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May 2013

Assurance rather than insurance - Swedish retail chain ICA shares its CSR experiences in China

By Anna Kiefer

From left: Maria Smith, Senior Manager Environment & Social Responsibility

of ICA Sweden, Cindy Chan, Social Compliance Manager and Thommy

Järlefelt, Managing Director of ICA Global Sourcing. Photo: ICA

Swedish retail chain ICA has worked with Corporate Social

Responsibility (CSR) for many years. In order to source in a

more socially responsible way they established an audit

function in China in 2008. Today they have plenty of experience

and well developed routines for auditing suppliers. They have

recorded some improvements in supplier responsibility

performance since they started, but there is still plenty to do. A

key to success is to focus on supporting your suppliers in

developing good CSR, not just threaten to disqualify them.

Embassy of Sweden 2(7) Beijing

Non-food sourcing used to be largely done from Sweden, but the company

gradually realized the importance of local presence. Photo: ICA

Corporate Social Responsibility (CSR) is a central part of customer

expectations. “This makes it particularly important for ICA”, says

Maria Smith, Senior Manager Environment & Social Responsibility of

ICA Sweden, “but regardless of customer demand CSR is fundamental

to the ICA brand, taking responsibility is a cornerstone for us.”

ICA was mainly selling food until around 1998-2000. With the

expansion of ICA Maxi stores with a broader range of products, non-

food products became increasingly important for ICA. Non-food

sourcing used to be largely done from Sweden, but as debate and

focus on CSR intensified in Sweden in the early 2000’s, the company

gradually realized the importance of local presence.

Nowadays ICA non-food mainly sources from four offices in Asia:

Hong Kong, Shanghai, Bangladesh and Vietnam. Hence, in 2008 an

onsite audit function was established, led by Cindy Chan, Social

Compliance Manager who has a long background in CSR auditing. It

has taken time for suppliers to understand that they needed to adopt

CSR. You need a bit of patience.

“Auditing is a local trade”

Today, most of the Chinese factories are audited by ICA China audit

team. Apart from this, ICA also utilizes local auditing resources from

third party companies to fulfil the audit needs in other Asian

countries.

Embassy of Sweden 3(7) Beijing

ICA uses a scale ranging from good to unacceptable. An unacceptable factory

must improve before the next audit for continued business with ICA. Photo:

ICA

There is a standard audit workflow starting with a management

interview followed by a factory and dormitory tour. Afterwards, there

is detailed review of documents and records such as payroll, age

documents, production records etc. and finally making interviews

with workers. Conclusions are drawn from the evidences collected

from observation, interviews and record review on the audit day.

Normally the audit requires at least eight hours in the factory. “It

must be local auditors”, says Cindy Chan, “They know the culture and

language and can get beneath the surface. The factory management

normally treats Westerners to an excellent three-hour-lunch, then

chit-chat for a while; they won’t have the time to see anything shady

in the factory.” And Thommy Järlefelt, Managing Director of ICA

Global Sourcing, agrees: “Auditing is a local trade”.

ICA uses a scale ranging from good, acceptable, need for

improvement to unacceptable. If a factory falls into the unacceptable

category, it must improve before the next audit otherwise ICA will

discontinue business with that factory. This way, every factory gets a

second chance as long as they show their willingness for

improvement.

Consolidation, loyalty and cross section collaboration are

success factors

Embassy of Sweden 4(7) Beijing

Since they started the onsite auditing, about 750 supplier factories

have now been reduced to around 400, by rationalizing, reducing the

number of middlemen and local agents and taking control of

production facilities. This has created a stable and duly audited

factory base and ICA is able to grow its business with existing factory

base.

“You need to stick with the supplier”, says Cindy Chan, “You can’t expect much improvement would be achieved if you are constantly switching your suppliers.” Photo: ICA

In fact, growing with your suppliers is a key component of ICA’s CSR

work. “You need to stick with the supplier”, says Cindy Chan, “You

can’t expect much improvement would be achieved if you are

constantly switching your suppliers.” This implies not only checking

them, but also helping them to improve, through CSR training and

community activities for instance.

Also, CSR must permeate the whole organization. CSR assessment is

not only the work of auditors, every ICA representative has a role in

ensuring that CSR requirements are met. Assessment of suppliers

begins with checking social compliance. Best price is not their only

interest. “It has occurred that store shelves have remained empty

because we could not find a supplier that met our standards”, says

Maria Smith.

ICA’s CSR department in Sweden is a part of the Business

development section. This shows how ICA valuates these issues. The

CSR section is a support function for other departments. It is also

Embassy of Sweden 5(7) Beijing

crucial to have a clear commitment from management and a clear

strategy for the group.

Embassy of Sweden 6(7) Beijing

Benchmarking and streamlining for more impact

There are challenges both on the end-consumer side and on the

supplier side. Consumers often want products at lower prices, but

higher quality, which can be a tricky equation. In order to

successfully put demands on suppliers, you normally need a certain

volume. You have to be big enough to make a difference.

Consequently, brand collaboration may increase in importance.

“Together with others we are much stronger”, says Maria Smith, “the

more the merrier.”

One way of streamlining demands from many small and medium

sized clients is to use international standards. By benchmarking all

the social compliance standards on the market through the GSCP

(Global Social Compliance Programme), for instance, creating one

program that everyone aligns with, would be of benefit for all parties

involved. Retailers could probably reduce costs because they would

not have to audit every single factory.

International standardization would probably also alleviate “audit

fatigue”. Many different demands from many different clients may

cause quite a big burden on suppliers. Big suppliers often even have

designated staff to take care of auditors. There is a risk that suppliers

build a fake façade to handle client audits. “Unannounced audits are

an important tool to counteract such trends”, says Cindy Chan, “but

beware that unannounced audits do not build trust, and trust should

be the very foundation of your supplier relations.”

If documents presented seem too good to be true, they may be faked.

Documents must reflect what you reasonably can expect from that

specific supplier. Cindy Chan told a supplier during an audit that she

wanted to see the reality when a fake document was presented to her.

This was a revelation for the supplier, who thought that they would

be renounced if ICA found out what problems they actually had. As

“ICA wants assurance rather than insurance. We want to know the reality and help to make a difference”, says

Thommy Järlefelt, Managing Director of ICA Global Sourcing

Embassy of Sweden 7(7) Beijing

Thommy Järlefelt puts it: “ICA wants assurance rather than insurance.

We want to know the reality and help to make a difference”.

Send an e-mail to the editor.

The Embassy of Sweden’s CSR Centre

Corporate Responsibility News

The Embassy of Sweden in Beijing

ICA’s CSR recommendations to other sourcing companies:

• The earlier you start the better you will be in the future. Sooner or later the consumers will put demands.

• Combine commercial issues and CSR, they are not two different things. • Do your homework, you have to know what you are in for. That is probably the most

important thing before you start. What will you do and how will you do it? • Be present locally. Onsite dialogue is key, not just talking on the phone. Onsite support is

key. But you can’t have onsite support for all factories, it would be too expensive. Make a risk assessment.

• You have to check the checkers. If you are hiring third parties, make sure that they are reliable.

• Put up clear targets when you enter the market, e.g. “Everything should be audited by 2016” and measure progress.

• Management commitment is very important, locally and globally. Emphasize importance of working with CSR.

• When you face problems, don’t give up! You have to work long-term. • Have realistic expectations on your suppliers. If they show you a really good report it

probably means there is a problem with the factory. • Unannounced audits, if you want to make sure that the factory has improved. You cannot

always turn up unannounced though. Focus on maintaining long-term relations. You can prepare for an unannounced visit. Don’t start with unannounced audits.

• Encourage transparency and production of genuine records so that you can help your suppliers comply.