Moral maze for retailers reliant on developing world suppliers
The Problem | Saturday, 12 July 2008
Primark, the clothing retailer, last month announced it had fired three suppliers in India after it was found that they had subcontracted work to home workers who used child labour. George Weston, chief executive of Associated British Foods, which owns Primark, claimed that the factories had engaged in "systematic deception" and that regular audits had not exposed the breaches. Tesco, the UK retailer, faces allegations of neglect of factory workers after a report from the charity War on Want said that its researchers found workers in a factory in Bangalore being paid "half a living wage". Tesco responded that the claims were "unsubstantiated" and that it always insisted "on high standards" from its suppliers.
Is it ever possible for companies with suppliers in developing economies to guarantee that their goods have been produced in ethically acceptable conditions? And what kind of audit system could provide consumers with such a guarantee?
THE ADVICE
The supply chain expert
Richard Welford
It should come as no surprise to people that if you are paying $10 for a pair of jeans, then something in the supply chain is going to give. Clothes prices have never been as cheap in real terms. As retail companies continue to push prices down then garment factories, working on slim margins, are going to try and cut costs -- and that might mean employing cheap child labour.
No one with any experience of supply chains in Asia will be surprised that regular audits did not uncover breaches. Big brands need to move away form simplistic, unrealiable inspections towards building trust with partners.
That means engaging the supply chain in good corporate social responsibility practices rather than relying on spot checks. It means getting suppliers to recognise that adhering to sound employment practices is in their own interests and helping suppliers develop policies and practices that will make them a trusted supplier and build a long term relationship.
An simply to cut the contracts of factories that indirectly employ children has the potential to make a bad situation worse. Where are those children now, I wonder?
(The writer is chairman of CSR Asia)
The Consultant
Rupert Merson
Retailers deliver cheap goods because consumers want them. In countries where people are plentiful, work is scarce and food ever more expensive there are millions of people of all ages willing to work for a pittance. Consumers massage their consciences, crying crocodile tears when an abused producer is found by an intrepid journalist, but show their true colours shopping for underwear.
An audit is hard enough to deliver when it is clear whose interests are being protected from whom and what. When so many stakeholders speak with forked tongue, nothing is as it seems and auditors don't stand a chance.
"A corporation cannot blush," wrote lawyer Howel Walsh. But people can. Auditors must be allowed to address their findings not just to the companies in the middle of the chain but to the consumers and producers at either end, who must be educated to believe in the value of the message, of which the auditors are just postmen.
(The writer is a partner with BDO Stoy Hayward)
The academic
Nirmallya Kumar
Studies indicate that the pressure to audit suppliers has had a real impact in improving ethical practices in developing countries. The problem has now moved to the level of subcontractor and work done inside homes. Pressure from NGOs in the developed world is vital to sustaining this progress.
Child labour will only be eradicated in developing countries, as it was in 19th and 20th century Britain, through economic development that gives children real alternatives. Poor parents in India, Pakistan or Vietnam cannot real impact choose between sending their children to a school or a factory. The real choice is between eating or going hungry.
Legislation to eradicate child labour has been enacted in India but is impossible to implement in the face of more pressing priorities for the government as well as the elaborate deception of subcontractors and their willing accomplices parents and children.
(The writer is professor of marketing at London Business School and author of "Private Label Strategy: How to Meet the Store Brand Challenge" (Harvard Business School Press).
THE EXECUTIVE
Evanghela Hidalgo
Yes, it is possible to guarantee ethically acceptable working conditions. Companies can take an active role in the manufacturing process rather than relying on third-party auditors who visit occasionally.
Applica, which markets and distributes kitchen and home products - including Black & Decker and George Foreman - researches, designs and tests its own products and manufactures them mainly in China and Mexico. It has long-standing and very close strategic partnerships with most of its manufacturers, which it requires to adhere to quality controls and compliance rules, including social responsibility. They are required to follow Applica's design and engineering specifications very closely. Its engineers and marketers spend a significant amount of time with these manufacturers including on-site teams who audit and work to assure that collaborative, productive and ethical practices are maintained.
(The writer is president and general manager of the Americas division of Applica Consumer Appliances)
Is it ever possible for companies with suppliers in developing economies to guarantee that their goods have been produced in ethically acceptable conditions? And what kind of audit system could provide consumers with such a guarantee?
THE ADVICE
The supply chain expert
Richard Welford
It should come as no surprise to people that if you are paying $10 for a pair of jeans, then something in the supply chain is going to give. Clothes prices have never been as cheap in real terms. As retail companies continue to push prices down then garment factories, working on slim margins, are going to try and cut costs -- and that might mean employing cheap child labour.
No one with any experience of supply chains in Asia will be surprised that regular audits did not uncover breaches. Big brands need to move away form simplistic, unrealiable inspections towards building trust with partners.
That means engaging the supply chain in good corporate social responsibility practices rather than relying on spot checks. It means getting suppliers to recognise that adhering to sound employment practices is in their own interests and helping suppliers develop policies and practices that will make them a trusted supplier and build a long term relationship.
An simply to cut the contracts of factories that indirectly employ children has the potential to make a bad situation worse. Where are those children now, I wonder?
(The writer is chairman of CSR Asia)
The Consultant
Rupert Merson
Retailers deliver cheap goods because consumers want them. In countries where people are plentiful, work is scarce and food ever more expensive there are millions of people of all ages willing to work for a pittance. Consumers massage their consciences, crying crocodile tears when an abused producer is found by an intrepid journalist, but show their true colours shopping for underwear.
An audit is hard enough to deliver when it is clear whose interests are being protected from whom and what. When so many stakeholders speak with forked tongue, nothing is as it seems and auditors don't stand a chance.
"A corporation cannot blush," wrote lawyer Howel Walsh. But people can. Auditors must be allowed to address their findings not just to the companies in the middle of the chain but to the consumers and producers at either end, who must be educated to believe in the value of the message, of which the auditors are just postmen.
(The writer is a partner with BDO Stoy Hayward)
The academic
Nirmallya Kumar
Studies indicate that the pressure to audit suppliers has had a real impact in improving ethical practices in developing countries. The problem has now moved to the level of subcontractor and work done inside homes. Pressure from NGOs in the developed world is vital to sustaining this progress.
Child labour will only be eradicated in developing countries, as it was in 19th and 20th century Britain, through economic development that gives children real alternatives. Poor parents in India, Pakistan or Vietnam cannot real impact choose between sending their children to a school or a factory. The real choice is between eating or going hungry.
Legislation to eradicate child labour has been enacted in India but is impossible to implement in the face of more pressing priorities for the government as well as the elaborate deception of subcontractors and their willing accomplices parents and children.
(The writer is professor of marketing at London Business School and author of "Private Label Strategy: How to Meet the Store Brand Challenge" (Harvard Business School Press).
THE EXECUTIVE
Evanghela Hidalgo
Yes, it is possible to guarantee ethically acceptable working conditions. Companies can take an active role in the manufacturing process rather than relying on third-party auditors who visit occasionally.
Applica, which markets and distributes kitchen and home products - including Black & Decker and George Foreman - researches, designs and tests its own products and manufactures them mainly in China and Mexico. It has long-standing and very close strategic partnerships with most of its manufacturers, which it requires to adhere to quality controls and compliance rules, including social responsibility. They are required to follow Applica's design and engineering specifications very closely. Its engineers and marketers spend a significant amount of time with these manufacturers including on-site teams who audit and work to assure that collaborative, productive and ethical practices are maintained.
(The writer is president and general manager of the Americas division of Applica Consumer Appliances)