Is Wal-Mart Good for
Senior Producer and
Hedrick Smith &
Produced and Directed
ANNOUNCER: There's never been a company like it.
GARY GEREFFI, Duke University: Wal-Mart is probably the broadest and
most powerful company in U.S. business history.
ANNOUNCER: Its everyday low prices benefit
millions of Americans.
BRUCE BARTLETT, National Center for Policy Analysis: Wal-Mart has really given an increase in income to every American.
ANNOUNCER: But some say it's a bad bargain.
RATCLIFF: It's putting people out of work, that's
what it's doing.
ANNOUNCER: Tonight, correspondent Hedrick Smith
investigates how Wal-Mart is changing the American economy–
Correspondent: The Chinese guys bought the big
ANNOUNCER: –following the trail of low prices in
America to low-cost production in China–
HAY, Entrepreneur: I said, "Hold it. Hold it. Hold it. The
next one's China. I got to get
ANNOUNCER: –tracking the nation's growing trade
SMITH, Port of Long Beach: Wal-Mart's our number one customer.
SMITH: Wal-Mart's your number one customer?
SMITH: Number one customer.
ANNOUNCER: –and examining the growing controversy
over the Wal-Mart way.
TONELSON, U.S. Business & Industry Council: The lowest prices have to lead to the lowest wages and to job loss and
to lower living standards.
ANNOUNCER: Tonight on FRONTLINE, Is Wal-Mart Good
SMITH, FRONTLINE Correspondent: [voice-over] It's 6:00 A.M. at the University Arena
in Fayetteville, Arkansas, and the faithful are gathering. They've come to cheer their home
team. But this isn't your typical
CHEERLEADER: Give me a W!
CHEERLEADER: Give me an A!
SMITH: This is team Wal-Mart, and this is a
shareholders meeting unlike any other.
CHEERLEADER: Give me a T!
CHEERLEADER: What does that spell?
CHEERLEADER: Whose Wal-Mart is it?
AUDIENCE: My Wal-Mart!
SMITH: And Wal-Mart is a company unlike any
EXECUTIVE: Your company was the first company on
the planet to report one quarter of a trillion dollars in sales– $256
billion! [cheers, applause] Do you know what that is, $256 billion? That's one IBM, one Hewlett-Packard, one Dell Computer, one
Microsoft and one Cisco Systems. And oh, by the way, after that, we've got $2 billion left over. [applause]
SMITH: As the world's largest company,
Wal-Mart has tremendous power and influence. It is now the model not just for retailing but for companies
all across the corporate landscape.
NELSON LICHTENSTEIN, U.C. Santa Barbara: In
the 19th century, it was the Pennsylvania Railroad, which called itself the
standard of the world. Early 20th
century, it might have been U.S. Steel. General Motors, of course, in the mid-20th century. But clearly, Wal-Mart today is setting
a sort of a– a new standard that other firms have to follow if they hope to
compete. And more than just other
firms, it's setting standards for the nation as a whole.
SMITH: By figuring out how to exploit two
powerful forces that converged in the '90s, the rise of
information technology and the explosion of the global economy, Wal-Mart has
changed the balance of power in the world of business.
GARY GEREFFI, Duke University: It
used to be that manufacturers – big multi-national manufacturers – had the most
power, companies like General Motors and General Electric. Today, I think that global retailers
actually have become the most powerful companies in the global economy.
SMITH: To understand Wal-Mart and how a
company with such humble roots has managed to build a global empire, I headed
for Bentonville, Arkansas. It's an
overgrown crossroads town tucked into the Bible and barbecue belt of northwest
Arkansas. Here, in the heart of
the old town, sits the five-and-dime store that Sam Walton opened in 1950. A few blocks away I found the Wal-Mart
of today, the Wal-Mart we've come to know as consumers, a cornucopia of
thousands of different items all under one roof, the epitome of one-stop
shopping. Every week, Wal-Mart
says, 100 million American shoppers stream into its 3,400 stores
SHOPPER: It's very convenient for me to be able to get a one-stop shop.
SHOPPER: I know I don't have to look and see
where I can save the most money. I
know when I come in here, I can save money.
SHOPPER: Good prices, good quality of stuff.
SHOPPER: I'm sort of thinking of having my
Social Security check deposited directly to wal-Mart since I buy everything at
McADAM, VP, Wal-Mart Gov't Relations: What makes Wal-Mart successful, what keeps us motivated and what really
challenges us every day, whether it was from the day one when Wal-Mart began or
till today, I think it's the same, that we really strive in everything we do to
keep our costs as low as possible, so that we can provide the customer a value
and still make a reasonable profit for our company.
SMITH: That was Sam Walton's formula: Buy
cheap, sell for less than the other guy, and make your profit on high volume
and fast turnover. Sounds simple,
but this supercenter is a world away from Sam's five-and-dime. How do they keep track of it all? How do they know what to stock? How do they keep prices so low?
DILLMAN, Wal-Mart Chief Information Officer: What I'm going to do is show you how we use this Telxon unit in our
SMITH: Linda Dillman is Wal-Mart's chief
information officer, and she let me in on one of Wal-Mart's most important
tools, a little gadget called a Telxon
DILLMAN: It tells me the sales price of the
item, how many I currently have. And it knows what the history looks like for tracking each sale as it
occurs. We know what we think
it'll be going forward, based on its trend.
SMITH: Wal-Mart was one of the first retailers
to understand the power of information hidden in the barcode.
camera] This little barcode here is not just a
simple thing, it's almost an encyclopedia of information.
DILLMAN: Absolutely. It allows us to tie this item to a lot of information we
know about, we can only collect because we have that barcode.
SMITH: How many items do you have in a store
DILLMAN: Over 100,000, so– close to 120,000
SMITH: [voice-over] Wal-Mart couldn't manage without the
barcode. It helps them overcome
one of retailing's thorniest problems: getting the right mix of products in the
LEHMAN, Former Wal-Mart Store Manager: You can track sales on specific items, specific weeks, specific days,
specific hours of the day.
SMITH: Jon Lehman worked at Wal-Mart for 17
years. He managed six different
stores. Disillusioned, he quit to
go work for a union trying to organize Wal-Mart workers.
LEHMAN: You can track sales spikes during the
year, during certain seasonal periods, and– it's incredible.
SMITH: [on camera] Clothes, sizes–
LEHMAN: Clothes, sizes, colors, flavors, all of
those things. It's– it's just–
it's really incredible.
SMITH: [voice-over] With its own supercomputer, Wal-Mart
streamlined its supply chain, speeding delivery from plant to store shelf.
LEHMAN: The sale's recorded, and then an order
is automatically generated that evening at midnight. And that warehouse fills that order, and it's sitting back
on the shelf the next night or the following night.
SMITH: Wal-Mart became a world leader in
logistics and promoted greater efficiency among its suppliers. Some analysts even credit Wal-Mart with
increasing U.S. productivity.
Wal-Mart's information technology]
GARY GEREFFI: Wal-Mart, as an efficiency machine, has
just done better than any other U.S. retailer, or perhaps any other U.S.
company in history.
SMITH: With other mass retail chains, like
Target and K-Mart, Wal-Mart generated a revolution in how goods are produced, a
shift from what's called "push production" to "pull production."
EDNA BONACICH, U.C. Riverside: The push system involved manufacturers deciding what they're going to
produce and then trying to get retailers to buy it and sell it for them. The pull system involves retailers
deciding what is being sold, collecting information on what is being sold, and
then telling manufacturers what to produce and when to produce it based on what
is actually being sold.
SMITH: Wal-Mart's pull is so powerful that
here in Bentonville, manufacturers have set up satellite sales offices. In what's now known as Vendorville, I
found a Who's Who of Wal-Mart vendors. In one corporate office park, I found a sock manufacturer, Kentucky
Derby Hosiery. Its CEO is Bill
NICHOL, CEO, Kentucky Derby Hosiery: Yes. If you want to sell
Wal-Mart, you know, you need to come to Bentonville. It's been that way for a long time. I don't see that that's going to
change. So people who travel a lot
found it maybe more convenient just to have an office here, that they were
continuously coming to Bentonville, so a lot of them just moved here, or at
least opened an office here.
SMITH: The suppliers come in droves, hungry
for big contracts. They get herded
into little rooms for bargaining sessions with Wal-Mart buyers.
NICHOL: They force all of us, by really good
business discipline, to be sure we're paying attention at all times to what
their customers want to buy. It
serves the purpose of saying, "This is what they want, and they want to buy it
at this price." Therefore, that's
what we'd better be doing, our little company.
SMITH: The focus is on what matters most to
LEHMAN, Former Wal-Mart Store Manager: Well, it's very one-sided. There is no negotiation. There's not much negotiation at all. The manufacturer walks into the room. I've been in these little cubicles, I've
seen it happen. The buyer says,
"Look, we want you to sell it to us for 5 percent on a dollar – at cost – lower
this year than you did last year."
know every fact and figure that these manufacturers have. They know their books. They know their costs. They know their business practices–
everything, you know? So what's a
manufacturer left to do? They sit
naked in front of Wal-Mart. You
know, Wal-Mart calls the shots. "If you want to do business with us, if you
want to stay in business, then you're going to do it our way." And it's all about driving down the
cost of goods.
NELSON LICHTENSTEIN: The power of Wal-Mart is such, it's
reversed a 100-year history in which the manufacturer was powerful and the
retailer was sort of the vassal. It's
changed that. It turned that
around entirely. Now the retailer,
the mass global retailer, is at the center. That's the power. And the manufacturer becomes the serf, the vassal, the underling who has
to do the bidding of the retailer. That's a new thing.
Read the extended interview]
SMITH: I wanted to see how this bold new world
of retail power had changed the game for established brand-name manufacturers,
so I headed to Wooster, Ohio, a small college town and long-time home to one of
America's best-known brands, Rubbermaid, maker of plastic pails, garbage cans
and all kinds of containers.
GAULT, Former CEO, Rubbermaid: We
were one of the best-known brand names in America because we were in virtually
every home, one way or another.
SMITH: Stanley Gault was CEO of Rubbermaid
through the 1980s and early '90s. Gault bet Rubbermaid's future on supplying big box discount chains like
GAULT: The tea leaves said, "You better be a
part of this growing– of these growing new segments." They provide a tremendous opportunity for growth and for
volume sales. And they can take a
new product and make it a success overnight
SMITH: One of Gault's rising lieutenants was
Wolfgang Schmitt, who would later become CEO.
SCHMITT, Former CEO, Rubbermaid: Well, there was a dramatic shift over a relatively short period of time,
as we went from thousands of customers that we were selling to, to where five
or seven of our customers represented two thirds of our volume.
SMITH: [on camera] These big box retailers.
SCHMITT: The big box mass merchants. You have to have a very tight
relationship with them. And you
have to be important to them.
SMITH: [voice-over] No customer was more important to Gault
GAULT: When I came to Rubbermaid, they did not
sell Wal-Mart. They were selling
K-mart, but they wouldn't sell Wal-Mart. Well, within a short period of time, Wal-Mart – really, within a year –
they were our largest customer.
ANNOUNCER: Tired of dragging your garbage to the end of the drive? Then roll it with a roughneck wheeled
refuse container from Rubbermaid. Heavy-duty construction and–
SMITH: The Wal-Mart account helped fuel
Rubbermaid's rapid growth. Sales
and profits soared. Its products
were so highly regarded for quality that Rubbermaid was voted the nation's most
admired company in 1994.
TROYER, Former Rubbermaid Executive: It's really your peer group, the other manufacturers out there in the
world, saying, "This is the company that is really doing it. They're doing all the things right, and
they're doing the things that make them very admired– our brand name, our
quality, our product development."
SMITH: But behind the headlines, Rubbermaid
was struggling to maintain its ambitious growth targets. Then, suddenly, it found itself in a
showdown with its biggest customer.
TROYER: The price of resin skyrocketed. And resin is a huge component of any
plastic product that you make. And
when we went out with a price increase across the industry to all retailers,
saying, "Our raw material costs have increased significantly, We have to get a
price increase for our products," Wal-Mart would not take that price
increase. They flat-out refused to
take the price increase.
SMITH: Other mass retailers agreed to a price
hike, and Rubbermaid's CEO flew to Arkansas to ask Bill Fields, head of
Wal-Mart stores, to reconsider.
SCHMITT: They were very public in those days, as
you might recall, as were a lot of retailers, about saying, "One of the
advantages we, as big box retailers, have is we can put the hammer to the
manufacturers and we can give American consumers lower prices."
SMITH: [on camera] So did Fields put the hammer to you?
SCHMITT: Oh, in his own way, certainly.
TROYER: I thought it was a vindictive kind of
meeting that said, "Yes, you may be Rubbermaid and you're big Rubbermaid and
you got the great name and all that, but you're not going to tell us what to
do. We're not going to take your
price increase, and we really don't care what it does to you."
SMITH: [on camera] So what does it mean to you? Do you lose shelf space? Do you lose volume, to Wal-Mart at that
SCHMITT: Sure. You know, when push comes to shove, their way of
disciplining the supplier is to show that, you know, volume can be given or it
can be taken.
TROYER: And they dropped a number of our
products for a couple years, just dropped those products. That impacts the company
tremendously. To me, it was one of
the first signs of the decline of Rubbermaid.
SMITH: [voice-over] I asked a Wal-Mart spokesman about the
clash with Rubbermaid because Bill Fields, no longer at Wal-Mart, didn't answer
BRACY, V.P., Wal-Mart Int'l, Corp. Affairs: Whatever happened there, I'm sorry, I can't comment because it predates
me and I'm not familiar with the specifics. But I would just reemphasize that it is not our intent to be
bullies as buyers to our suppliers.
SMITH: Wal-Mart's pull-back was a body blow to
Rubbermaid. Coupled with lax
management at Rubbermaid, it plunged the company into deep trouble. In 1999, Rubbermaid sold out to Newell,
a major competitor. By the time I
arrived in Wooster five years later, it had come to this, Rubbermaid auctioning
off its birthright.
camera] Where're the buyers from?
AUCTIONEER: They're from all over. We've got guys from all over the 50
states. We've got two guys in from
South America, two guys from Italy, a guy from Spain, two guys from over in
Japan or China area. We've got a
guy from Austria–
SMITH: A couple of guys from China?
SMITH: And they're buying here?
AUCTIONEER: They're buying. They bought the one big machine today,
SMITH: The Chinese guys bought the big
AUCTIONEER: Right. It's an injection machine. They bought it, I believe, for $850,000.
SMITH: [voice-over] So Rubbermaid's original plant was
closing shop, and countries like China were picking up the pieces.
AUCTIONEER: You know, when you think of Wooster,
you think of Rubbermaid. And you
think of Rubbermaid, you think of Wooster. I mean, this is what this town is all about.
SMITH: [on camera] So what's it going to be without– when
you move all this stuff out, you know, you've got a carcass here.
AUCTIONEER: Exactly. There's a–
SMITH: Is the town a carcass, too?
AUCTIONEER: Well, there's about 1,000 jobs that
were lost here.
SMITH: [voice-over] It seemed to me that it wasn't just a
plant dying, a set of corporate values was passing away. Ten years ago, Rubbermaid, with its
reputation for quality, was named most admired. Last year, Wal-Mart, with its reputation for its
cost-cutting, was most admired.
camera] If you look at the shift from
Rubbermaid as the most admired company in 1994 and Wal-Mart as the most admired
company today, in terms of the larger American economy, what does that
mean? What does that say about the
touchstones of success?
GARY GEREFFI, Duke University: Rubbermaid represented an innovation-oriented high road towards U.S.
competitiveness. I think Wal-Mart
represents a cost-driven, low-price low road towards U.S. competitiveness. And in a sense, they're two
dramatically different styles in which the U.S. economy can be organized. I think the Wal-Mart model is winning
STORE MANAGER: Good morning, associates. I
need all available associates, all department managers–
SMITH: [voice-over] Back at the supercenter in Bentonville,
employees gather for the morning meeting, a daily ritual at 5,000 Wal-Mart
stores all over the world. It's
part of the Wal-Mart culture.
MANAGER: Good morning, everybody!
STAFF: Good morning, Matt! [applause, cheers]
MANAGER: Everybody doing all right? OK, let's talk about sales. Hey, we had a pretty good day
yesterday. We were up 6.5
percent. Meat was up 19.2
percent. Yeah, a great job in our
SMITH: It's a pep rally around Sam Walton's
low-cost, low-price formula for success
MANAGER: Way to go! [cheers, applause] Who else has
got an item?
ASSOCIATE: [shoelaces] It's 88 cents. That's an 85.23 percent mark-up. Great item!
MANAGER: All right!
ASSOCIATE: [paper plates] They're $1.50 for 24, and a 30 percent
MANAGER: All right! Good item!
SMITH: Pay close attention. What they're talking about is how
Wal-Mart pulls in millions of shoppers by touting what it calls the "opening
ASSOCIATE: And then we have simply basic socks for
your dollar-a-buck, with 94 cents.
ASSOCIATE: We sell– in all the colors, we sell
about 60 pairs a week.
SMITH: Opening price points are the
rock-bottom prices that Wal-Mart showcases in special displays– the $9.14
saucepan, trick-or-treat jack-o-lanterns for 78 cents.
BRACY: The opening price point is clearly a
foundation of who we are and how we interact with our customers. We feel that they need to have the best
product, the best value at the best price we can achieve.
LEHMAN: It's the heart of Wal-Mart's pricing
strategy. Wal-Mart puts a
tremendous amount of planning, organization and thinking into what their
opening price points are going to be, based on last year's sales, based on
SMITH: Every line of goods has an opening
price point, the cheapest item in the line. For example, this $29.87 microwave oven. It's a good price, but it's also the
bait to lure customers to that department.
LEHMAN: It's to get you in. You look at that, and you say, "Wow!
What a great price." Then they got you because you walk about 10 more feet, and
you see the item you really want in that same category. Then you buy that item, but it's not
going to be, probably, the lowest price in town.
SMITH: [on camera] So are you saying that the opening
price is the lowest price and actually will beat the competition, but maybe
other items in the same category aren't necessarily the lowest price?
LEHMAN: Oh, absolutely not. Once you walk past that opening price
point, they got you because you've already formed the perception that
everything in that department is the lowest price in town.
SMITH: And maybe it's not.
LEHMAN: No, it's not. No. I can tell
you it's not. I can tell you from
experience, it's not.
SMITH: [voice-over] Back in the 1950s, Sam Walton dreamed
up the idea of an eye-popping opening price point.
LEHMAN: Sam had an old Ford pickup truck, and
he'd go down the road and buy ladies' panties and sell them at a ridiculously
low price– you know, 10 for a buck, or something like that.
SMITH: And it worked. Sam got a jump on bigger rivals by
targeting territory they ignored, building his early stores near small towns in
BRACY: One thing you have to think about in
the history about us is that we're a company that hasn't been that long ago
that we were a regional player. What we found is we had to compete with, as a regional player, those that
were national players. How did we
do that? We had to go overseas to
find products in some cases.
BRACY: In the '70s and '80s, Sam Walton would
travel overseas looking for goods that would sell in our stores.
SMITH: Despite Wal-Mart's much publicized "buy
American" campaign in the late '80s, low-cost imports from Asia became a
vital component of Wal-Mart's low opening price point strategy.
GARY GEREFFI: They were more single-minded in terms
of global cost cutting and internal efficiency than any other U.S.
retailer. And that helps us
understand how and why they were able to pass companies like K-Mart and Sears
that were the early leaders in U.S. retailing and offshore sourcing.
LEHMAN: There was a lot of talk about those
companies being asleep at the wheel, being fat, dumb and happy, you know? And we didn't want to be fat, dumb and
happy. We wanted to be aggressive.
SMITH: And they were aggressive. From 38 stores in 1970, Wal-Mart grew
to 276 in 1980 and mushroomed to 1,500 in 1990. In 1991, it overtook its long established rivals to become
the nation's biggest retailer. Then surprisingly, Wal-Mart began having trouble. In 1992, Sam Walton died, and a year
later, with the economy slow and sales sluggish, Wal-Mart's stock price slumped
LEHMAN: Wal-Mart got very nervous. It got lower and lower and approaching
that $20 mark. And that $20 mark
seemed to be the– like, the threshold. If it gets down below $20, it's going to be a panic.
SMITH: Wal-Mart's new management needed to
crank up sales and profits, and they hit on a way to do both.
LEHMAN: I saw this as a store manager, an
influx, a giant influx, of imported merchandise coming in. The stores were inundated with
inventory. Inundated! I mean, we had so much of this cheap crap
floating around the store, we didn't know what to do with it.
SMITH: Lehman was so overwhelmed with
merchandise that he called a vice president at Wal-Mart headquarters to ask
what was going on.
LEHMAN: He said, "Jon, you know, we got to
bring our profit in for the quarter, for the month, for the year. And you know our stock is
declining. And you do understand,
Jon, that these imports have a high margin, a high markup, and they're going to
help your profit-and-loss statement. They're going to help the company's profit-and-loss statement."
SMITH: The impact was dramatic and immediate.
LEHMAN: The margins on the merchandise that
were coming in from– the Wal-Mart import items were incredible.
SMITH: [on camera] Like what?
LEHMAN: Like 60, 70, 80 percent, you know? Incredible.
SMITH: Compared with what, some American-made
LEHMAN: Well, compare that to an electric razor
that you might be making 20 percent on or 18 percent on or 22 percent.
SMITH: So you're saying that Wal-Mart is
making much bigger profits on these items that are made in China or these
low-wage countries. Is that right?
LEHMAN: That's absolutely right,
SMITH: [voice-over] By the late '90s, Wal-Mart was
dependent on low-cost Asian imports, and it began pushing its American
suppliers to follow Wal-Mart to Asia.
NICHOL, CEO, Kentucky Derby Hosiery: Their message to us, surprisingly, is, "There's a broad market out
there. If you want to focus on the
lowest-cost part of the market, it's obvious that you can't do that in the
SMITH: [on camera] So if you want to play in that 25
percent of the Wal-Mart market, you got to be in a very low-cost place, China
or someplace like China.
NICHOL: That's correct. But China, practically speaking, is it.
SMITH: And a number of suppliers have told us
that they have felt real strong, particularly opening price point, pressure
from Wal-Mart that has effectively forced them to make decisions to move
overseas, specifically to China.
BRACY, V.P., Wal-Mart Int'l Corp. Affairs: I don't know that that is a common practice. I don't know– I can't even confirm that that happened. I suspect that this is a legitimate occurrence
that you're citing, and there may be some validity to that. The sad truth is because of perhaps the
pressure on price because of this opening price point initiative that we and
others have, and because the pressure of costs on the other side, that it's
difficult to make that– make ends meet, if you're a business, by staying here.
SMITH: You, as a producer of socks for 30, 40
years, are you now going to find that you need to put a production facility in
NICHOL: Absolutely. For us to remain a viable company over the long run, we know
we have to compete.
GARY GEREFFI: Wal-Mart basically tells its suppliers,
"We need to get those products at 30 percent lower price. You need to move to Asia, you need to
move to China because that will meet our bottom-line price figures."
SMITH: [voice-over] Wal-Mart was capitalizing on a
watershed moment on the world stage, America's embrace of trade with China in
the late '90s. With corporate America hailing China as
the new economic frontier, President Clinton signed a permanent trade agreement
with the Chinese.
Pres. BILL CLINTON: Our administration has negotiated an agreement which will open China's
markets to American products made on American soil, everything from corn to
chemicals to computers.
TONELSON, U.S. Business & Industry Council: The picture painted was that China was
a big emerging market for U.S. exports and that U.S. workers and also U.S.
companies, companies that made their products here, could profit tremendously
from the opening of trade flows with such an enormous country like China. After all, it had 1.2 billion people.
SMITH: To see first-hand how the promise of a
vast new market for America was playing out, I headed for China and the heart
of its new industrial revolution, Shenzhen, south China's miracle city.
years ago, this was all rice fields. Today, it's a sophisticated city of seven million, its astonishing rise
orchestrated by China's leaders and ignited by a Chinese currency devaluation
in the mid-'90s that dramatically lowered its export prices.
CHAN, Hong Kong Entrepreneur: It's the opening of China. China is a communist country, and for the longest time, we had closed
doors. And when they opened up to
Western businesses, the floodgates opened, basically, and it's something that
you just can't stop.
SMITH: The boom seemed endless. North of Shenzhen, I found an
entrepreneur who was among the first to spot opportunity in the new China.
HAY: Well, these are the products we
make. This gives you some idea of–
SMITH: Australian Donald Hay came to south
China 20 years ago.
HAY: I was in this part of the world, and I
could see– I saw the cheap products come out of Japan and I saw then that
market went to Korea, then it went to Taiwan. I said, "Hold it. Hold it. Hold it. The next one's China. I got to get here."
SMITH: The backbone of China's new industrial
might is the flood of young Chinese pouring into this industrial province, an
area no bigger than Missouri now teeming with more than 40 million migrant
workers. They come to work and
live at the factories. At Hay's
company, Hayco, they make $100 month, or about 50 cents an hour. Other companies pay as little as 25 or
30 cents an hour.
HAY: They want to work. They want to earn the money. They want to get forward. And they will do anything to move
SMITH: Today Hayco supplies electric
toothbrushes and home-cleaning products to big American companies like 3M,
Procter & Gamble and Wal-Mart.
HAY: What's happened is the world has come
here as a marketplace. It's like a
supermarket for manufacturing today, and the quality is up to world standards
and a long way past world standards. And that's just what's happened in southern China.
SMITH: All across the region, I saw evidence
of the mass corporate migration into China: highways lined with factories like
airport hangars. Hundreds of
billions of dollars in Western investment have poured into China in the past 20
Wal-Mart is here, too. It has 35
supercenters in China. And behind
one of them, here in Shenzhen, I found Wal-Mart's global procurement center, a
huge buying operation tapping directly into China's new workshop of the world.
GARY GEREFFI: I interviewed people in Wal-Mart's
global procurement center in Shenzhen, and I asked them about the total number
of Wal-Mart suppliers. And I was
told that Wal-Mart has 6,000 global suppliers. Eighty percent of those suppliers are in China.
SMITH: Several hundred employees work at the
procurement center, keeping the import pipeline full.
GARY GEREFFI: Wal-Mart gives Chinese suppliers the
specifications for Wal-Mart products, and they teach those suppliers how to
meet those specifications. They
have to do it with price. They
have to do it with quality. They
have to do it with delivery schedule. So in a sense, Chinese suppliers learn how to export to the U.S. market
through large retailers like Wal-Mart.
SMITH: The Chinese suppliers also learned just
how tough Wal-Mart can be.
CHAN: Wal-Mart is– they're very shrewd
people. They know that they have
the volume orders behind them, and they can go into a factory and almost
demand, "These are my list of demands. This is what I need."
SMITH: Kenneth Chan is a Hong Kong
entrepreneur who used to supply Wal-Mart.
SMITH: [on camera] I've even heard sometimes that they
will call in three or four manufacturers into one of their little negotiating
booths and auction them off, say, "This is what we want."
CHAN: Yeah, the big reverse auction kind of
thing, where they bid the price as low as possible.
SMITH: What do they do?
CHAN: Basically, they bring people into their
offices and just put product in front of you and ask you to– everybody to bid
their cost on the product. And
it's very high-pressure,
SMITH: Have you ever been in that situation,
where you had to bid, three or four people in the same room?
CHAN: Yeah, I have. All of the things that I was involved in, they were very
inexpensive, less than– they were probably, at the most, maybe less than $1.00.
SMITH: So they're pounding for a few pennies.
CHAN: Yeah. They're only pounding for, in a lot of cases, just one
penny, in fact.
SMITH: Now, the argument is that this is
getting a better deal for the consumer. Do you buy that, or do you say–
CHAN: No, it's getting a better deal for the
retailer or the importer.
SMITH: For the Wal-Mart.
CHAN: Yeah, for the Wal-Mart, for the
Targets, whoever does it.
SMITH: [voice-over] I'd heard about Chinese producing
cheap, low-end consumer goods. What
was striking to me was how many Chinese companies were going high tech. You may not have heard of TCL, but
you've seen their TVs and maybe bought them, marketed under brand names like
Philips and RCA. And you'll be
hearing more from them soon. They
have a wide range of modern electronic products. And they've just merged with French electronics giant
Thomson. Together they're now the
largest TV maker in the world.
KAI, Production Manager, TCL: [through
interpreter] Ninety-nine percent of our exports are
for North America and Europe, where we make a large part of our profit. We need to fulfill the demand of our
SMITH: And only one U.S. customer, it turns
out, really matters to TCL.
KAI: [through interpreter] Selling to Wal-Mart accounts for almost
all our sales to the U.S. market. Wal-Mart keeps a very low inventory and a fast turnaround, which forces
us to speed up our production to catch up with the international market.
SMITH: It was a familiar refrain – I heard it
everywhere – ramping up production, supplying Wal-Mart, shipping to
America. And at Shenzhen's main
port, I saw a river of exports. Ten years ago, this was all barren land. Today Shenzhen is on the verge of becoming the third busiest
port in the world, and Wal-Mart is one of its biggest customers.
GARY GEREFFI: Wal-Mart has a very close relationship
with China. China is the largest
exporter to the U.S. economy in virtually all consumer goods categories. Wal-Mart is the largest retailer in the
U.S. economy in virtually all consumer goods categories.
HEDRICK: [on camera] It sounds like a commercial marriage
made in heaven.
GARY GEREFFI: Wal-Mart and China are a joint venture,
and both are determined to dominate the U.S. economy as much as they can.
More on Wal-Mart and China]
SMITH: [voice-over] Wal-Mart estimates that it imports $15
billion of Chinese goods every year and maybe a lot more.
camera] You've mentioned a figure of $15 billion
in direct and indirect imports. Others have given us higher estimates, well into the 20s and maybe $30
billion. Is that possible?
BRACY, Wal-Mart V.P.: I think it's possible. It could be higher and it could be
lower. The other thing you have to
remember is that we're growing pretty significantly in terms of sales, so next
year it will be higher, and the year after that, it's likely to be higher, as
GARY GEREFFI: Wal-Mart is providing a gateway into
the American economy for overseas suppliers in China and elsewhere, and it's
doing it on a scale that is unprecedented.
SMITH: [on camera] Cosco, that's China's ship. And a Japanese ship here.
SMITH, Port of Long Beach: But they're
all carrying Chinese cargo.
SMITH: [voice-over] At the other end of the pipeline, I
visited the port of Long Beach in California. I wanted to see how Washington's promise of massive
American-made exports to China was working out. The port's communications director is Yvonne Smith.
SMITH: [on camera] What are they shipping in and what are
we shipping back?
SMITH: Well, we're bringing in consumer
products. We're bringing in about
$36 billion worth of machinery, toys, clothing, footwear.
SMITH: That's $36 billion right here in Long
SMITH: About $36 billion comes through Long
Beach from China alone– consumer products.
SMITH: And what are we shipping back?
SMITH: We're shipping out about $3 billion
worth of raw materials. We export
cotton. We bring in clothing. We export hides. We bring in shoes. We export scrap metal. We bring back machinery.
SMITH: So they're doing all the– we're like a
third world country.
SMITH: We're exporting waste paper, containers
full of waste paper. We bring back
cardboard boxes with products inside them.
SMITH: [voice-over] Add it all up and the U.S. had a record
$120 billion trade deficit with China last year, and it's headed even higher
TONELSON, U.S. Business & Industry Council: The myth of an enormous and growing
China market wound up locking the United States into a trading partnership with
China that had to benefit China much more than it could benefit us.
SMITH: [on camera] Because?
TONELSON: And the reason was China would always
be able to sell the United states much more goods than Americans could sell to
Chinese because Americans had the incomes that are needed to buy Chinese
products. Chinese consumers
overwhelmingly don't have the incomes needed to buy American products.
SMITH: So the whole idea was wrong.
TONELSON: It was completely wrong.
MISHEL, Pres., Economic Policy Institute: When you look at the growth of the trade deficit with China, you could
say that a very conservative estimate is that we have lost more than a million
jobs to China since the early 1990s.
LINDSEY, Economist, Cato Institute: I
think it's impossible to say that we've lost a million jobs to China. Trade policy, or trade flows, one way
or another, don't have an effect on overall employment numbers. They affect the kinds of jobs we
have. And so some number of jobs
have definitely been eliminated because of Chinese competition. Another– elsewhere in the economy,
other jobs have been created because of Chinese competition. Because American consumers have saved
at Wal-Mart buying Chinese goods, they've got more money in their pocket to buy
something else, which creates business opportunities for those other business,
which means they hire workers they would not have hired otherwise. The net effect, most economists think,
is a wash.
MISHEL: Theoretically, the gains from trade
offset the losses from trade. But
nothing says there are more winners than losers, and nothing says that for the
bottom three fourths of America, that they are net gainers. In fact, I believe that most people
have been losers from trade.
SMITH: The impact of China's export boom has
been felt all across the U.S. in towns like Circleville, Ohio, population
13,000, a Norman Rockwell kind of town, with its farms and factories, a solid
citadel of middle-class America. Former Republican mayor Ron Wunsch has lived in Circleville all his
WUNSCH, Former Mayor, Circleville: The community basically generated its livelihood off of the industry
that came into the community, came in in the 1940s and 1950s. Thomson Consumer Electronics was the
last large organization to join it. That came in in the 1970s.
SMITH: [on camera] So you had a good living standard, good
WUNSCH: Good jobs, good living standards and
good people in the community.
SMITH: [voice-over] The French firm, Thomson, which
manufactures TV sets, had the largest plant in town. And it was a top performer.
STRUTZ, Former Thomson Plant Manager: The Circleville plant, in its heyday, probably around 1999, 2000, was
producing about 10 million pieces a year for the production of television
sets. They made the glass components. About a thousand workers, highly
motivated, highly productive, very efficient plants. And at the time, it was one of the most profitable
contributors to Thomson's corporate bottom line.
SMITH: Steve Ratcliff was among thousand
workers who rode the economic wave with Thomson. As a machine operator, he made up to $59,000 a year with
RATCLIFF: I've done this job for the last 30,
almost 31 years, and it's become my life. And it's the only thing I've ever known in my adult working career was
SMITH: But from 2002 onward, the tide went
out. Plants in Circleville started
closing, and the big Thomson plant suddenly faced sharp foreign competition.
STRUTZ: We started to see more finished Chinese
components coming into the market. A few brands come to mind, like Apex. They were selling at prices that most people couldn't' even
manufacture out of the U.S., and they're being sold at the same place we all
buy TVs– Best Buy, Circuit City, Wal-Mart and Sears. And you know, all of a sudden, you had this end pressure on
the retail price driven largely by the Chinese producers.
SMITH: And oddly, Mayor Wunsch says, the
Thomson plant ran into big trouble, not just because of the Chinese but also an
WUNSCH: In 2003, they lost a sizeable portion
of their total production orders from a particular customer.
SMITH: [on camera] Sanyo?
WUNSCH: Sanyo, I believe.
SMITH: They lost the Sanyo contract because of
WUNSCH: My understanding, based on what I was
told, was that an end-use retailer told the Sanyo people what they were going
to pay for the TV.
SMITH: And who was that retailer?
WUNSCH: My understanding is that that was
STRUTZ: Wal-Mart's going to say, "If you want
our space, you're going to have to match the price or figure something else to
do." And so it forces a supplier
like Sanyo to go back upstream to the tube, and in our case, glass
manufacturers, to look for price concessions. But sometimes they're not there.
SMITH: So if they're not there, then they go
STRUTZ: Then they go to China, or wherever they
can to compete.
SMITH: [voice-over] Foreign competition hit other TV
makers, too. In east Tennessee, I
came across the very last American-owned TV maker, desperately fighting to hang
HOPSON, President, Five Rivers Electronics: Well, it's a constant struggle to survive. I mean, it's a very competitive market.
SMITH: Tom Hopson is president of Five Rivers
Electronics, an assembler of brand names like Philips, Samsung and RCA. With foreign imports dominating the
small TV market, Hopson concentrated on high-end, big-screen sets. But even that was no protection from
HOPSON: By the year 2003, they were, like,
increased 1,100 percent in imports. So they just grew at an amazing rate. All of a sudden– they weren't here, they were shipping, you
know, maybe 100,000, now they're shipping millions and millions of televisions,
all of a sudden, from China.
SMITH: In three short years, Chinese TV makers
had grabbed one third of the high-end market, about $350 million of
business. But Hopson was convinced
he was up against more than just free trade.
HOPSON: You know, we're here to create jobs for
our people in Greenville, Tennessee. And on a fair, level playing field, if we can't compete, then we go out
of business like anyone else. But
if it's unfair and it's illegal and someone's doing something to damage and put
these people out of jobs, we're going to try to do something to keep these
SMITH: Hopson turned to Washington. He filed a trade complaint, charging
the Chinese with dumping high-end TVs onto the American market, selling at
below free market cost.
HARTQUIST, Five Rivers Attorney: It's not fair trade. It's
not free trade. The Chinese are
pricing their products in a manner contrary to the obligations they undertook
when they joined the World Trade Organization a few years ago.
Chinese system has built-in advantages that no one else in the world has. Their currency is undervalued by, we
estimate, about 40 percent. Their
workers are not treated fairly in terms of worker rights. The government provides subsidies to
Chinese producers at preferential interest rates that may not even have to be
repaid. It's a rigged system.
SMITH: Chinese TV makers vigorously fought the
case, including TCL. Tom Hopson
was prepared to take on the Chinese, but stunned at whom else he had to fight.
camera] What side did Wal-Mart come down on?
HOPSON: Well, Wal-Mart chose the side of the
Chinese. And basically, Wal-Mart
spent a lot of time and effort at the International Trade Commission hearings,
testifying against us and our case.
SMITH: [voice-over] When I asked a Wal-Mart spokesman, he
said he could not address this specific case.
camera] On the question of dumping, does
Wal-Mart have a position on dumping cases?
BRACY, Wal-Mart V.P.: I think we should weigh in if we feel a
need, if there is an issue that we see that perhaps needs a perspective from
the retail trade ourselves, or if we're asked to.
SMITH: And do you see Wal-Mart's position
weighing in on behalf of the American manufacturers, or on behalf of the
foreign companies that are supplying you?
BRACY: I think it has to be on a case-by-case
HOPSON: Why would an American company fight
American companies and American jobs unless it was for their own profit? I don't understand that. Why would Wal-Mart and other companies
actually testify to support jobs in China instead of American jobs, unless there
was some benefit to them?
SMITH: [voice-over] Last April, Five Rivers won its
case. The International Trade
Commission determined that Chinese producers were illegally dumping high-end
TVs on the U.S. market. It imposed
new import duties, effectively raising Chinese prices and making Five Rivers
camera] If you had a bad case or you'd lost
this case, would you have shut down?
HOPSON: Absolutely. There's no doubt in my mind that if we had lost this case,
this factory would not be in business.
SMITH: [on camera] But it was already too late for other
U.S.-based TV suppliers, like that Thomson plant in Circleville, Ohio. Last May, the plant was finally shut
camera] Did Thomson say that it was shutting
the plant down because of competition from China?
RATCLIFF: Exactly. They basically told us that they could buy the glass from
their competitors coming out of China cheaper than what we could actually make
it for at our plant.
SMITH: [voice-over] Suddenly, 1,000 workers like Steve
Ratcliff lost the jobs of a lifetime.
RATCLIFF: You kind of feel like you've been a
failure, in a way. You worry a
lot. Like I said, I worry about
whether or not I'll be able to find work with, you know, comparable wages and
benefits and just what the future will be.
WUNSCH, Former Mayor, Circleville: Job opportunities for the kids coming out of high school in this area
today are very much lower than they were 10 years ago. There are a lot of people in this community
who have families that the father worked 30 or 40 years at a plant, then the
son got employed, and a third generation has been employed in some of the
plants. And those are gone
now. And there's no opportunity
SMITH: [on camera] What are those high school kids going
WUNSCH: We don't know. We don't know.
SMITH: [voice-over] Ironically, it may be Wal-Mart to the
rescue. One new job opportunity in
Circleville will soon be a new Wal-Mart supercenter that just broke ground on a
patch of Ohio farmland right next door to the now vacant Thomson TV plant.
camera] How would you feel about working for
RATCLIFF: I don't know where I'd really want to
work for Wal-Mart or not, to be honest.
SMITH: Why not?
RATCLIFF: Wal-Mart's a big contributor, as far as
bringing a lot of the foreign products, the cheaper-made products, and so
forth. And quite frankly, that's
some of what's going on right now with what put us out of business is the
SMITH: [voice-over] And for those who lost jobs at Thomson,
Wal-Mart jobs represent a steep cut in pay, almost half of the $15 to $16 an
hour they made at Thomson and a far cry from the pension, health care and job
security benefits long the norm in industry.
NELSON LICHTENSTEIN, U.C. Santa Barbara: Joseph Schumpeter, who was an Austrian economist, famous, used the
phrase "creative destruction." What he meant was that one mode of production, one form of capitalist
economics, comes to the fore. It's
more efficient. It's more
powerful. It destroys, literally,
other forms of production, other firms. And that's what Wal-Mart has done. It has discovered, with this low-wage model, with a– technologically
proficient, its global reach– it is a sort of new model of world capitalism,
really, beginning in America and the rest of the world. And it is destroying, creatively, but
nevertheless destroying competitors and, really, other ways of thinking about
the way the world works.
SMITH: [on camera] I guess my question for you is,
is Wal-Mart good for America? Is
this strategy of Wal-Mart good for America?
LINDSEY, Economist, Cato Institute: I
think Wal-Mart is good for America. Wal-Mart is doing what America is all about, the American market economy
is all about, which is producing things consumers want to buy. And Wal-Mart is offering consumers a
wide range of goods at rock-bottom prices, and therefore, it is meeting the
MISHEL, Pres., Economic Policy
Institute: Well, if people were only consumers
buying things, lower prices would be just good. But people also are workers who need to earn a decent
standard of living. And the
dynamics that create lower prices at Wal-Mart and other places are also
undercutting the ability of many, many workers to earn decent wages and
benefits and have a stable life.
McADAM, Wal-Mart V.P.: We absolutely believe that we are
raising the standard of living through lowering the cost of goods for
people. There are those who
criticize us and make assertions that there is somehow a negative to that. And it's a– it's a– it's a premise that
I simply reject.
SMITH: In the end, is Wal-Mart good for
RATCLIFF: If you want these low prices, then you
go buy your products from Wal-Mart. But what does that actually do for this country? It's putting people out of work, that's
what it's doing. And it's lowering
our standard of living. That's the
WAL-MART GOOD FOR AMERICA?
AND DIRECTED BY
Smith & Rick Young
AND SENIOR PRODUCER
COORDINATOR - China
NewsHour with Jim Lehrer
Museum of Ozark History
FRONTLINE coproduction with Hedrick Smith Productions, Inc.
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ramifications in the U.S. and globally, plus extended interviews with Wal-Mart
insiders and observers, and two radio reports about Wal-Mart by American Radio
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