Wal-Mart (WMT) Learns China's Hard Lesson

When the Chinese government pushed its retail union into Wal-Mart (WMT) two years ago, the world’s largest retailer should have figured that it was only the beginning of trouble.

Now labor has forced an 8% wage increase on the company for both this year and next.

According to the FT, the All China Federation of Trade Unions has cornered Wal-Mart into the kind of labor pact that it has avoided in the US. The pay increase only covers two regions at this point, but the odds that it will spread to all Wa-Mart locations are 100%.

The new agreement is almost certain to pinch the retailer’s margins in the world’s most populated country.

Other US companies which have large employee bases in China will likely face union action on wages and benefits as well. Operations like McDonald’s (MCD) will probably face rising labor costs.

American firms which have rushed into China over the last decade viewed the growth of the market as an offset to slowing economies in the US and Europe. The businesses probably did not count on the central government meddling in their operations.

China’s lesson has become a hard one. Do business within our borders and we make the rules.

Douglas A. McIntyre