Improving Work Conditions in a Global Supply Chain

A comparison of two Mexican factories suggests that global companies should go beyond monitoring codes of conduct and attack the problem of poor working conditions at its source by collaborating with their suppliers to implement new management systems.

Globalization and the diffusion of industry supply chains to developing countries have provoked a fierce debate over how best to improve labor standards in these emerging centers of production. Child labor, hazardous working conditions, excessive working hours and poor wages continue to be a problem at many factories in developing countries, creating scandal and embarrassment for the global brands that source from those factories.1 Given the limited capacity of many developing-country governments to enforce their own labor laws,2 multinational corporations have developed their own “codes of conduct”3 for suppliers, as well as a variety of monitoring mechanisms aimed at enforcing compliance with these codes. Monitoring for compliance with codes of conduct is currently the principal way that both global corporations and labor rights nongovernmental organizations address poor working conditions in global supply chain factories.

Corporate codes of conduct and various efforts aimed at monitoring compliance with these codes have been around for decades. While initially these efforts focused primarily on corporate or supplier compliance with national regulations and laws, over time they have become increasingly concerned with compliance with private, voluntary codes of conduct, especially as they apply to labor and environmental standards.4 Information is central to this model of private, voluntary regulation. The underlying assumption is that information collected through factory audits will be used by labor rights NGOs to exert pressure on global brands to reform their sourcing practices and by the brands themselves, which rely on this information to police and pressure their suppliers to improve standards within their factories. Should these factories fail to remediate workplace problems, brands are expected to switch their orders to other producers.

This model of workplace change has provoked debate over not only the particularities of the codes of conduct and compliance efforts but also their relation to other forms of regulation, especially government regulation. Critics of corporate codes of conduct argue that they displace more thorough government and union intervention and are not designed to protect labor rights or improve working conditions but to limit the legal liability of global brands and prevent damage to their reputations.

Read the Full Article:

Sign in, buy as a PDF or create an account.

References

1. For recent reports on these conditions, see Verité Inc., “Excessive Overtime in Chinese Supplier Factories: Causes, Impacts, and Recommendations For Action,” September 2004, www.verite.org/news/Excessiveovertime; Clean Clothes Campaign, “Looking For a Quick Fix: How Weak Social Auditing Is Keeping Workers in Sweatshops,” November 2005, www.cleanclothes.org/ftp/05-quick_fix.pdf; T. Connor and K. Dent, “Offside! Labor Rights and Sportswear Production in Asia,” May 2006, www.oxfam.org/en/policy/briefingnotes/offside_labor_report/; and C. Kernaghan, National Labor Committee, “U.S.–Jordan Free Trade Agreement Descends Into Human Trafficking and Involuntary Servitude,” May 2006, www.nlcnet.org/live/admin/media/document/ jordan.pdf.

2. L. Baccaro, “Civil Society, NGOs and Decent Work Policies: Sorting Out the Issues,” 2001, www.ilo.org/public/english/bureau/inst/download/ dp12701.pdf; and K.A. Elliott and R.B. Freeman, “Can Standards Improve Under Globalization?” (Washington, D.C.: Institute for International Economics, 2003).

3. For a good description of this movement, see E.J. Schrage, “Promoting International Worker Rights Through Private Voluntary Initiatives: Public Relations Or Public Policy?,” January 2004, www.uiowa.edu/~uichr/publications/documents/gwri_report_000.pdf; and I. Mamic, “Implementing Codes of Conduct: How Businesses Manage Social Performance in Global Supply Chains” (Geneva: International Labor Office and Greenleaf Publishing, 2004).

4. For an interesting historical review of corporate codes of conduct and their evolution over time, see R. Jenkins, “Corporate Codes of Conduct: Self-Regulation in a Global Economy,” April 2001, www.eldis.org/static/ DOC9199.htm. Another interesting historical parallel can be found in G.W. Seidman, “Monitoring Multinationals: Lessons From the Anti-Apartheid Era,” Politics & Society 31, no. 3 (September 2003): 381–406.

5. J. Esbenshade, “Monitoring Sweatshops: Workers, Consumers and the Global Apparel Industry” (Philadelphia: Temple University Press, 2004).

6. K. Nadvi and F. Wältring, “Making Sense of Global Standards,” chap. 3 in “Local Enterprises in the Global Economy: Issues of Governance and Upgrading,” ed. H. Schmitz (Northampton, Massachusetts: Edward Elgar Publishing, 2004).

7. L. Petrecca and T. Howard, “Adidas-Reebok Merger Lets Rivals Nip At Nike’s Heels,” USA Today, Aug. 4, 2004.

8. Nike Inc., “FY04 Corporate Responsibility Report,” www.nike.com/nike-biz/nikebiz.jhtml?page=29&item=fy04, 2–4.

9. Ibid., 3–4.

10. Detail about these events can be found in R.M. Locke, “The Promise and Perils of Globalization: The Case of Nike, Inc.,” in “Management: Inventing and Delivering Its Future,” ed. T.A. Kochan and R. Schmalensee (Cambridge, Massachusetts: MIT Press, 2003), 39–70.

11. For more on Nike’s current compliance activities, see Nike Inc., “FY04,” 15–48.

12. S. Zadek, “The Path to Corporate Responsibility,” Harvard Business Review 82 (December 2004): 125–132.

13. R.M. Locke, F. Qin and A. Brause, “Does Monitoring Improve Labor Standards?: Lessons From Nike,” working paper 4612-06, MIT Sloan School of Management, Cambridge, Massachusetts, July 2006. In this companion paper, we analyzed data from factory audits, conducted between 1998 and 2005, of 800 suppliers located in 51 countries. We found that variation in working conditions among Nike’s suppliers is related to country effects (the ability of the labor inspectorate to enforce labor laws and standards in the country in which the factory is located), factory characteristics (the age and size of the factory) and the relationship between Nike and the particular supplier. In addition we found that, notwithstanding Nike’s very real interests in improving its image and the company’s significant efforts and investments over the last decade to improve working conditions among its suppliers, these efforts have produced mixed results. While working conditions and labor rights have improved among some of Nike’s suppliers, conditions have either remained stable or deteriorated among others.

14. The name of the state will remain anonymous in order to protect the identity of the plant.

15. Based on interviews with several senior compliance managers at Nike world headquarters, August 2005.

16. For more on the M-Audit and its scoring system, see Nike Inc., “FY04,” 35–36.

17. Based on Locke’s examination of factory audit protocols of several global corporations and multistakeholder initiatives.

18. For a good, general description of lean manufacturing, see J.F. Krafcik, “Triumph of the Lean Production System,” Sloan Management Review 30, no. 1 (fall 1988): 41–52.

19. In 1995, the owners expanded their plant with another building. They adopted a modular production system in the new structure in order to have a more flexible and shorter production cycle. However, in 2003, the owners of the factory attended a meeting with one of their global buyers and heard about lean manufacturing and its application in the footwear sector. They became interested and learned more about it. The following year, they decided to implement this new system in their plant. For more on the different systems of production in the apparel industry, see F.H. Abernathy, J.T. Dunlop, J.H. Hammond and D. Weil, “A Stitch in Time: Lean Retailing and the Transformation of Manufacturing — Lessons From the Apparel and Textile Industries” (New York: Oxford University Press, 1999); and J.T. Dunlop and D. Weil, “Diffusion and Performance of Modular Production in the U.S. Apparel Industry,” Industrial Relations 35, no. 3 (July 1996): 334–355.

20. C. Ichniowski, T.A. Kochan, D.I. Levine, C.A. Olson and G. Strauss, “What Works At Work: Overview and Assessment,” Industrial Relations 35, no. 3 (July 1996): 299–333; and P. Osterman, “How Common Is Work-place Transformation and Who Adopts It?,” Industrial and Labor Relations Review 47, no. 2 (January 1994): 173–188.

21. For more on this system, see J. Knauss, “Modular Mass Production: High Performance On the Low Road,” Politics & Society 26, no. 2 (June 1998): 273–296.

22. F. W. Taylor, “The Principles of Scientific Management” (1911; repr., New York: W.W. Norton & Company, 1967).

23. For more on this, see J.P. MacDuffie and J.F. Krafcik, “Integrating Technology and Human Resources For High-Performance Manufacturing: Evidence From the International Auto Industry,” chap. 13 in “Transforming Organizations,” ed. T.A. Kochan and M. Useem (New York: Oxford University Press, 1992); and Knauss, “Modular Mass Production.”

24. D.M. McGregor, “The Human Side of Enterprise” (New York: McGraw-Hill, 1960).

25. M.S. Granovetter, “The Strength of Weak Ties,” American Journal of Sociology 78, no. 6 (1973): 1360–1380; and R.M. Locke, “Remaking the Italian Economy” (Ithaca, New York: Cornell University Press, 1995).

26. S.J. Frenkel and D. Scott, “Compliance, Collaboration and Codes of Labor Practice: The Adidas Connection,” California Management Review 45, no. 1 (2002): 29–49.

27. For more on how trustlike relations are built, not inherited, see R.M. Locke, “Building Trust” (paper presented at Annual Meeting of the American Political Science Association, San Francisco, September 1, 2001).

28. For more on the evolution of these practices, see F. Dobbin and J.R. Sutton, “The Strength of a Weak State: The Rights Revolution and the Rise of Human Resources Management Divisions,” American Journal of Sociology 104, no. 2 (September 1998): 441–476; and D. Weil, “If OSHA Is So Bad, Why Is Compliance So Good?” RAND Journal of Economics 27, no. 3 (autumn 1996): 618–640.

Acknowledgments

We thank the Hewlett Foundation and the MIT Sloan School of Management’s Dean’s Innovation Fund for financing our research. We thank Lucio Baccaro, Suzanne Berger, Joshua Cohen, Simon Johnson, Thomas Kochan, Donald Lessard, Michael Piore, Alberto Brause, Din-sha Mistree, Jennifer Andrews, Fei Qin, Rushan Jiang and Alonso Garza for their insightful comments on previous drafts of this article. We thank numerous Nike managers — including Maria Eitel, Hannah Jones, Dusty Kidd, Kelly Lauber, Caitlin Morris, Mark Loomis, Jeremy Prepscius, Charlie Brown and Catherine Humblet — for their helpful comments on previous drafts of this article. Finally, we thank Nike manager Mike McBreen, who shared with us his knowledge of the compliance process and facilitated access to the audit data and the individual factories.