Unfinished Business: Improving Labor Standards in Global Supply Chains

Migrant workers categorize crayons at a toy factory in Dongguan, Guangdong province March 9, 2010. South China’s export stronghold Guangdong is experiencing labour shortages that could result in higher wages, but they are not as severe as reported by the media, provincial Communist Party boss Wang Yang said (Reuters/Joe Tan).

Global trade and the supply chains that support it are undergoing a period of profound change. Supply chains face threats including a resurgence of protectionism, climate change, decaying infrastructure, and human rights abuses. The Development Channel’s series on global supply chains will highlight experts’ analysis on emerging trends and challenges. This post is from Beth Keck, a member of the Council on Foreign Relations and practitioner in residence at The Johns Hopkins University School of Advanced International Studies. She was formerly senior director of women’s economic empowerment at Walmart Stores, Inc. 

As global supply chains have proliferated, so too have efforts to enhance good business practices within them. The most recent experiments involve multistakeholder and multi-sector organizations that try to address the deficits of government and individual company approaches.

For decades governments have issued laws and regulations to set labor and environmental baselines. Coming out of the 1930s, the United States passed landmark fair labor regulations banning child labor, setting a minimum wage, and capping workers’ hours.  Today regulations in the United States and beyond encompass everything from installing emergency exits to disposing of toxic dyes.  But national laws rarely transcend borders, rendering them ineffective in our world of transnational production.

In supplier countries such as China and Bangladesh, there are huge gaps in regulatory oversight. Too many governments still lack the capacity, and sometimes will, to ensure compliance with their own laws. And although 187 countries belong to the UN’s International Labor Organization and endorse its worker standards, the international body doesn’t have the power to enforce its norms.

With the spate of news stories about poor working conditions in developing country factories—which did serious damage to some brands’ reputations—companies began to police their own behavior. The first impulse was for retailers and brands to develop their own environmental, health, and safety factory audit programs. While well-intentioned, this quickly resulted in many sets of overlapping standards and requirements, as well as confusion and inefficiency for manufacturers.

For instance, a textile factory in Dongfang, China, could in any given month be manufacturing shirts for Lacoste, Hanes, and Fruit of the Loom for sale in Marks and Spencer, Walmart, Sears, and Tesco. Each brand and retailer would audit the factory, using a different checklist and asking for different data. Factories hired compliance staff fixated on managing visits and pulling payroll forms and timesheets. There was little time left to focus on training and other investments that could improve workers’ wellbeing. These individual company programs quickly created audit fatigue and increased costs. And they tended to focus only on final assembly factories, missing problems hidden deeper down the supply chain.

In response, companies began working with human rights advocates, academics, and others to improve and streamline audit programs with industry-wide schemes emerging. In 2000 the American Apparel and Footwear Association backed a new independent nonprofit to identify and reduce sweatshop conditions in apparel and footwear factories. Three years later the toy industry got behind its own protocol specializing in workplace audits and standards for its factories.

With still many disparate audit systems, some of the world’s largest retailers collaborated to create a single harmonized set of standards that apply to many sectors rather than focusing on just one industry, to oversee everything from toys to towels. The Global Social Compliance Programme, started in 2006, brought together dozens of apparel, food and beverage, and other consumer goods companies to cut back on repetitive, inefficient audits through sharing results and best practices.

These efforts have helped improve worker protections, particularly in the first tier factories that hold contracts with global brands, suppliers and retailers. But the Rana Plaza collapse in Bangladesh, which killed over 1,000 people, was a reminder of unfinished business.

Academic studies show better factory conditions improve productivity and profits. Now companies and governments need to go beyond factory inspections and traditional compliance to educate owners and managers on how ensuring workers’ rights and safety boosts a factory’s bottom line.