Corporations Are Not Humans: Not Even Close---Episode 46

                                                MANAGED COMPETITION
                                   (continuing right along) 


                     BRAND POWER vs. RETAIL POWER 

  Within this restructuring drama, we see a secondary drama being played out in a major contest between the manufacturing giants and the retailing giants for control of the core network positions. The growing success of the retailing giants is revealed by the growing rate of bankruptcy among retailers in the United States. Since 1991, retail firms have been going bankrupt at a rate of more than 17,000 a year, up from approximately 11,000 in 1989. Many of them have been driven out of business by the mega-retailers. According to Business Week (December, 1992)  : 

     A vast consolidation in U.S. retailing has produced giant "power retailers" that use sophisticated inventory management, finely tuned selections, and above all, competitive pricing to crowd out weaker players and attract more of the shopper's dollar. . . They're telling even the mightiest of manufacturers what goods to make, in what colors and sizes, how much to ship and when . . . Leading the pack, of course, is Wal-Mart Stores. The nation's No. 1 retailer is expected to grow 25% this year, to some $55 billion in sales, at a time when retailers as a whole will be lucky to grow 4%. 

When Wal-Mart grows at a rate of 25% in an industry that is growing at no more than 4%, its growth is clearly at the expense of rivals that lack comparable cloutThe smaller retailers that used to be the commercial core of and major employers in most towns and cities have been hit particularly hard. Analysts predicted that retailers accounting for half of all sales in the United States is 1992 would disappear by the year 2000. Systems analyst and syndicated columnist Donella Meadows describes what happens when a Wal-Mart comes to town : 

     In Iowa the verage Wal-Mart grosses $13 million a year and increases total sales by $4 million, which means it takes $ 9 million worth of business from existing stores. Within three or four years of a Wal-Mart's arrival, retail sales within a 20-mile radius go down by 25 percent ; 20 to 50 miles away, sales go down 10 percent. 
     A Massachusetts study says a typical Wal-Mart adds 140 jobs and destroys 230 higher-paying jobs. . . Despite public investments in restoring downtown business districts, vacancies increase. Rents drop, and the remaining enterprises pay lower wages and taxes. Competing chain stores in existing malls leave and are not replaced. 

   The mass retailing superpowers ---Wal-Mart, Kmart, Toys 'R' Us, Home Depot, Circuit City Stores, Dillard Department Stores, Target Stores, and Costco, among others --- are core firms in vast consumer goods networks.  The mega-retailers are notorious for playing suppliers against one another and for abruptly shifting their sourcing from domestic firms to low-labor -cost countries such as China or Bangladesh. Many small manufacturers have suddenly found themselves in bankruptcy when the major part of their market evaporated. Even the manufacturing giants, such as Proctor & Gamble, that lack their own retail outlets are under pressure from the retailing giants to cut their prices and profit margins. 
   As the big retailers grow, they tend to favor larger suppliers that have the resources and sophistication to meet their demands for customized products and packages, computer linkups, and special delivery schedules. This contributes to further consolidation on the manufacturing side. Only a decade ago, no single toy maker controlled more than 5 percent of the market. Now, in a toy industry dominated by Toys 'R' Us and general discounting giants such as Wal-Mart, Kmart, and Target Stores, the manufacturing side is dominated by just six companies. 
   While basically applauding this as a move toward greater efficiency, even Business Week sounds a cautionary note :"What if the growing clout of power retailers stifles too many small companies and forces too many large ones to dodge risks ? The close ties between retailers and their surviving suppliers could ultimately end up raising consumer prices and reducing innovation."


                                RACE TO THE BOTTOM 

   While competition is being weakened at the core, it is intensifying among smaller businesses, workers, and localities at the periphery as they become pitted against one another in a desperate struggle for survival. What the corporate libertarians call "becoming more globally competitive" is more accurately described as a race to the bottom. With each passing day it becomes more difficult to obtain contracts from one of the mega-retailers without hiring child labor, cheating workers on overtime pay, imposing merciless quotas, and operating unsafe facilities.  If one contractor does not do it, his or her prices will be higher than those of another who does. With hundreds of millions of people desperate for any kind of job the global economy may offer, there will always be willing competitors. Pressed to maximize their own margins, the core corporations close their eyes to the infractions and insist that they have no responsibility for working conditions in the factories of their contractors.
   Descriptions of the working conditions of millions of workers, even in the "modern and affluent" North, sound like a throwback to the days of the early industrial revolution. Consider this description of conditions at contract clothing shops in modern, affluent San Francisco : 


     Many of them are dark, cramped and windowless. . . Twelve-hour days with no days off and a break only for lunch are not uncommon. And in this wealthy, cosmopolitan city, many shops enforce draconian rules reminiscent of the nineteenth century. "The workers were not allowed to talk to each other and they didn't allow us to go to the bathroom," says one Asian garment worker. . .  Aware of manufacturers' zeal for bargain-basement prices, the nearly 600 sewing contractors in the Bay Area engage in cutthroat competition --- often a kind of Darwinian drive to the bottom . . . Manufacturers have another powerful chip to keep bids down. Katie Quan, a manager of the International Ladies Garment Workers Union in San Francisco, explains, "They say, 'If you don't take it, we'll ship it overseas, and you won't get work and your workers will go hungry'." 
    In 1992 a [Department of Labor] investigation of garment shops on the U.S. protectorate of Saipan found conditions akin to indentured servitude : Chinese workers whose passports had been confiscated, putting in eighty-four hour weeks at subminimum wages. 

    The line between conditions in the South and the North as defined by geography becomes even more blurred. Dorka Diaz, a twenty-year-old textile worker who formerly produced clothing in Honduras for Leslie Fay, a U.S. - based transnational, testified before the Subcommittee on Labor-Management Relations of the U.S. House of Representatives that she worked for Leslie Fay in Honduras alongside twelve-and thirteen-year-old girls locked inside a factory where the temperature often hit 100 degrees and there was no clean drinking water. For a fifty-four hour week, she was paid a little over $20. She and her three-year-old son lived at the edge of starvation. In April 1994, she was fired for trying to organize a union. 
   China has become a favorite of foreign investors and corporations seeking cheap labor and outsourcing for offshore procurement at rock-bottom prices. Business Week described the prevailing conditions of Chinese factory workers : 

   In foreign-funded factories, which employ about 6million Chinese in the coastal provinces, accidents abound. In some factories, workers are chastised, beaten, strip-searched, and even forbidden to use the bathroom during work hours. At a foreign-owned company in the Fujian province city of Ziamen, 40 workers ---or one -tenth of the work force ---have had their fingers crushed by obsolete machines. According to official reports, there were 45,000 industrial accidents in Guangdong last year (1994) , claiming more than 8,700 lives. . . Last month . . . 76 workers died in a Guangdong factory accident. 

    Those who heed the call to become globally competitive should bear in mind what it takes to stay ahead of the pack in the race to a bottom with no finish line.