America’s love-hate relationship with Walmart took another turn last week when the company announced the creation of 1,000 new manufacturing jobs through its Made-In-America initiative.
The announcement came at the Walmart U.S. Manufacturing Summit attended by 500 supplier companies, 32 state governments and major retail industry leaders.
Earlier this year, Walmart announced its intention to spend $50 billion more on U.S. products in the next decade. Bill Simon, president and CEO, stated in a company release Walmart would sign longer term contracts with suppliers to encourage investment. Consequently, six companies at the summit announced investments that will create the 1,000 jobs. These include GE which will invest $30 million to create 150 jobs in plants in Ohio and Illinois to produce energy efficient light bulbs for sale at Walmart.
The $50 billion commitment represents 10 percent of retail sales for the largest retailer and employer in the U.S. The Bentonville, Arkansas firm serves 245 million customers each week at 10,857 stores while employing more than two million.
Simon told the audience America needs to rebuild its middle class. Americans have “fewer opportunities to save money, send their children to college or build a nest egg for retirement,” he stated. Walmart’s buying power can help change that.
So, is this a whole lotta love for us? Or, is it good business sense? Or, is it just hype?
Walmart tried a made-in America campaign in the mid 1990s that was more glitz than substance and one that fizzled out when it couldn’t find enough low-priced American-made goods to sustain it. The company was then vilified for its role in sending American manufacturing jobs to China and other Asian rim countries. It has also been castigated by American unions for compensating employees below industry standards.
Has anything changed?
Yes, say two business professors at the University of Toledo. But, the change will take time.
Dr. Sonny Ariss, chairman of the Management Department and fellow of the Center for Entrepreneurship and Technology Commercialization, said Walmart led the two-decade exodus of American jobs to China and it will take two decades to reverse the trend.
“Do not expect an overnight change in the supply chain from China and other countries,” he said. “But, there will be some tapering off and anytime an American company can bring manufacturing back to the United States they’re doing it. It’s going to help the economy in the long run and employment…Actually, we have been repatriating some of our manufacturing for the last three years. Definitely the announcement, because they were the first to go to China, is great news for everybody.”
Dr. Ariss says the reason behind the move is the reopening of labor contracts following The Big Recession of 2007-08.
“There has been what we call an evening out between overseas and the United States: We went down, they went up, so it makes sense to reexamine the supply chain,” he said.
This dynamic and higher transportation costs make it more feasible to manufacture closer to the consumer resulting in less warehouse needs, less touching along the supply chain and less fuel costs.
“I‘m pretty sure they are serious and not because they like us as much as they like their balance sheet and their income statement. They see there isn’t much to lose if they bring it (manufacturing) back here,” Dr. Ariss added.
Dr. Stan Westjohn, professor of international business, concurred. “They’re going to do what makes most sense for Walmart. They’re a publically-held company. They’ll do what their investors expect them to do.”
Dr. Westjohn says another factor driving a return to manufacturing jobs to the U.S. is lower energy costs.
“Fracking technologies have essential made the U.S. a great energy provider on a global scale and reduced energy costs in the U.S. and, to some extent, sparked a revitalization in manufacturing. Natural gas prices are cheap,” he said.
It’s easy to be cynical today: A fractious congress will not rebuild the middle class, nor will a Wall Street that has lost trust with Main Street. Unemployment is still at 7.4 percent, high by historical standards, and while there are jobs at the lower and higher ends of the employment spectrum, good paying jobs in the middle are in short supply. If retailers see a bottom line advantage to providing American-made products they could make a major contribution to rebuilding our manufacturing sector. Spin-off jobs would also be created in transportation, engineering, accounting and the service industry. Walmart has chosen to lead this initiative. As the nation’s largest retailer, it is in position to do so and it deserves credit for recognizing that.