Walmart (NYSE:WMT), it turns out, is not driven by pure patriotism. Seems obvious, right? But that was apparently a surprise to some Reuters reporters this week, who followed up on the pledges made in January and renewed last month by the world's biggest retailer to boost its sales of made-in-USA merchandise by $50 billion over the next decade.
Yes, it's interesting to know that Walmart's current suppliers are, in part, behind that Walmart push. It may even be surprising to learn that thanks to rising wages in China and other developing countries, the cost of transportation, and import tariffs, costs have risen so much that a modern U.S. factory can produce some products at a lower price than those offshore suppliers—products whose manufacturing was only sent overseas to save money.
But why would it be a shocker to learn that it's those cost issues that would drive the decision by Walmart—or most other retailers—about where to source merchandise? "Though wrapped in the stars and stripes, the world's largest retailer's push to bring jobs back to the United States also makes business sense both for suppliers and retailers," the Reuters story said.
Well, of course Walmart plastered "Made in USA" bumper stickers all over the initiative—that plays well with politicians and crowds. But if it didn't make sense at the cash register, it just couldn't happen.
What's more surprising is that "reshoring" is possible because of a collision of economic forces, and retailers are right in the middle of it. There's a rising middle class in China because the manufacturing that Chinese workers have done for U.S. products has generated wages that let them buy a better lifestyle. That, in turn, generates higher expectations, including the demand for higher wages. It also creates demand for cars and the fuel to power them (along with other products from U.S. companies).
One result is more costly labor and fuel, and thus a higher cost for goods made in China and other once-lower-cost countries. Another is higher expectations that lead to demands for better working conditions, like those from Bangladeshi workers who are no longer willing to accept starvation wages to be beaten by guards, locked into factories and, from time to time, die by the hundreds or thousands in fires and factory collapses.
Meanwhile, U.S. factories have made good use of manufacturing technology that benefits from computerization that makes things smaller, cheaper and more reliable. (Much of that comes from U.S. inventiveness in products made in offshore factories, too.) Add in U.S. workers who are better educated than ever, and the result is higher productivity with better quality and lower cost—not just "competitive," but actually a better price.
That's the irony: American consumers have funded the economic growth that is pricing "cheap" third-world suppliers out of the market and helping put U.S. factories (and workers) back in the game. Retailers have helped make that happen. Now retailers are reaping the benefits of increasing U.S. sourcing: better control and flexibility in merchandise production, less money tied up in goods that are floating across the Pacific instead of on store shelves and, by no means least, more U.S. jobs that move more money through the hands of both consumers and retailers.
There wasn't any grand, devious plan to do that, from Walmart or any other retailer. There also wasn't any great patriotic campaign. Retailers were part of the process. They'll continue to be part of the process by closely tracking when they can get a little more margin by using local suppliers and cutting out the middle man (something Walmart does frighteningly well).
And multinational retailers will also leverage the cost differential another way: Selling those cost-effective U.S.-made products to the newly middle-class workers in China and across the world who make the products that for decades have been going in the other direction. It turns out "Made in USA" plays very well to those crowds, too.