At the same time, Wal-Mart buyers continually search the globe for still-cheaper sources of supply. The competition pits vendor against vendor, country against country.
"They control so much of retail that they can put someone into business or take someone out of business if they choose to," said Pat Danahy, a former chief executive at Cone Mills Corp. in Greensboro, N.C., one of the few surviving U.S. textile producers.
In Honduras, the pressure keeps factory managers on edge, always looking for ways to cut expenses without running afoul of labor laws or Wal-Mart's own contractor rules, which call for "reasonable employee work hours."
"I think we have reached the limit," said Shin Woo Kang, manager of the enormous Han Soll Textile Ltd. sewing plant on the outskirts of San Pedro Sula. The plant employs 1,600 workers, mostly young women. Wal-Mart is its biggest customer.
The brightly lighted factory is filled with humming machines, mounds of clothing parts and fast-moving hands. Down one production line, pieces of navy blue fabric take shape as Bobbie Brooks polo shirts, each bearing a Wal-Mart price tag of $8.63.
Kang said Wal-Mart was paying Han Soll about $3 a shirt — a few cents less than last year.
Asked what he would do if the retailer pressed for an even lower price, Kang grew quiet. "We would have to find something," he said finally. "Honestly speaking, I don't know what it is."
To cut costs, Honduran factories have reduced payrolls and become more efficient. The country produces the same amount of clothing as it did three years ago, but with 20% fewer workers, said Henry Fransen, director of the Honduran Apparel Manufacturers Assn., which represents nearly 200 export factories.
"We're earning less and producing more," he said with a laugh, "following the Wal-Mart philosophy."
That's harsh medicine for a developing country. The clothing industry is one of the few sources of decent jobs for unskilled workers in this nation of 6 million. Many of those jobs depend on Wal-Mart.
"You could be looking at a government meltdown if something were to happen to this industry," said Raja Rajan, a factory manager active in the apparel association.
In Rajan's view, Wal-Mart is so important to the stability of Honduras that leaders should cultivate stronger ties with the company, almost as they would a foreign country. He has lobbied the government to send high-level envoys to Wal-Mart's Arkansas headquarters, something Bangladesh and other countries already do.
Even with such efforts, Rajan fears that the migration of sewing jobs to China and other lower-cost countries can't be stopped, only slowed.
Chuck Wilburn figures that his 1,300 employees will be among the casualties. He manages a factory on the outskirts of San Pedro Sula that cranks out clothing for Wal-Mart, Target Corp. and other retailers.
Wilburn's employer, Oxford Industries of Atlanta, once owned 44 factories in the American South. It shuttered them all in the last 15 years and moved the work to cheaper locales. That's how Wilburn found himself in Honduras.
He is proud of his clean, modern factory. "It's nicer than the one I ran in South Carolina," Wilburn said.
Still, he has had trouble turning a profit. He laid off 500 employees two years ago. Even here, it's hard to meet Wal-Mart's prices. Wilburn expects that Oxford will close his factory in the next few years and move on to another country where basic cotton clothes, such as Wal-Mart's Old Glory khaki pants, can be produced for less.
"Our business is a lot of twill stuff," he said. "That will be gone."
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Waving the Flag
It wasn't long ago that Wal-Mart was fighting to keep manufacturing jobs on U.S. soil.
In 1985, founder Sam Walton launched his "Bring It Home to the USA" program. "Wal-Mart believes American workers can make a difference," he told his suppliers, offering to pay as much as 5% more for U.S.-made products.
In his 1992 memoir, "Made in America," Walton claimed that the program had saved or created nearly 100,000 jobs by using "the power of this enormous enterprise as a force for change."
But the late Walton's much-trumpeted effort soon was overtaken by the rise of the global economy. The spread of the Internet and other technology, along with U.S.-led efforts to tear down trade barriers, made it easier to move goods and capital across borders.
To maintain its edge on pricing, Wal-Mart quietly joined other retailers in a worldwide search for the cheapest sources of production.
In apparel, the process begins with Celia Clancy. From a renovated warehouse near the company's headquarters, the Wal-Mart executive vice president oversees the world's largest clothing budget, estimated at $35 billion in 2000.
Clancy gives her buyers a "Plus One" mandate every year: For each item they handle, they must either lower the cost or raise the quality.
To demonstrate, she pulled a pair of girls' shorts off the wall of her cramped office and gave them a tug.
"This was a dumb little knit pull-on short," Clancy said. "We improved the fabric, put some more fashion in it and are selling it for the same price as last year — $5.19."
Keeping prices low like this means squeezing costs at every step. Clancy and her buyers have trimmed back the number of brands, styles and color schemes. That allows Wal-Mart to consolidate its purchases of fabric, accessories and thread and to wrangle steep discounts from suppliers.
Clancy's buyers used to rely on a Hong Kong company and other intermediaries to find bargains overseas. This year, Wal-Mart established its own global procurement division to hunt for the cheapest raw materials, manufacturers and shipping routes. Last year, for instance, the company rerouted cargo from a port in Hong Kong to the southern Chinese province of Guangdong, where shipping rates were lower. The savings: $650,000.
In purchasing fabrics such as denim and khaki, Wal-Mart plans to approach three to five mills around the world and pit them against each other. "We'll be putting our global muscle on them," said Ken Eaton, head of the global procurement division, which has 21 offices in 18 countries.
Eaton believes he can reduce costs at least 20% by cutting out the middleman and buying directly from foreign factories. He feels a sense of urgency about his mission, in part because he believes the company's "Buy American" focus left it playing catch up.
"Honestly, we're kind of late to the party," he said. "There are a lot of companies out there that have been direct-importing and understanding the global aspect of sourcing for a long, long time."
As late as 1995, Wal-Mart said imports accounted for no more than 6% of its products. Today, consulting firm Retail Forward estimates that 50% to 60% of the merchandise in the company's U.S. stores is imported.
Wal-Mart Chief Executive H. Lee Scott Jr. said in an interview that the trend reflected an inescapable reality: U.S. consumers aren't willing to pay even a little extra for a "Made in America" label.
"The customer ultimately drives that," he said.
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Big in Bangladesh
Wal-Mart is the most powerful corporate citizen in Bangladesh, even though it doesn't operate a single store in the country.
When the company complained to Bangladesh's Export Promotion Bureau this spring about delays in moving cargo, the response was swift.
Officials in the southern port of Chittagong are speeding up efforts to reduce paperwork and modernize facilities. Over the objections of labor leaders, port officials also are building a five-berth container terminal that will be privately managed. Already, giant cranes have helped shorten a ship's turnaround time from six days to fewer than four.
It's no wonder Wal-Mart wields such clout in this country, where nearly half the population lives in poverty. The company bought 14% of the $1.9 billion in apparel that Bangladesh shipped to the U.S. last year.
"Wal-Mart is our biggest customer and it's important to me," said Commerce Minister Amir Khasru Mahmud Chowdhury. But, he added, Wal-Mart's prices "are coming down all the time — that's the biggest threat to us."
Bangladeshi factory owners say Wal-Mart and other retailers have asked them to cut their prices by as much as 50% in recent years.
One apparel manufacturer described a visit from a Wal-Mart buyer who showed him a European-made garment that retailed for $100 to $130. The buyer asked the Bangladeshi to produce a knockoff for $10 a dozen. He declined.
"They say to come down in price, but we have to make a profit," complained another clothing maker. Hoping to land a Wal-Mart order for 600,000 fleece jackets this year, he bargained down his suppliers of fabric, thread and fastenings, and managed to cut his price by 20%.
It wasn't good enough for Wal-Mart. "They said they will place the order in Vietnam or China," he recalled.
Syed Naved Husain had hoped to avoid this sort of nickel-and-diming by going upscale.
As head of the apparel division for Beximco, Bangladesh's largest private company, Husain spent $300 million in 1995 to build a computerized textile and apparel manufacturing center in a rice paddy outside Dhaka. He hired hot designers from Asia and Europe.
Within a few years, he was manufacturing clothes for European retailers Diesel and Zara, and his lushly landscaped "manufacturing oasis" had become an industry showpiece.
But the market has started to change. Wal-Mart is selling more-fashionable clothes, and Husain's high-end customers are nervous. They are pushing him like never before to cut costs.
"Unfortunately," Husain said of Wal-Mart, "they've created a model that has taken the world by storm."
U.S. retailers began making their way to Bangladesh in the 1980s. They found a large population of poor, young women willing to work from dawn to dusk for a few pennies an hour.
Many factories lacked ventilation and fire escapes. Labor activists estimated in the mid-1990s that as many as 50,000 Bangladeshi children were sewing apparel for companies such as Wal-Mart and Kmart Corp.
The resulting outcry prompted a government crackdown on the use of child labor and led companies such as Wal-Mart to require suppliers to adhere to labor laws and safety standards.
Sheikh Nazma, a former child laborer, has seen the way Wal-Mart can help clean things up.
She worked at a Dhaka garment factory that had no clean drinking water and only a few filthy toilets for hundreds of employees. After the owner refused to pay their wages for three months, the employees complained to Wal-Mart, the factory's main customer.
"Wal-Mart interfered, and … the owner paid our salaries and overtime and even paid bonuses to each worker," recalled Nazma, who later helped launch the Bangladesh Independent Garment Workers Union Federation.
But Nazma and others say Wal-Mart undermines its good efforts with its incessant push for lower prices. To fill orders on short schedules, factories often force their employees to work overtime or stay on the job for weeks without a day off, according to Sayeeda Roxana Khan, a former factory manager in Dhaka. To conceal such practices, auditors say, some factories keep two sets of books.
"It's the workers who suffer when entrepreneurs have to survive by cutting corners," said Khan, who now works for Verite, a firm that conducts factory audits for Tommy Hilfiger, Levi Strauss and other U.S. companies.
Khadija Akhter can attest to that. For about $21 a month, nearly three times what a maid or cook would make, the 22-year-old worked in a Dhaka factory, performing final checks on men's shirts and trousers.
Employees, she said, often worked from 8 a.m. to 3 a.m. for 10 to 15 days at a stretch to fill big orders from Wal-Mart. Exhausted, she quit after a year and took a lower-paying but less grueling job.
All the speeding up by Bangladeshi factories may not be enough to satisfy Wal-Mart.
A. Hasnat, Wal-Mart's general manager in Bangladesh, said the country's factories need to become more efficient still. From his vantage, many are poorly managed, have outdated equipment and run too slowly.
"I think they need to improve," he said. "When I entered a factory in China, it seemed they are very fast."
*
3,000 Factories in China
Eyes down, hunched forward, 20-year-old Ping Qiuxia steered a pair of green women's briefs through a sewing machine. Then her fingers whipped the briefs 180 degrees and moved them back toward her, this time with elastic bands stitched neatly around the edges. Within seconds, she was at work on the next pair.
The garment was part of a 6,000-piece order scheduled for shipment to Wal-Mart stores in Germany. For nine hours a day, sometimes six days a week, Ping and other employees of the Gladpeer Garment Factory in the southern Chinese city of Dongguan churn out undergarments, sleepwear and children's clothing.
In southern China, Wal-Mart has found all the ingredients it needs to keep its "every day low prices" among the lowest in the world.
Although labor costs more here than it does in Bangladesh, China offers other advantages: low-cost raw materials; modern factories, highways and ports; and helpful government officials.
Wal-Mart has been instrumental in making this corner of China the world's fastest-growing manufacturing zone. Last year, the company shipped $12 billion in products out of China, 20% more than in 2001.
The marriage between the world's largest and most efficient retailer and China's low-cost factories is setting a new global "cost standard" for manufactured products, according to consulting firm Deloitte Touche Tohmatsu.
The phenomenon is rattling competitors worldwide and worrying international labor activists. They cite the Chinese government's hostility toward organized labor and its lack of worker protections.
"Wal-Mart has really been at the forefront in driving down wages and working conditions," said Kent Wong, director of the UCLA Labor Center, who has made two trips to China in the last year. "They're not only exporting the Wal-Mart name and the corporation and the identity. They're also exporting that way of doing business."
Wal-Mart has more than 3,000 supplier factories in China, and the number is expected to rise. But that doesn't mean workers in China are secure.
Gladpeer used to make clothes in Hong Kong. It moved production to China in the 1980s because costs were much lower, said Simon Lee, a managing director of the family-owned firm.
Gladpeer's 1,200 workers — mostly young women — are paid about $55 a month and live in clean but cramped dormitories, eight to a room.
But Lee is likely to reduce his employment in Dongguan soon. He is planning to open a new factory in Guangxi province, a remote region of western China where labor, electricity, housing and taxes are cheaper. "Competition is intense, and our biggest single issue is cost," Lee said. "Many customers look at cost first, then they look at the workmanship. That's why we're going to Guangxi."
Cleeland reported from Honduras, Iritani from Bangladesh and Marshall from China. Times staff writer Abigail Goldman and Hong Kong bureau researcher Tammy Wong contributed to this report.
Wal-Mart Facts
Number of visits to U.S. Wal-Marts weekly: 100 million.
Single-day sales record: $1.4 billion for American stores on Nov. 29, 2002 - larger than the annual GDP of Belize, Greenland and Monaco. (Source: Wal-Mart & the CIA World Factbook)
Number of new employees Wal-Mart plans to hire through 2008: 800,000 — the equivalent to of adding all the workers at General Motors Corp. and Ford Motor Co. combined. (Source: Wal-Mart & Hoovers)
Number of ocean shipping containers imported in 2002: 291,900. Home Depot was No. 2 at 182,000.
President Bill Clinton, then Arkansas Governor, played saxophone at the 1990 dedication of the Wal-Mart Visitors Center in Bentonville, Ark.
Wal-Mart stores permit recreation vehicles to park for free on its lots on a store-by-store basis, making Wal-Mart an unofficial campground chain for cross-country travelers.
Missouri has both the largest and smallest Wal-Marts in the country. Store No. 146 in Louisiana, Mo., is 29,700 square feet. Supercenter No. 1484 in Kansas City, Mo., is nearly nine times its size bigger at 260,514 square feet.
Wal-Mart's distribution center in Bentonville covers 1.2 milllion square feet, which could hold 24 football fields, 800 tennis courts or 7 Major League Baseball fields. (Source: Wal-Mart)
Wal-Mart is the country's top seller of dog food, disposable diapers, photographic film, toothpaste and pain remedies.(Fortune magazine, Feb. 2003 article)
If Wal-Mart were a country, its 2002 sales of $245 billion would make it No. 31 on the list of the world's largest economies richest nations, ahead of Saudi Arabia, Switzerland and Austria. (Source: CIA World Factbook)
Wal-Mart is three times the size of Carrefour, the world's second-largest retailer. (Source: Retail Forward)
Wal-Mart is the No. 1 retailer not just in the U.S., but also in Canada and Mexico as well as the U.S. (Source: Wal-Mart)
Additional sources: "The Wal-Mart Decade," by Robert Slater; The Journal of Commerce; Wal-Mart Stores Inc., Hoovers Inc., CIA World Factbook, Fortune, BusinessWeek, Retail Forward.