Why worker engagement is key to China competitiveness
KTC is emphasising the skill and craftsmanship needed to produce high performance apparel
Could corporate social responsibility (CSR) be the secret weapon to countering some of the challenges currently facing apparel and textile producers in China? New initiatives and in-factory research suggests that not only is an engaged workforce likely to be more motivated and easier to retain, but it is more productive too – with benefits ultimately being seen on a company's bottom line.
There's no doubt China continues to remain a compelling source for apparel buyers thanks to the size of its supply base, its range of skills, its quality levels, its product variety and the completeness of its supply chain.
But challenges continue to loom large over the industry. Not only is there increasing competition from other Asian countries like Bangladesh, Vietnam, India and Cambodia, but closer to home, Chinese factories are struggling to manage three key parameters: rising wages, enormous employee turnover rates, and a shortage of labour.
"A lot of times we think about workers as commodities, that there's an endless supply of workers," says Tyler Lyman, CEO at MicroBenefits, a social enterprise set up three years ago to improve the lives of China's factory workers.
"But there is a shortage of workers in China, wages are going up, the talent gap is becoming more significant, and it's increasingly important to retain those workers that are within the workforce."
Worker engagement "isn't just about balloons and parties," he told delegates at the WFSGI Manufacturers Forum organised by the World Federation of Sporting Goods Industries in Hong Kong last month. "It's about giving workers a voice, giving them a platform so they feel like they're part of the organisation, and ultimately creating opportunities for them to learn and grow.
"And by doing this, they'll stay with your organisation a little bit longer, they'll work a bit harder while they're there, and as a result will improve the bottom line."
Indeed, the benefits of an engaged workforce include increased employee satisfaction and loyalty, reduced turnover and absenteeism rates, better health and wellbeing, and improved productivity and product quality – not to mention cost savings and profitability.
CSR as a competitive advantage
This is borne out at performance wear maker KTC Limited, where what is thought to be the first research into the link between internal corporate social responsibility (CSR) and work attitudes at a Chinese manufacturer is underway.
With a focus on 'Knowledge, Craft and Technology' and customers including high-end European brands such as Rapha and Mammut, KTC was one of the first garment factories to join Fair Wear Foundation – and has a long-standing commitment to the welfare of the 4,000 workers employed at its factories in China and Laos.
Indeed, managing director Gerhard Flatz believes compliance is not just for the consumer's sake, but for the workforce as well. "For workers it is not enough to get benefits, they want to see that the company really cares."
The research by Dr Nick Lin-Hi, professor (interim) of business and ethics at the University of Vechta in Germany, has so far looked at the link between a positive working environment and competitive advantage, with first findings suggesting that the higher the perceived responsibility of a company, the better the workers' attitudes such as commitment, job satisfaction, and motivation.
There are other advantages too, Dr Lin-Hi explains. "In an experiment we found more than 15% higher productivity [per worker]," along with better quality. He adds that workers are also "more interested in working conditions than in money" – so much so that a good working environment has more impact on motivation and commitment than a salary increase of 10%.
"Money is no longer the deal breaker," agrees Flatz. "You can't attract workers with more money because the wages [in China] are already high." And it's a challenge that is likely to get even more difficult when it comes to trying to motivate the upcoming millennial generation of workers.
Instead, he believes "a proactive CSR approach is a vital instrument for us to succeed in a high wage country," adding: "The higher the internal CSR of a company, the higher its attractiveness as an employer."
Proof that this strategy is paying off can also be seen by the fact that a KTC production worker has an average of seven years service, "which in our industry is an important indicator, because the longer they are with you, the higher the quality and productivity."
As well as a commitment to worker health and safety, wages that are benchmarked to the living wage level set by the Asia Floor Wage Alliance, and a working environment that includes dormitories, a canteen, a basketball field and badminton courts at its factory in Guangdong, Flatz is looking at other ways to make KTC an employer of choice in the garment manufacturing industry.
To offset the poor reputation of factory work he is pushing the craftsmanship aspect of production, and has trademarked the KTC logo as a brand in a bid to give workers the confidence they are working for a quality supplier rather than a cut and sew operation. Future plans also include an apprenticeship programme.
"We are proclaiming that we are different," he emphasises. "If you are able to commit to ethical production and are able to show that what's going on is right, then this becomes a competitive advantage in the market in the long run.
"Through more CSR initiatives our bottom line is improving every year even though it is getting more expensive [to produce in China]."
Both brands and manufacturers have a responsibility to engage workers more effectively, agrees MicroBenefits' Lyman, adding that companies with engaged workers "are more efficient and outperform the rest of the market – and better engagement drives better bottom-line results."
MicroBenefits is leveraging mobile technology as the tool to develop workers' skills and education, tapping in to the fact that smartphone penetration is higher in China than other parts of the world, especially with the younger generation – and that 85% of factory workers have some type of smartphone device.
"We've created an online platform for workers to learn and grow within the factory environment, and we're able to deliver all that via their mobile device. We focus on three areas: how can we improve their life today, how can we improve the opportunities that exist for them, and ultimately, how can we improve the opportunities that exist for them in the future.
"China really does have a workplace problem today," Lyman notes. "Each year 200m workers leave their home towns to work in factories across China, and 82% of workers determine on their first day whether or not they will stay with that particular employer. So that first impression is very important."
He adds that just 6% of Chinese workers are engaged in their work, and 26% of workers are actively disengaged – meaning they are emotionally disconnected from their work and workplace. In contrast, about 36% of workers in Western companies are engaged, whereas only 5-7% of workers would be actively disengaged.
"Many of these [Chinese] workers only had a middle school education, so we need to change the way we're teaching them," says Lyman. "We've focused on technology as the enabler for education."
About 20% of the courses delivered are 'life essentials,' covering things like language training, how to dress in the city, how to be a better distant parent. And around 40% of the content is vocational, including government certifications in accounting and computers, cashier training and high school diplomas, as well as more sophisticated courses such as becoming a Microsoft certified software engineer.
Other elements of employee engagement are Company Link and Company Voice, customised online platforms that promote open communication between a company and its employees, including surveys to give workers a say in things like the optimum number of overtime hours they would like to work, or whether they would prefer a gift or a party for Chinese New Year.
"The problem with an annual employee satisfaction survey is that by the time your roll out the responses or any type of an action plan, as many as 30-40% of the workforce who took that survey are no longer there. So the people who replace them have no connection to that survey," Lyman says.
As a measure of its success, there are around 800,000 users on the MicroBenefits platform, and over 7m courses were completed last year. "So workers are engaged and are actively looking for ways they can improve their careers or improve their life."
Reducing worker stress
Another service making its mark on factory workers – and ultimately increasing the bottom line – is Micro-Solutions, which delivers emotional and practical support via SMS text messages.
Launched and piloted over the past three years by US-based Workplace Options, the world's largest provider of employee mental healthcare services, its aim is to support factory workers in developing economies with a range of services to help improve their wellbeing and ultimately reduce turnover and absenteeism and increase productivity.
"Stressed factory employees are 50% less productive," they are disengaged, more likely to strike, and take more time off due to sickness, explains Micro-Solutions director Elena Fanjul-Debnam.
"Millions of employees don't sit at desks and can't step away from their post to seek out basic assistance that could make them happier, healthier, and more productive. We wanted to create a means of delivering support directly to anyone who could possibly need it – and we did it in a way that's efficient, effective, and economical."
The service works by sending workers automated SMS messages on topics ranging from health-related matters such as pregnancy, how to stop smoking and virus protection, to work-life support covering topics ranging from financial assistance to self-defence. Anyone interested in learning more can respond with a simple one-word reply, with more information delivered as the communication continues.
"We know that knowledge increase leads to behaviour change, and 97% of people who have used our service say they have made a positive change in their lives because of what we did...which leads to decreased stress, which ultimately leads to increasing your bottom line," Fanjul-Debnam says.
"Why? Because healthy employees are more productive because they feel better, they're more positively engaged and they feel more like part of the culture of a company and it decreases unplanned absenteeism."
However, all this will only work if the factory itself is actively involved in the outcome. "For example, if a factory starts offering lactation courses for employees, but does not provide the facilities for them to breastfeed, the employee is frustrated and eventually becomes disengaged.
"So we really have to have the support of the factory; if they're supportive we have increased knowledge and increased engagement. Otherwise it won't work."
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