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When it comes to making the case for empowering women entrepreneurs, it’s “mission accomplished,” according to Isobel Coleman, director of the Council on Foreign Relations’ Women and Foreign Policy Program, who has researched the issue for many years. Speaking at a December 2012 panel on supply chains, she said most development experts now agree that including women entrepreneurs in global supply chains is “one of the great levers of change” and that “putting more money in the hands of women entrepreneurs” leads to positive outcomes for families, communities and nations. The only question now, she said, is how to accomplish the task.
Wal-Mart’s ambitious plan to double its sourcing from women-owned businesses worldwide — part of its year-old Women’s Economic Empowerment Initiative — is an attempt to answer that question by systematically including women-owned businesses in one of the world’s largest supply chains. Observers both inside and outside the international development community are watching the initiative closely to see if Wal-Mart is able to bridge the gap between small-scale female entrepreneurs and the demands of a global supply chain.
“Wal-Mart is creating a global lab for how a company can work to empower women through the supply chain,” said Jennifer Schmidt, a senior development officer at Mercy Corps. “The program is exciting because of the size of the commitment and the diversity of the implementation.”
The initiative is a series of commitments, first announced by CEO Mike Duke in September 2011, that also aims to provide retail training to 200,000 women internationally, disburse $100 million in grants for women entrepreneurs, launch a new e-commerce outlet on walmart.com featuring products created by female entrepreneurs, and push its own suppliers to include more women in their supply chain, among other goals.
But one year into implementation of the women’s initiative, it is clear that bridging the gap between a large multinational and small women-owned businesses will require both types of entities to change their business practices.
“You’ve got really large buyers wanting to source from very small businesses, and they are not used to doing business together,” said Elizabeth Vasquez, president and CEO of WEConnect International, a corporate led nonprofit that helps its members, including Wal-Mart, to source from women-owned businesses worldwide and diversify their global supply chains. “This is a new journey for all of us, and we are making up a lot of it as we go along, to be honest.”
Vasquez estimates that only 1 percent of the $700 billion in annual buying represented by 33 WEConnect global members is sourced from female entrepreneurs outside the United States.
Not only is Wal-Mart “scaling down” to reach small businesses but female-owned businesses will have to formalize, become more efficient and bargain harder with their own suppliers–perhaps adopting Wal-Mart’s own business practices over time.
And with Wal-Mart garnering some negative media attention lately — from a deadly factory fire in Bangladesh to admissions of bribery in emerging markets — the company will have to work harder to overcome skepticism and prove results.
An ambitious undertaking
The business case for the initiative is that women are central to Wal-Mart’s labor force and customer pool, according to Sarah Thorn, a senior director in Wal-Mart’s Washington D.C.-based corporate affairs office.
“Women control 80 percent of consumer spending and make up more than half of our employees. So we want to be more aligned with both customers and employees,” said Thorn, speaking at BSR’s October 2012 global conference.
In the background of the women’s initiative is the business reality that Wal-Mart is increasingly looking outside the United States for future growth. In the fiscal year ending January 2012, more than a quarter of its $443.9 billion sales came from its international units, and international sales grew by 12 percent, compared with a 1.5 percent increase in U.S. sales. In the company’s 2012 annual report to shareholders, Duke described Wal-Mart International as the company’s “primary growth engine” and identified leadership on social and environmental issues as one of five key strategies for the company’s long-term growth.
Thorn and others, tasked with developing specific goals for the initiative, looked to corporate, government and nonprofit organizations for input. They organized large external stakeholder meetings that involved multilateral development organizations like the World Bank and IFC; fellow corporations with international development experience like Coca-Cola and Ernst & Young; and high-profile advocates for women and girls like Pat Mitchell, CEO of the Paley Center for Media, and Jennifer Buffett, president of the NoVo Foundation, among others.
Thorn said it was hard to find models within the international development community big enough to accommodate their goals. “For a company of our size, it doesn’t work for us to tinker around the edges. We have the ability to do things at scale,” said Thorn. “If we don’t set big, public goals, we don’t create change within the organization.”
She and her team looked within Wal-Mart and found lessons in the company’s Environmental Sustainability initiative, which set ambitious targets, embedded them within the business, and engaged external partners to meet those goals.
“One thing we learned [from that initiative] was to build incentives around our goals,” said Thorn. One change that’s getting underway now is a new evaluation system for buyers, so they are evaluated not just on the cost-effectiveness of their purchases for the company, but also the percent of suppliers that are women-owned businesses. “It’s not just about the results, it’s about how you got there,” she said.
Wal-Mart is not the first company to tackle women’s entrepreneurship on a massive scale. Goldman Sachs is nearing completion of its five-year $100-million commitment to support women entrepreneurship through training and grants. Coca-Cola’s 5x20 initiative — launched at the Clinton Global Initiative in 2010 with U.N. Women, the Bill & Melinda Gates Foundation and Technoserve — aims to “enable the economic empowerment” of 5 million women by 2020. The program works with women already involved in its value chain, from raw-materials production to distribution to recycling, providing them with skills training, financial services and networking opportunities, In 2001, the company launched pilot projects in 12 countries. The company reports that it has impacted” 300,000 women, or 6 percent of its goal.
Wal-Mart’s program differs from those programs in that it aims to provide a global market for the products of women entrepreneurs that did not previously exist.
“The missing piece has historically been that women need to sell their stuff. We were missing the demand side,” said Vasquez, speaking at the CFR panel hosted by Coleman. “We develop the capacity [of women entrepreneurs], we invest in them, they have money, but they don’t really understand what this $78 trillion economy is actually sourcing.”
’Scaling down’, ‘scaling up’ to meet in the middle
Wal-Mart leaders have been frank about the challenges the company has encountered in the first year.
“This has just taken us longer than we expect,” said Leslie Dach, executive vice president for corporate affairs at Wal-Mart, speaking at the Clinton Global Initiative annual meeting in October 2012.
The first challenge has been identifying women-owned suppliers in the countries where Wal-Mart operates. “They don’t just come to you,” said Dach. “It takes targeted, integrated work [to identify women-owned businesses] that we can’t do alone.”
With WEConnect International and other partners, Wal-Mart is building a baseline map of women-owned businesses in the 27 countries where it has a retail presence, from Argentina to Zambia. This baselining process involves aggregating past and current development projects that build capacity for women-owned businesses, according to Thorn.
“Our systems are not set up to source from small businesses,” said Thorn. “We knew that once we got the data and set up a pipeline of suppliers, it would be much easier to bridge the delta between the buyers and suppliers.”
The second big challenge has been working with the women-owned businesses themselves, which tend to be small and sometimes inefficient operations.
“Many of the businesses we are looking [to source from] are so small that they don’t understand the needs of modern retail,” explained Dach. “It may be as simple as not having a bar code on their packaging, but there’s no way we can sell something that doesn’t have a bar code.”
Many women-owned businesses in developing countries exist in the “informal sector,” meaning they are not legally incorporated and therefore may not have access to formal financial services. Coaxing these businesses into the formal sector is harder than it sounds, according to Anabella Ruiz de Freeman, who coordinates Small and Medium Supplier Development for Walmart in Mexico and Central America.
“There are a lot of informal women entrepreneurs [who] just decided to cook out of their kitchen. Making the step of becoming formal and having an accountant and paying bills and paying taxes — it becomes too much of a problem” for them, said Ruiz de Freeman, who also coordinates the company’s seven-year-old program, “A Hand to Grow,” through which Wal-Mart helps local businesses build the capacity they need to join the Walmart supply chain.
One way to ease women-owned businesses into Wal-Mart’s supply chain is to start local first.
“If you take a tiny tortilla producer in Honduras and expect her to export to the U.S., you’re setting her up for failure,” said Thorn. “I’d rather have her supply local Walmarts first.”
Ruiz de Freeman explained how the Hand to Grow program does exactly that, starting new products in three or four stores at a time. “The idea is that in the process of starting with a few stores, the [women-owned business] develop better production process,” she said.
Through the program, Ruiz de Freeman and others work directly with new suppliers for three years. Of the 600 new suppliers in the program, 200 are women-owned.
Improving production processes sometimes means cutting costs to realize efficiencies — a principle around which Wal-Mart has organized its own business.
“Sometimes [the women owners] don’t negotiate well with their own suppliers,” said Ruiz de Freeman. “Part of the training is trying to get them into looking their numbers at all times. We’ve seen that suppliers that have their numbers on the tip of their tongue become more competitive.”
But not all women-owned businesses want to change and grow, said Vasquez of WEConnect. Nonprofits like WEConnect help by identifying women owners who do want to grow their business, then bringing them together to meet with buyers from major corporations, to learn what is expected of suppliers — for example, that you need a bank account if you want to get paid.
“These are good opportunities for women to hear what it takes to be competitive,” said Vasquez.
But it is not only the women-owned businesses who must change — it is also Wal-Mart itself, starting with the system that governs company buyers, who are responsible for sourcing products.
Dach said that developing new, category-specific metrics for buyers is crucial in order to “drive change in a measurable way.” Once the new supplier baseline provides a clearer picture of how many women-owned business exist in different purchasing categories, company divisions will move forward to developing those new buyer metrics.
According to Ruiz de Freeman, Wal-Mart is slowly migrating its systems to a more “modern” way of buying. Traditionally buyers have had to consider only factors such as price, quality and volume, she said, but the company is moving toward a system where buyers also factor in certifications for qualities such as sustainability or whether the business is woman-owned. It is happening “little by little — I wish it was faster,” she said.
Finally, Wal-Mart leaders have been wrestling how to “scale down” their compliance systems to make them work for smaller businesses.
“What we’ve found is that our audit systems were far too big for the companies we were buying from,” said Dach. In one case, he said, the company had to spend $9,000 to perform an audit of a $5,000 purchase in Uganda. “That’s not sustainable. We still have to meet obligations to sell a healthy and safe product, but we have to reduce the price of doing that.”
Dan Viederman, who heads Verite, a nonprofit consulting organization that works with Wal-Mart and other large companies on supply-chain “social compliance” issues, applauded Wal-Mart’s willingness to take risks and experiment with how to engage with small-scale producers.
“When women work from their homes, you can’t take a standard compliance approach, and you run the risk of activists jumping in with criticism,” said Viederman. “To its credit, Wal-Mart has not allowed that potential concern to keep them from engaging. They are being very thoughtful, not only in their efforts to reach out to women entrepreneurs, but also in thinking more broadly about how they interact with the informal sector as a whole.”
Thorn admits that although Wal-Mart is working to “scale down” compliance systems to reach small women-owned businesses, the company may not be able to reach all the way down to the poorest of the poor.
“In some cases these women don’t even have electricity, or sewing machines–there’s no way they can scale,” she said. “We may not be able to work at the base of the base-of-the-pyramid but instead with women who are a little higher up.”
But Reema Nanavaty, director of economic and rural development at the Self-Employed Women’s Association of India, said that the success or failure of Wal-Mart’s program will hinge around whether it is successful in engaging poor women.
“How many women-owned businesses would there be in our part of the world? You could count on the tip of your hand, and the millions and millions of poor [women] would be still be left out,” she said, speaking at the CGI panel. “If you really want to integrate women into global supply chains, you’ll have to hold their hands and walk together with them in the process. That’s the challenge for Wal-Mart or any large corporation.”
Criticism, skepticism and results
Any eventual successes that Wal-Mart reports on its women’s initiative, will have to battle the headwinds of recent negative publicity that some see as undermining the company’s socially focused work. Last fall, the company told shareholders it was expanding a bribery investigation from its Mexico operations to include India, China and Brazil. In the United States, holiday season protests re-energized a public debate about whether Wal-Mart wages and benefits keep workers in poverty; warehouse workers in Southern California named Wal-Mart as a defendant in their suit against their employer, Schneider Logistics, which works exclusively for Wal-Mart.
Perhaps most dramatically, Wal-Mart is facing criticism following a November 2012 factory fire in Bangladesh, which killed 112 workers, mostly women, who were producing apparel for a Wal-Mart subcontractor. Wal-Mart asserted that the subcontractor was not authorized to source from that factory, which had already been cited for fire-safety violations.
Terry O’Neill, president of the National Organization of Women, called Wal-Mart’s women’s economic empowerment initiative “a head fake.”
“God bless the women who can take advantage of it, but [the initiative] is a public-relations attempt to divert attention from their bad business practices,” said O’Neill, speaking as a surrogate for the United Food & Commercial Workers International Union. The Union is leading a campaign called OUR Walmart, which calls for higher wages and changes in health care coverage for Wal-Mart associates.
“Wal-Mart keeps their employees vulnerable, dependent and poor,” she said. “The best organizations are run for the benefit of all stakeholders, and Wal-Mart is not like that.”
But Phil Auerswald, a public policy professor at George Mason University and member of the Clinton Global Initiative advisory board, said that while thoughtful criticism of Wal-Mart’s work is helpful, he cautioned against heeding “unalloyed skepticism of corporate good intentions.”
“What you really have to look at is: Who is really in a position to create value for society, how seriously are they taking that responsibility, and what are they doing about it?” said Auerswald, who was part of a consultative meeting, convened by Making Cents, to examine how Walmart can expand and internationalize the “Social Retail School” it developed in Brazil.
Walmart’s Thorn, in a conference call with reporters in 2011 after the initiative launch, denied any connection between a class-action lawsuit brought by female Wal-Mart employees and the women’s empowerment initiative.
Viederman of Verite said he does see a connection between public criticism and Wal-Mart’s social leadership initiatives, however.
“I think Wal-Mart has a mechanism for taking criticism inside their institution, and rather than finding a half-hearted way to address those issues, they find ways to resolve that criticism in a way that might help them resolve strategic business problems,” said Viederman.
While the women’s initiative does align with Wal-Mart’s aim to grow internationally and engage women associates and customers, it does not appear to change the company’s underlying business model. Consumers know this model as the Wal-Mart motto of “Everyday Low Prices,” and suppliers as “Everyday Low Cost.” Critics say that if that business model does not give suppliers more breathing room, abuses and tragedies, like the Tazreen factory fire, will continue.
When a reporter asked Duke in December if easing up cost pressures on subcontractors could avert future tragedies, for example, Duke replied firmly that there was “no conflict” between the company’s low-cost model and a desire for better factory standards.
“We will not buy from an unsafe factory,” said Duke. “There’s no discussion about price.”
Schmidt, of Mercy Corps, said she and others in the development community look forward to seeing Wal-Mart’s results. “Given that they felt there were such strong business drivers, we want to know: Are they seeing the impact on their business, along with the social impact, they were hoping for?”
Robert Tomasko, director of American University’s Social Enterprise program, said the Wal-Mart initative may have to combat inflated expectations as it reports on results.
“Some expectations about what companies can do for development have become too elevated,” he said. “Just because a company is successful with its business doesn’t mean they will automatically be able to solve these big problems others have struggled to solve.”
Tomasko, who has consulted with Walmart competitors and other large retail companies, noted that Wal-Mart’s success with logistics and tight operational control may not necessarily make for an easy fit with development objectives.
“The development community learned a long time ago that top-down projects don’t always work,” said Tomasko.
The company’s first formal report on the Women’s Economic Empowerment Initiative is due out in April and will be included in the company’s yearly Global Responsibility Report.
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