How Walmart Is Changing China

The world’s biggest corporation and the world’s most populous nation have launched a bold experiment in consumer behavior and environmental stewardship: to set green standards for 20,000 suppliers making several hundred thousand items sold to billions of shoppers worldwide. Will that effort take hold, or will it unravel in a recriminatory tangle of misguided expectations and broken promises?

Susan Meiselas/Magnum Photos

Beside the Fifth Ring Road, one of the superhighways encircling Beijing like concentric shock waves radiating outward from the epicenter of an earthquake, sits an enormous big-box installation, one of thousands now proliferating throughout China. The parking lots flanking it are gridlocked with late-model cars and ruddy-faced peasants-turned-workers pushing long, snake-like trains of shopping carts toward the entrance.

Also see:

A Map of Walmart in China

From sea cucumbers in Dalian to upscale Sam's Clubs in Shanghai, Walmart stores vary from province to province.

Stepping into the building’s vast, windowless interior, I have the sense of entering an oversize Fabergé egg. But instead of refined scenes of aristocratic czarist life, I encounter thousands of middle-class Chinese engaging in the newest, and already the most inalienable, right in this erstwhile “People’s Republic”: shopping. This is the Shijingshan Shanmuhui, a Sam’s Club, one of the 352 stores that Walmart now operates in 130 Chinese cities.

Just inside the doorway, a scrum of salespeople hawk everything from roasted sweet potatoes to fitness-club memberships and massage chairs. Throngs of energetic customers push overflowing carts (fitted with data screens touting the latest bargains) making that familiar sound of wobbling rubber wheels on concrete. Indeed, its familiarity makes me feel I’ve been astrally projected back to Walmart’s natal place—Bentonville, Arkansas, which the current president and CEO, Michael Duke, recently referred to as the “Lighthouse of the Ozarks.”

But the young Chinese women workers in green aprons and sanitary masks make it undeniable that we’re a long way from the Ozarks. They call out their wares in Mandarin, proffering samples of soya-bean milk, date juice, and lychee jelly. Around them are mountainous piles of fresh pig intestines; pillow-size bags of dried fungus, seaweed, and mushrooms; packages of desiccated deer tendons (still attached to hooves!); inky-black dehydrated sea slugs; glistening octopuses on nests of chopped ice; and tanks of gulping fish, dazed frogs and turtles, and hyperactive shrimp.

Although Walmart’s $7.5 billion in Chinese sales receipts account for only 2 percent of the company’s annual revenues, its sales in China have risen substantially over the past decade. Sales in the United States, by contrast, have been shrinking. And as China’s retail market—the world’s fastest-growing—expands by 18 percent a year, Walmart’s executives smell the intoxicating scent of more growth to come. Equally important, if not more so, some 20,000 Chinese suppliers, or “partners,” reportedly provide Walmart with about 70 percent of the nearly $420 billion worth of goods that it sells globally each year. (Because of the complexity of the global supply chain, the percentage from China is hard to calculate.) China has become so crucial to Walmart’s supply chain that in 2002, the retail giant moved its global sourcing headquarters across the border from Hong Kong to Shenzhen, in southern China.

As I tramped across the country, from Shenzhen to Manchuria and from the North China Plain to Sichuan province, visiting Walmart retail outlets, factories, farm cooperatives, and executive offices, the Walmart/China axis loomed as something unprecedented. Beyond the sheer scale of the relationship, what struck me was how interactive Walmart and China have become. These two colossal entities, with such utterly different provenances—the world’s largest corporation and the world’s most populous country—have somehow managed to meet and maintain a state of relatively steady symbiosis, each fulfilling vital needs for the other. Just as China is providing Walmart with the lifeblood of its commercial growth, Walmart is helping the Chinese state not just to satisfy the escalating demands of its consumers but to extend Beijing’s regulatory writ. Together, they are engaging in a bold experiment in consumer behavior modification, market economics, and environmental stewardship. Just how this unlikely partnership will affect the evolution of these two larger-than-life entities is as yet uncertain. But one thing is already clear: how Walmart and China interact with each other over the next decade will be critical to the fate of the planet’s environment.

The Wager

Since the 1980s, many U.S. corporate leaders, policy pundits, China watchers, and politicians have suggested that the best way to curb China’s dedication to Leninism is to bathe the Chinese people in the solvent of the open marketplace. But although China has proved remarkably susceptible to the lure of “marketization,” its one-party system has shown little receptivity to political reform, especially to democratization. The Chinese Communist Party has always fiercely resisted any notion that it can be “changed,” especially by outside pressure.

Of course, over the past century and a half, most of the foreign missionaries, merchants, military emissaries, and educators who have sallied forth in hopes of “changing China” have returned home with little to show for their efforts. Like nitinol, a unique nickel-titanium alloy that possesses “shape memory,” bending at low temperatures only to regain its original form when heated, China has long rebuked foreign efforts to change it. So one might plausibly wonder why Walmart, a company that is so indelibly American, might now have an experience that is any different.

Indeed, Walmart has deep roots in conservative, southern, small-town, fundamentalist-Christian, anti-union, middle-American values. The founder, Sam Walton, was an ardent capitalist, devoted Christian, and militant anti-Communist who rolled all these values up into a quasi-religious/political credo, a founding faith for a business praised by then–Vice President Dick Cheney as “one of our nation’s great companies,” exemplifying “some of the very best qualities in our country—hard work, the spirit of enterprise, fair dealing, and integrity.”

Walton opened his first store in rural Rogers, Arkansas, in 1962. His policy of low markup and high volume—under the banner of “Always Low Prices. Always”—found immediate favor with ordinary Americans, as did the folksy bonhomie of the company’s business practices and corporate culture. By 1985, Walton had become the richest man in America—“a billionaire everyone can love,” as USA Today once dubbed him—and by 1989, Walmart was operating in 29 states. Then, in 1991, the company opened its first international store, in Mexico. Since then, with only a few notable failures (in Germany, Russia, and South Korea), it has continued to expand abroad. By 1999, Walmart had become the largest private employer in the world, and in 2003 Fortune magazine pronounced it the nation’s most admired company.

At first blush, such a pedigree would seem to make Walmart an unlikely candidate for an alliance with the People’s Republic of China. And when the company arrived there in 1996, the country was terra incognita for Walmart executives. But the Bentonville behemoth actually shared more commonalities with its new partner than were first apparent—a curious alignment of goals and policies, even of organizational structures and “ideologies.”

Consider the following:

Both are animated by a mythologized grand progenitor. Sam Walton’s smiling visage (beneath a shovel-billed company cap) today hangs prominently in Walmart stores, much as Mao Zedong’s iconic image still hangs in Tiananmen Square and adorns China’s increasingly powerful currency. Even today, these founders’ successors rule supreme—as Walmart’s CEO and as the Chinese Communist Party’s secretary general.

Each is not only unelected, but also anointed with quasi-cultish Big Leader status to reign over a fundamentally authoritarian organization held together by an elaborate belief system or ideology bordering on the religious. And each presides over an enormous and complex apparat staffed by a professionalized core of operatives—namely, Party leaders and cadres in China, and senior executives and mid-level managers at Walmart.

Each of these leviathan organizations seeks to influence the outside world through the media, advertising, and PR while at the same time maintaining the kultur among its own minions, through written propaganda, motivational campaigns, and sometimes coercive measures aimed at bringing refractory “comrades” or “associates” back into line. In fact, each system employs a significant amount of monitoring, even outright electronic surveillance, to make sure that employees and citizens and customers alike stay within the boundaries of “correct” behavior.

And finally, each professes a proud populism, always proclaiming a responsibility to better service. China’s leadership, with its socialist roots, has long stressed “serving the people,” while Walmart, with its capitalist roots, emphasizes “service to the customer.” In fact, Walmart stores in China prominently display personnel charts that are inverted pyramids, with the customers and lowest workers situated on the top tier and the managers on the bottom.

Just as Mao’s revolution elaborated an all-encompassing code of conduct and ideology, “Walmart culture,” known in Chinese as Woerma wenhua, became a set of principles that, in the words of one employee quoted in David J. Davies’s* insightful article on “corporate cadres” in the forthcoming book Walmart in China, “are not simply rules for a style of work, but are kind of ‘a way of life.’” This notion of an all-embracing culture has created a shared contradiction: while neither organizational structure is comfortable with dissent, they both value, and depend on, innovation. Leaders are left to confront the same question: How, in such a tightly controlled and closely monitored organizational structure, can they encourage the kind of independent, creative spirit that is essential to surviving and maintaining a competitive advantage?

In that respect, if China wants to keep developing its hybrid form of authoritarian capitalism, its leaders could do worse than to learn from Walmart, a corporate entity larger in scope and logistical complexity than any other in human history: Its 9,700 stores in 28 countries, supplied by a network of more than 100,000 sources in 60 countries, are staffed by some 2.1 million employees serving 200 million customers a week. Compare Walmart’s annual revenue with the GDP of sovereign nations, and it ranks in the top quartile. In many ways, the company is like a country. Its CEO, when abroad, is treated almost like a visiting head of state. Senior executives in charge of overseas operations function like diplomats, signing agreements with governments and businesses and managing the company’s interests. The various national arms of the Walmart Foundation operate almost like a government foreign-aid program. Even Walmart’s stores, arrayed around the world, seem almost as representative of America as our consulates and embassies.

Breaking the “Bentonville Bubble”

Certainly there are lessons for China in Walmart’s evolution over the past decade. By 2005, the company’s steady expansion had made it a magnet for criticism and earned it a reputation as a rapacious, anti-labor-union, un-environmental “big box” destroyer of small towns and independent businesses. Things had gotten so bad on the image front that in November 2004, Comedy Central’s South Park did a devastating episode on the opening of an outlet in the show’s imaginary Colorado town. The townspeople try to boycott the store, but are unable to resist its seductive bargains. Finally, the new store’s manager, burdened by guilt for all the atrocities Walmart has been perpetrating around the country, commits suicide, and the townspeople snap. Cartman and the rest of the South Park gang set off for Bentonville to stop the company’s insidious spread.

“Yeah. We’ve come to complain,” Kyle announces to a receptionist upon arriving at corporate headquarters. “We don’t want a Walmart in our town.”

“Who does?” the receptionist cynically retorts. “Nobody likes what the Walmart does, but it keeps … right on doing it!”

In classic, rapid-cut South Park fashion, the boys are ushered into the office of Walmart’s president and one of the store’s original creators, who has been drinking heavily and chain-smoking.

“We … invented the Walmart Supercenter in 1987,” he says laconically. “The idea was simple: build a store for one-stop shopping where bulk purchases could keep prices incredibly low. We didn’t know what we were doing. In just four years, it was out of control.”

“So how do we stop it?,” Kyle asks.

“You don’t stop it!” the president responds gravely.

“There has to be a way!,” Kyle pleads.

“There’s nothing! Don’t you understand?!” cries the anguished president. “Nothing can stop the Walmart in your town! … Unless … of course, you can find and destroy its heart … Destroy the heart, and you could reverse the entire process!” he continues, sounding like a remorseful evil genius in a low-budget sci-fi film.

So, of course, the South Park posse must save the world by finding and destroying the heart of their Walmart, which turns out to be located near the TV-sales department. You get the picture.

When the episode first aired, Walmart was, in fact, navigating through very difficult times. In 2001 it was hit by the largest class-action lawsuit in U.S. history, accused by more than 1 million women of employment discrimination. In 2003 it was raided for employing illegal immigrants, and in 2004 it was fined for environmental infractions. By then, a McKinsey & Company study was reporting that, because of all the “negative press,” Walmart had lost as much as 8 percent of its customers. In 2005, Robert Greenwald’s documentary Wal-Mart: The High Cost of Low Price charged the company with being “short on scruples and long on shabby treatment of the people who work for them.” Walmart’s reputation was at a low. “Bad years do happen to good companies,” noted Fortune a year later. “But for Walmart, 2006 was just another downer in a period of decline that’s lasted seven years and overlaps the tenure of the company’s current CEO, Lee Scott.” Indeed, Walmart’s damaged state was curiously similar to that of China itself, whose “brand” had taken an almost fatal hit following the bloody events of June 4, 1989. Both were badly in need of reputational rehabilitation.

Originally hired by Sam Walton to work in Walmart’s transport division, Lee Scott, who became president and CEO in 2000, is pretty much the stereotype of what many might imagine a Walmart executive to be. Tall, with sandy hair and a pale, almost forgettable face, he radiates a reassuring, no-nonsense air and Great Plains earnestness—a middle American who grew up in a small southeastern-Kansas town pumping gas at his father’s filling station and earned his degree at a state university while living in a trailer and working in a tire-mold factory.

Fed up with being viewed as an environmental despoiler and everyone’s punching bag, Scott had already begun questioning how he might turn around Walmart’s image, if not the corporation itself. In 2004, he connected with Jib Ellison, a former river guide who had recently set up a small consulting firm, Blu Skye Sustainability, in Sonoma County, California. “When I first met Lee, the guy was just getting pummeled,” Ellison told me. “I mean, the world was really turning upside down for him!”

After a discreet courtship, Ellison managed to break through the “Bentonville bubble,” as he calls it, and convince Scott that it was not enough to “limit Walmart’s exposure” to environmental criticism. He also had “an opportunity to use sustainability to ‘do well by doing good.’” According to Edward Humes, the author of Force of Nature: The Unlikely Story of Walmart’s Green Revolution, Ellison insisted “that inefficiency and waste were omnipresent, even in a notoriously stingy company like Walmart, with the waste not only damaging the environment, but damaging the company’s bottom line as well.” Identify and cut out the waste in areas like packaging, shipping, and energy use, Ellison said, and Scott would solve his company’s image problem and make a better return on investment.

It was a beguiling dream, so much so that Ellison persuaded Scott to make tiny Blu Skye a Walmart consultant, a decision that helped send the massive company off on an environmental odyssey and won Ellison the handle of “CEO whisperer.” Soon, Scott was inviting the longtime banes of Walmart’s existence—nongovernmental organizations like the Rocky Mountain Institute and the Environmental Defense Fund—to Bentonville for discussions with his executives.

In the company’s corporate narrative, October 24, 2005, is spoken of as “a defining day in the history of Walmart.” This was the day Lee Scott gave his “Twenty First Century Leadership” speech, broadcast via video to all Walmart stores and suppliers. In the same way Chinese Communist cadres quote from the revolutionary scripture of their Big Leader’s collected works, Scott began by citing Walmart’s founder. “Sam Walton’s dream to serve the underserved changed the world,” he said. “We didn’t get where we are today by being like everyone else and driving the middle of the road. We became Walmart by being different, radically different.”

Scott acknowledged that the company was “in uncharted territory as a business,” but he said that “after a year of listening, the time has come to speak, to better define who we are in the world, and what leadership means for Walmart in the 21st century.” Then Scott got to the point. “Environmental loss threatens our health and the health of the natural systems we depend on,” he told his audience. “As one of the largest companies in the world, with an expanding global presence, environmental problems are our problems.”

Scott acknowledged that naysayers would “think that if a company addresses the environment, it will lose its shirt.” But, he countered, “I believe they are wrong. I believe, in fact, that being a good steward of the environment and in our communities, and being an efficient and profitable business, are not mutually exclusive. In fact, they are one and the same.”

Walmart was a company with a reputation for having already “gotten religion” through Sam Walton. But now, it seemed on the verge of being reborn in a different way. In the most practical language, Scott tersely laid out three long-term goals, which he described as “both ambitious and aspirational”:

1. To be supplied 100 percent by renewable energy.
2. To create zero waste.
3. To sell products that sustain our resources and environment.

“I’m not sure how to achieve them,” he admitted. “At least not yet.”

Scott left a stunned audience, but soon the company was examining every aspect of itself to find inefficiencies and waste. It condensed products like laundry detergent into small, more easily packed and shipped containers; retrofitted 7,000 big rigs with small auxiliary motors so that drivers would not run their engines just to cool their cabs while they slept; reduced the amount of cardboard and plastic used in packaging; and started buying directly from farmers to ensure cheaper, fresher, and more reliable organic lines of fresh food. The goal was to save money by becoming greener.

Presented by

Orville Schell is the Arthur Ross Director of the Center on U.S.-China Relations at the Asia Society.

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