Is Wal-Mart a good thing?

As Wal-Mart and other huge stores are sprouting up in communities throughout the United States, more and more Americans are beginning to question the benefits these mammoth stores are bringing to their lives.

This is the question that many Chinese people, especially those living in major cities, may be asking in the not too distant future when their familiar neighbourhood stores are driven to extinction by the likes of Wal-Mart and Carrefour.

These "big-box" stores, as they are called in the United States, are the symbol of globalization. They derive their strength from the successful application of the global sourcing business model that is built on a highly efficient communication and logistics system.

Such a system has enabled these retail behemoths to source their merchandise from anywhere in the world that offers the best price. Wal-Mart, for instance, accounted for more than 10 per cent of China's total exports to the United States.

Cheap imports together with a tight-fisted management style have combined to boost the competitiveness of the big-box stores, enabling them to steam-roll small-scale retailers, including many mom-and-pop shops and neighbourhood stores, that cannot hope to compete on economies of scale. Consumers are reaping the benefits. They pay less, sometimes as much as 25 per cent for some goods, at the big-box stores than the traditional retail outlets.

The big-box stores are so efficient that together they accounted for an estimated 50 per cent of the consistently high productivity growth rate of the United States in recent years. Such a productivity gain, in turn, has helped keep inflation low despite rising consumer demand and a red-hot property boom.

"The US productivity miracle and the emergence of Wal-Mart-style retailing are virtually synonymous," wrote Kenneth Rogoff, professor of economics and public policy at Harvard University, and formerly chief economist at the International Monetary Fund.

Chinese consumers seem to have welcomed the Wal-Mart-style of retailing with open arms. Having saturated the market in big cities, some foreign retail giants are moving to smaller cities in the relatively more prosperous coastal provinces.

The success of these foreign retailers is serving as a model that has been closely studied and emulated by some of the largest domestic retail enterprises. This could help boost productivity in the service sector which has apparently lagged far behind manufacturing.

Indeed, large retail enterprises can take the lead in promoting China's service sector by adopting the operating models of Wal-Mart and other US big-box stores. The built-in efficiency of these models can bring increased benefits to consumers in the form of lower prices and greater convenience.

But as Professor Rogoff noted, the proliferation of big-box stores is not entirely a benign phenomenon. What concerned Rogoff and others is the effect on low-wage workers and smaller-scale retailers. "While completely legal, studies suggest that Wal-Mart's labour policies exploit regulatory loopholes that, for example, allow it to sidestep the burden of healthcare costs for many," Rogoff wrote. "And the entry of big-box stores into a community crushes long-established retailers," he noted.

Some people may wish to shrug off these concerns as a reasonable price to pay for progress. But there are those who believe that balanced growth must be preserved to ensure sustainability. It is a lot more desirable for Chinese retail enterprises to modify the American model in order to benefit consumers without having to sacrifice employees' welfare. The public will also have to decide whether it is worth preserving a bit of tradition in their communities by keeping small neighbourhood stores in business.

In some US cities, notably San Francisco, neighbourhood grocery stores are protected by strict zoning laws that limit the number and size of supermarkets within a certain area. This is not necessarily the best solution because such laws are usually too inflexible and cumbersome.

It's a matter of lifestyle and only the people can decide what's best for them.

Email: jamesleung@chinadaily.com.cn

(China Daily 05/26/2006 page4)