Social issues, price woes deepen factory dilemma

PUBLISHED : Monday, 03 April, 2006, 12:00am
UPDATED : Monday, 03 April, 2006, 12:00am

Multinational firms are continually demanding goods at lower prices delivered at greater speed, making it nearly impossible for their Asian suppliers to comply with codes of conduct on labour, health, safety and environmental standards.

Yet, to protect their image, the multinationals are imposing ever-growing requirements on Asian factories to abide by corporate social responsibility, which includes issues such as overtime, salaries and workplace safety.

At the International Apparel Forum in Hong Kong last week, the chief executive of a Bangladesh garment producer with 30,000 workers said: 'However fast we do it, retailers and buyers say, 'Can we do it faster?'' He said it was difficult to meet social compliance requirements with such time constraints.

'I've been hearing complaints from many factories about their US and European clients pushing them to adopt codes of conduct, yet at the same time to cut prices and shorten lead times,' said Kelvin Ho Chun-hung, regional manager of CSCC, a US corporate social responsibility firm.

The shorter lead times needed longer working hours, tempting factories to violate Chinese labour law that stipulates a maximum overtime of 36 hours per week, said Mr Ho said. 'Even if the factory owner is a good man and willing to pay workers legally, he can't control the working hours.'

Auret van Heerden, president of the Fair Labour Association, a group promoting international labour standards, said: '[Non-governmental organisations] believe the constant reduction in price is forcing suppliers into non-compliance. NGOs are campaigning for greater [pricing] transparency.'

Stephen Frost, a researcher at the City University of Hong Kong, said the big brands and retailers were 'at worst pushing costs down or at best keeping costs flat, while pushing for more corporate social responsibility'.

Mr Frost cited giant US retailer Wal-Mart, whose stated policy is to constantly exert downward pressure on prices yet requires social compliance from its suppliers.

For some clothing products, factory prices had fallen 30 per cent in China in the past five years, Mr Frost said. 'Two years ago, I asked more than 200 mainland factory owners how many could be 100 per cent socially compliant yet make money in China. About 60 per cent said they could not.'

If a factory receives an order that it cannot fulfil without violating codes of conduct on labour and safety, it should reject the order, said Steve Jesseph, vice-chairman of Worldwide Responsible Apparel Production, which certifies apparel factories for social compliance.

There were well-run factories that find it possible to meet orders while complying with social responsibility, Mr Jesseph said. But a US buyer said even if he greatly increased his orders, factories would never reject these orders.

'I don't see an easy solution to this pricing squeeze,' Mr Frost said. 'We are in an era of hyper-competition, with thousands of factories competing in Asia, China and Africa for business.'

Large factories with economies of scale would find it easier to be socially compliant while meeting customer demands, but not small factories, he said. 'For a great number of Chinese factories, the only answer to the squeeze is to lie to buyers that they are socially compliant. That would be the rational business decision. The rational business decision is not to go broke by complying with codes of conduct.'

The number of labour disputes in China had been rising, Mr Frost said

From 1993 to 2002, the number of arbitrated labour disputes in China had soared from 12,368 to 184,116, with the number of workers involved skyrocketing from 35,683 to 608,396, according to China's Ministry of Labour and Social Security.

Last year, a survey of 2,000 private companies by the National People's Congress found most firms were violating the basic rights of their employees.

Migrant workers in China were owed more than 100 billion yuan in unpaid wages last year, according to the All-China Federation of Trade Unions.

The Business Social Compliance Initiative (BSCI) has conducted more than 1,200 audits of factories in developing countries since its founding in 2003.

The audits found less than 10 per cent of the factories met social compliance standards, said Heinz Dieter Koeppe, senior adviser to the Foreign Trade Association, a group of EU retailers and traders.

The association formed BSCI to improve conditions in plants that supplied EU retailers, Mr Koeppe said. 'We are concerned about our reputation. We have to protect ourselves because we are constantly attacked by NGOs.'

Mr Koeppe cited a recent example in Germany, where members of the Clean Clothes Campaign demonstrated in front of shops with signs saying 'Made in Hell'.

On the bright side, Mr Frost said brands like Adidas were finding a solution to the dilemma of increasing efficiency while complying with social responsibility.

'These brands spend a lot more time training management in factories to enable the factories to be efficient yet socially compliant,' Mr Frost said.