China is the largest exporter to the US in virtually all consumer goods category and Wal-Mart is the leading retailer of consumer goods in the US. So uncanny and strong is the mutual dependency between China and Wal-Mart that they have been called as the ?ultimate joint venture? by some. Wal-Mart?s dramatic rise in overseas production and sourcing was a result of landmark changes in public and global trade policies supported by bipartisan consensus for the last 25 years.
Wal-Mart has reached such levels of sophistication in its international sourcing that it is always one step ahead of its competitor in either new product development or sourcing the same product for a nickel less and thereby doing justice to its motto of ?everyday low prices?. The impact of the rise of Wal-Mart on other US-based retailers and manufacturers bears striking resemblance to the impact of the rise of China as a manufacturing force on other Asian manufacturing-exporting countries.
Few went out of business and others had to find a way to survive within the realms of the new eco-system. The rest had to be content with the focus on niche products at the cost of growth. A month ago, Wal-Mart celebrated the approval of its 100th store in China, since it entered the Chinese market in 1996, with the presence of secretary Carlos Guitierrez from the US department of commerce and vice minister Jian Zengwei from China?s ministry of commerce. Coinciding with the celebrations in Beijing marked the opening of the new Wal-Mart super-centre in Loudi in Hunan province.
This represents Wal-Mart?s growth into smaller Chinese towns and is one of the 23 new stores that it has managed to open in China just last year. This number may pale in comparison to more than 4,000 stores that Wal-Mart meticulously operates in the US, and over 2,800 stores in Argentina, Brazil, Canada, China, Costa Rica, El Salvador, Guatemala, Honduras, Japan, Mexico, Nicaragua, Puerto Rico and the UK. But this represents an important milestone in the nature of relationship between China and Wal-Mart. China, which was always a low-cost sourcing destination for Wal-Mart is now being viewed as the biggest opportunity to repeat what it did in US. China, having the seventh largest retail market in the world, is expected to climb to number five, just behind Germany and ahead of France by 2010. The retail market in China grew by 13% in the second half of 2007 over a base of $650 billion.
?The secret of successful retailing is to give your customers what they want,? Sam Walton, the founder of Wal-Mart, wrote in his autobiography. And really, if you think about it from the point of view of the customer, you want everything: a wide assortment of good quality merchandise; the lowest possible prices; guaranteed satisfaction with what you buy; friendly, knowledgeable service; convenient hours; free parking and a pleasant shopping experience. Today, Wal-Mart is a global company with more than 1.9 million associates worldwide and more than 7,000 stores and wholesale clubs across 14 markets. Wal-Mart clocked $ 348 billion in fiscal 2007 revenues and recorded sales of more than $90 billion in Q3 of fiscal 2008. Wal-Mart employs 1.9 million associates worldwide and more than 1.3 million in the US, making it not only one of the largest private employers in the US, but the largest in Mexico and one of the largest private employers in Canada.
Next year, Wal-Mart expects to add 48 to 49 million square feet globally, which is an increase of 6% in fiscal year 2008 over fiscal 2007. During each of the following two fiscals, Wal-Mart expects to increase square footage between 48 million and 52 million square feet, an increase of 5% to 6%. To put this into perspective, in fiscal 2005, India had a mere 21.5 million square feet of space in malls which, some reports state, has increased to 50 million square feet by end of 2007.
Wal-Mart alone is responsible for about 10% of US trade deficit with China. About 70% of the products sold on Wal-Mart?s shelves are made in China. It has moved its global sourcing headquarters to Shenzhen, a city transformed from a sleepy fishing marshland into a world-class role model in just over a decade. Ten years ago Shenzhen?s main port did not exist.Today it is on the verge of becoming the third busiest port in the world. Of the Wal-Mart?s more than 6,500 global suppliers, experts estimate that as many as 80% are based in China. And this figure can go up significantly if you include the suppliers of Wal-Mart suppliers based outside China. If Wal-Mart was a country, it would be in the top ten trading partners for China.
Wal-Mart has reversed a century-old-tradition that retailer depends on the manufacturer. Now the retailer is in the driving seat and can easily drive its manufacturer supplier out of business at the drop of a hat if it cannot compete on cost and quality with thousands of global manufacturers dying to be on the supplier list of the largest retailer in the world called Wal-Mart. It deliberately keeps its vendor list short so that it can have more control over its operations and cost structure. It is estimated that Wal-Mart may have 60% of the world?s largest factories churning out products which would be sold on Wal-Mart?s shelves. While partnering each other through this economic juggernaut, both have also been target of backlashes on the question of cost of growth and practices employed to reach this end state. However, China derives a third of its GDP from exports, a bulk of which goes to the US. China has witnessed the fastest growth by a developing country since 1980s. It has contributed more to global GDP growth in 2007 than the US.
?The author is a fellow of India China Institute. These are his personal views and can be reached on hirend@yahoo.com
