While shifting sourcing away from China to alternative production hubs in South East Asia may be key to offsetting the uncertainty of the ongoing trade war with the US, such a move may simply expose firms to a new range of risks.
A new analysis of labour rights indices has compared risks to workers across a number of key issues including freedom of association, decent wages and decent working time. And it shows that key apparel exporters such as Bangladesh, Vietnam and Cambodia are posing higher risks than China.
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In fact, companies may inadvertently be increasing their exposure to labour rights abuses that they were better positioned to navigate in China, according to the analysis, which forms part of the 2019 Supply Chain Risk Outlook from Verisk Maplecroft.
While manufacturing in China is far from risk free, it is a well-trodden path and many companies have become adept at navigating the country’s potential pitfalls, especially in relation to labour rights
While manufacturing in China is far from risk free, it is a well-trodden path and many companies have become adept at navigating the country’s potential pitfalls, especially in relation to labour rights.
“Organisations taking the leap into new markets, therefore, need to do so with their eyes wide open to the potential reputational risks,” says Ryan Ahearn, head of commodity service at Verisk Maplecroft.
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The research notes that while child labour and modern slavery are often the subject of high-profile media and NGO campaigns and tend to grab the headlines, they are not always the issues that pose the greatest risk for manufacturers in all sectors.
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By GlobalDataOne of the key drivers for labour rights violations across Asia is the poor performance of most countries for freedom of association and collective bargaining. The lack of union protections manifests as a cycle of violations against workers’ rights, including decent wages and working time.
Low wages put workers under pressure to work excessive overtime in order to earn a living wage; leaving them vulnerable to poor health as a result of exhaustion. Without adequate representation, workers are unable to bring these issues to light and request better working conditions.
The two worst performing Asian countries in Verisk Maplecroft’s Freedom of Association Index are Bangladesh and Vietnam.
In Vietnam, unions are not independent and are often led by factory managers. Although the government has raised minimum wages nearly every year for the last decade, many factories have struggled to pay them, resulting in a high occurrence of wage violations, the report says.
It adds: “This issue is particularly prevalent in the country’s garment sector, where inconsistent order volumes arising from seasonal market demands often result in wage arrears.”
Of course sustainable procurement issues vary widely across sectors, and industry specific risk data shows that in Vietnam, an apparel buyer would need to place greater scrutiny on manufacturers to prevent association with child and forced labour, which would have a greater impact on their reputation and could also bring them afoul of regulations in the US and EU.
Another reason to improve working conditions is to retain skilled labour. As major electronics and mobile phone brands have moved flagship manufacturing operations into Vietnam, the need for skilled workers has increased. However, poor working conditions have led many workers to seek employment either outside of the country or in other sectors.
“The lack of a suitably skilled workforce is a growing issue and one that underscores the sound business reasoning for ensuring workers in the supply chain are looked after,” Ahearn explains.
Diversifying sourcing to mitigate the risk that happens when trade policy can apparently change with one presidential tweet is among the recommendations from US industry experts: Apparel sourcing amid Trump trade tweet uncertainty.
