Feb 12 2008
know your chinese suppliers’ labor practices
Reuters posted an article, which I found through CDT as usual, that stated how 5 Chinese laborers have filed suit against a district labor bureau for unpaid overtime for five years. While this is no WalMart overtime class action, this is still rather big news to me because I believe that the Chinese will increasingly turn to the law to redress problems in the future. The article:
In his dim two-room flat, Huang Renzhong showed a visitor a Mickey Mouse statuette and explained how creating Disney figurines during 15-hour work days in a grim factory led to a $90,000 lawsuit.
The circumstances surrounding the case Huang filed with four colleagues last year suggest that firms such as the Walt Disney Co that outsource production to licensees are more exposed to poor labor practices than companies with more direct control over their supply chains, despite concerted efforts to stamp out labor violations.
Conditions in the factory where Huang worked in Shenzhen, a boomtown across the border from Hong Kong, were tough, and for years Disney did not even know its branded products were being made there. Huang said about 80 percent of his work was Disney-related.
Workers were threatened with the sack if they paused, even to help someone who’d fainted, Huang said. They had no insurance, slept 12 to a dorm room, and were charged for room and board.
During five years at Haowei Toys, Huang often worked from 8 a.m. until 11 p.m., or later, with breaks.
“We worked extremely long hours, but the amount they paid us was too little,” said, Huang, 39, puffing on a cigarette.
Huang and four other craftsmen decided to act after hearing media reports of workers who had won back-pay cases.
In February 2007, they quit Haowei and, after fruitless talks with the boss, sued the district labor bureau claiming it had failed to help recover what they calculated to be about 650,000 yuan ($90,310) in unpaid overtime.
Haowei has said it owed them nothing, and the labor bureau says it did all that it legally could to help them.
They launched their case after one of the workers found contact details on the Internet for a Hong Kong NGO that monitors labor violations in China. They also called a newspaper, the Legal Daily, which wrote about them.
Cases like Haowei — and recent product safety scandals and toy recalls — underscore challenges multinationals face as they struggle to control their supply chains in a country where law enforcement is spotty, the labor pool is vast and fickle, and wages and raw material costs are rising sharply.
I am sure Disney is not happy with the situation because they will have to face the stigma of being one of those “evil” corporations that had terrible labor practices. While not an entirely fair characterization, Disney is going to take a hit because they did not follow up on their suppliers and manufacturers. And even though Disney said it had no prior knowledge, I am astounded that there was no follow up on their part (especially with their licensee) for approximately seven years. I don’t fully buy it.
Disney said it did not learn about the latest problems at Haowei until May.
Add a layer of licensees between the brand and the manufacturers, like Disney and others, including Time Warner’s Warner Bros and Viacom’s Nickelodeon, and simply tracking who is making products in your name can be challenging.
Disney officials declined to say how many licensees the firm uses, or how many factories produce Disney-branded products, but experts say it has one of the longest supply chains in the world stretching to thousands of factories worldwide.
A Disney licensee had manufactured toys legitimately at Haowei in the past, but Disney told them to cut ties in 2001 after the factory failed three times to meet standards.
The licensee, however, continued to give Haowei business under Disney’s radar.
It is challenging to monitor your suppliers, especially at a Disney-level production. But a key lesson for the rest of us: know your suppliers and licensees inside out. Do your due diligence, and then do it periodically. Like I said regarding QC, you need to do it over and over again. Here is some practical advice from DiligenceChina that I think is helpful:
1) You’ve got to come here to check out your counter-parties, factories, and the general environment. There are no relationships via fax. You are simply not doing due diligence if you never meet your supplier or partner and look at the factory or facility.
2) Get support on the ground. Find locally-based international experts who can help you protect your interests. If you can’t understand your counter-party, get him on the phone or reach common-ground on the big-picture issues, you have no business to transact. If you can’t speak to your counter-party, you can’t do business with him.
3) Choose partners that you can depend on. People don’t get more honest after the deal is signed. If you counter-party doesn’t have references or tries to cheat you, cut corners or take advantage of you in the early phases – simply walk away. Don’t get emotionally involved in your own deals just because they were hard to negotiate.
I highly agree with the second point: you need to have local consultants or people doing your due diligence instead of trusting manufacturers in China who will tell you what your itching ears want to hear.
