When car companies began flocking to Mexico more than two decades ago, the big lure was labor, which was plentiful and inexpensive. “Today,” writes The Wall Street Journal (Aug.15, 2016), “with an auto-production boom in high gear, those advantages are being chipped away.” Toyota, BMW, Ford,and several other auto makers have committed to spend a combined $15.8 billion to build new assembly plants or expand existing factories. That is on top of the more than a dozen plants already in operation and billions more being spent by auto-parts suppliers to keep pace.
Tag: global sourcing
OM in the News: Human Rights and Overseas Factory Workers
After more than 1,100 deaths exposed dangerous labor conditions in Bangladesh in 2013, brands like H&M, Walmart and Gap were among the most powerful companies that pledged to improve the safety of some of the country’s poorest workers. “But 3 years later,” The New York Times (May 31, 2016) writes, “those promises are still unfulfilled, and that safety, labor and other issues persist in Bangladesh and other countries where global retailers benefit from an inexpensive work force.“
A new report by the Asia Floor Wage Alliance has put another spotlight on the conditions. In Bangladesh, tens of thousands of workers sew garments in buildings without proper fire exits. In Indonesia, India and elsewhere, pregnant women are vulnerable to reduced wages and discrimination. In Cambodia, workers who protested for an extra $20 a month were shot and killed.
The brands say that in recent years they have made significant progress in structural repairs and monitoring of factories. But the report accuses Walmart of benefiting from forced labor and other abusive practices in a number of Asian countries. In Cambodia, for instance, workers at factories who make Walmart products are required to work 10-14 hours a day in sweltering heat, without access to clean drinking water or breaks — conditions that have contributed to “mass fainting episodes.” Workers who refuse or who try to speak up for themselves risk being fired.
Factories in many developing countries are under enormous pressure to churn out billions of dollars worth of goods at costs low enough to beat out the competition for business from foreign companies. H&M, with $25 billion in sales, is one of the biggest beneficiaries of the so-called fast-fashion craze, relying on factories in many countries to help quickly refresh its clothing offerings.
Classroom discussion questions:
- What are the ethical responsibities of OM managers whose supply chains are in developing countries?
- Why is it difficult to meet labor condition commitments?
OM in the News: Nepali Hostages in the Apple Global Supply Chain
CEO Tim Cook planned the most aggressive production and launch schedule ever attempted by Apple. Even though few units had been produced by Sept.12, 2012, the iPhone 5 would go on the market in the U.S. and 8 other countries 9 days later. By year’s end it would be in stores in 100 countries and would sell at a rate of 3.7 million per week.
Yet, just months later, one of Apple’s main contract suppliers would be accused of holding foreign workers virtual prisoners in company dorms for 6 weeks, neither feeding them nor paying them. In this fascinating article, Businessweek (Nov.11-17, 2013) introduces us to 27-year old Nepali Bibek Dhong’s travails as fear and hunger turn to rage. Writes Businessweek: “Some men smashed windows. Others threw televisions from floors 6 to 7 stories above Dhong. When Malaysian police arrived, rather than making arrests, the officers ordered the company to start sending food.”
That supplier, Flextronics, made the cameras for the iPhone– then shipped them to the Chinese manufacturer Foxconn for final phone assembly. As Flextronics had to crank up its supply chain, it required sourcing and importing people—an army of them—to man factory lines. Staffing production lines in Malaysia goes this way; Companies tap an unregulated transnational network of thousands of recruiters. They fan out into the farm fields and impoverished cities of Indonesia, Cambodia, Myanmar, Vietnam, and Nepal. The positions they’re trying to fill are so coveted that they’re not merely offered, they’re sold. The brokers take fees from families, representing as much as a year or more of wages; frequently the fees are paid with loans that can take years to pay off.
For the iPhone 5 rollout, a recruiter working for Flextronics contacted brokers in Nepal, in September, 2012, urgently seeking 1,500 men to make cameras. Once in Malaysia, Flextronics managers keep workers’ passports locked in a safe until moneys to recruiters were paid up. Although Apple calls that bonded labor, one step removed from slavery, it blames the abuses on companies that rely on a daisy chain of payment-demanding brokers and recruiters.
Classroom discussion questions:
1. What is Apple’s responsibility in this supply chain?
2. Why do workers seek out such jobs?
OM in the News: Walmart Toughens Supplier Policies
The Wall Street Journal (Jan.22, 2013) reports that Walmart is warning suppliers that it is adopting a “zero tolerance policy” for violations of its global sourcing standards, and plans to immediately sever ties with anyone who subcontracts work to factories without the retailer’s knowledge. The changes come after Walmart clothing was found at a Bangladesh factory where a fire killed 112 people in November—a factory the company said was no longer supposed to be making its clothes. “Obviously our three-strike policy wasn’t working as well as it could have,” says Walmart’s VP of ethical sourcing.
Here is a summary of the changes:
- Starting March 1, Walmart will employ a “zero tolerance” policy to sever ties with suppliers that subcontract work to factories without the retailer’s knowledge; Its previous “three-strike” policy gave suppliers three chances to comply with Walmart’s safety requirements
- All facilities in Bangladesh must undergo a mandatory electrical and building safety review
- Factories found to have fire-safety related violations have 30 days to take corrective action before being terminated, instead of the previous requirement of six months to a year; all floors and buildings must have a secondary exit, preferably an external fire escape route
- New factories must undergo a pre-approval audit before suppliers can do business with them
- Suppliers must ensure one of its employees, and not a separate agent, is stationed locally to monitor factory facilities
- Walmart will publish a list of factories suppliers are no longer authorized to use on the retailer’s corporate website
“Walmart’s factories are dangerous because they don’t pay adequate prices to suppliers, and because there is no transparency in their monitoring programs,” says the director at Worker Rights Consortium, a nonprofit group. “There is nothing here that changes any of that.”
Discussion questions:
1. Is Walmart doing everything feasible to be “ethically sourcing.”
2. Why has Walmart become a global leader in sustainability?