Wal-Mart’s Sourcing in the Age of ‘Unfair Trade Deals’

Wal-Mart plays nice on U.S. trade issues but without meaningful changes yet.

Wal-Mart’s Concern: A Big Importer in Times of Rising Isolationism

In late 2016, President Donald Trump was elected with a platform that called for increasing isolationism and more protectionist trade policies in the United States [1]. With a vision of placing ‘America First’, Trump ran on re-negotiating international trade deals that, in his opinion, were unfairly causing a large trade deficit for the U.S. [1]. Wal-Mart, the nation’s top retailer by Sales [2], faces several risks arising from Trump’s proposed views on international trade.

Wal-Mart is particularly vulnerable to Trump’s protectionist ideas in both its U.S. and international segments. Domestically, Wal-Mart sources a ‘significant’ percent of its U.S. sales from foreign-made products [3]. According to the Economic Policy Institute, Wal-Mart imported $49B in foreign made goods in 2014, relative to total U.S. sales of $340B [4]. Consequently, Wal-Mart cautions in its 10-K financial report that changes to U.S. trade policy, such as increases in tariffs, could ‘materially adversely’ affect its financial performance [3]. In addition to concerns with domestic store profitability, Wal-Mart also faces risks in its overseas markets, which generate 24% of Wal-Mart sales [3]. The company reports that changes to U.S. policy could negatively impact Wal-Mart’s international performance both because of retaliatory tariffs in foreign countries and potential damage to the international reputation of U.S.-based companies [3].

As Wal-Mart contends with increasing isolationism in the U.S., the company’s strategy has mainly focused on carefully managing the political landscape but without meaningful changes to its supply change. However, to ensure its prepared to the deal with the isolationist megatrend, Wal-Mart should take meaningful steps to efficiently increase its domestic sourcing.

Company’s Strategy: Managing the Political Landscape

Wal-Mart’s main strategy in addressing the isolationist megatrend is carefully playing along with it publicly. In 2013, Wal-Mart launched a ‘Made in USA’ campaign to improve its image among consumers worried about the U.S.’s trade deficit. Specifically, the company announced plans to increase sourcing of American-made products by $50B over the next ten years [5]. While the campaign was announced to ‘much fanfare’, the $50B commitment represented a mere 2% of Wal-Mart’s domestic merchandise spending [5]. Furthermore, the strategy had little impact on Wal-Mart’s supply chain policies, as increasing labor and energy costs abroad were already causing suppliers to onshore production [6]. Realizing that the nationalism megatrend is still mainly a trend in public opinion as opposed to policy, Wal-Mart is adeptly catering toward the pro-nationalistic constituency.

In the long-term, Wal-Mart is following a similar ‘politically-minded’ approach by promoting new policy ideas to increase domestic manufacturing. For instance, Wal-Mart suggested improvements to problems such as shortage of labor skills, lack of financing for manufacturing projects, complex regulations that create high compliance costs, and inefficient tax and trade policies [7]. Wal-Mart long-term strategy is focused on making U.S. policy more conducive to domestic sourcing.

Additional Steps: Real Commitment to Domestic Manufacturing

Wal-Mart is taking several actions to improve its brand image to adapt to the isolationist megatrend, but the company should seek to find more meaningful ways to increase domestic production. A first step would be to better reap the benefits of manufacturing in close proximity to the target market. According to HBS Professor Willy Shih’s article in the Sloan Review, American corporations could gain a competitive advantage by using geographic proximity to reestablish close links between R&D and production facilities, product designers and manufacturers, and OEMs and their suppliers [8]. In that spirit, Wal-Mart should encourage its domestic supply chain members to increase their competitiveness by using their geographic proximity to collaborate more closely with each other.

Another step Wal-Mart should take is to understand consumers’ true interest in U.S. made products. According to Wal-Mart, ‘country of origin’ is the second most important criteria (after price) that its online shoppers care about when purchasing products [9]. Wal-Mart should build on this finding in its retail stores, such as having ‘Made in USA’ aisles to allow customers to more easily buy domestic products. While past research suggests that consumers are generally not willing to pay more for domestically made products [8], Wal-Mart should seek to better understand American’s appetite for ‘Made in USA’ and that way better prepare for the possibility of a further intensification of the isolationism and protectionism trends.


As Wal-Mart looks ahead, should it publicly embrace ‘Made in USA’ were possible, or attempt to steer clear of any public controversy? In what other ways could Wal-Mart promote the competitiveness of U.S.-made products? (word count 750)



  1. Reid Epstein and Colleen McCain Nelson, “Donald Trump Lays Out Protectionist Views in Trade Speech,” Wall Street Journal, June 28, 2016, https://www.wsj.com/articles/donald-trump-lays-out-protectionist-views-in-trade-speech-1467145538, accessed November 2017.
  2. National Retail Federation, “Top 100 Retailers Chart 2015,” https://nrf.com/2015/top100-table, Accessed November 2017.
  3. Wal-Mart Form 10-K for the Fiscal Year Ended January, 2017, p. 17, https://www.sec.gov/Archives/edgar/data/104169/000010416917000021/wmtform10-kx1312017.htm, accessed November 2017.
  4. Hiroko Tabuchi, “Walmart’s Imports from China Displaced 400,000 Jobs, a Study Says,” New York Times, December 9, 2015, https://www.nytimes.com/2015/12/09/business/economy/walmart-china-imports-job-losses.html, accessed November 2017.
  5. James Hagerty, “Wal-Mart Entertains a Pitch: ‘Made in U.S.A.,” Wall Street Journal, October 6, 2013, https://www.wsj.com/articles/walmart-entertains-a-pitch-8216made-in-usa8217-1381105446, accessed November 2017.
  6. Stephanie Clifford, “Walmart Plans to Buy American More Often,” New York Times, January 15, 2013, http://www.nytimes.com/2013/01/16/business/walmart-to-offer-more-us-made-goods.html, accessed November 2017.
  7. Wal-Mart, “A Policy Roadman to Renew U.S. Manufacturing,” July 26, 2017, https://cdn.corporate.walmart.com/63/a8/a8dfb5b54ebd8ff53c8374726ac8/final-policy-roadmap.pdf, accessed November 2017.
  8. Willy Shih, “What It Takes to Reshore Manufacturing Successfully,” MIT Sloan Management Review, August 7, 2014, http://sloanreview.mit.edu/article/what-it-takes-to-reshore-manufacturing-successfully/, accessed November 2017.
  9. Sarah Nassauer, “Pitching Products to Wal-Mart, in 30 Minutes,” Wall Street Journal, July 22, 2015, https://www.wsj.com/articles/pitching-products-to-wal-mart-in-30-minutes-1437559380, accessed November 2017.


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Student comments on Wal-Mart’s Sourcing in the Age of ‘Unfair Trade Deals’

  1. Thank you for an interesting read! As the top national retailer Walmart faces some major risks from Trump’s proposed views on international trade. To answer your question, I don’t think Walmart should publicly embrace “Made in USA”, nor try to steer clear of any public controversy. Walmart’s business model is to provide cheaper/affordable products to consumers. Just like most of the other retailers, by outsource production to emerging market, Walmart is enjoying the relatively low labor costs and facility costs to produce cheaper products. Even the labor costs and electricity costs in emerging market has been raising, the costs combined are still significantly lower, unless all the other competitors are all relocating production back to the US, Walmart should not take the indefinite initiatives. Furthermore, these additional costs will be pass down to consumers. In addition, I think Walmart should lobby to make the government set a fair standard on oversea investment and productions to every company to ensure the fairness of competition.

  2. I agree with OpXYL that Walmart should not publicly embrace “Made in USA” and the related controversy. If the company wants to pursue domestic sourcing, they should thoughtfully do so without relating the initiative back to politics. However, if domestic manufacturing is an avenue they decide to explore more significantly, I have two overarching concerns:
    First, what happens to prices? While I agree that costs are climbing in emerging markets, on a relative scale, manufacturing prices will be higher domestically. Does Walmart plan to eat this cost and take a margin hit or will this cost, as OpXYL mentions, be passed to the consumer? With retail price being a key component of Walmart’s value proposition, altering it would put the company in very risky territory.
    Second, I wonder if domestic manufacturers can handle the production requirements? Will they be able to handle the volume of production that Walmart requires at the speed at which they require it? The learning curve and defect rate will inevitably be steep, at least at first. What does Walmart plan to do to account for this? One possible solution is to manufacture certain product categories domestically and keep the vast majority abroad, at least until the domestic suppliers are higher up the learning curve and operating at a relatively efficient level.

  3. I fully agree with the two earlier comments that Walmart should steer away from becoming a “Made in the USA” ambassador. Historically, their business model has been built around delivering the best value (i.e. the cheapest) products to their consumers, and they have been extremely successful at this so far. International sourcing has been one of the key success factors in delivering on this value promise. If they continue capitalizing on this competitive advantage, I believe there is a good chance Walmart will be around for a much longer time than Mr. Trump and the protectionist school of thinking. If there is one route Walmart should take in this context, it is the lobbying route. Their sheer size and contribution to the US economy, in terms of taxes but especially employment, places them in a very strong position to become the ally of any political school of thinking – protectionist or not.

  4. This makes for a very interesting read. Traditionally, corporations that have built strong relationships with governments are the ones that engage closely with them behind closed doors, but don’t advertise this relationship in public.

    With that as the background, embracing Trump’s “Made In America” campaign will be detrimental to Walmart in two ways. Firstly, it aligns them very clearly with a single political ideology, and even more in this case, with a single politician. Given that corporations are going concerns that live far longer than any single politician, such a move will not do Walmart’s long-term political engagements any good.
    Secondly, and perhaps even more importantly, making in America would break the spine of Walmart’s competitive advantage. Walmart draws its success from its ability to provide the most competitive prices, which are made possible by low input costs and strategic sourcing. Manufacturing in America will raise COGS significantly and no longer enable the firm to offer the prices consumers are used to. Violent fluctuations in price are a poison pill that no one can swallow – neither a discount store like Walmart nor a producer of premium goods like Apple, which is why the world’s most valuable company has vehemently pushed back on any suggestion that it will move production to the US.

    Instead, Walmart should leverage its influence to lobby Washington’s policies, while using its contribution to taxes, employment and economic activity as a Trump card against any sort of political backlash.

  5. One of my biggest concerns for Walmart is how protectionist policies will impact their fresh food department at both Walmart and Sam’s Club stores. Fresh food has been a growth category for Walmart and other retailers in the US at a time when many retail categories have been declining. There is also an increasing trend in shelf space for fresh food versus processed foods. Much of this fresh food (especially produce) is imported. Based on USDA data (https://www.ers.usda.gov/topics/international-markets-trade/us-agricultural-trade/outlook-for-us-agricultural-trade/), the US is expected to import $116 billion of agricultural products in 2017. Of this amount, 70% of vegetable imports and 40% of fruit imports currently come from Mexico. Since Walmart is by far the nation’s largest retailer, I imagine that Walmart probably has similar dynamics at play for its fresh food section. Protectionist policies (especially ones aimed at Mexico) could severely impact the price of food at Walmart and other retailers around the country, which in the end really only hurts the American consumer as food prices increase.

  6. Great article on the irony of Walmart’s consumer base versus its supply chain. I don’t believe that Walmart is able to sustainably source a reasonable amount of its inventory and sell it at prices that its current customers will be willing to pay. As we’ve seen in Target’s case, consumers are willing to pay what they perceive as higher prices for higher quality products during booms, but they tend to become primarily price-driven when there is a market crash. This has helped Walmart sustain business through the depression over the last 10 years, but for a majority of their products, it will be unable to source it solely from the US.

    Walmart’s first priority will need to be the maintenance of its suppliers and the reduction of tariffs. As the largest retailer in the US, it should be able to use its power to show that sourcing priorities need to be the executives top choice.

  7. Great article, JB! As you outlined, potential changes in US foreign trade policies add significant risk to Walmart’s business model. In response to this, I believe that Walmart should stick 100% to its key strategic focus of providing the lowest possible cost to consumers. Committing to “Made in USA” would restrain Walmart by commiting it to something that is not necessarily coherent with its strategic focus, in a context in which it should pursue greter flexibility to accommodate the aditional risk (instead of more restrictions). If Walmart further diversifies its supplier base in order not to be so reliant on imports, it could gain flexibility to shift towards US or foreign suppliers in the future depending on how the discussion on foreign trade policies turn out. Publicly commiting to local suppliers, however, would do nothing else but decrease Walmart’s flexibility to react to the context.

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