BENTONVILLE, Ark. — Wal-Mart Stores Inc. found a decrease in the worst types of labor violations at foreign factories last year during inspections of nearly 8,900 plants where it buys clothes, toys, shoes, and other products.

In an annual report released yesterday, the world’s largest retailer said its inspection program found a smaller percentage of factories had severe violations of safety, labor, and environmental standards.

It said challenges remain, including how to collaborate with other big companies and local governments in other countries, to make lasting improvements for workers.

What Wal-Mart calls “higher risk” violations includes failure to pay overtime, and were found in 40% of inspections in 2006. That is down from 52% the year before.

The rate for moderate violations, such as failing to document worker pay, rose to 52% from 37% in 2005.

About 5% of the inspected factories had only minor or no violations, down from 10% in 2005.

The percentage of factories barred permanently from selling to Wal-Mart for egregious violations, such as using prison labor or child workers, remained stable at 0.2%.

The executive in charge of the inspection program, Rajan Kamalanathan, said the drop of the most severe violations reflected Wal-Mart’s stepped-up efforts to educate factory managers rather than just punish them by withdrawing orders.

“Orange rates have improved, which is a good sign,” said Mr. Kamalanathan, vice president of ethical standards. Orange is the color code Wal-Mart uses for high-risk violations.

“On the other side, we recognize that it is not significant enough of a change to talk about making a huge impact on the supplier factories,” Mr. Kamalanathan said.

He said Wal-Mart must collaborate with other companies that buy from foreign factories, governments and activist groups to make permanent improvements.

Wal-Mart is starting to consider how to do that, including talking with the United Nation’s International Labour Organization and a trade group called Business for Social Responsibility.

Religious investors who work with big companies to improve labor standards in foreign factories said Wal-Mart’s report showed progress but much remains to be done.

“It is beginning to help,” said the Reverend David Schilling, director of the global corporate accountability program of the Interfaith Center on Corporate Responsibility.

Rev. Schilling said Wal-Mart’s 2006 report acknowledges that factory inspections by big buyers are not enough to force lasting improvements for workers in mainly developing countries. Instead, the companies have to work with labor groups, governments, and activists.

“Wal-Mart is recognizing this now and talking about the need to go beyond monitoring. What remains to be seen is what they will do,” Rev. Schilling said.

Wal-Mart does not own factories but instead buys from others who do.

Wal-Mart says it uses the inspections to encourage factory owners to improve conditions. If violations are found, inspectors give a list to the owners and return for a re-audit. Repeated violations, as well as some grave problems such as physical abuse, can lead to being banned from selling to Wal-Mart.