3Qs: Examining working conditions overseas

In Jan­uary, The New York Times pub­lished an exposé on haz­ardous working con­di­tions in Chi­nese fac­to­ries that man­u­fac­ture Apple prod­ucts, including a deadly explo­sion last May at a plant that pro­duces the iPad 2. This week, the Fair Labor Asso­ci­a­tion announced it had launched an inde­pen­dent inves­ti­ga­tion into labor rights alle­ga­tions at the fac­tory, while Apple CEO Tim Cook also addressed the issue, noting that, “No one in our industry is doing more to improve working con­di­tions than Apple.” We asked Robert Lieb, a pro­fessor of supply chain man­age­ment in the Col­lege of Busi­ness Admin­is­tra­tion, to examine the com­plex rela­tion­ship between U.S. com­pa­nies and sup­pliers abroad.

Are U.S. companies obligated to ensure that their suppliers abroad have created safe working environments?

You can look at this issue in terms of complying with local regulations and in terms of moral and ethical responsibility. In China, for example, there are regulations governing worker safety in factories. The problem is that regulations are frequently not enforced, or ignored not only by manufacturers, but also local government officials. While that is happening, you have people who act as “consultants” to help companies find ways to cover up the fact that they are not complying with these regulations. Trying to make sure your suppliers abroad are complying with local regulations is not easy to do, but there are steps companies can take to try to reduce the scope of this problem.
From a moral and ethical standpoint, there is no question that U.S. companies are responsible for maintaining safe working conditions in factories that manufacture products for them on a contract basis. Companies can no longer hide behind the excuse that they aren’t morally or ethically responsible for such situations. They sign contracts with these companies and the contracts should clearly specify what is and is not acceptable in those factories.

How does the drive to increase product quality and decrease production costs interfere with worker safety? What measures do U.S. companies typically take to ensure safety in factories overseas?

In a globally competitive marketplace, manufacturers have to maintain competitive prices, while enhancing product quality. That puts constant pressure on companies to reduce manufacturing costs. Increasingly, that has led to outsourcing and off-shoring manufacturing activities. That being said, a company’s pursuit of lower cost in no way justifies putting the health and well being of the employees of suppliers at risk.

There are many steps that companies can take to promote worker safety in factories abroad, starting with the contract they sign with suppliers overseas. Those contracts need to be very specific about the conditions under which their products are manufactured. Continued violation of those guidelines should lead to cancellation of the contracts. It is also incumbent upon the U.S. companies to work with those suppliers to create the desired work environment.

Another issue is assuring that the suppliers are complying with those guidelines. In some instances companies use “in-plants” of company managers in the factories. That is expensive, but also the most likely strategy to work. The company may also make periodic visits to the plants to see working conditions first-hand. Those visits are most effective if they are unannounced. The company may also use reputable third parties in the region to make those factory visits.

In The New York Times story, one former Apple executive said, “We’re trying really hard to make things better. But most people would still be really disturbed if they saw where their iPhone comes from.” How would work conditions at these factories that manufacture goods for U.S. consumers change if customers complained about labor practices?

In a perfect world, the consumer voice would be enough to ensure safe labor practices in factories overseas. In practice, consumers don’t speak with one voice, and it is difficult for them to affect company practices. We are often left to rely upon government agencies, both here and abroad, to press such issues. The emergence of non-government organizations and industry associations focusing on safety and environmental issues, however, are playing an increasingly visible role in trying to shape related company and government policies.

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