Wal-Mart Stores, Inc. (NYSE:WMT) has accused Chinese regulators of unfairly targeting retailers instead of manufacturers after receiving millions of dollars in fines over the last three years for a variety of offenses ranging from having English characters written in a larger font than Chinese characters on food labels to incorrect labels, reports Laurie Burkitt and Shelly Banjo for The Wall Street Journal.
Regulatory burden fall more heavily on retailers in China
In the US and Europe, manufacturers have the bulk of the responsibility for producing safe, correctly labeled products. Retailers are expected to store food in sanitary conditions, at correct temperatures, and to sell or dispose of it by the expiration date, but they can mostly assume that the products come to them as described. In China, not only is this assumption not very accurate (Wal-Mart Stores, Inc. (NYSE:WMT) has started DNA testing its meat after discovering it was receiving fox mislabeled as donkey), but responsibility itself is also shifted to retailers.
Wal-Mart Stores, Inc. (NYSE:WMT) also argues that large foreign companies are the first to be targeted with fines, and that Chinese companies are much less likely to be hit with comparable surprise inspections and penalties. While other multinationals operating in China (not just retailers) prefer to keep their heads down and simply deal with what seems like unfair treatment, that doesn’t mean they don’t chafe at the treatment they receive.
After closing down a store the Henan province in 2012, Carrefour’s director of risk prevention in Shanghai Loïc Frouart said that, “Food safety in China is complicated, far more complicated than in other countries.”
China is a strategic market for Wal-Mart
Wal-Mart Stores, Inc. (NYSE:WMT) already has more than 400 locations in China, and it places a high strategic importance on further expansion there to balance the tepid growth it sees in developed markets, but it has reportedly had a difficult time pulling market share away from local retailers. While pushing back against regulators may be seen as risky, if the alternative is to be harassed into eventually leaving as seems to have been the case when Carrefour closed the Henan location, there might not be that much downside.
Wal-Mart Stores, Inc. (NYSE:WMT) has held multiple meeting with Chinese regulators and asked them to investigate along the entire supply chain. The upside to risking a confrontation now is that if Wal-Mart executives are able to build a better working relationship with regulators they can continue opening new stores without worrying that regional authorities might cut into their margins with excessive fines.