Labor Compliance in China. Did Anyone Learn Anything from Nike?

Friday, February 5, 2010 19:23

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

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14 Responses to “Labor Compliance in China. Did Anyone Learn Anything from Nike?”

  1. Renaud says:

    February 5th, 2010 at 8:47 pm

    Very interesting. And right on. Brandname companies are actually making things worse when they try to avoid responsibility about their subcontractors’ practices.

  2. niji says:

    February 5th, 2010 at 10:24 pm

    there are several factual errors in this interview. also, there are several most important areas that are missed entirely.
    china law allows for 40 hours/week, but also also allows for 36 hours of OT/month. therefore, approximately 52 hours/week is legal. facts are facts.
    the interview does say that a problem that workers in most of the industries cited is total hours worked/per week. this is misleading.
    although for sure 75+ hours /week is very common, the worst problem is that workers are not usually paid premium pay for OT hours. certainly an “expert” interviewed on CSR in China should mention this.
    most branded customers have standards that include “all OT must be paid at premium pay and also be voluntary”. however, in actual fact both of these parts of the standards are routinely violated.
    there is no mention of the actual root cause for the problem which is inefficiency and low productivity at these factories. workers’ actual pay systems in the industries cited is usually based on a “per piece” rate. this rate per piece produced is set very low. the worker to achieve a living wage must usually work hours in excess of 60 or 70 or 80 hours per week to earn the amount s/he needs to be able to take a living wage.
    workers in these manual labour industries encounter little training and actual opportunity for advancement. this has created a viscous cycle that destabilizes factories operations further, causing high employee turnover, which in turn further depresses productivity, which results in these inhumane working hours.
    CI (continuous improvement) programs can help break this cycle. however it takes time and commitment from the owner. senior factory management needs to understand how to steadily improve their management of the factory so that factory profitability is understood to be based on how management of workers is effective and that good CSR policies are in fact important to implement in order to achieve long term stability and profitability.

  3. Renaud says:

    February 5th, 2010 at 11:51 pm

    @ Niji: Pierig probably didn’t want to go into all the details, but you are describing the same thing: widespread non-compliance with laws related to working time.
    Regarding the root cause of these problems: do you think factories would pay migrant workers more if they were more productive? They are essentially competing against other Chinese factories, so workers’ pay would be the same if average productivity increased…
    I think the root causes is the lack of management skills of factory managers. They are focused on short-term cost cuttings instead of long-term system improvements, and don’t invest anything to educate the workers. In turn, the workers follow their incentives…

  4. niji says:

    February 6th, 2010 at 12:32 am

    workers are not the problem.
    this is a management problem.
    and yes, the specific management problem is that by and large, these industries have senior and middle managers, and lower level supervisors, who have little skills in raising productivity.
    well run factories in these industries in fact meet usual CSR standards of branded western companies.
    and, in answer to your doubt: yes, indeed, these well run factories are able to not only be more profitable for their owners, but pay legal wages including premium overtime, and achieve run-rates for product that lower total working hours, by focusing on eliminating waste in their processes.
    we have data to prove this.

  5. Rich says:

    February 6th, 2010 at 1:10 am

    @Renaud. – Thanks.

    @Niji – Thanks for the clarifications. l see your comments as more support of the issues that Pierig addressed. With regard to your comment on producivity, Pierig did adddress that in this passage:

    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.

    As for how to train management, I see this as a systematic issue that reaches outside the walls of the factory. Many factory managers do not see a reason to improve or invest in their staff. they are expendable, and they will always find someone else if needed. This was reversed a bit 2 years ago as the market conditions turned to the favor of the migrants, and poorly managed factories had a tough time finding people.. but, it will require than that to create a management shift.

    R

  6. Rich says:

    February 6th, 2010 at 1:14 am

    @Renuad

    Personally, I don’t think the factories would pay for more productivity without it leading to something tangible for them. A obvious bottom line savings, or the ability to leverage that productivity into a move up the chain. There has to be an obvious reason for it.

    R

  7. Rich says:

    February 6th, 2010 at 1:18 am

    @niji

    You appear to be agreeing with Renaud on the management issue, and I would agree with both of you that the problem largely lies with management as they are responsible for maintaining the conditions.

    .. but back to the brands.

    If over 50% of Apple’s China based suppliers are not compliant (see their Supplier Responsibility report), should they be making changes? there are 4-5 stories over last few years of strikes, deaths, and poor conditions to highlight the problems that exist. Does Apple have a responsibility? And, aside from whether or not they have a direct responsibility, are they the ones ultimately at risk should this move from a labor compliance issue into a consumer issue?

    R

  8. Renaud says:

    February 6th, 2010 at 1:39 am

    Apple’s margins are impressive, so they definitely can do something about it. They can actually pull production out of China! And they would gain even more coolness, like Google. But I am not sure they are going down that path.
    They improved their environmental record after Greenpeace put pressure on them. But Apple enthusiasts are usually more sensitive to ecological issues than the average citizen, so there is no surprise here.
    Regarding “social” issues, Apple consumers are happy not to pay more, and they have generally accepted production off-shoring. Will consumers accuse Apple of creating “sweatshops”, and will they be heard? Can they resist the latest cool gadget to help some faceless and adult Chinese workers??

  9. theallseingeye says:

    February 8th, 2010 at 12:10 am

    I like to follow up on ‘niji’s”

    “therefore, approximately 52 hours/week is legal”

    Sure, this is the law. And from my experience with many factories it is applied too. Most factories do know that breaking this law will cause trouble. Fine so far. However, no overtime will cause trouble too. Workers (in China) do not work to finance their lifestyle, they work to make money. The more the better. They asked for OT, and lots of them. If you do not give them OT they will leave.

    At least in the electronics industry this is the reality.

  10. Pierig says:

    February 8th, 2010 at 3:53 am

    Hi,

    Thanks for all this feedback!
    I won’t answer every point as I don’t want to try to close the discussion, and, as once said, I didn’t want in this interview to enter too much details.

    But here I want to point out an important misunderstanding in common Compliance approach.

    If we talk about compliance with a legal approach, then, I keep saying the legal working time is 40 hours a week. The overtime is by definition not a normal working time and has to be exceptional. So a company working regularly 52 hours/week as said above, is not more legal than the one working more than that. Nota: 36 Hours OT per month, doesn’t make 12 hours per week, but a little less than 9 hours so above we should talk of 49 hours a week.

    if we want to have a more global approach and not follow te law, then we shouldn’t discuss about what the law says about the working time, but what is doable / comfortable for workers.

    A last point to theallseingeye, I would love to visit your factories working 52 hours a week. I have unfortunately not visited this kind of factory very often. The ones claiming to work this time is quite frequent, but the ones working actually this short time are unusual.

  11. Gordon says:

    February 24th, 2010 at 7:14 am

    Its not meant as a plug, but China Briefings new book “Managing Human Resources In China” has been a godsend to our HR. Just a heads up on some professional reading.

  12. RP Shahhi says:

    March 10th, 2010 at 6:40 pm

    I have not visited China, but would like to know,
    1. Whether the workers are educated enough to know about all these working hours and minimum wages?
    2. Do they have a choice not to work or work even if their area leader ( political party), orders?
    3. In the discussion at one point it has been mentioned that the wages are given as production per piece…now does the production target per man has been fixed as per the developed world statistics.
    4. Are the brand companies not manipulating the few influential leaders around to get work with lesser cost ?
    I am very curious about the human right point of view of a common worker their ? Does he have any say in the whole matter we are discussing? If Yes…then every human can have the same productivity and can earn same.
    If not…then its exploitation of the situation by companies….??

  13. Pierig says:

    March 10th, 2010 at 11:03 pm

    Some of your questions are widely open and I am not sure I am able to answer all. But some are easy enoigh.

    1 –> no, most of workers are not educated enough.
    2 –> They have the choice of working, but, as everywhere else in the world they also have the need to work. And the choice is not always accessible.
    3 –> production targets are usually defined by the factory management. It is a balance between low wages and too low wages to be accepted by workers.
    4 –> Some have done so, but it is mainly a more deeper problem. Most of people says:” My competitors are buying in cheap area so i have to buy in cheap area” this kind of sentence get true by itself! If you think so and buy cheap, then you are the one who buy cheap and lead the other to buy cheap too.

  14. 8888 says:

    April 10th, 2010 at 6:37 pm

    It has nothing to do with compliance. It has to do with providing Chinese workers with enough overtime that they can live comfortably. These workers WANT the extra OT and they don’t care if its time-and-a-half or base salary.
    The only solution is to really start restricting these overseas factories from existing.