Beijing, Oct 22 - Wal-Mart Stores Inc plans to crack down on its Chinese suppliers, announcing on Wednesday steps to enforce stricter quality and environmental standards for the products it sells.
The move comes after a slew of recalls of Chinese-made goods have raised fears about the safety and oversight of merchandise produced in the country. Wal-Mart, the world's largest retailer, is also promoting efforts it says are aimed at helping the environment and driving down costs.
"I firmly believe that a company that cheats on overtime and on the age of its labor, that dumps its scraps and chemicals in our rivers, that does not pay its taxes or honor its contracts -- will ultimately cheat on the quality of its products," Wal-Mart Chief Executive Officer Lee Scott said in a speech at a company-sponsored conference in Beijing that was attended by hundreds of its suppliers.
"And cheating on the quality of products is the just the same as cheating on our customers. We will not tolerate that at Wal-Mart."
Wal-Mart, with more than 60,000 suppliers worldwide, procures roughly $9 billion worth of goods directly from China. After millions of Chinese-made goods were recalled in 2007, ranging from toys to pet food, Scott said earlier this year that Wal-Mart would be tougher with suppliers.
Mike Duke, vice chairman of the international division, said Wal-Mart suppliers would be responsible for their subcontractors' work and products.
"We expect you to have the answers and to take ownership in getting to the root of the problem," Duke said, describing requirements he said would begin from next month.
In recent weeks, China has been rocked by a tainted milk scandal in which thousands of infants have fallen ill. This week, U.S.-based Delta Enterprises recalled almost 1.6 million cribs made in China after two babies died. The cribs were sold at Wal-Mart as well as U.S. chains Target Corp and Kmart.
WAL-MART AUDITS
Wal-Mart said on Wednesday it is creating a new supplier agreement that will require factories to certify compliance with laws and regulations where they operate, and to meet "rigorous" social and environmental standards. Wal-Mart says its goals are aligned with Chinese government standards and that country officials would attend the summit.
Wal-Mart said its audits will look at a factory's air emissions, management of toxic substances and disposal of hazardous waste. The agreement will be phased in with Chinese suppliers over the next few months, and will be expanded to suppliers globally by 2011.
The crackdown comes as worries over a global recession mount. Wal-Mart argues the moves will save money by making factories more efficient, stripping out excess costs, and providing consumers with higher-quality goods.
Wal-Mart signaled its intent to give more business to suppliers who meet its standards. Those who fail to do so could find noncompliance is costly.
"If a factory doesn't meet these requirements, they will be expected to put forth a plan to fix any problems," Scott said in the speech. "If they still do not improve, they will be banned from making products for Wal-Mart."
CUTTING ENERGY, WATER USE
Scott first outlined Wal-Mart's environmental efforts in 2005, and has said the retailer plans one day to create zero waste and be 100 percent supplied by renewable energy.
But Wal-Mart has been criticized for not always providing clear deadlines for meeting its environmental goals or updating its progress in reaching them.
Matt Kistler, Wal-Mart's senior vice president for sustainability, said the new push includes a mix of short-term and longer-term goals. For instance, Wal-Mart will work with suppliers to improve energy efficiency in the top 200 factories it directly sources from in China by 20 percent by 2012.
By 2010, Wal-Mart said its existing Chinese stores will reduce energy use by 30 percent, and over the next two years, Wal-Mart China aims to cut water use in its stores in half.
Glenn Prickett, senior vice president at Conservation International, which has partnered with Wal-Mart on some of its environmental initiatives, said it was important for Wal-Mart to establish goals for which it can be held accountable, and to follow the same environmental standards in its own business.
"I don't think they would have credibility with their suppliers if they weren't," he said.
Prickett said that for Wal-Mart's environmental push to succeed, it also needs to make economic sense for suppliers.
While Wal-Mart intends to toughen standards for suppliers, it still faces criticism from union-backed groups in the United States over the quality of its wages and health care.
For instance, a Minnesota judge ruled in July that Wal-Mart violated state wage and hour laws, requiring employees to work off the clock, and the discount retailer could now face more than $2 billion in possible fines.
A Wal-Mart spokeswoman said at the time the retailer "respectfully" disagreed with portions of the decision.