22 August 2012

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Sixty Facts from Report Wal-Mart’s Global Track Record and the implications for FDI in Multi-Brand Retail in India A report by UNI Global Union

Sixty Facts from Report Wal-Mart’s Global Track Record and the implications for FDI in Multi-Brand Retail in India A report by UNI Global Union

This paper is submitted by UNI Global Union, a global union representing more than 20 million workers from over 900 trade unions in the services industries.

UNI affiliates include unions, which together represent mil-lions of workers in the retail industry, many of which have relationships with the global retailers who now seek to enter India.

The report is informed by the experiences of many of our affiliates with global retailers, but in particular the United Food and Commercial
Workers International Union (UFCW), a union of 1.3 million members in North America.

UNI has signed global agreements with over 40 multinational companies, which set forth parameters for fair treatment of their employees and their unions.

In India, UNI affiliates include unions in the banking, telecommunications, postal, media, graphical, private security, and retail industries.

The report discusses the potential effects of globalized modern retail, on four groups of stakeholders:
1)    modern retail workers,
2)    small retailers (kiranas and hawkers),
3)    supply chain intermediaries (e.g. wholesalers),
4)    producers

This report examines the track record of Wal-Mart, the largest retailer in the world, with global revenue of $421 billion USD in 2010, 3.5 times
the revenue of the next-largest competitor.

Important sixty Facts from Report

The report says that without adequate safeguards put in place, FDI in multi-brand retail will likely lead to widespread displacement and poor treatment of Indian workers in retail, logistics, agriculture, and manufacturing.

Walmart has a record of violating laws protecting workers’ rights and aggressive anti-union conduct in the United States and elsewhere.

For example, Human Rights Watch in a 2007 report noted that Walmart’s “relentless anti-union drumbeat creates a climate of fear at its US stores.”  And as a result, “Many workers are convinced they will suffer dire consequences if they form a union.”

In the United States, studies show that Walmart has a negative impact on both retail worker wages and total retail employment.

University of California researchers found that “Walmart workers earn an estimated 12.4% less than retail workers as a whole.” And other researchers estimated that “Each Walmart worker takes the place of 1.4 retail workers.”

In a number of countries, the presence of a Walmart store has had a devastating impact on small businesses in the surrounding areas.

Studies have also found that the expansion of hypermarkets like Walmart has led to the mass closure of small businesses in the United States and other countries.

Researchers from the United States Census Bureau found that “the entry of and growth of [hypermarkets] has a substantial negative impact on employment growth and survival of single unit and smaller chain stores.”

Supply chain intermediaries, like wholesalers and other middlemen, are also negatively impacted by Walmart.

The company’s global reach allows it to source goods directly thereby circumvent existing wholesalers and distributors

During the recent Competition Tribunal hearings in South Africa regarding Walmart’s acquisition of Massmart, the company cited its ability to “disintermediate” (e.g. eliminate middlemen) as an important way to cut costs.

Workers in the company’s supply chain do not fare much better.  In the long term, Walmart pushes prices paid to farmers and manufacturers down rather than raising them, and producers unable to accept such concessions simply go out of business.

The company is so large that it has the power to dictate the terms of suppliers’ contracts, including turnaround time, quality, quantity and price.

In a review of Walmart’s Mexican operations one clothing manufacturer noted, “Walmart has driven many suppliers out of business.

Walmart maintains its profit margin… They never re-duce their margin.” Therefore, as regards the supply of products for sale in the Walmart stores, the potential effects of FDI in retail include an increase in imports, price pressure on Indian producers, particularly SMEs, through giant retailer monopsonies, and the depression of pay and conditions for manufacturing workers and farmers. 

UNI recognizes that the conditions and experiences in each country vary, and acknowledges that India needs to craft its own policies.  Yet we believe that our experiences around the world should inform the formulation of those policies and would therefore suggest that India maintain its ban on FDI in multi-brand retail.

FDI without strong conditions in place could lead to massive disruption of the Indian economy and society.

In their quest to dominate retail markets and secure profits, big retailers like Walmart say they will eliminate unnecessary costs, but instead they transfer the burden of these costs onto supplier companies, manufacturers, retail workers, farmers, and society.

Walmart is particularly relevant because compared to other large international retailers; it has the largest footprint in India and is therefore poised to expand rapidly once FDI restrictions are lifted.

Walmart has already opened 14 wholesale stores in four states through its joint venture with Bharti Retail and the retailer also supplies back-end assistance to Bharti Re-tail’s 150+ supermarkets and compact hypermarkets in nine states.

Walmart executives emphasize the need to build scale in existing markets in order to achieve profitable returns; as soon as the company enters a new market, rapid growth is a priority. There is speculation in the press that Walmart might gain a control-ling stake in Bharti Retail’s front-end operations, which would give it immediate access to an existing network of stores once FDI is permitted.

Carrefour operates only two wholesale stores, in Delhi and Rajasthan, and Tesco does not operate any, though it works with Tata Group under a franchise agreement, providing back-end expertise for a mere 13 Star Bazaar hypermarkets.

Walmart is an operational trendsetter – it was a pioneer in the globalized economy of the ‘80s and ‘90s, sourcing cheap and lower-quality goods from China while often paying the lowest possible wages to retail workers in the US.

As Walmart has expanded it has brought its business model to other parts of the world, depressing labour standards in its stores, pushing SMEs and socially responsible employers out of business and creating a far-reaching global sourcing system that pits workers earning poverty wages in sourcing countries against each other.

From UNI’s experience working with retail worker unions in countries where Walmart operates, we believe that the company regularly demands significant increases in productivity from workers without commensurate increases in worker compensation.

The company is able to charge low prices in large part because it pays as little as possible – in some cases poverty wages – to its workers.

In India, where modern retail work is still a relatively recent phenomenon, we believe that Walmart will attempt to set compensation and worker rights standards as low as possible to be-gin with. This type of low-quality job will not provide the foundation for a sector in which regular workers are able to thrive and benefit from India’s rapid economic development.

Walmart pushes down pay for retail workers in the United States. When Walmart builds a new store there, the jobs that it displaces usually provided better pay, benefits and scheduling than Walmart does.

Ac-cording to Kenneth Jacobs of the University of California, Berkeley, “Walmart workers earn an estimated 12.4% less than retail workers as a whole, and 14.5% less than workers in large retail in general” in the United States. They are also less likely to have employer-sponsored health benefits. Because they earn so little, Walmart workers in the US are more likely to rely on publicly provided health and welfare programs compared to retail workers as a whole.

In 2007, Wal-Mart was estimated to have lowered average retail wages by 10% – by displacing higher-paying jobs and by putting pressure on competitors to reduce wages –at an annual cost to US workers of $4.5 billion.

Walmart’s extremely low wages are not good for any American worker, but they especially hurt women, who are disproportionately represented in low-paying positions.

In 2010, Walmart employed 798,881 women in non-supervisory positions, who earned an average wage of just $8.81/hour. In most parts of the United States, this is not a living wage for a single adult working full-time with a child.

economist Richard Drogin found that in 2001, female employees at Walmart at all levels earned less than their male counterparts. On average, women earned $5,200 less per year than men.

In the United States, where minimum wage and other basic labour standards exist but lack strong enforcement, Walmart has broken the law multiple times in the past when it comes to minimum working conditions.

The company has been repeatedly found guilty of forcing workers to work off the clock and denying workers paid breaks and overtime pay.

Walmart’s past systemic denial of wages owed to hourly workers has been confirmed by former managers: Joyce Moody, a former manager in Alabama and Mississippi, told the New York Times in 2002 that Wal-Mart “threatened to write up managers if they didn’t bring the payroll in low enough.” Depositions in wage and hour lawsuits reveal that company headquarters leaned on management to keep their labour costs at 8 percent of sales or less, and managers in turn leaned on assistant managers to work their workers off the clock or simply delete time from employee time sheets.

In 2008 Walmart agreed to settle 63 pending wage lawsuits in 42 states. The settlements totaled $640 million dollars in legal fees and payments to former and current workers.

An internal company audit of 128 stores in the U.S. found that in one week in July 2000 there were 1,371 instances of minors working too late, during school hours, or for too many hours in a day.

Wal-Mart paid $135,540 to settle a case with the U.S. Department of Labour alleging that the company violated child labour laws in the states of Arkansas, Connecticut, and New Hampshire between 1998 and 2002 by requiring teenage employees to use hazardous equipment such as chain saws, paper balers and orklifts.

Professor Anita Chan of the Australian National University, a Walmart scholar who recently published a book about Wal-mart’s practices in China, argues that “the overwhelming problem facing Wal-Mart employees [is] the low salaries even by [China’s] low standard. In fact, the take-home pay is lower than most of the exploited factory production-line workers receive. Chan has also found that between 2006 and 2008, Walmart systematically circumvented Chinese minimum wage laws at multiple Walmart stores by paying a base wage that is lower than the legal minimum, then supplementing the base wage with a bonus and housing subsidy.

Chan also notes that a large percentage of the work force at Walmart in China is composed of casuals or part-timers who receive even lower pay and no subsidies.

In the US and Canada, Walmart is a virulently anti-union company. In more than one instance, after North American Walmart workers have elected to form a union, the company has simply closed those workers’ department or store – at the meat department in a Texas Walmart in 2000, and at a supercenter in Quebec in 2005 Not a single store in the United States has been unionized.

Human Rights Watch documented Walmart’s denial of its workers’ basic rights in a 2007 report: According to the report, the company even went so far as to distribute an internal document – “A Manager’s Toolbox to Remaining Union Free” – that detailed its strategies and tactics around preventing workers from organizing. 

As small, less capitalized retailers are less able to absorb losses in the face of unsustainably low prices charged by big competitors, these small business will be forced to close their doors.

The “Walmart effect,” as defined by US investigative reporter Charles Fishman, occurs when “Wal-Mart, or any big-box retailer, comes into town, reshapes shopping habits, and drains the viability of traditional local shopping areas or mom-and-pop shops.”

Walmart and its peers redefine the markets that they enter, changing consumption habits over time, and this factor combined with the company’s ability to underbid other retailers, means inevitable economic displacement for those involved in the existing system.

A United States Census Bureau  study of the US retail sector between 1976 and 2005, found that “the entry and growth of Big-Boxstores (hypermarkets) has a substantial negative impact on employment growth and survival of single unit and smaller chain stores that operate in the same de-tailed industry as the Big-Box… the impact is largest if the single unit or smaller chain store is within 1 mile or 1 to 5 miles of the Big-Box store relative to being 5 to 10 miles from the Big-Box.”

In a similar study of Wal-mart’s effects on jobs in 1,749 counties in the US be-tween 1977 and 1999, Emek Basker of the University of Missouri found that Walmart’s entry into a new county led to a reduction in the number of small retail establishments in that county.

In a national study of Walmart in the US be-tween 1977 and 1995, David Neumark of the University of California, along with researchers from Clark University and Cornell University, found: “Each Wal-Mart worker takes the place of 1.4 retail workers. On a county basis, this estimate implies a 2.7 percent reduction in retail employment attributable to a Wal-Mart store opening. Of course this need not all come about via Wal-Mart workers literally displacing other workers. Wal-Mart’s entry into a market may also induce other retailers to try to cut costs by shedding workers. And we reiterate that these estimates do not imply absolute declines in retail employment, but instead that retail employment was lower than it would have been had Wal-Mart stores not opened.

In urban Chile, when modern retail arrived in the early 1990s, a large number of small shops went out of business in the span of just a few years. As reported in ICRIER’s May 2008 report, between 1991 and 1995, “15,777 small shops went out of business, mainly in Santiago, a city of 4 million, “representing 21-22% of small general food, meat and fish shops, 25% of deli/meat shops and dairy shops, and 17% in produce shops. Chile’s food retail sector has continued the process of consolidation to the point of negatively impacting free competition.

in urban Argentina from 1984 to 1993, during the most intense period of take-off of supermarkets, the number of small food shops declined from 209,000 to 145,000;” in other words, over 1/3 of small food retailers closed as large formal retailers entered the market.

In 2008, Walmart executives in Japan announced that in order to accelerate cost cutting the company planned to start directly importing private-label goods also sold in Walmart US. The com-any stopped using some wholesalers and imported items to Japan from Southeast Asia.

In a study conducted by James Biles of Indiana University about the globalization of food retail in Mexico between Wal-mart’s entry and 2005, It was found that the role of regional wholesale markets had diminished significantly due to “the increasing reliance on direct procurement and distribution centers” as well as “the emergence of large, powerful intermediaries closely linked with state government and export markets.” Most notably, “this sharp decline in sales coincides with the increasing market share of Wal-Mart and national food retailers.”

US factories that ended up supplying for Walmart into the 1990s generally paid low wages, did not offer health insurance, and did not offer stable schedules. They fought unionization out of fear that Walmart wouldn’t buy union goods, though eventually most of them went bankrupt anyway, and the buildings now sit abandoned in small towns across the country

In or-der to avoid bankruptcy, large suppliers of brand name goods like Rubbermaid, Huffy and Mr. Coffee relocated their production facilities to China after becoming Walmart suppliers.

In a study of the Nicaraguan retail sector conducted between 2007 and 2008, researchers from Michigan State University argue that although Walmart (the dominant food retailer in Central America) is able to reduce the volatility of prices paid to farmers in Nicaragua, the  prices paid by Walmart are “significantly lower” than those paid by the traditional market.

The examples of Mexico, Chile, and South-east Asia lead us to believe that small-scale producers, most notably farmers, will need direct assistance in order to stay afloat once multinational retailers enter India.

The true victims of Walmart’s cutthroat procurement practices are farmers and factory workers. Kenneth Jacobs of the University of California at Berkeley argues that “there is a well-documented history of violations of labour and employment laws by Walmart sup-pliers in China and elsewhere.”

A 2009 report by the Clean Clothes Campaign documenting extensive interviews with factory workers and producers for retail giants in India, Sri Lanka, Thailand and Bangladesh, found that Walmart is purchasing practices subjected factory workers to excessive working hours for poverty wages, suppression of their right to demand improvements in their treatment at work, and a lack of job security.

Throughout the Competition Tribunal process in South Africa, company executives emphasized repeatedly that the Walmart regularly adapts its business to com-ply with local laws and regulations.

Suggested Reading –

Detailed Analysis FDI Good or Bad for India Who will benefit in India if FDI is allowed in Multi Brand this is Kirana Business


FDI in Multi Brand Good or Bad for India Answers to Doubts regarding FDI in Kirana Business Part 2


Reality views by sm –

Wednesday, August 22, 2012

Tags – FDI India Walmart


Panchali August 22, 2012  

SM, That was a detailed interesting analytic report. Some where I read that FDI is perfectly sync 'with Darwin's theory of evolution. Only the best will eventually survive and the weak will perish'!! Maybe that's what it is...

MEcoy August 23, 2012  

nice information sm thanks for sahring

Destination Infinity August 23, 2012  

People thought that entry of chain stores like, 'Reliance Fresh' will wipe out small businesses. But it didn't really happen. So, even if companies like Walmart set up shop in India, its impossible for them to address the entire market. The market is too big and too much spread out. I don't think it will hurt the local grocery shops substantially.

Destination Infinity