Labor standards in China have re-emerged as a concern for global corporations this summer, after a series of worker suicides this year at a sprawling electronics manufacturer that counts Apple, Dell, Hewlett-Packard, and many other Western companies among its customers.
The problem for corporate compliance and risk executives in the United States is a troubling one. The manufacturer, Foxconn, does obey the workplace safety and wage standards required by the Chinese government, so in the strictest sense, compliance isn’t an issue. But that doesn’t make quality-of-life issues—and the unwanted publicity and activism they spur in Western countries—go away. And many manufacturing shops in China actually do allow improper work conditions, far worse than anything Foxconn does.
“It’s a tough one,” says Michael Mesarch, marketing manager at Asia Inspection, a factory inspection company based in Hong Kong. “My opinion is that you have to follow the standards, but you can’t do the minimum you can get away with. You wouldn’t want to work and live in some of the better factories in China, not for one week. Multinationals should step it up a notch.”
Indeed, Foxconn is one of the better factory businesses in China, paying its 420,000 employees decent wages (by Chinese standards). But so far this year, 16 people have attempted suicide by jumping off buildings at the company; 12 died. That number is statistically in line with the average suicide rate for China overall, but is a sharp increase in suicides for Foxconn’s workforce. Most blame the company’s rigid, military-style management of employees’ time and duties, and the drab company dormitories they live in.
From a legal perspective, U.S. companies working with Foxconn and its brethren have almost no responsibility for the welfare of those Chinese workers; their relationship with Chinese suppliers is only that of buyer and seller. If a Chinese worker suffers some hardship, for example, he or she would have no standing in U.S. courts to hold U.S. businesses accountable.
Chen
“You have a moral obligation when it comes to the well-being of the workers at your sub-contractor,” says Luming Chen, a partner at the law firm Jones Day in Shanghai. “But strictly speaking, there is no legal obligation.”
Still, tell that to a business like Apple, which endured embarrassing headlines about its iPhone manufacturer just as Apple was preparing the glitzy debut of its new iPhone 4.0. Western corporations have long understood they cannot truly hide behind contract law to defuse such issues, so they routinely seek assurances that their suppliers treat and pay their workers fairly.
Enter the “social compliance audit” to verify that suppliers adhere to Chinese law for minimum wages, working hours, and social security, as well as to certain global benchmarks for workplace conditions.
Raising Expectations
The leading certification standard is SA8000, developed by Social Accountability International. Based on conventions adopted by the United Nations and the International Labor Organization, it addresses topics such as child labor, worker punishment, discrimination, overtime, and workplace environment.
‘You have a moral obligation when it comes to the well-being of the workers at your sub-contractor, but strictly speaking there is no legal obligation.’
—Luming Chen,
Partner,
Jones Day
SA8000 compliance, however, only goes so far. Even when a factory obeys Chinese law and adheres to SA8000’s international standards (as Foxconn apparently did), the average laborer in China still toils away in conditions Western workers would consider miserable. Reports on Chinese contractors published by China Labor Watch, a New York-based activist group that frequently investigates factories, describes brutal monotony, fear, depression, stress, isolation, and regular exposure to airborne toxins.
Wages are also low by any measure. Geoffrey Crothall, spokesman for the China Labor Bulletin based in Hong Kong, explains the country’s wage scale as follows: Minimum wages are set at the provincial or city level, and they are supposed to be pegged at 40 to 60 percent of the average local wage. In reality, Crothall says, minimum wages are usually closer to 20 to 30 percent of the average wage. (Shanghai has the highest minimum wage in China, at $200 per month.)
Workers caught between inflation and low pay often take on excessive overtime, and as a result can become despondent, dissatisfied and angry, Crothall says. “It’s never a living wage. The major brands should be very well aware that the minimum wage is not enough.”
So far, corporations seem to be watching the situation but otherwise keeping a low profile on the subject. Compliance Week contacted 12 companies that use contract manufacturers in China; most declined to speak (Emerson, Levi Strauss, Walmart, Dow, Motorola, Dell, and John Deere), and others did not respond (Gap, Corning, Proctor & Gamble, and Hewlett-Packard). The U.S.-China Business Council could not find anyone willing to comment on the subject either.
One company, Philips, responded via e-mail that it is “aware and concerned about the developments with certain suppliers and companies in China” and is working with the Electronic Industry Citizenship Coalition “to review whether we can improve our auditing practices or develop other tools to improve worker conditions in line with our Code of Conduct.”
AVOIDING LABOR HASSLES IN CHINA
Below are some tips on how to avoid labor troubles and tragedies in China:
(1) Conduct regular social audits.
(2) Question the standards being used in these audits and make sure they sufficiently protect the worker.
(3) Pay particular attention to pay. Make sure workers are receiving a living wage. Don’t rely on local minimums.
(4) Add representations and warranties to supplier contracts requiring them to follow relevant laws and conventions.
(5) Pursue a “China + 1” strategy, adding capacity in Vietnam, Thailand, and India.
(6) Anticipate problems and try to get ahead of them. China’s labor environment is fast changing, and companies that don’t recognize that fact will inevitably find themselves facing dissatisfaction, or worse.
—Richard Meyer
The EICC, a group that promotes a code of conduct among member companies (IBM, Intel, AMD, and Microsoft, among others), issued a press release saying it is forming a taskforce to assess the situation at Foxconn. Wendy Dittmer, spokesperson for the EICC, declined to elaborate on the taskforce’s goals or its timeline.
Social auditors themselves report no noticeable uptick in business following the 12 suicides earlier this year at Foxconn; most suspect the issue’s importance will fade with time. “I believe news comes, people are amazed, and then forget and get back to the routine,” says Julien Roger, managing director at China Quality Focus, an inspection firm.
“Strike actions tends to come in waves,” Crothall adds, “and maybe they are waiting for things to die down.”
Chovanec
That strategy may work in the short term, but labor unhappiness is likely to sweep up global corporations sooner or later. Chinese wages are rising, and workers are asserting their rights more aggressively. Honda Motors endured a strike at its Chinese plants earlier this summer—a labor action that once would have been unthinkable in China, and even today could not last long without the government allowing it to happen.
Says Patrick Chovanec, a business professor at Tsinghua University in Beijing: “The underlying economics are not going to blow over.”
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