The Walmart Effect Redux: How Offshoring Eliminates Customers

Walmart may not have been the first company whose pricing policies forced suppliers to send jobs overseas, but it was, for years, the one with the highest public profile. Yet, like so many things involving marketplace dynamics, the issues that attracted the most attention had to do with the wages and benefits that Walmart offered employees. It’s a subject that makes good press but, ultimately, bad economics. By contrast, with the impact of offshoring, though, it’s almost insignificant.

The Good
By insisting, year after year, that American manufacturers meet ever-lower price targets, Walmart effected some worthwhile improvements. Domestic producers were forced to improve their processes in ways that increased efficiency, reduced overhead, and allowed them to turn out goods for less. Yet, after implementing every ISO 9000 protocol available to streamline operations, lower the cost of production, and still make a profit at the price Walmart was willing to pay, there came a point at which suppliers had no more ways to trim costs…except by sending jobs overseas.

The Bad
Domestic factories then laid off their workers who, without jobs, went to Walmart and complained that, because they had no income, the prices were too high. Walmart then went to the next manufacturer, ultimately driving that company to offshore and sending more unemployed workers to Walmart in a self-perpetuating loop.

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