Postcard from Beijing: Insights into Wal-Mart’s Sustainability Initiative

by Rick Bunch

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Rick Bunch

Beijing, October 22, 2008:
If there is such a thing as a tipping point, in the sustainability realm one has to believe it’s near at hand when 1000 CEOs (and Cameron Diaz – no kidding!) get in the same room to be jawboned by Wal-Mart CEO Lee Scott. For those of us who have been in it for a while, the elation is quickly replaced by the pressure to make it all work so we’ll turn out to have been right.

Listening to Scott and other Blue-and-Gray executives, I was genuinely impressed how far Wal-Mart had come since announcing, a few months back, that it would bring its sustainability initiatives to China. At that time I was concerned that there was too little appreciation for differing political, legal, business and social cultures in China, and in particular that Wal-Mart was poised to repeat many of the same mistakes that had recently laid low the food, medicine, toy and other industries that source from China. Many companies sourcing from China had imposed environmental, workplace and product-quality standards on their suppliers, supplemented by third-party audit and certification requirements, but a continuing series of scandals forcefully demonstrates these measures alone cannot succeed.

Wal-Mart has figured out that setting standards and auditing supplier performance will not suffice. For one, suppliers are dealing with numerous conflicting social, safety, quality and environmental standards, and harmonization is needed among major buyers and associations. Even with regular audits, suppliers have a powerful incentive to cheat when buyers care only about price and delivery dates. On the one hand, Wal-Mart proposes to mitigate the cheating incentive by sticking with suppliers who comply with standards and dropping those whose performance does not improve – regardless of cost. They are working with other major retailers and associations to harmonize supplier standards.

Wal-Mart has also come to realize that they have to invest in building capacity of suppliers to meet sustainability standards: many lack the analytical and managerial skill to implement required changes. And that’s what brought me to Beijing in the first place.

With thousands of first-tier suppliers, and many thousands more further upstream, and spread all over the country, the sustainability initiative will require comprehensive and flexible training and educational support. Representing the Erb Institute for Global Sustainable Enterprise at the University of Michigan, I joined representatives from University of Arkansas and Arizona State University to explore how our institutions might help meet the sustainability training and education needs of Wal-Mart’s many suppliers.

We’re discussing a model in which we would partner with Chinese schools, who are eager to help but have limited capacity to respond. Chinese universities have roughly quadrupled the number of undergraduate and graduate degrees awarded in just the past eight years, and are hard pressed just to fulfill basic teaching needs much less develop innovative programs around subjects like sustainability. There are, therefore, very few professors in China with research and teaching experience in sustainable business topics. The Erb Institute, by contrast, is now in its 15th year.

Western academic institutions share some obligation to help China address its social and environmental challenges. But there is enormous opportunity as well. Many students see China’s rising worldwide importance and want to gain understanding and experience there which  advance their careers globally. Academics see fertile ground for research in China’s rapid economic development. However one feels about the political and human rights situation in China, no society has ever brought so many people out of poverty so fast. Learning how to keep improving people’s lives, without exacerbating environmental and social strains is critical for China’s continuing development but likely also contains lessons for still-poor countries that are advancing more slowly and chaotically.

Even today, we see sharp generational shifts in Chinese society. China’s Millennial generation, similar to Western Millenials but two or three years younger, has started to enter professional life and MBA programs. When I was with The Aspen Institute, we surveyed MBA students in China to assess their attitudes about the role of business in society. We found that students aged 28 and younger were much less likely than those 34 and older to agree that a company’s only environmental responsibility is to comply with the law – a striking contrast to the traditional view of the government/emperor as the creator and guardian of social value. What will happen as China’s Millenials begin to influence workplace practices, and to flex consumer muscle?

The Chinese people have tolerated social and environmental problems because economic development has helped them feel wealthier and more secure. But what if the Western economic slowdown settles heavily on China? Will the hundreds of millions of rural peasants who have yet to share the wealth lose hope of a better life? Will urban residents stop tolerating bad air, traffic jams and weak civil and consumer protections when their paychecks stop growing?

One can easily see why a company like Wal-Mart, divining these macroeconomic threats, would want to position itself as a positive force for social development, hedging against the day that the Chinese government decides the costs of marketization have become too high. We can bet that any backlash will first target foreign organizations. The point is that sustainability is not something Wal-Mart can pursue only to satisfy Western critics, governments and consumers. China itself needs solutions, fast, and Wal-Mart’s efficiency and agility may help it provide them. Morally, we must find a way to hold out continued hope of a better life for the world’s poor; yet the extension of Western patterns of production and consumption into China and developing countries clearly cannot continue. In that harsh light, “Save money, live better” starts to sound a whole lot more nuanced, an insight that Wal-Mart readily admits it has gained as its sustainability efforts have advanced.

I am neither a cheerleader nor an apologist for Wal-Mart, but I certainly hope this works. They have a long way to go in a whole lot of areas, and I’m encouraged that strengthening voices all around the world are holding them and other companies socially accountable. My sense is that there is a growing number of people in Wal-Mart who are willing to recognize social and environmental problem, acknowledge the company’s responsibility and seek ways to act that create broad benefits. But there is bound to be a lot of resistance within the company, and up and down the supply chain, to many of the changes Lee Scott has called for. The best way to quell the reactionary forces is for reform to succeed in business terms.

Richard  J. Bunch is the Managing Director of the Erb Institute and a leading expert on development of business education and research programs around issues of sustainability and corporate social responsibility. Through May, 2008, at the Business and Society Program at The Aspen Institute, Bunch launched a new program for education and research on business-and-society topics in Chinese business schools. Before joining the Aspen Institute he was executive director of the Bainbridge Graduate Institute and served as director of business education at the World Resources Institute (WRI). He has produced training conferences for business school faculty and program staff in North and Latin America and China. Mr. Bunch also developed and co-authored the Beyond Grey Pinstripes MBA program rankings.
He holds an MBA and environmental management certificate from the University of Washington and a bachelor’s degree in political science from Yale University.

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One Response to Postcard from Beijing: Insights into Wal-Mart’s Sustainability Initiative

  1. Devon J. Douglas says:

    I just returned from the Net Impact National Conference at Wharton where Matt Kissler, Walmart’s SVP of Sustainability, gave a keynote address. Mr. Kissler spoke about last month’s summit in Beijing with excitement and pride, but pointed out that it was just the beginning. Walmart’s efforts to engage its Chinese supplier partners are certainly commendable and hopefully an indicator of greater things to come as Walmart bushwhacks its way towards greater social and environmental responsibility.

    On the other hand, China’s population and consumer economy are growing. “Keeping up with the Joneses” consumerism has taken hold; car ownership is on the rise and numerous coal-fired power plants are under construction with more planned to accommodate the growing demand for energy. This leads me to ask: “Can true sustainability be reached without lowering consumption, especially with the rapid growth of China’s middle class?” Walmart CEO Lee Scott posed this query at the same summit in Beijing. He answered his own question by saying “[A]s people more and more embrace sustainability, they’re going to be less likely to look for a 4 dollar toaster for one year, they’ll think how long will that product last over their lifetime. By making better products, people will be able to pay a fair value for 10, 15 years. People who buy a better TV will live better because less money going out of their pockets . . . In the end, it really is not about cheap. It is about dependable and functional products at the absolute best price. It is about true and total value.”

    This monologue brings up two important questions: First, what role will Walmart play in moving people to “more and more embrace sustainability” and hence alter current patterns of consumption? Second, how will their business model adapt to capture the value created by this paradigm shift?

    Sources: http://www.treehugger.com/files/2008/10/walmart-ceo-reduce-consumption.php#ch02 and Transcript of the Remarks of Lee Scott, CEO and President Wal-Mart Stores, Inc. China Sustainability Summit October 22, 2008.

    Posted by:
    Devon J. Douglas
    MS/MBA Candidate 2009
    Erb Institute for Global Sustainable Enterprise – University of Michigan
    devonjd@umich.edu

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