Kevin at Always Low Prices
directs me to
this interesting story out of India's Business Standard:
Wal-Mart, the $56 billion global retail chain, plans to increase sourcing from India by 30 per cent.
The company currently sources $1.2 billion worth of goods from India, mainly leather, apparels, textiles, home furnishing and jewellery.
Here's the part of the story that could make whole new American industries sit up and take notice:
It is exploring the food sector and has set sights on commodity items, such as spices, rice, tea and sea foods, to increase its sourcing.
I thought cheap food was supposed to be America's unique advantage in the world. What will the farmers who shop at Wal-Mart say when they find out about this?
But perhaps the most intriguing aspect of this story is the possible effect on China. The Business Standard points out:
The $1.2 billion sourcing from India pales in comparison with the $18 billion worth of goods the multinational sources from China.
But will Wal-Mart now pit Indian manufacturers against Chinese manufacturers the same way that they pit communities against communities in a struggle to get the best tax breaks? This reminds me of this much-recommended comment by "Andy T." from my post on Monday:
Most small manufacturers must expand their plant to meet the needs of Wal-Mart. Based on their contract with Wal-Mart for Wal-Mart to purchase product A at price B, they negotiate loans to expand.
The next year Wal-Mart comes back and says: we'll keep buying product A, but for 30% less than what we paid you last year.
The manufacturer is stunned. If she/he is very skilled at negotiating or the product is very popular or unique to them, they may be able to negotiate only a 5% to 10% price decrease over the previous year.
Because the manufacturer has long term loans to pay off for the factory expansion and because they must sell a certain quantity of products to make payments on those loans, they wind up essentially as indentured servants to Wal-Mart themselves.
Now, there is no doubt that many of these owners intend for their workers to work in sweatshop conditions. However, under the Wal-Mart plan, things get correspondingly worse for the workers. If the owners cannot reward themselves, they definately will have nothing for the workers.
So he says that fewer small manufacturers are willing to work with Wal-Mart; at least not without some kind of established customer base for their products elsewhere.
Maybe Wal-Mart has to go to India because they're running out of manufacturers who don't already know their game.
JR