By and  on October 24, 2011

BEIJING — With Wal-Mart Stores Inc. set to reopen the 13 stores at the heart of its high-profile China problems, questions remain about how the company will move forward here and whether it was the target of a growing sentiment against foreign businesses.

Wal-Mart will reopen the stores today, 15 days after they were closed in an enforcement action by local officials in the western Chinese city of Chongqing over meat mislabeling. Authorities, who later detained and arrested several Wal-Mart employees, have said the company mislabeled ordinary pork as “organic” in its Chongqing stores, an offense for which it was fined $421,000.

That said, the conspicuous slap of Wal-Mart may have carried an even deeper message: China is no longer willing to roll out the red carpet for foreign companies just to deepen investment. In all, 37 Wal-Mart employees were detained and 13 stores closed temporarily. Last week, the chief executive officer of Wal-Mart for China and a senior vice president in charge of human resources resigned in the wake of the scandal. For now, the company is under control of its Asia operations director.

The high-profile and aggressive strike at Wal-Mart’s misdeeds could be a warning signal to other foreign firms in China. Add to this the recent news that foreigners working in China will have to pay into the country’s expensive social insurance and pension programs (even though most won’t collect benefits), and there appears to be a growing body of evidence that China is closing its doors a bit.

“Foreign companies have been enjoying super national treatment because China used to have too little capital and wanted foreign investment,” said Hu Xingdou, an economist at the Beijing Institute of Technology. “Times have changed. We have our own excess liquidity.”

“Now, we should have fair competition in accordance with WTO regulations and market economy rules,” he continued.

Feng Pengcheng, professor at Beijing’s University of International Business & Economics, said he would not classify Wal-Mart’s treatment as unfair or unwarranted. But it may be the signal of a sea change for foreign firms in China.

“I’d say it is normalization of treatment of foreign companies,” said Feng. “Initially, to boost Chinese economy, China adopted too many preferential policies for them.”

On the scale of food-safety problems in China, mislabeling pork would seem relatively minor. This is, after all, a country where chemicals are routinely used in restaurants to transform pork, the cheaper meat, into something that tastes like and is sold as more expensive beef. That’s only the tip of the iceberg on food-safety problems in China, but analysts say the labeling scandal with Wal-Mart is rooted in deeper issues.

First and foremost, international companies are often held to more rigorous standards than domestic firms. Part of theory is that multinationals have more money and knowledge and should follow the law to the letter, whereas developing Chinese companies have more leeway.

“Many corporations with hundreds of years of history are doing quite well in this sector in developed countries,” said Hu. “They can’t lower their standards because they operate in China, where law-breaking is common.”

Local officials in Chongqing have said Wal-Mart has a long history of breaking the rules, but they yet to list what rules were broken over the years. One local official characterized the entire company’s management in Chongqing as suspect.

“It is not an isolated case, but a reflection of the company’s dysfunctional management mechanism,” Zuo Yong, a food-safety official was quoted as saying by the official Xinhua news agency.

“The Wal-Mart stores in Chongqing have once and again violated laws and regulations and infringed upon the rights of consumers,” Zuo said.

Hu said that even though Wal-Mart’s infractions are relatively minor on China’s scale of food and product-safety violations, the company and other international firms should not lower their principles when they operate in the rest of the world.

“Integrity should be the heart of a company,” Hu continued. “They should hold on to the global standard. They’re not Chinese companies after all.”

Wal-Mart has yet to unveil what changes its newly reopened stores in Chongqing will include. Meanwhile, consumers will be looking for assurances of food and product quality and safety from the American retail giant that had managed to grow quickly across the country.

“Wal-Mart is taking all the necessary corrective actions in its stores in Chongqing to ensure such an incident never happens again,” a spokesman said. “China is an important market for Wal-Mart and we have built a successful business in 353 stores in China with our team of close to 100,000 associates.

“Wal-Mart has made valuable contributions to the economy, industry and to the community,” he continued. “Since our entry into China our associates have contributed over 200,000 hours to several local charities and causes. We’re confident that the China management team will continue to lead Wal-Mart’s expansion and will continue to save Chinese customers money so that they can live better.”

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