They are eye-popping numbers: Some $12 billion worth of goods made in China were sold to Wal-Mart Stores Inc. last year. That's a full 10% of all U.S. imports from China. But the Chinese aren't just Wal-Mart suppliers. They're also Wal-Mart shoppers. The Arkansas company operates 29 stores in 13 mainland cities and employs nearly 15,000 people. It took in almost $1 billion in sales last year. New stores are planned for Shanghai and Beijing, and Wal-Mart expects to have at least 35 stores open by yearend. It's selling into a retail market that today is estimated at $370 billion and is expected to grow by 8% to 10% annually. "There is a retail revolution happening," says Jacques Penhirin, a partner at McKinsey & Co. in Hong Kong. "No retail company that wants to be serious internationally can afford to ignore China."
But, unlike in its home market, Wal-Mart isn't exactly trampling the competition in China. It's going head-to-head with major international retailers, including 7-Eleven, Britain's Tesco, and Germany's Metro. And archrival Carrefour has a jump on Wal-Mart. With 36 stores across mainland China, Paris-based Carrefour topped Wal-Mart with $1.4 billion in sales last year, estimates China International Capital Corp., a Beijing-based investment bank. "Wal-Mart has not been as aggressive as Carrefour," says CICC analyst Guo Haiyan. The foreign operations are all joint ventures with Chinese companies; outsiders are allowed to own from 30% to 65% of the venture, depending on the city.
A LABOR CHALLENGE. Some snags have arisen on the procurement side of the China trade. Chinese suppliers regularly complain that multinational retailers like Wal-Mart are too tough on local manufacturers on price and delivery time. Carrefour faced a small media storm last summer when suppliers loudly complained about the French company's purchasing policies, including a range of extra charges, among them so-called "entry fees" that the company assesses suppliers just to sell their products in its stores, plus other fees for special shelf placement. And Wal-Mart faced its own headache recently when newspapers reported that China's official labor movement, the All-China Federation of Trade Unions, had been repeatedly rebuffed in its effort to sign up employees in Wal-Mart's stores. Wal-Mart denies that it does anything to interfere with labor organizing in its stores. But it also says unions are not needed. "We believe as a company that we can deal directly with our associates in a way that will be so positive that they will not feel the need for a union," says Wal-Mart spokesman William Wertz. The ACFTU declined to comment on the dispute, but it is fair to assume it won't go away without a fight. Tough stuff. But with a $370 billion market up for grabs, Wal-Mart and its competitors know it's worth the trouble.
By Dexter Roberts in Beijing