Professional Documents
Culture Documents
Responding
Tim Bartley
Isaac Shapiro
Gary Gereffi
Pamela Passman
Aseem Prakash
Hannah Jones
Drusilla Brown
Layna Mosley
Richard M. Locke
Tuesday, May 21, 2013
that are located principally 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 manufacturingfrom
the advanced industrial states to developing countriesand 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. Internationally, the conventions and
technical services of the International Labour Organization (ILO) provided an additional
source of moral authority and advice, though the ILO lacked significant enforcement power.
The emergence of global supply chains stretching across national borders, from richer to
poorer countries, presented a forceful challenge to this model of regulation.
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 1990sinvolving underpaid
workers in Indonesia, child labor in Cambodia and Pakistan, and poor working conditions in
China and Vietnamtarnished Nikes 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 Nikes 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.
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 buyers 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.
One key assumption is that technical upgrading automatically leads to better working
conditions. Perhaps because industrial upgrading can at times lead to skill development,
supply chain observers often believe such upgrades also yield better wages and working
conditions for factory employees.
Consider the global brands and buyers. They want high-quality products delivered as quickly
and cheaply as possible. They also fear that harsh working conditions could, if discovered,
create scandal and hence risk to their reputation. Yet because they are competing with one
another, they are unwilling to pay extra for improved working conditions, which could lead to
price increases that threaten market share.
Even when individual buyers or brands invest in supplier responsibility programsand many
of them dosome of their upstream business practices drive their suppliers into production
schemes that undermine these very same corporate responsibility efforts.
Global brands and buyers pressure their suppliers to reduce costs, manufacture on shorter
deadlines, and produce a greater variety of products in smaller batches. Suppliers respond to
these demands by paying their workers low wages, limiting their benefits, and insisting on
excessive work hours.
Workers and developing country governments also express contradictory interests.
Governments have an interest in asserting their sovereignty and protecting the rights and
welfare of their citizens. But even those with the institutional capacities to enforce their own
laws often refuse to do so, or they grant manufacturers regulatory exemptions in order to
create more hospitable business environments. And workers, preferring factory jobs to
whatever work was available in their home villages, are often willing to toil long hours under
stressful conditions. At the same time, they want to be treated fairly, to be paid for their
overtime, and to avoid situations that threaten their safety and health.
The capability-building models assume a win-win scenario in which improvements in some
part of the supply chainsay, increased efficiencies at supplier factorieswill translate into
gains for all actors involved. But these gains rarely are evenly distributed; they often
accumulate to the most powerful link in a particular supply chain.
A third assumption of many capability-building programs is that management techniques
produce consistent outcomes regardless of the local context. This ignores how initiatives are
shaped by social, historical, and cultural legacies.
These assumptions have led in many cases to an overly technocratic approach to capability
building, with poor results. Investments in production, work organization, and management
can translate into some improvements in working conditions. But, as HPs Focused
Improvement Supplier Initiative illustrates, when suppliers are not convinced that investments
in capability building will deliver concrete economic gains, their commitment. Some suppliers
involved in the Initiative could not even recall the content of their training workshops.
Vietnamese suppliers who took part in the ILOs Factory Improvement Program cherry picked
components of the trainings they were interested in (productivity and quality) and ignored the
rest (workplace relations).
The story of two Mexican Nike suppliers is instructive. The two factorieswhich, owing to
nondisclosure agreements, cannot be namedhave many similarities. Both operate in the same
political and economic environment and are subject to the same labor regulations; both make
apparel; both produce more or less the same products for Nike and other brands; both are
subject to the same code of conduct; both interface with the same Nike office in Mexico City,
which is responsible for coordinating orders and compliance visits to the factories; and both
employ unionized labor.
The two factories received comparable scores when audited by Nikes compliance staff.
However, they pursued very different approaches under Nikes capability-building plan. One
factory, lets call it Plant A, empowered shop-floor workers by giving them voice. The other,
Plant B, aimed to reduce worker voice and discretion. At Plant A, management invested in
training and allowed employees to work in autonomous cells. These workers often took
initiative to solve production-related problems. We want people here to feel important,
factory owners reported during our interviews. In contrast, at Plant B, workers were seen as an
input to be controlled, a cost to be reduced. When we asked the head of operations at Plant
B what would happen if he could not continue to lower labor costs in the factory, he replied, In
that case we will move back to Asia.
Conditions for workers varied significantly. At Plant A, workers averaged higher wages than at
Plant B, reported a greater sense of participation in decisions affecting production goals, and
described their work experience as more collaborative. And at Plant A, overtime was voluntary.
In their study of supplier-buyer relations in China, Stephen Frenkel and Duncan Scott found
that brands develop two distinct types of compliance relationships with their suppliers: a
hands-on, cooperative relationship or a less trusting, arms-length compliance relationship.
The arms-length relationship between Plant B and Nike is the more common variety. Brands
and suppliers in compliance relationships are often locked in a low-trust trap in which
suppliers claim that brands are sending them mixed messages, insisting on shorter deadlines,
better quality, and lower prices while at the same time policing and admonishing them for poor
working conditions. Brands, in turn, argue that problems associated with both production and
labor standards are the result of their suppliers shortsightedness and lack of professionalism.
The experience at Plant A shows a way out of this trap. Plant As model promises benefits for
everyone involved, including workers. But sustaining the model, let alone diffusing it, is a
challenge. And that challenge has as much to do with the business practices of global buyers
and large retailers as with supply chain dynamics. Until these broader practices are reformed,
Plant A will remain the exception rather than the rule.
new gadgets that will attract buyers, and the result has been dramatically shortened product
life cycles.
In order to maximize market share over such short life cycles, large retailers engage in constant
promotions that rapidly erode selling prices. Price erosion, along with pressure to carry a broad
product assortment, means that retailers do not like to carry large inventories. Instead, they
opt for more frequent shipments, often by air cargo, to meet consumer demand. This reduces
costly inventory and keeps their shelves well stocked with successful, high-selling products.
At the same time, however, this practice puts an enormous strain on contract manufacturers to
deliver smaller, more customized batches of products as quickly and cheaply as possible. This
balancing act is complicated by the concentration of electronics retail channels that has
occurred in recent years. The top four U.S. consumer electronics and computer retailers control
close to 75 percent of their respective markets. Concentrated buying power allows retailers to
maintain margins, thus forcing price drops on the brands. Retailers also seek to differentiate
their own products from their competitors in order to prevent consumers from shopping
around for lower prices, a process facilitated by the Internet. Again, the pressure falls on
suppliers and workers.
results. According to David Graham and Ngaire Woods, governments in developed and
developing countries can enhance the effectiveness of corporate self-regulation by insisting
uponand perhaps even legislatinggreater transparency and accountability among global
buyers and their suppliers. Those governments can demand that the rights of workers to
organize and mobilize be protected. Only in these circumstances can the promise of private,
voluntary regulation be fulfilled.
Earlier I suggested that national governments, especially in developing countries, have
declined to regulate labor standards as a consequence of competition for investment. However,
recent research shows that national governmentseven in poor countries with few natural
resourceshave far more ability to impose their will on foreign investors than was previously
believed. Where buyers and suppliers have incentives to circumvent regulations that increase
their costs, national governments are best positioned to prevent defections by individual firms
and ensure that all producers within the same national or regional economy adhere to common
standards. Yet how does one promote this type of government intervention in a world of global
supply chains?
In explaining the features of what they call experimentalist governance, Charles Sabel and
Jonathan Zeitlin describe a process in which government agencies collaborate with the private
companies they regulate in order to develop broad goals and metrics. These goals and metrics
are then used to promote responsiveness to variation in local circumstances, learning and
diffusion of best practices across private and public actors, and ever-increasing compliance
with government regulations. Using this framework, European governments have been able to
foster enhanced environmental standards both within the European Union and among
developing countries supplying forestry products to Europe.
Matthew Potoski and Aseem Prakash describe a similar process within the United States, in
which innovative state-level policies, such as lenient penalties in exchange for transparency
and self-disclosure, have encouraged private firms to enhance their compliance with
environmental regulations. These sorts of innovations are not limited to the United States and
Europe but have also emerged in several developing countries, including Argentina, Brazil,
Cambodia, and India.
In each of these cases, national governments were able to promote labor and environmental
standards by reconciling the competing interests of, and resolving the collective action
problems among, offending private firms. This process involved not traditional commandand-control government regulation (deterrence) but rather a mix of carrots (capability building
and technical assistance programs) and sticks (threatening sanctions and closing off low road
options).
We need more analysis of innovative public regulation, but we already know that laws and
government institutions are critical to the success of private initiatives seeking to improve
labor conditions in global supply chains.
This essay is adapted from Richard Lockes The Promise and Limits of Private Power:
Promoting Labor Standards in a Global Economy.