Do codes of conduct promote unethical sourcing?
Brand owners are sending out two apparently contradictory signals. On the one hand they want quality, short lead times, and adherence to their codes of conduct, while on the other, suppliers do not succeed in gaining contracts unless they can undercut their competitors on cost. Competition is so fierce that something has to slip - and experience shows that it is not price. Is the relentless quest for cheaper garments the engine that drives exploitation? asks David J Tyler.
The headline reads: 'Brand X produced by forced labour.' Invariably, this is accompanied by protestations of innocence by the brand owner: "We have a strict code of conduct and this behaviour by the manufacturer is totally unacceptable to us. We have ceased trading with this disreputable company."
Clearly, brand owners recognise that bad press about unethical sourcing practices is dangerous to their image. All too often, denial of responsibility and instant disassociation from the company abusing the code of conduct is deemed necessary to protect the brand.
The hidden agenda is that many suppliers operate in a climate of fear, suspicion and cover-up. If bad press can lead to a financial disaster - perceived as the consequence of loss of business - then it is best, companies sometimes conclude, to have as little communication with the outside world as possible.
Another major factor in this hidden agenda relates to manufacturing cost. Because brand owners negotiate primarily on price, business will have been gained by undercutting other potential suppliers. To keep costs low, operators are paid low wages, expected to work long hours and the temptation to operate outside the regulatory framework is high. Superimposed on this is the culture of privacy, often leading to restrictions on employees and erosion of rights of association.
In other words, brand owners are sending out two apparently contradictory signals. On the one hand, they want service (quality, short lead times, adherence to the code of conduct), but on the other hand, companies do not succeed in gaining contracts unless they can beat their competitors on price.
"Competition is so fierce that something has to slip - and experience shows that it is not price. "
In September 2000, a two-day workshop was held in Manchester, UK, by the activist group Women Working Worldwide (WWW). Speakers came from across the globe to present overviews of the working conditions of women in the garment trade. The overwhelming impression left with delegates was that human rights problems were widespread due to exploitation of the workforce. The abuses appeared to be entrenched, structural and they were found in every country represented.
The other striking aspect of the reports was that the vast majority of the abuses involved the production of branded goods for major US and European names, even though most of the high profile brands claim to have clear codes of conduct. In many cases, the abuses were not publicised by the workers because they feared the withdrawal of work by the brand owner. They preferred being exploited to having no work at all.
Thus, fear of exposure (by company management) is accompanied by fear of loss of income (in operators) and the pretence of adherence to the code of conduct continues.
Working Women Worldwide supports female workers in the global economy.
Sub-contracting breaks the chain
The most significant issue explored by the WWW workshop related to sub-contracting. Auditing of the code of conduct extends only to first-tier suppliers. It is recognised that these suppliers will sub-contract work, but the brand owner expects the first-tier suppliers to ensure that their sub-contractors also adhere to the code. It is at this stage that the whole system breaks down. First-tier suppliers appear to be unwilling or unable to work exclusively with sub-contractors who uphold the codes of the brand owners.
Price is the key issue for sub-contractors. The first-tier supplier will have accepted a low price from the brand owner in order to get the business. This low price is often higher than the supplier can achieve internally, and sub-contractors who can produce to this requirement are sought out. The sub-contractor that can deliver the goods at the depressed price is the one who gets the contract. If a company cannot achieve the target price, it may still accept the contract and seek to pass on the depressed price to other sub-contractors or to home workers. Eventually, people are found who are so desperate for work that they will deliver the goods for a pittance.
As an example, the Philippines is a major producer of garments for the US and Europe. Diane Reyes of the Philippine Resource Centre showed there was a clear distinction between the first-tier suppliers (the buying houses and the registered export producers), the second-tier sub-contractors and the third-tier home workers.
In 1999, research concluded that 276,500 workers in the sub-contracting companies received an average daily wage of less than 100 pesos ($2.30), far below the minimum value of 195 pesos in Central Manila and below that set for the regions outside Central Manila. Data for home workers is not available - but their daily wage would be lower still.
This scenario has been documented in so many countries that a sourcing policy that does not address these issues must be regarded as naive. Those brand owners that have instigated codes of conduct have intended to regulate trade, but it is now clear that the consequence is widespread abuse and fear via sub-contracting.
"The relentless quest for price reduction is effectively the engine that drives exploitation. "
Alternative strategies for brand owners
The WWW workshop spent much time discussing alternative strategies that might be adopted by brand owners. It was unanimously agreed that the major problem is a failure to acknowledge or even to know that codes are routinely violated. Those cases where the brand owner withdraws work from factories that break the code end up hurting the exploited more than the exploiter. This is particularly the case for home workers.
The strategy favoured by the WWW delegates was one of longer-term collaboration between workers and those acting on their behalf such as trade unions, national and international campaigns and NGOs. There was a strong feeling that collaboration with companies is not possible given the enormous power difference. Instead, programmes were sought for developing stronger workers' organisations.
There is nevertheless some evidence that some brand owners are interested in developing a collaborative culture in the supply chain, and this appears to be the thinking expressed in the Base Code of the Ethical Trading Initiative. These companies say that it is in the brand owner's interest to develop a supply chain that delivers a range of services - such as quality and short lead times - as well as a competitive price and conformance to the code of conduct. A good supply chain is an asset worthy of long-term strategic planning and management. And although few brand owners appear to have these skills in place at present, there is no fundamental reason why they should not become a normal aspect of international brand management.
If this long-term strategic planning was in place, there could be a strategy of reducing sub-contracting to, say, 30 per cent of the total volume of orders - making it a capacity management issue rather than a cost reduction exercise - and a commitment to ongoing improvement in the performance of the supply chain. This would involve audits that not only assessed code of conduct issues, but also quality, productivity, service and environmental issues. If problems are identified, a plan would then be drawn up to ensure that corrective action is undertaken within realistic timescales. Sub-contractors and home workers should be included in the overall audit, with the aim of promoting unified standards and enhancing performance.
Such a constructive supply chain development strategy would represent an enormous culture shift on the part of brand owners. However, it was the view of the WWW workshop that such a culture change was unlikely because of the uneven distribution of power. So other strategies are needed if current exploitation explosion is to be curtailed.
Present at the workshop was Mike Hewitt of Stretch Ethical Trading, who advocates the "ongoing improvement" approach to globalised supply chain development. The company provides an auditing service which is not merely designed to establish compliance with a code of conduct, but which also assists with drawing up a plan of action to address issues that emerge during the audit. The goal is to improve working conditions and to "make things better". In other words, the strategy is not confrontational, and it is working in some specific cases. What is needed is the will of the global brand owners to operate with this kind of long-term commitment to the development of their supply chains.
Monitoring and verification can help prevent worker exploitation.
Further issues under debate
Ethical sourcing issues emerged again at the Leading Action for Textiles, Clothing & Footwear (LATCF) conference in Birmingham, UK, at the beginning of March this year. Peter Booth of the Transport & General Workers' Union said that the evidence for exploitation is widespread and systematic. In his view, this "dirty trade" needs to be recognised and addressed.
He advocated the need to enforce ILO labour standards throughout the world - as a minimum requirement. He responded to some recent media charges that trade unionists are making this an issue because of their protectionist agenda. He denied this, saying that trade unions have never argued for the withdrawal of work from newly industrialised countries.
Alan Roberts, the quality assurance and sourcing director of Littlewoods, spoke on 'The business case for ethical sourcing.' This company has a long history of employing people fairly - it was a founder member of the Ethical Trading Initiative -and is strongly committed to the principle that business should have a purpose beyond profit. Work with focus groups had shown that although customers want good value at low cost, they do not want it at the expense of human rights. "Customers hold us responsible for the way our supply chains work," he said.
To develop these principles within Littlewoods, two related things have happened. First, the company has identified 1100 approved suppliers, with whom it intends to develop a long term relationship. Second, ethical trade teams have been set up - 3 for the UK and Europe; 3 for the rest of the world. These teams work with suppliers, not just to audit their conformance to the code of conduct, but also to look for ways of enhancing company values generally and to explore ways of improving overall performance.
After completing 400 of these audits, a pattern is emerging and this kind of partnership is yielding benefits for all. Examples given included: reduced working hours, improved productivity, less absenteeism, reduced staff turnover, reduced incidence of accidents, and better quality. Alan Roberts emphasised: "You can only do this if you have a relationship with a supplier". This relationship involves a strategic plan covering 3-4 years, addressing the needs of Littlewoods and the supplier. Companies would plan without the fear of a sudden curtailment of the relationship.
At the LATCF conference, ethical sourcing came up again in a presentation by Simon Murphy, MEP for the West Midlands. He spoke of EU enlargement as an opportunity rather than a threat, and said that the
"Countries coming into the EU know they need to comply with social, employment and environmental regulations. "
An interesting angle on this came up later in the conference when John Wilson, director general of the British Apparel & Textile Confederation (BATC), mentioned that the negotiations leading up to the MFA phase-out were based on an acceptance of the principle of reciprocity. Tariff and quota abolition was not originally a unilateral act, but it was based on the liberalisation of trade barriers globally. Somehow, in the subsequent negotiations, the easing of import tariffs and the removal of customs bureaucracy in many countries (India, for example) has eluded progress.
One is tempted to observe that if the principle of reciprocity is valid for countries joining the EU, it must also be valid as a principle for generally regulating global trade. An 'open door' policy that fails to address exploitation and environmental issues in sourcing is not a 'fair trade' policy at all, but one guaranteed to perpetuate 'unfair trade' and human exploitation.
Making a difference
Although the scale of human degradation described during the WWW workshop and Peter Booth's presentation was depressing, the overall message was positive. There are things that can be done to make a difference. One strategy is to develop worker-oriented networks that help to redress the balance of power in supply chain negotiations. The other is to promote a culture of collaboration within supply chains so that ethical trading is perceived as basic good business practice.
Both these options will mean a change in the sourcing policy of many global brand owners. Whilst Mike Hewitt of Stretch Ethical Trading has shown that 'continuous development' of supply chains can work, the example of Littlewoods is very important in demonstrating that a major company, sourcing in many countries, can implement the policy and report positive outcomes.
Have we got to the stage where we can say that the "We're not responsible" + "Code of Conduct" mix adopted by many global brands is an example of an unethical sourcing practice? It seems guaranteed to lead to exploitation of the workforce and to a continuous stream of incidents that are damaging to the brand image.
A wide discussion of these issues is needed - especially now that alternative sourcing strategies are on the table, and that some companies are reporting positive results from supply chain collaboration.
David Tyler is the centre manager of the North West Advanced Clothing Web. This is a European-funded project that seeks to promote the benefits of collaborative activity between organisations: companies and service agencies. The benefits are particularly apparent in new product development (where a multi-disciplinary effort is needed) and in supply chain management (where the focus is on responsive, demand-led supply). The Advanced Clothing Web aims to assist small to medium enterprises in NW England who have interests in clothing and textiles.
For further reading:
Plunkett, H. 2001. Organising along International sub-contracting Chains in the Garment Industry. Women Working Worldwide Workshop, September 2000.(availability information from http://www.poptel.org.uk/women-ww/)
The Ethical Trading Initiative web site is at: http://www.ethicaltrade.org/
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