In China, Wal-Mart presses suppliers on labor, environmental standards
Sunday, February 28, 2010
SHENZHEN, CHINA -- Benny Fung, the head of Hong Kong-based soap and cosmetics maker Lutex, seems to have an eye for detail. The meeting room at his factory here in southern China is lined with neatly packed gift baskets. His jacket has a thin purple velvet accent around the lapel to match his purple tie.
Now Fung's biggest customer -- Wal-Mart Stores -- is urging him to pay attention to other details. Environmental details. Energy-saving details. Not just everyday low prices, but low greenhouse gas emissions.
As a result, Lutex has been paying attention to more efficient light bulbs, better ventilation and less packaging. It switched from Styrofoam to recycled paper and saved enough Styrofoam to cover four football fields. And Lutex, which has been here since 1991, says it treats four tons of wastewater that it used to dump into the municipal sewage line. That water was supposed to be treated by the city, but like three-quarters or more of China's wastewater, it almost certainly wasn't.
"We heard that in the future, to become a Wal-Mart supplier, you have to be an environmentally friendly company," Fung said. "So we switched some of our products and the way we produced them."
Wal-Mart has more than 10,000 suppliers in China. In addition, about a million farmers supply produce to the company's 281 stores in China. If Wal-Mart were a sovereign nation, it would be China's fifth- or sixth-largest export market. So the company hopes that small measures taken by all suppliers start to add up. Its 200 biggest suppliers in China have already trimmed 5 percent of their energy use.
In the past, environmental concerns have taken a back seat to growth in China and to costs for Wal-Mart. And China and Wal-Mart have come under sharp criticism for conditions in factories. Yet pollution now threatens China's growth; as a result, awareness of climate change and energy security has spread in China. Likewise, as consumers grow more environmentally aware, Wal-Mart's executives have responded. On Thursday, the company pledged to reduce its greenhouse gas emissions by 2015.
In October 2008, Wal-Mart held a conference in Beijing for a thousand of its biggest suppliers to urge them to pay attention not only to price but also to "sustainability," which has become a touchstone for many companies.
"For those who may still be on the sidelines, I want to be direct," Wal-Mart chief executive Lee Scott said sternly. "Meeting social and environmental standards is not optional. I firmly believe that a company that cheats on overtime and on the age of its labor, that dumps its scraps and its chemicals in our rivers, that does not pay its taxes or honor its contracts will ultimately cheat on the quality of its products. And cheating on the quality of products is the same as cheating on customers. We will not tolerate that at Wal-Mart."
Now new suppliers are screened for environmental practices.
Many China experts say Wal-Mart's guidelines could be more important than the government's.
"They are the rule setters," said Ma Jun, director of the Institute of Public and Environmental Affairs, a Beijing-based group. "Before Wal-Mart only cared about price and quality, so that encouraged companies to race to the bottom on environmental standards. They could lose contracts because competition was so fierce on price."
Wal-Mart's suppliers have been forced to get serious about pollution, Ma said. "Wal-Mart says if you're over the compliance level, you're out of business. That will send a powerful signal."