US Retail Titan Insists on Sourcing Goods from China

HONG KONG (AFP) — US retail titan Wal-Mart Wednesday said soaring production and commodity costs would not damage its ability to source goods from China, and it even expected an improvement in the product standards.

Wal-Mart Sourcing China Goods

Wal-Mart Stores Inc. said it will set up its Asian headquarters in Hong Kong.

The retailer is considering its first stores in Southeast Asia and expects to approach 10% growth in international sales to $100 billion this fiscal year despite a global economic slowdown.

"The new Wal-Mart office in Hong Kong will oversee the company's operations in mainland China, India and Japan, as well as identify new business opportunities for the company throughout Asia," Wal-Mart Asia President Vicente Trius said in a statement. Wal-Mart, which operates more than 4,000 stores in the U.S. and 3,000 stores in 13 other countries, posted $90.6 billion in international sales last fiscal year, about a quarter of overall revenue.

"Hong Kong is the perfect location from which to operate a regional headquarters for Asia, as it is centrally located and offers ready access to markets across the region," he said.

The company didn't give a time frame for opening the Asian headquarters. The Bentonville, Ark., retailer, a runner-up to Carrefour SA in China in terms of sales and stores, is enjoying a huge leap in market share as it advances a $1 billion acquisition of local chain Trust-Mart, expected to be fully completed by 2010.

"I foresee international will outpace the U.S. in terms of percentage of growth. We should be approaching the $100 billion mark this year for international," Mr. Trius said.

Wal-Mart recently posted a 17% jump in its second-quarter profit to $3.45 billion, on the back of a 17% increase in international sales to $25.26 billion.

Vicente Trius, president and chief executive officer of Wal-Mart Asia, said that China had been a stable source of products and would remain so in the coming years.

"The economic downturn or inflation or high production cost has not had an impact specific to our sourcing in China as compared to other countries," he told reporters as he launched the company's regional headquarters in Hong Kong.

"My gut feeling is that the quality of Chinese goods will give a competitive advantage as we go forward," he said.

While other emerging markets might compete on price, China will also be able to compete on quality, he added.

Wal-Mart has built much of its success on being able to source cheap products from China's factories, but growing commodity and wage inflation has put the factories under greater pressure.

Trius insisted the global economic slowdown had not hurt their retail businesses in the mainland, which saw 16 percent growth over the last 12 months.

"China is an extremely fragmented market. Any retailer there would have less than one percent market share, which I believe offers us a lot of opportunities," he said.

Despite choosing Hong Kong as the regional base ahead of Singapore and Shanghai, Trius said Wal-Mart had no immediate plans to open a store in the southern Chinese city.

"I would say the availability of properties is a challenge here. We are not talking about prices," he said.

Hong Kong's supermarket sector is dominated by two conglomerate-backed players who have managed to fight off any foreign entry, most notably French giant Carrefour.

Appendix Report

Wal-Mart Stores Inc. is opening an Asian headquarters in Hong Kong to oversee the mega-retailer's operations on the continent. Wal-Mart announced the Hong Kong headquarters Wednesday saying it picked the trade hub over other possible Asian locations.

Bentonville, Ark.-based Wal-Mart (NYSE: WMT) relies heavily on Chinese imports for its discount retail model.

"Just as the Wal-Mart America's regional office in Miami oversees the company's operations in Canada, Central and South America, the new Wal-Mart office in Hong Kong will oversee the company's operations in Mainland China, India and Japan, as well as identify new business opportunities for the company throughout Asia," said Wal-Mart Asia CEO Vicente Trius in a statement.

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