Mislabeling in Wal Mart Chinese Supermarkets, Case Study Example

Mislabeling in Wal-Mart Chinese Supermarkets: The Systematic Nature of Wal-Mart’s Deficiences in Business Ethics

Introduction

The American company Wal-Mart is the world’s largest retailer. (China Labor Watch, 2014) A key part of the company’s business strategy has been aggressive expansion into global markets: Wal-Mart has taken advantage of globalization to open stores throughout the world, as well as aggressively outsource production so as to lower labor costs and increase revenue. A prominent location for Wal-Mart’s outsourcing has been factories in China, as Wal-Mart outsourcs to approximately 10,000 factories in China (China Labor Watch, 2014), whereas Wal-Mart has also attempted to establish its retail presence in China through the opening of stores throughout the country. Whereas this strategy, in particular outsourcing, has been effective for Wal-Mart from a business perspective, controversies have emerged regarding Wal-Mart’s business structure in China, from a labelling controversy that deliberately deceived consumers to concerns with worker’s rights. What makes these incidents more disturbing is that Wal-Mart has repeatedly emphasized in its business strategy a central place of ethics. The situation in Wal-Mart’s Chinese operations, from this perspective, can therefore be said to directly contradict with Wal-Mart’s own self-stated values and culture, leading to the conclusion that Wal-Mart’s ethical positions are not sincere and lack transparency (China Labor Watch, 2014).

The following paper will accordingly address the problems of Wal-Mart’s business ethics in China in the following manner: 1) a synopsis of Wal-Mart’s ethical values, its company culture, 2) a summary of problems that have been detected in Wal-Mart’s outsourcing operations in China, with a focus on one particular issue, that of Wal-Mart supermarkets in China and the labeling scandal of 2011 3) an analysis of Wal-Mart’s response to these issues, 4) and recommendations as to how Wal-Mart should deal with these issues.

The ethical culture of Wal-Mart

Wal-Mart as the world’s largest retailer provides work directly and indirectly for millions of workers worldwide. According to the massive size of the operation, which also relies heavily upon outsourcing to reduce business cost, Wal-Mart is susceptible to potential ethical violations. Furthermore, to the extent that ethics are crucial to business and the development of a company’s culture in an ethical and moral manner, Wal-Mart has explicitly stated its commitment to ethics in publically issued documents. In other words, Wal-Mart has presented itself to the public as a company that is directly concerned by ethical issues and therefore endeavors to address any ethical concerns that may arise in the course of its business operations. Wal-Mart has accordingly created a Global Ethics Office that both clearly states Wal-Mart’s ethical position as well as directly evaluates ethical dilemmas. The Wal-Mart “statement of ethics” lucidly outlines what Wal-Mart considers its ethical vision to entail. For example, the document summarizes basic Wal-Mart ethical principles or “guiding principles”, which include, for example, principles such as integrity and commitment to legal norms. (Wal-Mart, 2014) The document also specifically addresses concerns such as environmental responsibility, anti-corruption, wage and hour, and international trade. Whereas a summary of Wal-Mart’s precise stance on these issues is obviously beyond the scope of this paper, the essence of the statement of ethics is to present Wal-Mart’s image as a conscientious employer, who abides by the rule of law, maintains ecological commitments and places the health, safety, and well-being of its workers at the forefront of its business operations.

Analysis of Ethical Problems in Wal-Mart’s Chinese Business Operations: Wal-Mart Supermarket Product Mislabeling

Despite Wal-Mart’s clearly stated public ethical commitments, the company has been consistently criticized for its poor ethical record. What is perhaps most concerning about these criticisms is the extent of areas they cover: Wal-Mart has been criticized ethically on numerous fronts, for example, unfair treatment of Wal-Mart workers, poor pay and aggressive pricing. (Giordano & O’Connor, 2014) All of these ethical concerns have emerged in Wal-Mart’s Chinese operations, from both its outsourced operations as well as the stores it runs in China. Furthermore, Wal-Mart has practiced questionable business in terms of labeling, for example, marking certain products as “organic” in order to secure profit as well as manipulation of the expiration date on products. (Giordano & O’Connor, 2014)

The systematic nature of these problems makes a case study of Wal-Mart’s ethical problems in China complex, in so far as it is clearly penetrates into all areas of Wal-Mart business operations. From another perspective, however, an error could be made by taking all of these ethical concerns in sum, thereby overlooking the very specific circumstances that contribute to each precise ethical concern. For example, the ethical concerns that are produced by Wal-Mart in terms of outsourcing are perhaps endemic to the very nature of outsourcing itself. The aforementioned labeling issue, however, would be attributable to decisions made by Wal-Mart officials on the level of management. It is therefore important to not conflate the potentially diverse contexts that inform each of these ethical issues.

Wal-Mart’s outsourcing policy, accordingly, has been criticized because of its pricing, which has been deemed too low, directly affecting factories that produce goods, thereby forcing them to produce more for less. (China Labor Watch, 2014) The consequences of such a strategy has not only affected outsourcing factories, but has been construed as affecting the entire industry. (China Labor Watch, 2014) From a purely business perspective, this is an attempt by Wal-Mart  to dominate the market. However, this domination is achieved at the expense of pressuring the market as a whole, potentially damaging other production in China in general. Here, the basic business principle of turning a profit in Wal-Mart outsourcing operations trumps all ethical concerns. Certainly, as mentioned, this can be said to be the result of outsourcing itself and the ethical concerns that are raised by outsourcing: however, it is debatable as to whether outsourcing in principle must be divorced from any type of ethics. What is more disturbing in this case is that Wal-Mart’s explicit ethical statements contradict its actual business practice, thus rendering the former banal public relations as opposed to representing a sincere business philosophy. A lack of concern for the Chinese market and Chinese workers as evidenced by Wal-Mart’s Chinese operations indicates the true culture and values of Wal-Mart’s business practice against what it proclaims publically to be its ethical concerns.

This indicates a systematic problem in Wal-Mart to the extent that ethics is only superficial. What further underscores the systematic separation of ethics from business practice are more precise incidents, such as the aforementioned issue of labeling. Manipulation of product labeling, such as the labeling of some products as organic and the tampering with expiration dates, are clear emphases on profit at the expense of honesty to consumers. In other words, not only are Wal-Mart’s business practices ethically questionable in relation to other companies, workers, either internal or outsourced, but Wal-Mart in China as a case study also shows Wal-Mart’s disregard for its customers.

Giordano & O’Connor (2014) opines that the labeling controversy in Wal-Mart’s Chinese supermarkets is specifically the result of a “slight lack of revenue in China, whose people were relatively new to Wal-Mart stores and their products.” Increasing revenue therefore became key to Wal-Mart’s operations in China: attempting to create a more cost effective business through the manipulation of product information was deemed justified to the extent that it would improve revenue. In other words, managers emphasized the gaining of profits at the expense of all other aspects of business, including ethics. At the same time, it could be added to this analysis that Wal-Mart was attempting to establish its foothold in China by emphasizing low-cost to the consumer at the expense of quality products: nevertheless, by mislabeling these products, this was not simply an issue of pricing, which, as mentioned, Wal-Mart has also been criticized for, but of direct deceit.

The fallout of this particular incident in Chinese Wal-Mart operations further underscores the systematic nature of these ethical problems. The labeling scandal resulted in the punishment of 13 Wal-Mart stores being closed for a period of 15 days. (Bradsher, 2011) At the same time as this incident, the chief-executive and president of Wal-Mart China, Ed Chan, and the senior vice president for personnel at Wal-Mart China, Clara Wong, both resigned their positions. (Bradsher, 2011) The official Wal-Mart statement on these resignations stressed that the timing of the resignations were coincidental, namely, the scandal as well as the punishment handed out by the Chinese government was not the factor behind the resignations. (Bradsher, 2011) Nevertheless, it is certainly questionable that two key executives in Wal-Mart’s Chinese operations resigned precisely at the time of this incident; further underscoring this hypothesis is the fact that Chan was replaced by Scott Price, the chief and President of Wal-Mart Asia: owing to Price’s high responsibilities, the decision to have Price occupy Chan’s role suggests the sudden nature of the resignations, which itself suggests a link to the labeling scandal.

Wal-Mart’s Response

The resignations and their aftermath can be interpreted in different ways. For example, they may be understood as a different in business ethics and philosophies. The Chinese executives were replaced by an American executive. This could be interpreted namely as a difference in Chinese and American management cultures. Such incidents have not occurred in Wal-Mart’s American operations. In this sense, they would be a reflection of labor in China in general, where violations of worker’s rights may be interpreted as systematic. Chinese business philosophy is thus above all informed by issues of revenue and profit: the ethical element is non-existent in the approach to Wal-Mart operations. Concerns of human rights are placed on the margin to the extent that it interferes with profits: to the extent that Wal-Mart is attempting to establish itself in the Chinese market, these ethical violations, from this perspective, were viewed as necessary sacrifices so as to establish such a position. The subsequent decision to replace the Chinese management executives with an American management executive would thus reflect a disconnect in business culture: Wal-Mart installed an American executive to emphasize ethical principles that had been lacking in the Chinese executive team.

However, from another perspective, such an interpretation of this particular case could be understood as the utilization of cultural differences as a scapegoat to mask questionable business practice by Wal-Mart in general. The mislabeling incident was, in other words, not merely the result of isolated managers making decisions in particular stores. To the extent that Wal-Mart China executives resigned by this crisis, this means that the mislabeling was part of Wal-Mart’s wider Chinese business strategy. The pressure of establishing a presence in the new marketplace led to the marginalization of any ethical principles towards the consumer. The Wal-Mart response in a manner reflects the recognition of a systematic problem in Wal-Mart’s Chinese operations. In so far as the top executives resigned in this case, this would demonstrate Wal-Mart attributing responsibility to the highest levels of the Chinese Wal-Mart operation. In other words, Wal-Mart executives on the global level felt that the Chinese executives neither grasped nor implemented the core Wal-Mart “values.” However, at the same time, Wal-Mart’s operations in China, as mentioned above, have been questionable on multiple levels, from pricing in the marketplace to worker’s conditions. The Wal-Mart response to this incident ignores the other systematic ethical violations that have occurred in Wal-Mart’s business practices in China. Wal-Mart, for example, has not changed other questionable policies in its business practice in the wake of the labeling fraud. (China Labor Watch, 2014) Such problems are still extant in Wal-Mart’s business practice. The Wal-Mart response rather reflects a decision to act after punishment had already been legislated by the Chinese government, i.e., there were no internal mechanisms that would question these policies, but it was only after external mechanisms and organs identified this fraud that it was dealt with. The Wal-Mart response therefore addresses a particular ethical issue that was made explicitly public in the forced closure of Wal-Mart stores by the Chinese government; to the extent that other questionable Wal-Mart business practices remain in place suggest that this incident was not the result of different Chinese and American philosophies on business ethics, but rather that profit motivates Wal-Mart operations: the pursuit of profit at the expense of ethics is legitimate to the extent that the business remains profitable. The forced store closures severely damaged the Wal-Mart brand in the eyes of the public as well as the Chinese government, such that Wal-Mart was forced into making such a decision in light of these incidents.

Recommendations

Wal-Mart’s response to the labeling controversy reflected an internal decision to attribute blame to the Chinese executives in charge at the time of the incident. Namely, the labeling incident, although reaching the highest echelons of Wal-Mart’s Chinese management structure, was essentially viewed as an isolated incident. This is underscored by the fact that, firstly, the Chinese executives were replaced by a non-Chinese executive, and, secondly, that the Chinese executives were replaced by the leader of Wal-Mart Asia, thus indicating that Wal-Mart does not view its overall Asian business operations as problematic.

However, when one interprets this particular supermarket incident that directly affected consumers to the other questionable business practices pursued by Wal-Mart, the interpretation of the labeling scandal as an isolated incident seems untenable. This is the reason for the inclusion of the other labor violations made by Wal-Mart in section 3.0 of this paper. Namely, the broader context of Wal-Mart’s business operations in Asia have to be emphasized. The conclusion of such an analysis, however, is that Wal-Mart’s business ethics are radically lacking throughout their operations: the labeling incident was merely a symptom of the overall ethical impoverishments of Wal-Mart operations. When considering the vast extent of these ethical problems that have been raised in Wal-Mart’s business operations, the immediate concern is that Wal-Mart itself on a systematic level has not adhered to its own clearly stated ethical principles. In other words, the ethical problems related to Wal-Mart’s approach to business cannot be isolated to one specific area, for example, pricing. Wal-Mart’s problems extend beyond merely one ethical area, thus suggesting that despite all of Wal-Mart’s banter about ethical commitments, these are only public relations maneuvers intended to placate management and business practice that is only concerned with profit. Namely, despite ethical bluster, Wal-Mart’s operations have demonstrated the total gulf that they may exist between business practice and business ethics: from a more cynical perspective, it could be suggested that this gulf is inherent to business itself. Nevertheless, business ethics cannot accept this as a premise: there is no a prior incompatibility with business and ethics. However, in order to realize ethical business practice, systematic changes must be made. Recommendations of how to address the labeling case would therefore not merely address the labeling case itself, but rather how Wal-Mart operates in Asia. If we accept the thesis that these problems are systematic in Wal-Mart, then what is required is a systematic solution. It is not enough to merely produce ethical documents or encourage resignations. The entire operations in Asia need to be reviewed: 1) Wal-Mart’s outsourcing policy has to be reviewed; 2) Wal-Mart’s emphasis on revenue first, as demonstrated in the Chinese case, needs to be re-evaluated, 3) fair business practice, in relation to consumers, competitors and workers must be emphasized.

Obviously, such recommendations are radical to the extent that they entail a complete re-evaluation of Wal-Mart’s business operations, particularly in Asia. However, to the extent that Wal-Mart’s ethical commitments are not merely rhetorical, such a re-evaluation must be put into motion, to the extent that Wal-Mart violates ethical principles in a systematic manner.

Conclusion

The labeling scandal in Chinese Wal-Mart supermarkets presented a clear public violation of the public’s trust. When placed in the context of other ethical issues that related to Wal-Mart’s business practice in China, the conclusion is that the labeling incident was not merely an isolated incident, but rather a symptom of wide-spread ethical problems in the organization. Certainly, the aim of business is to produce profit and revenue. However, at the same time this does not disqualify ethical responsibility. Wal-Mart itself emphasizes this responsibility in the declaration of its core values. Yet numerous incidents have shown that these core values have not been adhered to in a systematic fashion. Accordingly, Wal-Mart, to the extent that it takes these ethical commitments seriously, must perform a radical re-evaluation of its business practice so as to not render these ethical claims meaningless: the various incidents in China underscore the necessity of this approach.

References

Bradsher, K. (2011). Two top executives resign from Wal-Mart China, The New York Times, October 17. Retrieved 10 May 2014 at http://www.nytimes.com/2011/10/17/business/two-wal-mart-china-executives-resign-posts.html?_r=0

China Labor Watch. (2009). Wal-Mart standards fail, workers suffer. China Labor Watch. Retrieved 10 May 2014 at http://www.chinalaborwatch.org/pro/proshow-102.html

Giordano, B. & O’Connor, M. (2013). Walmart mislabels products in China, Business Ethics Case Analyses. Retrieved 10 May 2014 at http://businessethicscases.blogspot.com/2013/02/walmarts-ethics-in-question-worldwide.html

Wal-Mart (2014). Wal-Mart statement of ethics. Wal-Mart Corporation. Retrieved 10 May 2014 at http://cdn.walmartstores.com/statementofethics/pdf/U.S_SOE.pdf