Washington - WalMart, whose focus on low-cost sourcing helped to fuel the offshoring of US manufacturing, has been promoting a patriotic new image this year.
The Arkansas-based company says it is “leading an American renewal in manufacturing” and “bringing jobs back to the US” with its pledge made in January to buy an additional $50 billion (R492bn) in US-made goods over the next 10 years.
But an examination of its “Made in America” campaign suggests it has caught on to a reshoring phenomenon that was already under way.
In many cases, Walmart’s suppliers had already decided to produce in the US, as rising wages in China and other emerging economies, along with increased labour productivity and flexibility back home, have eroded the allure of offshore production.
Though wrapped in the stars and stripes, the largest retailer’s push to bring jobs back to the US makes business sense for suppliers and retailers.
Some manufacturers are finding they can profitably produce certain goods at home that they once made offshore. And retailers like Walmart benefit from being able to buy those goods closer to distribution centres and stores with lower shipping costs, while gaining goodwill by selling more US-made products.
“This is not a public relations effort. This is an economic-, financial-, mathematical-driven effort. The economics are substantially different than they were in the 80s and 90s,” Bill Simon, the chief executive of the chain, told the Reuters Global Consumer and Retail Summit earlier this month.
The initiative is modest for now. For a company with $466.1bn in annual sales, an additional $50bn of spending over a decade will barely register. Also, the main Walmart US unit sells mostly groceries and procures two-thirds of its goods – including a lot of food – from US sources.
But Walmart’s high-profile commitment is an important symbolic shift. A retailer that for decades has prompted hundreds of US companies to move production overseas, thanks to its relentless insistence on cost cutting, now is urging at least some production to return. It will even offer longer-term purchasing guidance to some companies to encourage them.
Hampton Products International did not need Walmart to tell it about the changing cost structure of global commerce. Hampton, which supplies locks and door hardware, began “resurrecting manufacturing” at its Wisconsin plant back in 2008, chief executive Kim Kelley said.
Walmart’s push this year served to speed up its business decision, he said. “We moved much more quickly and aggressively to ramp manufacturing to meet Walmart’s timetable.”
Walmart’s push is aimed at product categories that have been difficult to produce at a cost advantage in the US for some time. The retailer plans to sell everything from General Electric light bulbs made in Ohio and Illinois to Element Electronics televisions that are assembled in South Carolina.
Walmart still declines to sign long-term contracts with suppliers, but its market power is so immense that companies sometimes make investments based on expected demand from the retailer. Also, it has helped some suppliers make contact with state economic development officials who can offer tax breaks or other incentives.
Walmart’s manufacturing summit in Orlando, Florida last month featured speakers such as Commerce Secretary Penny Pritzker and General Electric chief executive Jeff Immelt. The meeting gave hundreds of suppliers the chance to meet governors or economic development officials from 34 states, as well as two banks and one private equity firm.
“We can provide the certainty to the people who invest capital, to make it worthwhile,” Simon said. – Reuters