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Can global brands create just supply chains

This article leads theBoston Reviewforum, "Can Global Brands Create Just Supply Chains?"

When Jia Jingchuan, a 27 year old electronics worker in Suzhou, China, sought compensation for the chemical poisoning he suffered at work, he appealed neither to his employer nor to his government. Instead, he addressed the global brand that purchased the product he was working on. "We hope Apple will heed to its corporate social responsibility."

In the past, his appeal would probably have fallen on deaf ears. But today, throughout the world, buyers in many industries have acknowledged a degree of responsibility for workplace conditions in supplier factories and pledged to ensure that the goods they eventually market are not made under abusive, dangerous, environmentally degrading, or otherwise unethical conditions. These businesses have committed to using private, voluntary regulation to address labor issues traditionally regulated by government or unions. And for the most part, the companies have acted on these commitments.

But have these private efforts improved labor standards? Not by much. Despite many good faith efforts over the past fifteen years, private regulation has had limited impact. Child labor, hazardous working conditions, excessive hours, and poor wages continue to plague many workplaces in the developing world, creating scandal and embarrassment for the global companies that source from these factories and farms.

That is my reluctant conclusion after a decade studying this issue. Before I turned my attention to global labor standards, I was a student of labor and politics in Western Europe and the United States. I came to the idea of private regulation with the hope that it might be a new, suppler way of ensuring workers fair compensation, healthy and safe conditions, and rights of association.

To test that hope, I began studying Nike because I was impressed with its commitment to labor standards. After several years of effort, with many conversations and visits to corporate headquarters, I convinced the company to share its factory audit reports and facilitate visits to its suppliers. Eventually my case study evolved into a full fledged research project involving the collection, coding, and analysis of thousands of factory audit reports; more than 700 interviews with company managers, factory directors, NGO representatives, and government labor inspectors; and field research in 120 factories in fourteen different countries. What began as a study of one company (Nike) in a particular industry (athletic footwear) grew to include several global corporations competing in different industries, with different supply chain dynamics, operating across numerous national boundaries.

But what started in hope ended in disappointment.

Consider the production of consumer electronics. Raw materials for electronic components are extracted, often under harsh working conditions, from mines in Asia and Africa. These materials are refined and processed in Asia and then sold to Western and Asian companies that manufacture component parts such as computer chips, batteries, cameras, and circuit boards. These parts are then assembled, primarily in China, in large factory complexes that employ hundreds of thousands of workers. The final products are shipped back to consumer markets that are located principally free run canada in developed economies. The shelf life of these devices is relatively short, and the e waste generated by consumers who dispose of their phones and other portable devices in exchange for newer models is, in turn, shipped back to Asia and Africa.

These new supply chains reflect a shift both in the geography of global manufacturing from the advanced industrial states to developing countries and in the organization of production. In the past, most brands relied on manufacturers and suppliers located within their home countries or else were vertically integrated multinational corporations that owned their subsidiaries in foreign markets. Today, lead firms are coordinating the production of thousands of independent suppliers located for the most part in developing countries.

Such changes have had profound implications for labor regulation. For most of the 20th century, labor standards were regulated largely on a national basis, through a mixture of laws, union management negotiations, and company policies. The emergence of global supply chains stretching across national borders, from richer to poorer countries, presented a forceful challenge to this model of regulation.

I began studying Nike because I was impressed with their commitment to labor standards. But their efforts ultimately fell short.

In many cases, the governments of the developing countries hosting these new factories lacked the institutional capacity to regulate labor, health, safety, and environmental standards. Moreover, they often intentionally overlooked their own laws for fear of driving up costs and thereby repelling foreign investment, jobs, and tax revenues.

In the 1990s, in an initial effort to fill the regulatory void, NGOs and others pushed to include "social clauses" within global trade agreements. These same groups sought to mobilize consumers in developed countries who would in turn pressure developing countries to enforce labor laws. These efforts failed: they were blocked by developing country governments, which argued that such standards were protectionism with a moral face. Efforts by the ILO and the United Nations to promote canada Nike Free core labor standards through the establishment of Decent Work Conventions (2008) and the Global Compact (2000) also had limited impact because they too lacked enforcement powers.

In the absence of an enforceable system of global justice, private, voluntary regulation became the dominant approach, promoted by labor rights NGOs and global corporations alike.

Private, voluntary regulation comes in many forms. The most familiar is a corporate code of conduct. A global brand Nike, HP, Apple develops standards for working conditions, wages, hours, and health and safety and requires that its suppliers accept those standards. Private audits are then used to assess factories for compliance with those codes of conduct. In some cases, outside certifiers label products "sweat free" or "fair trade," thus signaling to consumers that the products are made under fair or sustainable conditions.

Heated debates have raged over the specifics of these programs: which standards should be included in codes of conduct; how factory auditors are trained and selected; how information generated from factory audits is shared. Yet regardless of the mission, good will, leadership, organizational design, and even resources underlying private initiatives, they have all produced limited or mixed results.

Consider Nike. A series of public relations nightmares in the 1990s involving underpaid workers in Indonesia, child labor in Cambodia and Pakistan, and poor working conditions in China and Vietnam tarnished Nike's image. At first, Nike managers took a defensive position, insisting that they were not the employers of the abused workers. But by 1992 Nike formulated its code of conduct, requiring its suppliers to observe some basic labor standards. After initial efforts fell short, Nike substantially expanded its compliance staff, invested heavily in the training of its own staff and that of its suppliers, developed more rigorous auditing protocols, internalized much of the auditing process, worked with third party social auditing companies to double check its own internal audits, and spent millions of dollars to improve working conditions at its supplier factories. My research collaborators and I found Nike auditors and compliance staff to be serious, hardworking, and moved by genuine concern for workers and their rights.

Given all that Nike invested in staff, time, and resources, one might expect that conditions at their supplier factories improved significantly. But while some factories appear to have been substantially or fully compliant with Nike's code of conduct, others have suffered from persistent problems with wages, work hours, and employee health and safety.

Such disappointing results are common all over the world, in every industry.

"Capability Building": Promise and Peril

As the shortcomings of the compliance model grew increasingly apparent, analysts and practitioners began to embrace an alternative approach built around the concept of capability building.

The capability building model starts with the observation that factories throughout the developing world often lack the resources, technical expertise, and management systems necessary to address the root causes of compliance failures. Whereas the compliance model sought to deter violations by policing and penalizing factories, capability building aims to prevent violations by providing the skills, technology, and organizational skills that enable factories to enforce labor standards on their own. By providing suppliers with the technical know how and management systems required to run more efficient businesses, this approach aims to improve these firms' financial situations, thus allowing them to invest in higher wages and better working conditions. At the free run canada same time, to keep these factories running "high performance" operations, management must also train shop floor workers to help identify persistent quality problems.

Capability building programs envision a mutually reinforcing cycle in which more efficient plants invest in their workers, who, in turn, promote improvement throughout the factory, rendering these facilities yet more efficient and thus capable of producing high quality goods on time and at cost while also respecting corporate codes of conduct.

According to proponents of this model, the "good" factory auditor behaves very much like the "good cop": tough but sensitive to specific situations, using his or her discretion to promote problem solving and rehabilitation rather than focusing on coercion and punishment.

These initiatives represent some of the most innovative practices taking place in the arena of private governance. Yet the capability building model has also generated very mixed results that raise serious questions about the extent to which it can lead to sustained and broadly diffused improvements of working conditions and labor rights.

Some of the inconsistent results can be explained simply by the way capability building programs have been implemented. Programs that involve frequent interactions between buyers and suppliers as well as a buyer's commitment to invest in long term, mutually beneficial relations with suppliers work better than those that entail limited interactions, one shot training sessions, and no sense among the suppliers of long term commitment.

But, those differences aside, some of the limitations appear deeply rooted in assumptions of the model itself.