In China, Wal-Mart presses suppliers on labor, environmental standards

In many cases, Wal-Mart is first trying to bring firms up to government standards. Ma added that suppliers "may not care about government fines, they may not care about exposure. . . . But they care about the order from the buyers."

Skepticism persists

Not everyone is convinced of Wal-Mart's message. Many critics argue that WalMart's longtime commitment to "everyday low prices" fosters a disregard for labor and environmental standards. China Labor Watch, a New York-based organization devoted to workers' rights in China, said in a report last Thanksgiving that "the case of Wal-Mart . . . shows that corporate codes of conduct and factory auditing alone are not enough to strengthen workers' rights if corporations are unwilling to pay the production costs associated with such codes."

China Labor Watch pointed to five factories where it said workers lived in overcrowded and unsanitary conditions and were forced to work excessive overtime without adequate pay. Moreover, it said, two of the five had plotted to deceive Wal-Mart auditors and had coached workers to lie during the audits.

Wal-Mart says that it is doing its best to monitor conditions at its suppliers but that it's a daunting task. Until April 1, it relied on its own auditors, who visited about a tenth of the more than 100,000 suppliers the company has worldwide, focusing on the largest. Moreover, many of its goods come through intermediary firms that use their own suppliers. Since April, the company has turned to independent auditors, as recommended by China Labor Watch and others.

Wal-Mart's own 2008 audit report said: "We commonly encounter factories that do not comply with the work hours standards, specifically the standards related to the permissible maximum number of regular work hours and overtime hours that a worker is allowed to work during a given day, week and/or month. Additionally, inconsistent time records are often found in this region, and we also have noted that many factories in this region are not paying all mandated benefits to workers."

Richard J. Coyle, formerly senior director for international corporate affairs, said that in 2008, Wal-Mart worldwide suspended 126 suppliers for a year and permanently halted purchases from 35 others. He said figures for 2009 weren't available yet, but he stressed that the company's goal was to resolve problems and improve conditions.

Coyle said that Wal-Mart has visited the five factories highlighted by China Labor Watch but that it hasn't dropped any of them. "Some things we were able to confirm, and some things we weren't," he said. "Sending in auditors several weeks afterwards, things may have changed. You're doing a snapshot in time; they're doing a snapshot. Where we could put changes in place we did. It's our goal and their goal to change conditions in those factories."

Whether this will help Wal-Mart's relations with U.S. customers isn't clear.

"Our customers care; they just don't want to pay more," one Wal-Mart executive said.

Cleaning up

The Lutex plant in Shenzhen is a small part of the global low-cost workshop. The company opened a factory here in 1991 to make soap and detergents for export, and it has moved up the value chain to fragrances and cosmetics, expanding its offerings for Wal-Mart and others.

The company's technology expert Alan Wong notes that Lutex has installed motion-sensor-controlled lights in its warehouse; captured waste heat and steam and reused it; installed a catalytic converter on its chimney to capture sulfur dioxide emissions; and upgraded motors for an energy saving of 30 percent. It also increased the energy efficiency of an assembly line for shrink-wrapping packages (eliminating the jobs of people who had wielded hair dryers to finish the work).

Those measures saved money for Lutex, but some changes raise costs. Soap and cosmetics manufacturing produces fatty acids that act as nutrients for algae, a major problem in Chinese rivers and lakes. New equipment and septic tanks were installed to treat wastewater.