As the quality control manager of Joyfaith, a company in
suburban Shanghai that makes clothing for pets, Luo Guogong has two
difficult choices: Either force workers to put in long periods of
overtime, which could endanger their health, or fail to meet the
deadlines of the company's clients.
What particularly bothers him was a report in Southern
Metropolis Daily last month, which said a 35-year-old textile
worker in south China's Guangdong Province died of exhaustion after
she was forced to work excessive overtime for four days in a
row.
Overtime is common at Joyfaith's factory, which has more than
100 workers, but Luo knows there's no easy solution.
"I feel very sad when I read such articles in newspapers," Luo
said. "But it seems impossible not to have overtime, because, as a
garment exporter, we have to meet the demands of our clients
multinational firms and they constantly seek price cuts and shorter
lead times."
In fact, many business owners in the Yangtze and Pearl River
deltas, where most labor-intensive businesses are located, share
Luo's problem. What's more, other parts of China will soon face the
same issue as the concept of corporate social responsibility
spreads from coastal areas to the hinterlands.
Factories are increasingly urged to comply with codes of conduct
on labor, health, safety and environmental standards as China,
widely regarded as the world's factory, is becoming a major target
of the global corporate social responsibility campaign.
All the while, Western buyers continually demand goods at lower
prices delivered at faster speed, squeezing the profits of Chinese
suppliers and tempting them to violate the codes of conduct.
"The conflict of price and cost is one headache for Chinese
factories," Liu Zhexin, a researcher for the Shanghai-based China
Executive Leadership Academy, said at a symposium on corporate
social responsibility.
Chinese factories, positioned at the lower end of the industry
supply chain, have few negotiating chips, poor negotiating skills
and the problem of intense domestic competition when dealing with
multinationals.
He cited a recent tour to a State-owned textile factory in
Taian, east China's Shandong Province.
At the request of the Japanese retailer, the factory exposes the
cloth it produces to a 1,000-kilowatt light to find defects. And if
there's a dark spot, which means the cloth is not evenly weaved,
the Japanese buyer withdraws the order.
The T-shirts made from such high quality cloth are sold at only
US$1 to the Japanese trader, which in turn charges US$15 for
Japanese consumers.
"Most profits have gone to the multinational firms, but that
fact does not prevent them from trying harder to demand price cuts
from Chinese suppliers," Liu said.
When Liu visited the factory a second time one month later, he
found the price was reduced to 60 US cents a piece because of
intense competition.
But the income from charging 60 cents apiece was not sufficient
to cover labor and material costs, Liu said, let alone other costs
such as equipment depreciation.
But managers would not reject the order because with the order,
the factory, which employs hundreds of workers, could go bankrupt
more slowly, but without it the business would shut down right
away.
"It's a matter of dying sooner or dying later," Liu said.
"Corporate social responsibility is essentially a kind of
yielding of interests and rights from corporate shareholders to
corporate stakeholders, but how can these shareholders protect
workers' rights and the environment if the company's profits are so
meagre that they even cannot cover the costs?"
Also, if China raises prices for most consumer goods to adhere
to corporate social responsibility, multinationals are likely to
move their purchase and investment to other developing countries
with cheaper labour, weakening China's international
competitiveness, Liu said.
The second problem faced by Chinese factories is the
contradiction of working overtime and increasingly short delivery
deadlines, he said.
According to Liu, in the past five years multinationals have
been demanding increasingly shorter production lead times.
"Working overtime is unavoidable when an order comes," he said.
"Generally speaking we have only at most two weeks to engage in
production, and each worker on average has to make about 50 pieces
of clothes in a week," said Luo, who acknowledged the requirement
was excessive.
Tang Xiran - a senior manager of a company called Intertek
Labtest, which provides international consumer product testing,
inspection and certification services and sponsored the symposium -
said it is a regular practice for multinationals to deliver an
order with short lead times because they want to minimize storage
costs.
"For instance, if they need a batch of toys for Christmas,
multinational firms will send the order to Chinese suppliers only
in late November to keep down logistics costs," Tang said.
But the short lead time jacks up the workload of Chinese
factories, which must, in turn, force their workers to work
overtime to complete the order.
"If the factories could receive the order in October, the
situation would be much better," Tang said.
He also said that only about 5 to 10 percent of the factories
his company surveyed for strict adherence to other items regulated
by the code of conduct could ensure workers regular work hours,
simply because they have enough lead times.
A third issue confronted by Chinese exporters is illustrated by
what Liu Zhexin, the academy researcher, calls "the
three-fire-extinguisher-nail problem."
Because of the lack of a consistent standard for corporate
social responsibility in China, firms that provide products to
several multinational retailers have to meet different, sometimes
conflicting, demands.
For instance, three multinationals asked a firm in Shenzhen, in
south China's Guangdong Province, to hang their fire extinguishers
at different places on the wall, Liu said.
So the firm had to fix three nails in the wall and move the
extinguishers when inspectors from different companies arrived for
testing.
The endless factory audits and "certifications," along with the
clean supply chain movement launched by multinationals, increase
the burden on Chinese suppliers, which struggle to make any profits
given the price cuts and shorter lead time.
Solutions
Liu says multinationals should pay more to allow Chinese
factories to meet a standard of corporate responsibility to its
workers.
Multinationals, to protect their image, are imposing
ever-growing requirements on Asian factories, which include issues
such as overtime, salaries and workplace safety.
But at the same time, they're also demanding price cuts and
production against short lead times, Liu said.
"The multinationals have two alternatives: Cheat, or share the
cost," Liu said.
He also cited a comment given by the Financial Times of
London published in April 2005: "The fundamental reason why
labor exploitation exists in China is that China is a poor country.
They need money to solve this problem, which can only be made by
raising product prices before the raising of productivity. Western
consumers should no longer feel at ease enjoying overly low-priced
commodities."
Liu said to take the corporation responsibility may weaken
competitiveness because of rising costs, but the trend of a
worldwide campaign toward responsibility may also strengthen
competitiveness. In Liu's eyes, this is two sides of the same
coin.
(China Daily June 7, 2006)