One of the more common “China” questions asked over the last years has been “When would China begin exporting brands?”. There have of course been the anecdotal exceptions like Haier and TsingTao that people hold up as successful cases, and there was some talk that Chinese firms would leverage their cash positions to scoop up cheap Western assets during the recession. Transactions, which did not really materialize as some had planned. Sure there was the attempt by Tongcheng to take Hummer, but outside of that, there seemed to be little noticeable movements in Chinese firms taking down Western brands.

But, if one were to look at the infrastructure sector, one would find plenty of activity, as the article China to bid on US high-speed rail projects recently highlighted:

China plans to bid for contracts to build U.S. high-speed train lines and is stepping up exports of rail technology to Europe and Latin America, a government official said Saturday. [...] Wang gave no details of where China’s railway builders might seek contracts, but systems are planned in California, Florida and Illinois. He said state-owned Chinese companies already are building high-speed lines in Turkey and Venezuela.

An expansion whose roots lie in China:

So far, China’s government has completed 2,295 miles (3,676 kilometers) of rail lines with top speeds of up to 220 mph (350 kph) and 1,795 miles (2,876 kilometers) with speeds up to 155 mph (250 kph), according to Wang. [...] Another 6,000 miles (10,000 kilometers) of lines are under construction, he said.

to some, this will not be new news.  Afterall, China has been aggressively going after the cleantech markets, and been willing to commit to building facilities in Arizona and Minnesota to get around those who see Chinese imports of cleantech as a political hot button.  but, this is something that goes back further, and a conversation with one of my employees from Yichang a few months back highlighted that…. Asking her about the economic development/ job market for her hometown, she mentioned that at one point the market was absolutely booming with activity and jobs, and a lot of it had been tied to the three gorges dam.  That, after the dam had been completed, what ended up happening was that many of the engineering firms and contractors were unable to find much domestically, but often found work overseas in countries who were in need of foreign expertise.

Circling back to the original story, and in some way my original question, when looking for Chinese “brands” that are successfully expanding, perhaps it is time to readjust the lens by which one looks at the market.  That if China were looking to successfully expand beyond its borders, it would do so in a capacity in which it is confident it could succeed, and anyone who has been in China and seen the work in infrastructure, urban planning, and energy, it would be easy to begin seeing where there are firms whom are confident, competent, and getting ready to bust a move.

In doing so though, what will be interesting to see (particularly in the U.S… say vs. South America/ SE Asia/ Africa), is how China will fare when overcoming several hurdles:

1) Politics – China’s history of overcoming the wrath of politicians in the U.S. has been spotty, and I have little doubt that were China to succeed in grabbing an “unfair” amount of contracts that someone would stand up and try to impede access.  Perhaps it would be supported by “jobs” defense, or a “good paying” jobs claim, but one can be sure that the words “communist China” would be used in an effort to inflame.

2) Economics – China’s successful expansion of rail has been supported by not only political will, but also easy access to money.  Considered a national priority opened a lot of doors that would ordinarily have been shut, and for me, I think this will be the big one.  That, regardless of whether or not a political roadblock is erected, Chinese firms will have to make this venture profitable on their own.

3) Execution  – Successfully bidding is one thing, but delivering is another, and as San Francisco residents have found in their recent experiences with the new Chinese made Bay Bridge, delivering on promises on large programs can be quite difficult.  Chinese firms will need to maintain large engineering and tech. support staffs in the U.S., which means either training up U.S. staffers in China, or sending Chinese overseas.

4) Service – When that bullet train breaks down half way between St. Louis and Kansas City, someone is going to have to get to site, identify the problem, and make fixes.  Which, if the Chinese firms want to build a long term brand around these projects, will require that they have the capacity to manage these issues.  for allowing an external firm “USA bullet train service firm X” to do it would remove the Chinese firms from that coveted top ring where the entire profit cycle could be captured.

Where this ultimately makes so much sense to me though, is China simply has developed one of the best networks there is, at a speed that few others could manage, and in doing so has learned a great deal.  the question is whether or not transferring this wealth of information and ability to execute at speeds/ scale no one else has before, will be something valued by others outside China.

As you know, for the last 9 months I have had the privilege of teaching a project based course to 193 MBA students on sustainability at the China Europe International Business School. Split into 35 teams, they have been focused their research projects across 25+ separate issues, and for the last 2 months have been working on developing strategic plans with corporations, NGOs, and social enterprises in China to turn the theoretical into the tangible.

It has been an incredible experience, and the with the quality of work that the students have been bringing to me, I have decided to take a step that I hope will develop opportunities for them to take the next step in their own careers.

I want to find them internships for the 2010 summer.  Internships that will not only reinforce the work they have been doing throughout the year, but bring into companies who are operating in China, or looking to know more about China, resources that will push your own programs further.

CEIBS Responsible Leadership Program (RLP) Summer Internship Program

The question of whether companies should embrace sustainable business practices that will continue the business to be profitable while at the same time, address community needs and stakeholders’ interests isn’t just a question of moral obligations anymore. It has become one where it makes good business sense to do so. In addition, the gradual change in people’s values is a key compelling reason for companies to re-evaluate the way they operate.

In light of both the internal and external pressures that companies face in evolving their business practices that address the sustainability issues, the China Europe International Business School (CEIBS) recognizes that future business leaders should be equipped with the knowledge, skill sets and drive to help meet these needs.  The School has since launched a full-year class, “Sustainability and Responsibility Leadership” for its current cohort of students.

Over the last year, 190 MBA students at CEIBS have enrolled in this course. They have researched and managed projects on more than 25 of China’s most pressing issues. They include:

• Market landscape and entry strategies for green building technologies, smart grid, water filtration, e-waste management, and cold chain logistics
• Business plans for improving small scale CDM project funding, food labeling, organic food and clothing, and natural cosmetics
• Capacity development for community enterprises focused on elderly care, migrant education, urban poverty alleviation programs and assisting persons with disabilities

Why Hire a Summer CEIBS RLP Student?

CEIBS RLP students are trained to think strategically to understand market and regulatory landscape. They have also been taught to conduct stakeholder mapping and partnership development. Bringing their previous experience in human resources, operations, finance and marketing, they have brought the projects to fruition.

CEIBS is providing an opportunity for both these students and companies to be engaged for two months in building and improving a current product, process or partnership that aim to address the changing business environment.

How Can Hiring a RLP Intern Help Your Company?

The most tangible means for CEIBS RLP students to work with your company is to evaluate the risks that are brought about from changes in regulations, stakeholders and the public. They can help research current opportunities to develop a new product, service and/or embark in a new partnership that will have direct positive impact for your company, customers, partners and community.

Sample projects could include (but are not limited to):

• Analyzing cleantech market applications and investment opportunities
• Identification and research of new sustainable products and services in China
• Market entry strategies for foreign products and services within the sustainability sector
• Consumer and branding studies for consumer focused green products
• Industry level regulatory, stakeholder, and risk analysis
• Community partnership development as part of a CSR outreach program
• Lifecycle analysis and strategy construction related to waste management and reduction

What are the requirements of hosting an RLP Intern?

As graduate students at China’s top MBA program, CEIBS’ students look for internships where they can truly provide the expertise and value add that your firm currently lacks. They look forward to internships that are strategic in nature, and at the same time be hands-on in the project(s) that they are assigned to. CEIBS also expect the same as well.

The duration of the internship is two months, starting from early July and ending late August 2010.

Note: Some students might be more flexible in their availability depending on their time and location of their internship.

Internships should be paid positions, with work related expenses reimbursed.

How To Get Started

To learn more about this opportunity, please see the list of issues and projects that the students are currently undertaking. Following which, please download the form where we will need you to provide a brief description of the position and contact information where we can reach you. Please email the completed form at rlpinternships @ collectiveresponsibility.org.

Among all the chants of “being ready” (or was that Beijing Games?) and the billboards counting down the seconds between now and what is sure to be an event to remember, I have one fear…. that Shanghai’s metro is just not going to be able to cope with all the traffic.

It is a concern that is fueled by a simple calculation that there are an expected 70 million people who attended the EXPO, and while there is no breakdown of where those people are coming from, there would be at a minimum 55-60 million people coming to Shanghai.  or between 305,555 and 333,333 people PER DAY moving around the city between their hotels and the EXPO pavilions.

Visitors who are far more likely to take the metro than bus, and as you can see from the picture I took at 9:30 this morning… there is not a whole lot of room left inside the trains on line 2

1st rule of success in life: Show up. 2nd rule: Speak up. 3rd rule: Partner up. 4th rule: Never give up.

It was a well timed tweet as (1) I had just returned from an opening ceremony in Chengdu to launch our community center (2) I had just received my class evaluation (3) I had spent an hour and a half talking about what “success” means in Chin and (4) I had a few minutes to put together a post (I have been struggling with this for the past 2 months).

All very positively oriented goals, and I would agree with them, I would say for anyone who is in China there are a number of additional rules that would need to be included into a “how to succeed post”.

The first being.. show up with reasonable expectations.  It is not a rule that is meant to limit anyone’s dream (Starbucks does have 90+ outlets in Shanghai), but a lot of people/ organizations that I speak with when looking to enter China (or in the middle of launch) often have unrealistic expectations… or at least have yet to fully put into context the amount of investment it will take in time, money, and capacity to achieve those goals.

Second: Develop a high tolerance for pain.  Want to be innovative?  cut a new path?  Don’t expect it to be easy, and don’t give up.  Things go right and wrong everyday, and regardless of how wicked the ride may be, as long as you are meeting expectations (see #1) and the reward is worth it, then it is worth it to persevere.  Cutting corners in the face of pain is the quickest way to move the defenses of a line backwards(see #3) and that will only land you in further trouble later.

Third. Have lines (moral and economic) that cannot be moved.  Stand up for something and develop a business model that you control and remember that if your supplier is messing around now, they will mess around later – unless you take the necessary actions (not doubling down) to rectify the situation.

Fourth.  understand what the motivating factors are for the parties sitting across the table, stop negotiating, and begin collaborating.   If you are walking into a meeting preparing for a heated pissing contest why bother?  There are no deals of the century in China, no deal has to be done today, and there are options.  Take the time to understand what is driving the person today, and what it will take to keep that party moving in the right direction (right director = down the same path as you), or cut the cord and develop another line.

Fifth: Plan ahead, speak up, and move quick… when things do go wrong.  Before launching a new product, or sourcing a new product, spending the time to to fire drill the what ifs can go a long way to preparing firms and their managers for when things don’t go right.. it may only require a tweak.  It may require a nuke.  But, knowing the signs and the available remedies ahead of time is far better than finding yourself in crisis mode not sure what to do and calling on externals to fix things.

Sixth: Pay the full real costs up front. Factoring in the costs of negative externalities is a must…  Regulations and consumer expectations are only getting tighter, and firms who are caught on the wrong side of a moving regulation are going to pay more to bring themselves into compliance.  Want to use a supplier who abuses line workers, you will pay the cost.  Don’t care if your supplier dumps chemicals into the river, someone else will.  Think that hongbao is the “key” to a relationship… what happens when they go to jail?  Price in the costs of choosing suppliers, partners, and channels that follow global standards… cause local standards are only going that way, and anything local+ will require upgrading at some point… at a cost that is far more uncertain than if you build your platform on it now.

Seventh: If something does go wrong, look internally first. It is not always the pain suppliers fault, or a nationalistic regulation.  When things fail it is typically no more than the byproduct of a failed process or system.  Identify that, work with it, and move on.

Finally… shut up and get to work.   I cannot possibly begin to list off the business ideas that I have heard, how many were “in the bag”, the fund is raised, blah blah…and how few of those ideas and people are still here.

Investing in China is more than about how much money, what school one went to, or how well a product launch in a particular city went.  It is about putting heads down, soldiering through the minefield, and getting things built.  It is a process that rarely is advanced within the bars of the Bund, or through social mediums like twitter or a kaixin page.  It is about building solid foundations in product quality, market channels, branding, human resources, management depth, and a store of cash locally to advance through the stages. It is not a foundations built on consultants, an entourage of expats, or through “guanxi”.

things will not always go right in China, but they are not always predetermined to go wrong in China, but when they do one can often look at the structure, expectations of the firm, and a firms real commitment to their plans as the root cause behind success/ failure.  It is a dynamic place, painfully so sometimes, but one of the best places about being in China is watching growth in people and organizations who have taken the time to get it right.

Have a “rule” to succeeding to China?  Submit it in the comment section.

Update 1: One rule I forgot is that in building a long term platform, that will mean building something that does not rely on expats holding all key management positions.  Expats are temporary, halfpats are half way there, but if you want to be able to really judge the success of how well something is built, look to see who is actually running things.

It was a move that in the case of Bo XiLai I saw as ultimately the last test for him on the road to Zhongnanhai… and now with only a short stink before the next NPC, and coming off the success of the recent gang trials in Chongqing, others are beginning to also follow Bo Xilai’s potential move up at the NPC:

The challenge for Bo is whether he can turn this Rudy Giuliani-like popularity into a spot in the Communist Party leadership’s inner circle.

At the time of his move, my reasoning for seeing his move to Chongqing as the last step was simply this:

that some of China’s most important reforms have just been put in place, or are just now going in place, and as a trusted member of the inner circle, the central party is looking at he (and the other 4) as the persons who will ensure compliance.

In essence, he was going to – through this position – prove that he could – without his local network – prove that he could implement the reforms that Hu & Co had in mind and be someone who could carry the legacy of reforms that had been taken.

Now, to do that – and let’s assume for the length of this post that at this NPC he will take the next step – there is some interesting politics that would have to occur.  After all, they did tap replacements already, and to bring up Bo into the inner circle would essentially mean having to find a way to move away from someone who had previous been made.

A step, that if we do see, I think will show China is taking another hard step forward to support the vision of the last 8 years.

That regardless of whether or not you can source organic, or vegan, products (you can) in China, this is a great example of how brand, purchasing, and marketing managers need to carefully consider just how having the word “China” one’s packaging may rub the wrong way with consumers. ..  and that brands need to really spend more time thinking about this as they go forward with their plans in China.

It is not to say that you cannot source organics from China, or non-lead based painted toys, but that there are clearly new considerations for firms that should be considered.

The first is the clip below from Tsinghua University professor, rock-and-roller, and blogger Michael Pettis.  Pettis has provided some of the most interesting analysis of the China stimulus over the last 18 months, and why I prefer his analysis over others (UBS in particular) is he tends to look at underlying structures vs. the next two weeks of pricing, and sees through the thin veil that has become statistical measurements of an economy.. i.e.,you can certainly spend a trillion dollars to get to 11% GDP growth in a recession, but that doesn’t mean you can sustain it… and in this clip for Carnegie Endowment, Pettis runs through several important topics that I feel should be considered by anyone betting on China,expanding into China, or developing a “China plan”.

the next piece was Gady Epstein’s piece, also entitled China: Boom Or Bust?, where two prominent Chinese economists (Mao Yushi and Ha Jiming) respond to questions on China’s economy, and the answers are ones that again should make one think about jsut how stable the economic foundations are.. and how the economic stimulus may have only exacerbated the fissures.  Of particular note for me was the following:

Epstein: Some economists worry that the growth in money supply in China–30% in 2009–along with the speculative bubbles and overcapacity problems, have greatly increased the chance of a hard landing for China, though perhaps not for several years. What do you think?

Mao: There will be a hard landing if the bubbles burst. I can’t say. I don’t know how much time China still has.

Ha: Please remember 2015. That is the year when China’s baby boomers start to retire and the share of the working age population begins to fall–a phenomenon seen in Japan in 1990. That is also the year that the number of the baby boomers’ children begins to decline. Asset prices, particularly housing prices, will stop rising, and may even fall, when demand from the baby boomers and their babies shrinks.

Some economists suspect that China’s bubbles will burst in the next one or two years, while some expect that China will maintain fast growth for decades. I disagree with both.

Removing your inner alarmist, and planting an inner planner, there are two things that I feel are worthy of a healthy dialogue.

First, what would cause the bubble to burst?  high property prices? out of control lending?  inflation?  missallocation of resources (particularly those that came through the stimulus)? Chinese banks unable to recover stimulus loans and seizure of Chinese banks?  Some would say that ALL of these conditions exist.  Both Michale PEttis and Victor Shih (Northwestern) have written extensively on the topics, but these are debates that are being had locally.. and VERY publicly.  YOU now see regular, and highly visible, speeches from Zhongnanhai on the issues.  Even Wen Jiabao is out talking inflation and housing prices.  Which leads me to believe that Mao’s statement on timing is shorter than we think.

Second, to Ha’s point on China’s greying.  It cannot be understated, and while I have broached the topic on a few occasions, anyone who has a long term China angle needs to carefully consider the fact that within the next 15-20 years there is going to be a HUGE shift to the grey.  Right now Shanghai’s over 60 population is roughly 20%, and by 2050, China’s over 60 is projected to be a whopping 30% of the population.   Which changes the working to retired equation dramatically (see graphic) from roughly 5.4 workers to over 60 to 1.6 by 2050.

How do you think GM, Nokia, and Starbucks will fare in this environment?  More importantly, while everyone is focused on the fact that China put up a huge number on the scoreboard for this game, the question I have for this year is whether or not its bull pin will be able to sustain the full series.  Or whether, after working through this stimulus round and perhaps the next one that needed, the fissures will grow to wide and the air will be let out of the bubbles.

Over the last couple of years, one of the firms that has popped up on the radar of firms whose labor conditions I felt were at some point going to come back to haunt them… and I think we have come a bit closer with the above CCTV report, an 11 and a half minute investigative report (in Chinese) where former employees of the Suzhou based Wintek facility speak about the physical ailments they experienced while working at the facility.

It is a report that covers all the bases. Interviews of former employees who detail the illnesses they feel come from working at the plant, people in the hospital who are still recovering, labor bureau officials, the cursory tours, some scientific facts on the chemicals used in the process of cleaning/ finishing the screens, and even a Wintek Manager interview.

It is a report, that while “unverified”, is unlike before when Apple (and its suppliers) had labor issues as it is a report that cannot be contained by suing a reporter or leveraging the brand to keep the story from entering the mainstream, and it is the “report” that I had in many ways been waiting for. That, as the reports of Apple’s supply chain issues were becoming more frequent in the international press, it was the potential spillover into the Chinese press that I was looking out for and in my opinion significantly heightens the risk to Apple locally.

Link to video (Chinese) here

Update: Shanghai Daily is reporting that Wintek admits to having 49 employeees exposed, and “taken care of”, a few months back.  That, the exposures were a failure of managers understanding the chemicals, and how to properly manage them.. and that following the 49 employees being sicked, they took immediate action. Interestingly enough, the hospital says that more than 100 employees have been received thus far, and that they are still coming in.

hmm.. I am guessing there isn’t an Apple employee with direct knowledge of the situation, but given Apple’s plans to open up a Apple store in Shanghai this summer, I would suggest they get books on the ground fast to work out what is going on.  Last thing they would want would be 2500 Wintek employees to go on another walk, but this time move the meeting point to Nanjing road.

Update 2: Turns out that Wintek is also a supplier to Nokia, and Nokia has sent out a very strongly worded message to put a lot of distance between them and the current issues at Wintek. Here are two passages that I believe are the most damning for Wintek – and ultimately Apple (emphasis mine)

#1 – Wintek is a Nokia supplier, and provides components for its mobile phones, but N-Hexane is and has NOT been used on Nokia’s production lines at this supplier. Nokia strictly forbids all use of chemicals which are illegal.

#2 – We became aware of the allegations regarding the use of n-hexane in July 2009 and started our investigation immediately. Although it was confirmed that the n-hexane was not used on our production lines at the supplier, as part of our assessment we agreed on a development plan for health and safety management at Wintek’s Suzhou factory and a series of corrective measures have been taken since then.

So, if I read this right, not only is n-hexane illegal, but this has been going on for nearly a year.

That is would have been more than enough time for Apple to have made the necessary adjustments had they put in the effort when the first Wintek strike occurred, or even the second one.  OR.. even when they did their supplier evaluations in as part of the 2009 supplier responsibility report.

Seems like it has been a while since I have posted, it has been a whole 10 days, and I have a few posts in the cage getting warmed up. In the meantime, I thought I would just post a short clip of something that I found while diving through my RSS feeds and doing a bit of random research on sustainabile transportation in China. The clip is essentially a 5 minute snapshop of a pretty typical intersection in China, and like the painful punchlines that The Office brings the average viewer, this clip is a great laugh for anyone who has sat at an intersection in China and been amazed by just how little the painted lines mean to any driver on the road. It is a clusterf**k, and it is sadly all too common ( I have seen police literally flee intersections like this one they realize the battle has been lost).

Will be back with a post or two of real substance shortly.

Relational Traffic Studies #19 from Christen Sperry-Garcia on Vimeo.

Over the last few weeks, I have been spedning a lot of timethings about the risks of China.  More specifically the risks that either are not thought through, are thought to be too low to consider, or are believed to be removed by a third party relationship.  It is a sitution that, as the interview below will show, is almost systematic in the outsourced manufacturing game, and was highlighted by the recent strike at one of Apple’s Suzhou based suppliers two weeks.

It was a strike that particularly frustrated me because Apple has had 3 or 4 other incidents in the past two years, and had in my mind simply not done anything to address the problems in a productive manner.  So, I asked long time friend and labor compliance specialist Pierig Vezin  (Founder and CEO of WethicA) to answer some questions for me based on his experiences in the field

what are the biggest compliance issues that exist in china?
The more common compliance issue in China is about working time. It is found in almost every factory as the Chinese law is quite strict (40 hours per week), but the reality is that the average working time is among the highest worldwide with around 70 to 75 hours per week.

The toughest compliance issue, bounded labour (i.e. young child labour),  is rarely an issue of big factories. Second to the issue of child labor though is that we regularly meet factories that pay workers once a year only, which essentially means that workers can’t resign from their job once they have started. This kind of practice leads workers to be fully dependent on the factory, even in case of major needs to change.

Do firms (buyers)understand the conditions on the ground? do they plan well?

Most of them don’t understand. Actually to be able to claim you are working with compliant factories only is already an evidence of lack of awareness of real situation.When I do training in companies on social situation in factories, I have people astonished by actual situation, and because many figures are not easily understandable , I spend a lot of time helping them understand the meaning of these figures.

For example on working time. When I explain days are often 12 hours long there is always one in each group to explain we were working that long not so long ago in western countries. Ans I also usually have one who claim to work 12 hours a day him(her)self. Then I point out that working in a factory 12 hours is not as working in an office 12 hours as you take break to talk with colleague, take break to eat, having some not fully efficient meeting… When talking about working time in factories it is 12 effective working hours. Then I explain. And what will you do Saturday or Sunday? In factories they will work as usual up to the end of the month. This is when people start to figure out what 12 hours a day 7 day a week really means.

Starting from this gap in understanding the actual situation it is difficult to imagine a proper plan. Experience shows proper plan on this topic can’t be done immediatly as once as to get involved first to be able to define proper goals.

Has anyone learned anything since Nike?
Even Nike haven’t learn anything since Nike.

They were attacked by a Chinese newspaper in November for wages only half the legal minimum in a factory of Jiangsu.

You also still have many brands claiming they are working only with compliant factories, but are still producing in Asia. If we just look at the working time issue, we know it is impossible all goods are done in compliant factories. Thus there are still many people who prefer to claim they don’t know.

Many companies are also having a more pragmatic approach while trying to manage the social f-grade of factories for the best and asking continuous improvement. Thus the understanding is improving, but not everything is done on that topics. Still many need to be taught

Are there industries that have always had high risk or labour noncompliance or cutting corners?
As soon as you work with many workers, that the wages is an important part of your turnover, you are more likely to try to cut “staff cost”. So obviously hand labour intensive users as garment, shoes, jewelry, luggage… small stuff are first in line. But many other industry are huge user of hand labour, even if we don’t think of it. mobile phone, computers,… are high tech goods, but they are also goods that needs to be assembled. The assembly lines are still mainly manual and it is an important part of the production of such goods. Thus they are at risk too.

What are the areas that pose the trouble for firms who are trying to do things right?
The working time is obviously the most difficult one, as it is the one where the gap with the requirement is the biggest. Wages is also a difficult topic as it is directly linked to cost. moreover, the wage system in China is complex and depends on a city level. Thus you can have a factory which pay better wages than another one 10 km away, but this one is not compliant while the other is. The compliance on wages isn’t actually something really important for factories while talking with local government. Thus sometimes you also found factories which give wages lower than legal minimum but many advantages. They could make calculation job to keep wages same level and it appears compliant. they usually don’t bother with that. So asking for improvment in that matter is often not understood as it is always seen as increasing wages.

Safety on the opposite is usually quite achievable while health of workers is a much more difficult topic.

Have things improved over the last 5 years?  Still the same?
Yes things have improved. the average wage has increase, the management of the age of workers is usually better even from time to time we have period of higher child labor. But I guess what has the most improved are the living conditions, with cleaner and healthier dormitories. Safety in China is also usually correct.

How have conditions changed over the last 18 months with the recession?
We thought the economic downturn would lead to less work in factories and decrease the overtime. Actually the opposite happens. As factories had no idea of the future they refuse to hire workers, and ask the present ones to do more. Since this summer the situation is going back to “normal” (not compliant) level. Actually the main consequence has been the stop of some action taken by the government. In January 2008 started the new labour contract. It wasn’t much different from the previous one, but it was a way to claim for its implementation. It as actually started , but then stop soon, and we still find as many workers with no contract at all than before. We also see factories who has understand they won’t be able to continue to compete only on price with other countries. Bangladesh is already much cheaper than China for basic garments. Thus some are changing their approach by trying to upgrade their level. it is going also in a social upgrade as they need to keep the best workers.

How much does it cost to do it right? What are the costs of doing it wrong?
It depends on what right and wrong means. Wrong is sometimes prison where labour cost close to zero. If right means compliant, then you’ll have not to produce in China. You can’t ask a factory to work 40 hours a week when all others are working 70 or 75. Actually if you ask it to strongly and refuse to see it is impossible, then you ask the factory to lie to you. Asking for better than the average is reachable. Asking for compliance is not.

Now on how much it cost, it is very difficult to answer. It depends on the good, it depends on what is expected, and it depends on how you implement it. Workers productivity in Chinese garment industry for example is very low. it is low because of lack of training, of organization, of rest. If you have workers waiting for goods to be worked, and the same workers making overtime all night because they are late, it is not talking about cost, it is talking about organization. Thus you can’t take the cost of social requirements separately of the whole factory organization. Another important topic on cost is the cost of the work on a global product. In a trouser, the cost of the fabric is usually much higher than the cost of the workers who cut an sew it. But pressure is done on this step as it is the most seen. To finish about costs, western buyers should sometimes rethink their buying process. I have seen so often company switching from suppliers for few cents per piece, while cost of changing supplier was to count in dollar per piece.

What do you make of the recent news of Apple’s compliance issues( should apple be doing more? What could they do?
Apple has decided long ago to work with a supplier well known for workers abuse. Every one or two year problems are raised on this topics. this summer it was about the student who “had been jumped” from his apartment window. before that it was about the sickness of girls working on Ipod. Apple has never shown any real action on that matter. We talked about Nike before. Even if not every thing perfect with Nike, when facing such challenge, they act and try to improve the situation. The current situation in Nike factories is better than the average of comparable factories. It is not the case for Apple. I guess that’s my answer about Apple actions.

Do codes of conduct really help? Can suppliers be trusted to follow these?
COC are guidelines, they are just reminder of what is asked; It is just a way to remind “we don’t want you to work with children…”; But they are not dynamic and most if not all of them have the same flaws in. They are not dynamic. They ask the factory to comply today. They are written in a western point of view when they have to be applied in Asia. The very notion of a law or a rule is different in Asia and in western countries. This it is most of the time impossible for factories to comply and sometimes even not fair. Let’s take the example of Young workers. The young workers are the one above child age (usually 16) but still minor. In local legislation young workers must usually be protected (avoid dangerous job…). In India for example (but it is seen in China even not so directly) most of factories forbid workers below 18 years old. Thus they don’t have to manage these workers; Thus young workers can’t found job in structured factories and have to work in unofficial workshops. Should the factory who is hiring young workers from time to time but not perfectly managing them be considered of lower social grade than the one refusing young workers?

What role can the market play to improve conditions?  Are Apple and Nike still at risk of consumers pushing back?
The market can surely play a role. The toy industry is a good exemple. Even if not everything perfect the Mattel case have stressed the risk for the brands of lack of control on the supplier. They have act together on the whole toy industry and worst factories have been closed. But there are still problems of huge subcontracting not always managed by the buyers. Even if they ask factories not to do so, it is not always respected and sometimes they prefer not to know. Managing the supply chain is probably the key factor on that matter as well as consumer safety. To answer your question on Apple and Nike, as Apple has done nothing effective yet, they are still at risk. The last fall example of Nike been attacked for lower wages also shows they are still at risk. But in the case of Nike, an important part of their goods is properly managed and the risk is lower.

What can brands do together to make improvements? do brands work against each other?
In my opinion the most important thinks brands can do to make improvements is to stop to hide themselves the true. When an audit report is perfect, you have to wonder how it is possible. How can a factory be so different from the prevailing practice. Why (as it is the perfect factory) there is no a queue of 1000 workers waiting each morning to be hired. By accepting lies from factories brands are pushing factories to lie more and more and to invest on better lying system. There is automated IT system to generate compliant time records, wages… simultaneously as the real one. This is pushing to invest on non transparency. So if Brands were wanting improvement they should first accept the actual situation and starting from here instead of starting from where they want Asia to be. Then it would be possible to favor factories that really try to improve and not the one that looks like. So every brand that accept to work with lying factory is working against the ones who push for improvements