Working conditions in factories
When the jobs inspector calls
Do campaigns for “ethical supply chains” help workers?
“DEATH to Apple executives,” a protester shouted after a recent performance of “The Agony and Ecstasy of Steve Jobs”, a popular off-Broadway play. Apple executives must have been delighted when Mike Daisey, the playwright and star, recently retracted his nastiest allegations about the mistreatment of workers making Apple's products in China. Apparently, he did not meet a worker poisoned by exposure to chemicals, or child workers at the factory gate. With its share price soaring as the latest iPad storms the market, Apple might be tempted to forget about the fuss over its labour practices. But that would be a mistake.
Any big company that makes things in poor countries faces scrutiny of its supply chain. Campaigners against harsh working conditions (and unions back home that hate competition from low-wage countries) will pounce on any hint of scandal. Horrified headlines can tarnish a brand. Companies need to pay heed.
Wages for factory workers in China have been soaring at double-digit rates for years, for reasons that have little if anything to do with Western activists and a lot to do with productivity improvements. But some workers are abused, as even Apple admits. In February it invited the Fair Labour Association (FLA), a prominent non-governmental organisation (NGO), to look at the factories it uses in China, including those of Foxconn, which assembles iPhones and iPads for Apple and is owned by Hon Hai, a Taiwanese firm (see article). The FLA report, expected soon, is unlikely to give Apple a clean bill of health. Auret van Heerden, the organisation's boss, gripes that although conditions in the factories are better than he expected, there are “tons of issues”.
In the past 20 years what has become known as the “ethical supply chain” movement has targeted brands such as Nike, Gap and Coca-Cola. But its army of activists, some in business themselves, are grappling with growing evidence that appointing an outside body to audit and set standards, as Apple has done, is not going as well as it should. Apple could turn into a test case of how to improve things.
Not a bad Apple
Tim Cook, Apple's boss, this week visited a new Foxconn factory in central China which employs 120,000 people. He has insisted that Apple is doing a lot to improve working conditions. But he also echoes the concerns of critics. “We think the use of underage labour is abhorrent. It's extremely rare in our supply chain, but our top priority is to eliminate it totally,” he declared.
After a bad press in the early 1990s, Nike is now one of the loudest advocates of improving working conditions. In 1992 it established a code of conduct for suppliers. (Apple did not get around to that until 2005.) In 1996 Nike helped create the Apparel Industry Partnership, which drew up a code of conduct for factories, and in 1999 evolved into the FLA.
Having a code of conduct and being part of an industry initiative on workers' rights has become standard practice for multinationals. But there are big differences in the toughness of codes, how rigorously compliance is monitored and how remedial action is taken.
Factory audits also vary. Nike first published the overall results of its monitoring in 2000, but did not list details of all the factories in its supply chain until 2006. (Apple did not publish details of its supply chain until this year.)
When Nike opened up it was a conscious effort to challenge industry norms. Clothing and shoe firms took it for granted that revealing which factories they used would put them at a competitive disadvantage. But Nike reckoned the downside was negligible and the lack of transparency hindered the monitoring process, says Hannah Jones, the firm's head of corporate social responsibility. Secrecy led to some factories that worked for a variety of companies undergoing multiple audits. Other factories escaped entirely.
Another challenge is preventing corruption, says Alan Hassenfeld, a former boss of Hasbro who is now the driving force behind the International Council of Toy Industries' code, called ICTI Care. Factory managers sometimes bribe auditors. Some firms use fake books showing shorter hours and higher pay. Some workers collaborate in these violations more willingly than is assumed. Many migrants, for example, want to work long hours to save as much money as possible in a short time—and then go home.
NGOs can be both a help and a hindrance, reckons Mr Hassenfeld. Some only campaign. Others work with firms to help put things right. Some do both. Campaigning NGOs can put pressure on a firm to do better, but they rarely support it when expelling a factory from its supply chain, which also hurts workers, says Mr Hassenfeld. “One of the things we need to do is be tougher with repeat offenders, to make an example of them,” he adds.
“Governments are not pulling their weight,” complains Aron Cramer of BSR, an NGO. He thinks there has been “too much outsourcing of enforcement to the private sector”. Individual firms may find enforcement difficult. Governments may do better, but few governments of emerging markets like to be bossed around.
“Nobody thinks this process is perfect, but we have made progress,” says Mr Hassenfeld. Mr Cramer agrees. At least for firms at the top of the supply chain, “the old problems of forced labour and child labour are largely gone,” he says. The worst abuses tend to be further down the supply chain, and in particular sectors, such as agriculture and mining. Nonetheless, there remains much to do even among first-tier suppliers on things like excessive hours and inadequate pay, says Mr Cramer.
Richard Locke of the Massachusetts Institute of Technology has taken a detailed look at how things really work. He persuaded four global firms regarded as leaders in ethical supply chains (Nike, Coca-Cola, HP and PVH, a big American producer of clothing) to let him analyse six years of data from their factory audits, starting in 2005. His research, to be published this year in a book, “Promoting Labour Rights in a Global Economy”, drew four conclusions.
First, codes of conduct, compliance programmes and audits “[do] not deliver sustained improvements in labour conditions over time,” he says. Rather, these things help gather information that highlights the problem without remedying it. At HP, for example, only seven of the 276 factories in its supply chain fully complied with its code of conduct at the last audit. At the factories he visited, Mr Locke typically found that many suppliers serving global brands drift in and out of compliance.
Down the chain
Second, investing time and money in helping factories improve their managerial and technical capabilities did produce some benefit in improved working conditions. But his third conclusion found that for significant and sustained improvement to take place, the relationship between a company and its suppliers needed to change too. The relationship had to become more collaborative. In particular, gains from changes in the production process needed to be shared.
Mr Locke's fourth conclusion poses the toughest challenge. For firms trying to improve working conditions the fault may well be in their own business model. Just-in-time manufacturing has made supply chains leaner. Slimmer inventory cuts costs and allows firms to move more quickly. As products' life-cycles shorten, this is a crucial competitive edge. But a last-minute design change or the launch of a new product can mean suppliers having to pull out all the stops to keep up—or face a stiff financial penalty.
Timberland, a bootmaker and vocal supporter of ethical working practices, admitted as much in 2007 in a company report, noting that “some of our procedures were making it difficult for factories to control working hours”, including developing a huge number of new styles and the simultaneous launch of many new products. Nike has since said much the same.
As part of his research, Mr Locke visited an inkjet-printer factory in Malaysia which, at its historic peak in 2007, produced 1m products a month for HP. The factory, which made six to eight models a year with an average lifespan of less than nine months, experienced extreme demand volatility—with the result that it sometimes had to increase monthly output by 250%, then cut it again. This forces suppliers to ask their workers to put in vast amounts of overtime. Apple's product launches presumably produce similar surges.
Nike's Ms Jones says her company has taken this to heart by trying to incorporate the need to protect workers into the design of its production process. She is now jointly accountable for enforcing the code of conduct with the head of the supply chain, a change which she says has removed an “us-versus-them problem”. Members of Nike's 140-strong corporate social responsibility team are now involved in all branches of the supply chain. The firm is thinking harder about how it schedules product launches. And it espouses a philosophy of continuous improvement by delegating more responsibility to workers. This will only work if they are treated well, says Ms Jones.
Apple's sales continue to boom despite all the stories about the working conditions of the people who make iPads and iPhones. So how seriously should firms take these issues? Nike claims its approach means that good labour and environmental practices boost profits—even without taking into account any reputational benefits they may deliver. Productivity is rising and the turnover of workers is down, which saves money recruiting and training replacements. With hindsight, the criticism seems to have been good for Nike. Could the same be true for Apple?